What if the U.S. pulls out of NAFTA?

If the U.S. pulled out of NAFTA, what would happen to Canada, the United States and Mexico’s three-way trade in beef and pork?


That’s something farmers and the food industries in the three nations are trying to figure out, now that U.S. President Donald Trump has reiterated his threats to rip up the North American Free Trade Agreement, just as negotiators were getting down to the work of reforming the deal.


It’s a confusing situation that has no clear answers with trade law experts debating how much power Trump has to unilaterally break the deal without congressional approval and how much power Congress has to determine tariff rates and other matters that would apply if Trump did attempt to kill NAFTA.


“They are going to have legal issues with that,” said John Masswohl, director of government and international relations with the Canadian Cattlemen’s Association.


Martin Rice, acting executive director of the Canadian Agri-Food Trade Alliance, agreed.


“There are a lot of questions about whether the president can just take them out of a trade deal,” said Rice after returning from a visit to Mexico and hearing much debate there.


“Does Congress have to approve returning to former tariffs?”


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It’s a sticky situation for Canadian farmers, who rely on the U.S. market for a significant proportion of their sales. For pork, U.S. tariffs might not be a big deal if the U.S. left NAFTA because Canada and the U.S. have essentially no tariffs.


But it’s different for beef with each country having considerable tariffs for “most favoured nations” with which they don’t have trade deals. Canada imposes 26.5 percent on foreign MFN beef imports that don’t have a set tariff-free limit, and each country might impose that on the other’s beef if NAFTA died. 


If those ended up being imposed it would muck up the integrated North American market.


“We’d be competing for the little bit of (World Trade Organization-provided tariff-free access) that’s left over,” said Masswohl.


How about Canada-Mexico beef trade? It could probably still function as is, if NAFTA survives, and it’s not insignificant with about $100 million from Canada being shipped to Mexico last year.


However, would Canada pick up U.S. sales to Mexico that would be displaced by U.S. quitting NAFTA? Rice said it might not be that great because Mexico has many trade deals around the world and it has access to most of the world market to meet its needs.


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Whether Trump’s threats should be taken seriously is hotly debated in trade circles. On the one hand, Trump has bragged in the past about his negotiating prowess, so he might just be loudly positioning the U.S. to be the driving force behind the negotiations and actually just be looking for the “tweaks” he mentioned a few months ago.


On the other hand, he ripped up the Trans-Pacific Partnership the day after he took office, so he’s not afraid to act boldly.


“It’s a threat that people need to take seriously,” said Masswohl.


Rice said there’s tremendous uncertainty over not only Trump’s threat to pull the U.S. out of NAFTA, but also about Mexico’s willingness to sign a deal with any concessions after facing the harsh words of Trump.


“It’s got to be win-win-win,” said Rice.


“You can’t have one side having to say, ‘we got crushed.’ That’s just not a viable option for most countries.”


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  • Harold

    If the USA pulls out of NAFTA, the new agreement will become a bilateral agreement between the USA and Canada, and Canada will have a new bilateral agreement with Mexico. Is this so hard to understand? Our Idiot politicians will have to do their job and create a “Canada first” contract with the USA and a “Canada first” contract with Mexico. Is this so hard to understand? Every country has a “Country first” stance when negotiating a contract; is this so hard to understand? Negotiating accepts a concession only when a greater value is offered in exchange; Is this so hard to understand? NAFTA is stale dated and times have changed. Is this so hard to understand? To believe that NAFTA was the best agreement that Canada could ever muster is absurd. So why are our politicians so weak kneed and so fearful of a new contract; are they incompetent? A new contract to replace an old or stale contract happens every day in the marketplace; are they handled by whiners or by parties who do not each consider themselves first? Is reality too hard to understand? What our government wants to hold in secret is the vast amount of foreign ownership and takeovers that now exists in Canada, which is owing to the signing the original NAFTA agreement and a hasty re-signing keep their incompetence covered up. The Canadian politicians know that they have given Canada away and that Canada can no longer be “Canada First”, so that is why they are pointing at big meanie Mr Trump and they are not acting like him instead and licking their chops eager for a new contract. NAFTA remains the most unheard of agreement; why does it gather so much unearned Canadian support? Perhaps the agreement has “nice hair” and “sounds good”.