The End
Or, Nafta really could be toast. In this scenario, Congress doesn’t stand in the way of Trump pulling out of the deal. Tariffs would rise on goods traded in the region, probably causing prices to increase and cutting into company profits.
An increase in duties would potentially hurt growth, cost jobs and spur inflation for all three nations, with Bloomberg Intelligence and Moody’s Analytics predicting Mexico would be the hardest hit.
But none of the countries would be tipped into recession, according to Moody’s, which forecasts most of the pain would come in the first two years after the collapse of the deal, assuming the U.S. and Canada would retain the bilateral agreement that preceded Nafta.
“It’s a big agreement and we would all lose, all three of us would lose if we were to pull out,” former U.S. Trade Representative Carla Hills told Bloomberg TV on Wednesday.
The Start
On the other hand, Trump’s notice could just be the start of the next phase of negotiations.
A withdrawal announcement would surely inflame tensions among the three countries. But after tempers cool, it’s not inconceivable they could return to the table. If Trump gives notice this month, the six months would expire before congressional midterm elections in November. But the U.S. could still work out a new deal once the campaign is over, as long as Trump gets an extension of his fast-track negotiating authority from Congress.
After all, trade agreements typically take years to negotiate. The original Nafta entered into force in 1994, nearly three years after negotiations started.
“He wants to at least throw this into doubt and show toughness before the midterm elections,” said CIBC Chief Economist Avery Shenfeld. “What isn’t clear is whether six months down the road this means the end of Nafta.”