Trump and Trade: How the President-Elect Could Tear Up TPP and Nix NAFTA
And what could happen if he does.
— -- Standing in front of a wall of metal and recycled cans, Donald Trump told workers at a Pennsylvania recycling facility in June that he planned to scrap or renegotiate key trade deals in order to “get a better deal.”
The now-president-elect specifically called out the Trans-Pacific Partnership (TPP) and the North American Free Trade Agreement (NAFTA) then, as he did on multiple occasions throughout the presidential campaign.
“I am going to withdraw the United States from the Trans-Pacific Partnership,” he said at the recycling plant, before adding: “I am going to tell our NAFTA partners that I intend to negotiate the terms of that agreement to get a better deal -- by a lot, not just a little, by a lot -- for our workers.”
This trade-skeptical rhetoric may have been welcomed by many: A survey by the Pew Research Center published in April showed that 49 percent of Americans believe that U.S. involvement in the global economy was a bad thing.
In 69 days, Trump will take the Oath of Office and assume the power of the presidency, granting him the ability to try to execute his proposals, which could have resounding effects on international politics and the world economy. Will Trump be able to renegotiate or back out of both deals? And if he does, what would the effect be? ABC News spoke to experts to get their take.
TPP: Basically 'Dead'
“NAFTA and TPP are totally different,” Derek Scissors, an economist and resident scholar at the conservative-leaning American Enterprise Institute, told ABC News today. “TPP is dead.”
The key difference, Scissors said, is that TPP has yet to be ratified by Congress, whereas NAFTA is a longstanding trade deal that has been in effect for over two decades.
“The TPP is 99 percent or more killed by Trump winning. Congress can technically, of course, pass it in the lame duck, but they didn’t want to pass it anyway,” said Scissors, noting that opposition to the bill was present among members of Congress well before the election.
And for the deal to be “dead,” President-elect Trump doesn’t really have to do anything.
Jon Lieber, U.S. director at the Eurasia Group, a geopolitical risk consultancy company, echoed Scissors in saying that “since the U.S. hasn’t ratified it, [Trump] can just declare that the U.S. is no longer involved and it will be a dead letter in the U.S."
He added: “I expect he’ll do that. It’s effectively done.”
While the decision to leave behind the TPP will be welcomed by large swaths of the American public who believe free-trade deals have led to the erosion of manufacturing jobs as well as other negative economic outcomes, experts warned that it could damage the America's standing on the world stage.
For one, experts said it could diminish the U.S.'s credibility for negotiating other deals and treaties -- economic or otherwise -- in the future.
“Some trade partners would be very disappointed if the U.S. withdraws from [the TPP] and it would become more difficult for the U.S. to initiate other international economic and trade agreements or arrangements,” said Jiawen Yang, professor of international business and international affairs at George Washington University.
Scissors said that withdrawing from the TPP would have a negligible effect on the economy because “nothing about TPP that changes what we’re doing right now.”
But he agreed with Yang on the geopolitical aspect, saying “American credibility is going to be hurt by TPP dying, there’s no way to avoid it.”
“If you’re trying to negotiate with the U.S., you have to have this in the back of your mind,” he explained. “You’re going to say: ‘Am I going to get this? Are they going to elect another president that will reverse course? Is Congress going to support President Trump?’”
Leaving behind TPP could also prove an advantage to China, said Lieber.
“The TPP was really all about China, and the U.S. trying to create a regional trading bloc that would project U.S. influence in the Asia-Pacific as a bulwark against Chinese influence,” he said. “The partner countries are going to have to look inwardly and also to China, who, as the second biggest economy in the world, is actively trying to promote their influence throughout the region.”
He added that investment opportunities that U.S. companies may have had in the Asian region could now go to Chinese firms.
There are signs that Lieber’s theory may already be playing out.
The Financial Times reported on Thursday that Chinese President Xi Jinping was “rekindling efforts to promote a rival to the U.S.-led Trans-Pacific Partnership trade agreement in the wake of Donald Trump’s election victory.”
NAFTA: Another Story
In his June speech at the recycling plant, Trump said that if Mexico and Canada did not play ball in his bid to renegotiate the treaty, then he would “submit under Article 2205 of the NAFTA agreement that America intends to withdraw from the deal.”
“Trade negotiations only work sometimes with swords over people's heads. But that’s a pretty heavy sword,” said Scissors.
That article provides member countries the ability to exit the agreement six months after it gives the other members written notice of its intentions to do so. The agreement will remain in force between Canada and Mexico, should the U.S. choose to exit.
But invoking Article 2205 might not be as easy as it seems.
“There is an open legal question whether the president needs Congress to withdraw or not,” said Lieber. “We don’t know if withdrawing from trade bills have to be ratified by Congress.”
He added that Congress passed a number of bills in order to implement NAFTA, saying: “We do know that he can’t unilaterally repeal the implementing bills that came along with that.”
Moreover, the agreement is firmly entrenched, having been in force for more than two decades, during which time companies have made decisions under the assumption that NAFTA is here to stay.
“Supply chains for a number of U.S.-based manufacturers are fully integrated across the U.S.-Mexico border,” Lieber said. “Withdrawing from NAFTA would be much more disruptive than withdrawing from TPP.”
He added that companies, like automakers, that conduct business across the northern and southern borders would likely sue to stop the invocation of the withdrawal article.
But even if Trump could push past the red tape and begin a withdrawal process, what would it mean for the average American?
“The stock market would certainly respond, [and] the automakers and other beneficiaries would certainly take a hit,” Lieber said.
If markets did take a sustained hit, it could affect people’s retirement savings. And if automakers were deeply affected, the United States could see a “loss of domestic jobs as the cost of manufacturing [would have] now gone up,” Lieber said.
Even closer to home, Americans could see an increase in the prices of certain produce and nuts that are now regularly imported from our southern neighbor. Lieber pointed to avocados specifically.
But the good news for guacamole lovers is that reports in recent days suggest that both Canadian Prime Minister Justin Trudeau and Mexican President Enrique Peña Nieto have signaled their interest in opening a dialogue with Trump. And Trump appears to have indicated a willingness for discussion in return -- Peña Nieto has said that he and the president-elect have agreed to meet, according to the BBC.
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