Trump probably won't scrap CUSMA, his trade deal with Canada and Mexico. Here is the reason
Despite U.S. President Donald Trump once again shifting his powers to cancel his country's free trade agreement with Canada and Mexico, there are many reasons to doubt that he will actually follow through on that threat.
Trump signed the Canada-US-Mexico Agreement (CUSMA) during his first term and at the time boasted that “the most modern, timely, and balanced trade agreement in our country's history.”
This term, Trump dismissed CUSMA as irrelevant, floated allowing it to expire and reportedly considered helping with a withdrawal.
On Wednesday, he told reporters at the White House “not looking to renew” agreement when it faces a review on July 1.
However, a “do not look to renew” agreement is not the same as terminating it.
Even without renewal, the agreement remains in effect until 2036. That only changes if the country gives six months formal notice of its intention to withdraw.
US President Donald Trump has indicated that he may not renew CUSMA, the trade agreement between his country, Canada and Mexico. The agreement will be reviewed on July 1.
Canadian and Mexican negotiators expected that the US would not simply renew CUSMA, but instead would press for changes to the agreement at the negotiating table.
Here are five reasons to believe Trump won't tear up CUSMA.
1. US industries want it preserved
Powerful stakeholder groups representing all major sectors of the US economy are urging the Trump administration to renew CUSMA, or USMCA as it is called south of the border.
This includes manufacturing, a sector that Trump says will be heavily regulated by his global tax regime.
The National Association of Manufacturers published a report in May heaping praise on CUSMA. The report calls the trade deal “one of President Trump's most successful signatures since his first term,” and notes its record of bringing more jobs, investment and exports to US industries.
“The USMCA is a pillar of manufacturing excellence in the United States,” the report said. “We must preserve and strengthen this historic agreement.”
As Trump threatened not to renew CUSMA on Wednesday, key leaders of the politically powerful agriculture industry were on Capitol Hill praising the trade deal and calling for an extension.
The organization that represents General Motors, Ford and Stellantis calls the deal “the most important trade deal for American automakers” and is urging the Trump administration to preserve it.
Although these and other sectors want to amend some of the provisions of CUSMA, none of the major US industry groups want to scrap the agreement.
2. Official negotiations with Mexico
July 1 marks six years since CUSMA came into force, and is the date set in the text of the agreement for a formal review by the three countries.
In that review, the options are: A) to extend the agreement for another 16 years, or B) to review it annually, until it expires or an extension agreement is reached.
Canada and Mexico both want option A, and have said they are willing to negotiate tweaks. The White House has not made its position public.
Canada-US Trade Minister Dominic LeBlanc said the meeting with his American counterpart is good, after the federal government took action to renew the Canada-US-Mexico agreement and strengthen border trade negotiations.
However, the US has entered into formal negotiations with Mexico regarding the renewal, holding one round of negotiations in late May, with two more scheduled for next week and the end of July.
That is being read as a sign that administrations are more interested in renegotiating the deal than withdrawing from it.
“Discussions will focus on ensuring that the USMCA benefits American manufacturers, farmers, ranchers, workers and service providers, and businesses of all sizes,” the office of US Trade Representative Jamieson Greer said in a statement.
3. Movement in Canada-US negotiations
CUSMA is important to the Canadian economy because it covers $1.3 billion in border trade with the US and protects about 90 percent of Canadian exports from Trump's tariffs.
Although the US has not entered into the same type of formal negotiations with Canada as it has with Mexico, senior trade officials from each country have held new online and face-to-face talks in the past few weeks.
The tone Canada is hearing in its new negotiations with the White House is very different from the opposition led by Trump last year, according to Flavio Volpe, president of the Automotive Parts Manufacturers Association and a member of Ottawa's key committee of advisers on Canada-US relations.
“These are real conversations about important things in a situation that sounds like partners who want to work things out and stay together rather than prepare to separate forever,” Volpe told CBC News on Wednesday.
Canada-US Trade Minister Dominic LeBlanc and Canada's chief negotiator Janice Charette met with Greer and his delegation in Washington last week.
Although LeBlanc did not provide specifics, he said Canada has put proposals on the table to deal with what he called “issues that the United States has long raised with us.”
Prime Minister Mark Carney said last week that the number of trade irritants the US has with Canada is about half that of Mexico.
Carney is also showing some change in his tone towards the US, with a speech to a New York business audience expressing the idea that Canada “can help make America great again.”
4. Political pressure
There is an argument to be made that Trump and his Republican party have enough political problems without the economic time bomb that the CUSMA withdrawal notice would likely set off.
Figures released Wednesday show US inflation hit 4.2 percent in May, the highest in three years.
Trump's approval rating is below 40 percent, threatening to drag down Republicans' hopes of retaining their slim hold on the House and Senate come November's midterms.
A growing number of Republicans in Congress have shown their willingness to oppose Trump when he pushes policies they believe will hurt his re-election chances.
It's hard to see how tearing up CUSMA would help Trump in any of those areas.
No consistent research suggests that withdrawing from the trade deal would be politically popular, or any solid economic research suggests that it would make the cost of living cheaper.
Instead, there are many studies documenting how the US economy has benefited from increased free trade with Canada and Mexico.
5. Trump's threats stop backing off
While it is true that Trump could at any time give six months' notice to withdraw from CUSMA, his threats have not come through so far.
On Wednesday, even though Trump said good things about CUSMA “the right to terminate,” he did not actually threaten to terminate.
Talking tough in public is a classic Trump negotiation technique, said William Pellerin, an international trade lawyer with McMillan LLP in Ottawa.
“In the end, this is the modus operandi of the American administration to play the hard way,” Pellerin told the CBC News Network on Wednesday.
Even if Trump threatens to pull his country out of the deal, it's not clear that he actually has the power to do so with his president's Sharpie.
“The United States cannot withdraw from a congressionally approved trade agreement without the consent of Congress,” the Republican-led Senate Finance Committee concluded in its 2020 report on CUSMA.
