WASHINGTON – U.S. President Donald Trump insists he wasn't bluffing about threatening to pull out of NAFTA this week. He says he was two or three days away from doing it – really. But he also says he had a change of heart during phone calls with the leaders of Canada and Mexico.
"I like both of these gentlemen very much," Trump said Thursday, recapping this week's roller-coaster of drama involving the North American Free Trade Agreement.
"I respect their countries very much. The relationship is very special. And I said, I will hold on the termination; let's see if we can make it a fair deal."
Prime Minister Justin Trudeau says President Donald Trump was thinking about pulling out of the North American Free Trade Agreement before the duo spoke by phone. (Photo: The Canadian Press)
He also hinted at a more substantive reason for not announcing a pullout of NAFTA: economic disruption.
The mere rumour of it happening this week, floated by the White House, shaved almost two per cent off the Mexican peso and a third of a cent off the loonie, while businessmen and lawmakers were up in arms.
Just the agriculture industry by itself produced enough scared quotes to fill a newscast. Pork producers called the idea of cancelling NAFTA financially devastating. Corn producers called it disastrous. The head of the U.S. grains lobby said he was shocked and distressed.
Trump conceded that renegotiating NAFTA is simpler: "And so I decided (to do that) rather than terminating NAFTA, which would be a pretty big shock to the system." He emphasized, however, that he retains the right to cancel NAFTA if he can't get a deal.
And that, according to numerous trade-watchers, is what this week was really about: leverage. It's a view shared by some within the Canadian government – that Trump wants to flex some muscle entering the negotiations, and the threat to pull out is his strongest lever.
"I respect their countries very much. The relationship is very special."
— Donald Trump on Canada and Mexico
That lever was brandished this week when stories started appearing in the Washington Post, Politico, CNN, and the New York Times that sources within the White House were really, seriously, considering a draft executive order to cancel NAFTA.
"I think the draft EO was a negotiating ploy. True to Trump's style. The only surprise was the quick reversal," said Gary Hufbauer of the Peterson Institute, a top U.S. NAFTA expert.
But that threat from Trump understated the complexity of cancelling NAFTA.
The withdrawal process is complex. Even if he'd declared a withdrawal under Article 2205 in an executive order, that wouldn't automatically cancel the deal. It would allow him to start trying to exit NAFTA, six months later.
'It was a negotiating tactic'
At that point his administration, businesses, Congress and the courts would start tussling over what tariffs would stay or go.
"It was a negotiating tactic... to gain some kind of leverage," said Patrick Leblond, a non-resident fellow at the Centre for International Governance Innovation and University of Ottawa professor.
Trudeau said the president appeared to be considering it.
Speaking in Saskatchewan, Trudeau told reporters that he reminded Trump they were both elected on a similar platform of helping people find and keep jobs. The prime minister said he pointed out that a lot of jobs and industries were developed under NAFTA – if the deal were cancelled, it would create too much disruption.
Trudeau says the two agreed instead they could sit down and work on ways to make the deal better, a renegotiation process similar to what's been done in the past.
Reworking the agreement had been one of Trump's key campaign promises, but it's up against a clock.
The U.S. Congress has yet to authorize negotiations and there might be less than a year to get a deal before the Mexican election.