'Zombie NAFTA': What happens if Trump tears up trade deal

It's hard to overstate just how chaotic the world's longest border could become the day after a U.S. withdrawal from NAFTA.

Trump can pull out of NAFTA by executive order, but the system of tariffs supporting it would live on

President Donald Trump is greeted by Prime Minister Justin Trudeau at the G7 summit in Charlevoix, Que., on Friday. He could scrap the NAFTA deal, causing temporary chaos, but parts of it won't die. (Evan Vucci/Associated Press)

It's hard to overstate just how chaotic the world's longest border could become the day after a U.S. withdrawal from NAFTA. More than $2 billion worth of trade crosses the Canada-U.S. border every day: car parts, oil, grain, lumber, all streaming into the United States at record numbers.

Donald Trump's threat to withdraw from the trade deal is becoming an increasingly likely scenario. And yet, it's still entirely unclear what would happen if the deal is torn up. One thing we do know for sure: it wouldn't be easy or smooth for anyone.

First of all, there's the very real question about what authority a U.S. president has to act unilaterally.

"Under the U.S. Constitution, trade belongs to Congress," says Chris Sands, director of the Center for Canadian Studies at Johns Hopkins School of Advances International Studies.

So Trump can pull out of the deal by executive order, but he can't undo the system of tariffs it was built on, because they were authorized by Congress.

More than $2 billion in trade flows across the Canada-U.S. border every single day. (Jason Kryk/Canadian Press)

Trade lawyer Mark Warner says that would create a sort of "Zombie NAFTA."

"Zombie NAFTA in my view is one where the United States has pulled out — as in, notified Canada and Mexico that it's out — but the president can't change the tariffs," says Warner.

So, the tariffs would remain in place, but everything else in the deal would disappear. The dispute resolution panels, the intellectual property rules, the chapters on government procurement would all be gone with the stroke of a pen. Then, all sides would have to figure out what that means for the shipments of grain and oil and lumber headed for the border.

Courts, chaos and injunctions

"The confusion and the uncertainty for traders and investors in all three countries would be great," says Hugo Perezcano Diaz the deputy director of International Economic Law with the Centre for International Governance Innovation in Waterloo, Ont. 

In the immediate aftermath of a U.S. withdrawal, Warner expects that someone, perhaps one of the big U.S. auto companies, would get in front of a judge to seek an injunction to block the president until Congress could weigh in. He says we've seen that scenario play out once already during this president's tenure.

"It begins to look a lot like the immigration order debacle from the first part of his term," he says.

After Trump issued an executive order banning immigration from a list of predominantly Muslim countries, a series of lower court judges blocked the move. Nonetheless, confusion reigned at airports across the United States as immigration officials and border guards repeatedly acted on different orders.

"The immigration stuff is still going on a year later," says Warner.

Old agreements, new headaches

Even once the courts sort out what the president can and can't do, the original Canada-U.S. Free Trade Agreement from 1988 will prove to be a complication. That agreement was "suspended" when NAFTA  was signed, but Warner says we never really dealt with what that means and how the deal could be brought back into force.

"It turns out," he says, "We were so happy about entering into NAFTA in '94-'95 that we appear to have never actually agreed how we would lift it from suspension."

It's entirely plausible that Canada and the U.S. would disagree about whether the earlier deal would remain suspended or automatically brought back into force. And that dispute could well end up in international court.

But in the end, he says it's nearly impossible to imagine trade working at all unless the two sides sat down and hashed out some basic agreement to manage the $873.3 billion Cdn in Canada-U.S. trade each year.

"Canada and the U.S. would have to sit down and negotiate some basics like the tariffs schedules," says Warner. "How we itemize those products has changed over the years. So you'd have to sit down and talk about how we'd bring that old agreement into force."

But Sands says it's still possible to rein this in before all that becomes inevitable. 

Trump has a broad view of presidential authority. But he'd eventually face off against Congress in a fight over who can change tariffs. (Kevin Lamarque/Reuters)

"I think there's growing concern in Congress that there needs to be a new discussion about what U.S. trade policy is all about," he says.

Trump has been negotiating under special authority granted to the executive branch in 2015. Sands says Congress can revoke that authority.

"Start a new dialogue with the administration about a new set of authorities with some limits and i think that would provide a lot of useful pause to reconsider where we're headed," Sands says.

But if you think tearing up NAFTA was going to cause a crisis, imagine the chaos that would ensue after Congress told the president he no longer had authority to negotiate trade deals.

U.S. President Donald Trump and Prime Minister Justin Trudeau: the relationship has soured as Trump threatens to tear up NAFTA. (Jonathan Ernst/Reuters)


Senior Business reporter for CBC News. A former host of On the Money and World Report on CBC Radio, Peter Armstrong has been a foreign correspondent and parliamentary reporter for CBC. Subscribe to Peter's newsletter here: Twitter: @armstrongcbc