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On NAFTA, Donald Trump’s most dangerous opponents are at home

In business, Congress and the law, he faces obstacles

Aug 31st 2017

EVER game for a fight, President Donald Trump is picking one again with Canada and Mexico, America’s partners in the North American Free-Trade Agreement (NAFTA). On August 27th he tweeted that both were being “very difficult”, adding: “May have to terminate?” His strategy, of getting a better deal by threatening to pull out altogether, is odd. It worsens relations with America’s negotiating partners, at a time when Mr Trump’s plans face just as much opposition at home.

Before April American business was quietly hoping that a Trump presidency would lead to more tax cuts than trade tensions. That changed when news leaked that Mr Trump was poised to withdraw from NAFTA. Suddenly the deal had louder champions in American business, including the energy and technology industries.

Knowing this, Canada and Mexico seem unruffled by Mr Trump’s latest threats as they go into the second round of NAFTA renegotiations on September 1st. Earlier ones prompted panicky phone calls from the Mexican president and the Canadian prime minister. After the latest blast, Mexico’s foreign ministry merely released a sniffy statement that “Mexico will not negotiate NAFTA…through social media.”

Any move to withdraw from the deal would be challenged legally: by affected businesses, states and perhaps even members of Congress. Some legal scholars question the consensus view that Mr Trump has the authority to trigger withdrawal on his own. Joel Trachtman, a professor of international law at Tufts University, argues that, since commerce and trade fall under the remit of Congress, withdrawal without their approval “would be a usurpation of Congress’s powers under the constitution”. The president has an interest in avoiding big battles with Congress, with which he needs to work to pass his planned tax reforms.

The details of the deal are of concern to Americans outside government, too. On August 23rd the chief executives of the three largest American business associations wrote a public letter to Robert Lighthizer, the United States Trade Representative, warning him against attempts to eliminate or weaken NAFTA’s investor-state dispute settlement (ISDS) provisions. These allow investors to sue foreign governments, and have been invoked 59 times under NAFTA. They offend those who see international arbitration panels as undermining American sovereignty.

Mr Lighthizer has not yet settled on a proposal for a new ISDS system. One option floated would allow countries to opt in. In theory, this could give American investors protection in Mexican markets yet retain the supremacy of American courts at home. It seems inconceivable the Mexicans could accept such asymmetry.

But if that led to the removal of ISDS provisions, the American business lobbies are saying it would jeopardise their support for any renegotiation. That might sound extreme—presumably they would prefer a deal without ISDS provisions to no deal at all. Their letters suggest that they too are calling Mr Trump’s bluff. Mr Trump can pick a fight. But not his opponents.