Adjunct Professor Matt Gold joined a panel discussion at the U.S. House of Representatives where he discussed what Congress can expect from the president’s NAFTA renegotiation.
People imagine that in this kind of negotiation, the United States has much more leverage than Mexico and Canada because we have a much larger market; that is categorically wrong.
When you are coming into a free trade agreement you have leverage that is pursuant to the size of the market you are bringing into the free trade agreement. If you can credibly threaten to withdraw from a free trade agreement, then in a renegotiation you have leverage that is commensurate with the size of the market that you might be pulling out …. If you, however, cannot credibly threaten to pull out of the free trade agreement that dynamic does not work.
I believe the United States cannot credibly threaten to withdraw from NAFTA. I think President Trump’s threats to do so were not just bluffs, but very bad bluffs. I don’t think the Mexicans and Canadians took them seriously for a second.…
[Y]ou’re left in a situation where you have three countries—not one of them can withdraw from the agreement; not one of them can credibly threaten to withdraw from the agreement; each of the three knows that the other two can’t do that—you have what is essentially, three countries handcuffed together.
And this is the dynamic that’s been going on for the past 23 years .… [E]veryone has a veto. Everyone knows that everyone else has a veto. And, each country’s leverage is exactly the same as the leverage of other two countries. And have no misconceptions … that dynamic has not changed.
