Trump Injects New Threat of Nafta Withdrawal Into Talks

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US stocks opened sharply lower on Wednesday, giving back some gains from a day earlier, after President Donald Trump warned of a government shutdown to build the Mexico border wall and also threatened to scrap a trade agreement with Mexico and Canada.

"I personally don't think you can make a deal without a termination, but we're going to see what happens, OK?"

President Donald Trump, speaking on Tuesday night in Arizona near the Mexican border, said it looks inevitable the USA will pull out of the North American Free Trade Agreement.

It is not the first time he has made such a threat, but it is the first time since Canada, the USA and Mexico sat down to start renegotiating the 24-year-old trade agreement.

One risk is that negotiations could drag on into next year, when Mexico has a presidential election, and the trade talks would get swept up into a more volatile political environment or a new administration that might be less inclined to deal with Trump. It went into effect in 1994. American manufacturers have invested heavily in supply chains that straddle NAFTA borders and have come to depend on duty-free shipments within the trade bloc.

Negotiations between the three countries got off to a tense start last week. Mexico was the United States' third biggest trading partner - behind China - with USA exports to its southern neighbor valued at $118 billion and imports at $155 billion. The administration has vowed to make reducing the US trade deficit with Canada and Mexico a priority in the renegotiations.

State department expands travel warnings for Mexico
Officials added that there's no evidence that USA citizens are being targeted exclusively based on their nationality, however. The State Department has issued an updated travel advisory warning US citizens about the risks of traveling in Mexico .

Juan Pablo Castañon, president of Mexico's Business Coordinating Council, a coalition of business groups, recently predicted that there was a 90 percent chance of success. "Texas benefits from the fact that we're the number one exporting state in the nation, and NAFTA has been an important part of that", Cornyn said during a visit to Austin.

A Canadian government official cited by the newswires said they were expecting Trump to threaten to scrap NAFTA during negotiations.

Trump also took a swipe at the North American Free Trade Agreement.

"The strategy of building a wall seems a losing one, even ignoring its moral repugnance", said John Taylor, Jr., president and founder of Taylor Global Vision, a global macro and FX research firm in NY. "Congress has not repealed that legislation, and they've given no indication they intend to".

Trump's comments came ahead of the second round of NAFTA negotiations, which are scheduled to run from September 1-5 in Mexico City. Trade deals usually take years to negotiate.

Overall, we must move through this process quickly. As a practical matter, he said, if NAFTA negotiations slow down and become snarled in election-year politics, "it's going to be hard to get it done in 2018". "There's no need to abandon an agreement that has led to increased trade and relationships, but we would all benefit from an update".

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