Trump will give NAFTA talks a shot, but withdrawal is still possible

Canada and Mexico got a reprieve in their tough trade relationship with Donald Trump after the US president walked back his threat to jettison the NAFTA continental trade pact Thursday.

After speaking by telephone with his Canadian and Mexican counterparts a day earlier, Trump announced that the North American Free Trade Agreement would instead be renegotiated.

He still left open the possibility of withdrawing from the pact, however, if talks fail.

"We're going to give renegotiation a good, strong shot," Trump said Thursday morning from the Oval Office, while adding that "If I'm unable to make a fair deal for the United States, meaning a fair deal for our workers and our companies, I will terminate NAFTA."

Trump's unrelenting back-and-forth has kept Washington's two closest trade partners on edge as they move to revamp one of the world's biggest trading blocs.

The Republican billionaire had threatened to scrap NAFTA altogether during his presidential campaign, and has kept his partners guessing about his intentions ever since.

While most of his fire has been directed at Mexico, Trump abruptly shifted course this week to pick fights with Ottawa over softwood lumber and dairy products.

US media reported on Wednesday that he was likely to give formal notice of pulling the United States out of NAFTA — and then came the White House announcement that the US would renegotiate the agreement after all.

In Mexico, Foreign Minister Luis Videgaray warned Thursday that the end of NAFTA was "a real possibility."

"We've confirmed it was something under consideration," he told Mexico's Radio Formula.

Behind the scenes, politicians, diplomats and business groups have put pressure on Washington not to scrap the accord that created one of the world's largest trading blocs.

Twice over a 24-hour period, Canadian Prime Minister Justin Trudeau reached out to Trump by telephone to extoll the virtues of NAFTA and warn that its demise would lead to massive job losses in both countries.

A fixture since 1994

NAFTA has been a fixture in US relations with its two neighbors since it went into effect January 1, 1994 under President Bill Clinton.

It removed tariffs and allows a free flow of goods between the United States, Canada and Mexico.

Trudeau has repeatedly said he was open to renegotiating the pact, while reminding lawmakers in Washington that more than half of US states rely on free trade with Canada — notably in the automotive and agricultural sectors.

"I highlighted that whether or not there was a better deal to come, there were an awful lot of jobs, an awful lot of industries right now that have been developed under NAFTA," Trudeau said Thursday of his call with Trump.

"And a disruption like canceling NAFTA would cause a lot of short and medium term pain for an awful lot of families," he added.

Every minute more than one million dollars in goods cross the Canada-US border.

US cereal producers, meanwhile, said they were "shocked and very worried" about the fate of NAFTA.

Market shudder

North of the border, Maude Barlow, president of the Council of Canadians, a leftist think tank, noted that "Canada has its own grievances" with its US neighbor and that it was time for Trudeau to stand up for Canadian interests.

Business groups have been equally vocal after the Trump administration earlier this week slapped tariffs on some imports of Canadian timber and threatened to retaliate against Canadian pricing moves to effectively limit access to its dairy market. (Neither timber, nor milk are covered under NAFTA).

Analysts said renegotiating NAFTA is the lesser evil for Trump. Reports that Trump was considering an executive order to withdraw the US from the pact "sent a shudder through the markets," National Bank analyst Angelo Katsoras said in a research note.

A move to do so, he added, would "elicit an uproar in Congress, risk disrupting the activities of companies with supply chains spread across the hemisphere, hurt the economy and trigger a wave of lawsuits."