NAFTA negotiations hold important lessons for UK

Confounding a significant number of predictions it looks like President Trump may deliver on his pledge to renegotiate NAFTA, the North American Free Trade Agreement. There are still hurdles to overcome, but Mexico has signed up in principle, and talks have now resumed with Canada, the third party to NAFTA. The president has started the process of notifying Congress, which has the ultimate say. He has until the end of September to submit the text to them for approval.

A successful conclusion is by no means a certainty. Canada could refuse a new agreement, and Congress could decide not to effectively replace a three-country agreement with one just involving the United States and Mexico. There may be controversies lurking within the text once this is released. Even so, we can still pick up some valuable clues about President Trump’s negotiating approach from NAFTA and interactions with EU President Juncker just before summer. These can help us to understand what could happen after Brexit in a UK-US negotiation.

First and most obvious, for President Trump it is still all about making the deal. US tariffs already imposed on steel and aluminium, those threatened on automotives, and those that could hit Mexico if the NAFTA agreement was simply terminated, forced countries to the negotiating table. Once at the table deals are found, even if they are messy. In the case of the agreement just reached with Mexico changes to the rules governing automotive exports were the centrepiece. Elsewhere, the EU promised more imports of US soybeans affected by retaliatory tariffs imposed by China.

This is of course an unorthodox way of making trade deals. One trade analyst recently bluntly stated that “no country in their right minds wants to negotiate with the US,” citing in particular the determination of Japan to avoid bilateral trade talks with Trump even when offered. For nothing has changed the president’s view that trade is a zero sum game where for the US to win the other country has to lose. The UK could be unique in actively approaching the US for a deal at the moment.

However there is a small possibility that this could work in the UK’s favour. The same analyst commented that “the special relationship will mean nothing,” but equally it is possible that the president will be prepared to change some of the traditional elements of US trade agreements in order to get a deal. Perhaps if the UK says that to get a deal there has to be no chlorinated chicken and hormone treated beef he will agree. Maybe we could have a services only deal. Or the US could agree to more constructive engagement with the WTO in return for a deal.

Then again, the early indications from the Mexico agreement seem to suggest that the president may be unorthodox, but underlying interests remain constant, including on agriculture. According to the fact sheet published by the US administration the two countries agreed on “Enhanced Rules for Science-Based Sanitary and Phytosanitary Measures,” for which read Mexico accepting the full range of US food rules that are so controversial in Europe. They also agreed “New Disciplines on Geographic Indications and Common Names for Cheeses.” This is pushback against EU policies which have sought to insist that products (such as Parmesan cheese) have to come from particular regions of the EU when sold in foreign markets.

Equally there is yet to be evidence that concluding a deal with President Trump will exempt you from whatever he does or tweets next. Mexico may have agreed to rules which protect the US car industry against competition, but could still be hit by extra tariffs if the president decides this on grounds of national security. Confrontation and dominance seem to be the Trump aim in international trade talks, following on presumably from the way he ran his businesses for many years.

The size of trading partners clearly matters. There is some evidence that the major trade powers such as the EU, China and Japan are going to resist, partly by retaliating against new tariffs, and partly through talks and mini-deals that keep delaying the president from doing further damage. The EU’s pre-summer deal with the US that included the soybeans, plus a commitment to look at reducing industrial tariffs, already looks likely to unravel over whether agricultural barriers should be included. Smaller countries such as Mexico and South Korea have however agreed more substantive deals.

The question this leaves is whether first Canada and then the UK can get a good deal from the US. Canada is the next to watch, with agreement required by the end of the month under US rules. After March focus could turn to the UK.

Talk to UK business and they don’t really want a trade deal with the US. Why risk our current, healthy trading relationship with the States when we can see no great gains, and potentially significant controversy? The answer is that a US deal has always been a political prize for a UK outside the EU, and while a negotiation with this president is a high risk gamble, a reasonable outcome is not completely impossible.

It is, however, unlikely.