Is NAFTA Over?

The presidents of Mexico and the United States are negotiating their new economic relationship in an oddly public way.

Mexican President Enrique Peña Nieto (Edgard Garrido / Reuters)

It only took a matter of days for the economic ties between the United States and Mexico to begin to unravel. Both presidents had been laying out their cards in the days leading up to their meeting, which was scheduled for Tuesday, when they were expected to start renegotiating the North American Free Trade Agreement.

On Tuesday, Enrique Peña Nieto told the Mexican press that he was prepared for Mexico to leave NAFTA all together if he didn’t like Trump’s proposals. On Wednesday, Peña Nieto’s top ministers traveled to Washington, D.C., and met with Trump’s staff. That afternoon, Trump signed an executive order to start building a wall on the southern border, insisting that Mexico would pay. That night, Peña Nieto said he wouldn’t pay for the wall. On Thursday, everything seemed to fall apart over Twitter. Trump tweeted that Peña Nieto shouldn’t come to Washington if Mexico won’t pay for the wall. Minutes later, Peña Nieto sent out his own tweet, announcing that he was canceling his trip to Washington, then followed up with another tweet saying he was still willing to work with the United States “to reach an agreement that is favorable to both countries.” By the end of the day, Trump’s press secretary Sean Spicer said a border tax on Mexican imports would pay for the wall, though he later clarified to Peter Alexander of NBC News that this was not a specific proposal but an “example of options,” as Alexander phrased it, for how to fund the wall. (Mexico is America’s third-biggest goods trading partner.)

This aggressive back-and-forth indicates how Trump plans to renegotiate NAFTA: in the public sphere. And it puts Peña Nieto in a tough situation. The Mexican president is under intense pressure to stand up to Trump’s insults, while acknowledging that millions of jobs in Mexico depend on trade with the United States. Yet as I’ve noted before, nearly 5 million U.S. jobs also depend on trade with Mexico.

To understand the significance of both presidents’ actions on the future of NAFTA and commerce between both countries, I spoke to Christopher Wilson, deputy director of the Mexico Institute at the Wilson Center, a nonpartisan think tank in Washington, D.C. (This interview took place mid-day on Thursday, before some the back-and-forth over taxes had transpired.) The following interview has been lightly edited for length and clarity.

Alexia Fernández Campbell: What’s does all this mean for the relationship between Mexico and the United States?

Christopher Wilson: Well, it’s not good. Both countries have built a cooperative relationship over the last several decades that provided tangible benefits to both the U.S. and Mexico in terms of security of prosperity. Some of those benefits are on the line.

Campbell: What are some of those benefits?

Wilson: Mexico, since 9/11, has cooperated very closely with U.S. authorities to provide information and ensure that no terrorist ever enters the United States through Mexico. And Mexico sends 80 percent of its exports to the U.S., so trade is a top order of national interest and they are willing to do whatever they can do ensure they have access to the U.S. market. The commercial relationship has helped the Mexican economy develop and bring many Mexicans into the middle class. It's also an issue of migration. Mexico has been slowing the flow of Central American migrants from its southern border. They are deporting more Central Americans than the United States. So the benefits of the relationship go in both direction.

Campbell: What does the deteriorating relationship say about the future of NAFTA and free trade between the countries? Is it the end?

Wilson: No, I think both sides still have leverage. Donald Trump for months has tried to stake a strong negotiating stance with a 35 percent tariff on imports and having Mexico pay for the wall. Mexico in recent days has started to suggest that it is willing to walk away from NAFTA. Now that he has canceled this meeting, both sides have done a certain degree of posturing and no doubt that puts a certain degree of cooperation on the line, but at the end of the day they will be neighbors and there is no way to undo that. I think the negotiations will continue. They might be starting at a worse point than what was possible a couple of days ago, and they might get worse.

Campbell: What happens if NAFTA falls apart?

Wilson: You can get rid of NAFTA, but it will come at an economic cost for both sides. Even without NAFTA there will be huge amounts of trade. American companies have invested billions and billions of dollars and they are not just going to walk away from those investments just because NAFTA is gone. If things got way worse, then you might have to see investments be reconsidered. Based on the United States’ commitment to the World Trade Organization, there will be higher tariffs, so it will slow business down but it's not going to put a halt to it.

Campbell: It seems like the negotiations have gotten quite personal, and that the Mexican people are insulted by the border wall more than anything else. Do you think that plays a role?

Wilson: I think that it has become more than just a negotiating position for Mexico, it’s a matter of national pride. Peña Nieto has limited political space within which he can maneuver. He has low public approval there and there is a presidential election in 2018 and Mexicans feel insulted by statements made by [Trump’s] campaign and some of the statements that continue to be made. It's also an issue of domestic politics. If the public is clamoring for someone to stand up in the face of someone who they see as being a bully, then the next president is going to reflect that. If people want a relationship that is based on cooperation, then the next president or party is going to represent that cooperation. The pressure has been building on the president and his team to not take perceived insult without responding.