THE TRANSCRIPT of President Trump’s Jan. 27 phone conversation with President Enrique Peña Nieto of Mexico made fascinating reading — especially in light of what has actually happened among the United States, Mexico and their North American free-trade partner, Canada, since the call. It’s not a good-news story, but it is a could-have-been-worse story. Instead of slapping tariffs on Mexican goods, as he threatened during both the 2016 campaign and the chat with Mr. Peña Nieto, Mr. Trump agreed to talks, the goal of which is to update the North American Free Trade Agreement, not scrap it, as he has also threatened from time to time. What’s more, the parties have set an expedited negotiation schedule, with the first meeting slated for Aug. 16 in Washington.
The specific negotiating objectives the Trump administration set forth in a July 17 report to Congress were in many respects necessary and proper. NAFTA is basically working as designed, but any quarter-century-old trade pact could use modification to account for new realities. It’s reasonable, for example, to seek new understanding on digital trade in goods and services and on cross-border data flows, as the Trump objectives propose. Veterans of negotiations over the Trans-Pacific Partnership, which Mr. Trump reviled, noted similarities between the approach sketched in the July 17 paper and what had been accomplished in the TPP talks. But if hypocrisy, or reinventing the wheel, is the worst sin Mr. Trump commits on trade, the world will breathe a sigh of relief.
Alas, the administration also specified that the trade deficit with Mexico and the (smaller) one with Canada be reduced as a result of the talks, which isn’t possible and wouldn’t necessarily be desirable even if it were. Possibly even more counterproductive, Mr. Trump’s goals include the elimination of the so-called Chapter 19 dispute-resolution mechanism, which creates a special NAFTA-based forum to challenge a member country’s claims that another is selling exports below cost (“dumping”). This check against potentially protectionist litigation brought by U.S. industries in U.S. forums was Canada’s precondition for joining the U.S.-Canada free-trade agreement, upon which NAFTA was built; and it’s one reason that exports from Canada and Mexico are far less likely than those of other nations to face penalties in the United States.
Eliminating Chapter 19 probably would be a dealbreaker for Canada. And why would Mr. Trump seeks its elimination? After all, as he said in that call with Mr. Peña Nieto, “Canada is no problem . . . we have had a very fair relationship with Canada. It has been much more balanced and much more fair.” Perhaps he means the proposal as a bargaining chip, to be traded for some other, more valuable concession. Or perhaps he will be willing to finesse it behind closed doors, just as he pleaded with Mr. Peña Nieto to help him wiggle out of his unwise promise to make Mexico pay for a border wall. We certainly hope the administration can be pragmatic on this point, lest it trigger the trade war with our neighbors that Mr. Trump once promised but so far has sidestepped.
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