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Trump's landmark trade deal with Canada and Mexico is suddenly in trouble

Business Insider logo Business Insider 11/19/2018 Bob Bryan

The biggest success of President Donald Trump's prolonged trade battles has come in the form of a revised trade deal with Canada and Mexico. 

But recent statements from key members of Congress have potentially thrown the future of that deal in question.

Creeping doubt from leading Democrats and a group of conservative House members have created fresh concern that the the US-Mexico-Canada Agreement (USMCA), which was agreed to by the three member countries on September 30, will be able to pass Congress without some significant changes.

The USMCA, which is primarily an update of the existing North American Free Trade Agreement (NAFTA), would make adjustments to rules on cars, dairy, and other goods flowing between the US, Canada, and Mexico.

But some of the smaller details in the agreement could also cause it to hit some snags.

Democratic pushback

The USMCA always faced the headwind that it was moving forward at a heightened period of political uncertainty, such as the presidential changeover in Mexico and the midterm elections in the US.

Before it comes into effect, each country's legislature must pass the USMCA:

  • In the US, Trump renegotiated NAFTA under what is known as Trade Promotion Authority, or TPA.
  • Under TPA, only a majority of lawmakers need to vote for the USMCA to pass.
  • But required waiting periods with TPA mean a vote will likely not come until the next Congress is seated in January.
  • So Democrats will have a chance to leave their mark on Trump's agreement, since the president will need to win over at least a handful to pass the deal.

Democrats in general are more skeptical of free trade agreements than their GOP counterparts. The original NAFTA was passed with mostly Republican votes despite being agreed to under President Bill Clinton. Former President Barack Obama, meanwhile, needed extensive GOP support to negotiate the Trans-Pacific Partnership.

Related video: Democrat House Won't Hurt USMCA, Mexico's Lead Nafta Negotiator Says (provided by Bloomberg)

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Despite not being able to make large changes to the text - that would require Trump to reopen negotiations with Mexico and Canada - legislation can help determine the level of enforcement of certain parts of the USMCA.

Rep. Bill Pascrell, who could lead the critical House Ways and Means Committee next year, told Bloomberg that the USMCA can't pass as is. He said there needs "to be not only changes in the legislation but more enforcement" in the deal to get enough Democrats on board.

Other Democrats have also expressed misgivings. Rep. Nancy Pelosi, considered the frontrunner to be the next House speaker, has called for strengthening the pro-labor and environmental aspects of the deal by making them legally enforceable, instead of just guidelines.

"Most important of all are the enforcement provisions in terms of labor and the environment," Pelosi told The New York Times. "Enforcement, enforcement, enforcement."

But amid the early wobbles, most analysts expect the deal to eventually get done. If Democrats don't agree to the deal, Trump could threaten to pull the US out of NAFTA entirely - which would be an economic disaster - and Democrats don't have an alternate track to take. 

"We believe that will happen early next year as we don't believe Democrats will derail the USMCA without a viable alternative just to deprive Trump of a 'win,'" Nancy Vanden Houten, senior economist at Oxford Economics, wrote in a post-midterm note to clients.

Conservative pushback

Given Democrats' hesitation, Trump needs near-unanimous support from his own party to ensure the USMCA's passage.

On that front, a small clause in the deal could actually cause a revolt among the GOP.

Forty conservative House members sent a letter to Trump on Friday expressing displeasure with a provision in the USMCA that requires member countries to beef up workplace protections for LGBT people.

The House members argue that the deal could force the US to make significant changes to labor laws to make sexual orientation and gender identity a protected class - or risk getting kicked out of the economically critical deal.

"A trade agreement is no place for the adoption of social policy," the letter said. "It is especially inappropriate and insulting to our sovereignty to needlessly submit to social policies which the United States Congress had so far explicitly refused to accept."

Losing 40 GOP members in the House would require more than 50 Democrats to flip and support the deal for it to pass, which is highly unlikely. 

But making any such changes would be difficult. The deal text is set to be signed at the G20 summit on November 30, and Canadian Prime Minister Justin Trudeau is unlikely to accept any side deals to allow the US to ease up the protections.

But without those changes, conservatives say the deal could be in trouble.

"This is language that is going to cause a lot of people to reconsider their support of the trade agreement, and to the point that it may endanger the passage of the trade agreement unless something is done," GOP Rep. Doug Lamborn told Politico on Friday.

National flags of United States, Canada, Mexico© THE CANADIAN PRESS / AP

National flags of United States, Canada, Mexico

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