Trump Says Nafta Partners Persuaded Him to Keep -2-

President Donald Trump said he was preparing to pull out of the North American Free Trade Agreement in coming days but changed his mind after his counterparts in Mexico and Canada called him Wednesday and asked him to instead renegotiate the 23-year-old pact.

Speaking in the Oval Office on Thursday, Mr. Trump said withdrawing from Nafta "would be a pretty big shock to the system," though he said he is ready to take that step if he is unable to get a fair deal in his talks with Mexico and Canada.

Mr. Trump's comments come after a day of mixed messages from the White House about a complicated piece of trade policy. Senior White House officials met privately on Wednesday to talk through various options, including terminating Nafta. At one point the White House seemed poised to release an executive order signaling the U.S.'s intent to pull out of the trade accord.

An announcement to withdraw from the pact would have started a six-month clock -- with the possibility of backtracking along the way and staying in Nafta. After that, the U.S. would be out of the agreement, but trade lawyers say parts of Nafta would still remain in U.S. law without congressional action. Tariffs would rise to levels established through the World Trade Organization, with U.S. goods facing generally higher tariffs in Mexico than the other way around.

The prospect of a U.S. exit alarmed some business leaders and members of Congress -- along with Mexico and Canada -- who sent word to the White House that terminating the Nafta deal would be a mistake. By the end of the day, the White House put out a statement affirming that the U.S. wouldn't try to scuttle the agreement.

As a candidate, Mr. Trump termed Nafta a "disaster," an argument that appealed to many of the working-class voters attracted to Mr. Trump's campaign. Now in office and with a 100-day milestone approaching, some White House officials had hoped to demonstrate Mr. Trump was taking decisive action to either scuttle or improve a trade deal that he has said was "defrauding" American workers. But the fast-moving events at the White House on Wednesday carried a cost, rattling markets and unsettling the U.S.'s northern and southern neighbors.

Veterans of past White Houses said Mr. Trump needs to send more consistent messages and develop a White House operation that is more disciplined. Leon Panetta, a former White House chief of staff under ex-President Bill Clinton and a cabinet secretary in former President Barack Obama's administration, said in an interview: "I don't think you can operate in this fashion for very long. Any time a White House produces that many mixed messages, you've got not only members of Congress totally confused, but you've got the world totally confused as to just exactly where you stand."

After speaking with Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau, Mr. Trump said they made the case that the better approach was to rework Nafta rather than unwind it altogether. Having developed an affection for the two men, Mr. Trump said, he agreed to "give renegotiation a good shot."

"We have to make a deal that's fair to the United States. They understand that," he said.

Before the Mexican president called Mr. Trump, Mexican officials made calls to Mr. Trudeau and found the two nations' positions were "practically the same," Mexican Foreign Minister Luis Videgaray said Thursday.

Speaking on a Mexican television news program early Thursday, Mr. Videgaray said the Mexican leader called Mr. Trump "after a day that generated a lot of doubts."

He said U.S. officials earlier had told their Mexican counterparts that pulling out of Nafta altogether was indeed under discussion.

"We spoke with a lot of members of the U.S. government and they confirmed that the possibility existed, but wasn't a firm decision," Mr. Videgaray said.

The Mexican president told Mr. Trump that such a move "would frankly have a very negative impact on Mexico and would practically cancel the possibility of a constructive negotiation."

For his part, Mr. Trump assured Mr. Peña Nieto that a pullout wouldn't happen and that renegotiating the agreement was still on the table, Mr. Videgaray said.

In a news conference on Thursday, Mr. Trudeau said when Mr. Trump told him he was considering terminating Nafta, he warned the president that would put at immediate risk hundreds of firms and thousands of jobs that rely on an integrated continental economy for their livelihood.

"A disruption like canceling Nafta -- even if it theoretically might lead to better outcomes -- would cause a lot of short- and medium-term pain for an awful lot of families," said, Mr. Trudeau, speaking in the western Canadian province of Saskatchewan, when asked about his conversation with the president.

"He, like me, got elected on a platform of helping the middle class and growing the economy in ways that bring along people who don't believe they have had a fair shake. We agreed we could sit down and look at ways at improving Nafta that will be to the benefit of all" the Nafta partners.

Mr. Trump has ramped up his trade rhetoric in the past week on Canada, highlighted by a move this week to slap a 20% tariff on Canadian lumber imports. Mr. Trump also has criticized Canada's dairy regime, which limits foreign competition and the president has threatened measures in retaliation.

Asked whether Canada was willing to entertain retaliation against U.S. protectionist measures, Mr. Trudeau said "there's no question there's a broad range options and paths available to us that we are looking at. It's my preference to sit down and discuss in a firm but responsible and polite way the ways we can move forward together."

--William Mauldin contributed to this article.

President Donald Trump was prepared to end the North American Free Trade Agreement deal, which had governed trade relations for the past 23 years, with a dramatic announcement Saturday at a Pennsylvania political rally marking his 100th day in office.

As rumors spread of the possible action, Mexican President Enrique Peña Nieto called the president urging him not to pull out of the accord. "Let me think about it," Mr. Trump said. Within a half hour a call came in from Canadian Prime Minister Justin Trudeau with a similar request.

After the talks, Mr. Trump was convinced "they're serious about it and I will negotiate rather than terminate," the president said in an interview with The Wall Street Journal on Thursday.

Those conversations, along with a flood of calls to the White House from business executives, helped steer Mr. Trump away from an idea that some of his own advisers feared was a rash and unnecessary threat to two trading partners who fully expected to renegotiate the agreement anyway.

But Mr. Trump wanted to show dramatic action on key campaign promises before he hits his 100 days in office on Saturday, and the threat would have showed his supporters that he was wiling to take steps opposed by the establishment to upend American trade policy.

Mr. Trump insists the talks will take place amicably among allies he likes and respects -- though he also reminded them that he was willing to entertain an extreme option in service of rewriting American trade policy, and insisted that he could put the option back on the table if the coming talks don't proceed the way he would like.

At the same time, the gyrations risked weakening the U.S. position -- by unifying Canada and Mexico in their strategies to counter the U.S., irking key lawmakers he needs to back him, and exposing his inability to overcome the strong domestic support for Nafta that he has helped rally.

"I expect the administration to closely consult with Congress before such major trade-policy decisions are made," said Utah Republican Sen. Orrin Hatch, chairman of the Senate Finance Committee, which oversees trade, archly reminding him of the need to take the time to work with Capitol Hill. "Withdrawing from Nafta would have significant effects on the America economy."

"It was a trial balloon, but it didn't work," said Mexican economist Luis de la Calle, a trade expert who had been a senior negotiator on the pact. "Next time, nobody will believe it. People start to figure things out."

But Mr. Trump said in the interview that he still holds his strongest card. "We'll terminate Nafta if we're unable to make a deal, but hopefully we won't have to do that."

The Trump administration jolted markets and stoked panic among business leaders as multiple aides sent signals that officials were considering issuing an order that would begin the six-month process of having the U.S. withdraw from the three-nation trade agreement. It was floated as a possible stick Mr. Trump would wield to force a quick renegotiation on terms he wants. He has blamed the agreement for encouraging manufacturers to relocate to Mexico, and for expanding U.S. trade deficits with its border neighbors.

But by 10:30 p.m. Wednesday, the White House issued a statement saying Mr. Trump had decided "not to terminate Nafta at this time."

Meanwhile, a lobbyist for one big business group said he urged member companies to "have your CEOs call the highest-ranking administration officials they can reach." Tom Donohue, the veteran president of the U.S. Chamber of Commerce, made at least three calls to the White House during the afternoon, a person familiar with the matter said.

Mexican and Canadian officials, who for months have been comparing notes on how to deal with the volatile new leader situated between them, reached out to each other throughout Wednesday to coordinate how to approach Washington, Mexican Foreign Minister Luis Videgaray told a Mexican television news program early Thursday. "Mexico's and Canada's positions are very similar, if not the same," he said.

Mexican officials also spent the day working their Washington contacts to try to verify the rumors and press reports.

"We spoke with a lot of members of the U.S. government and they confirmed that the possibility existed but wasn't a firm decision," Mr. Videgaray said.

Meanwhile, Sonny Perdue -- the agriculture secretary who took office two days earlier -- met with Mr. Trump and talked him through the states where jobs would be lost if the pact collapsed. It included farm and border states that voted heavily for Mr. Trump, three people who had been briefed on the meeting said.

Late in the afternoon, "after a day that generated a lot of doubts," the Mr. Videgaray said, Mr. Peña Nieto called Mr. Trump directly. The Mexican leader made the case that, rather than acting as a constructive prod for negotiations, an official threat by the U.S. to pull out of Nafta "would frankly have a very negative impact on Mexico and would practically cancel the possibility of a constructive negotiation."

Mr. Trudeau separately reached out to Mr. Trump to make a similar argument. In a press conference on Thursday, Mr. Trudeau said that when Mr. Trump told him he was considering terminating Nafta, he warned the president that would put at immediate risk hundreds of firms and thousands of jobs that rely on an integrated continental economy for their livelihood.

"A disruption like canceling Nafta -- even if it theoretically might lead to better outcomes -- would cause a lot of short- and medium-term pain for an awful lot of families," said Mr. Trudeau, speaking in the western Canadian province of Saskatchewan, when asked about his conversation with the president.

While Mr. Trump has in the past few months spoken harshly about the trade practices of both Mexico and Canada, his aides told the Mexicans that the big-stick threat was really aimed at Congress, which has slowed the process of launching the Nafta renegotiation.

Trump aides told the Mexican officials "that they were considering this as an alternative, or a form of accelerating the process before Congress, " Mr. Videgaray said in the television interview. "You have to remember that the trade renegotiation with the U.S. has not begun because of a delay in certain processes in the U.S. Congress."

The Canadian and Mexican governments have actually been saying openly for months that they are eager to start the renegotiations Mr. Trump has long demanded, concerned that the uncertainty about Nafta's future has damped economic activity in both countries.

Canadian Foreign Minister Chrystia Freeland and the country's chief envoy in Washington, David MacNaughton, have been in frequent touch with Commerce Secretary Wilbur Ross, Mr. Trump's point man on Nafta, and had signaled privately -- as well as publicly in media interviews -- that Canada was ready to start talks on changes to the continental trade pact, Canadian officials said.

Canadian officials are aware that uncertainty over U.S. trade policy has become an overhang on its economy, as businesses in Canada -- in particular the nonenergy sector -- remain reluctant to increase their capital-spending plans until things settled down. The Bank of Canada has continued to highlight that U.S. trade policy remains "significant" headwind to growth, and warns economy won't be firing on all cylinders until business investment picks up momentum.

Mexican officials have also been eager to complete the talks before campaigning intensifies for their presidential election next year, where the Nafta talks and Mr. Trump's harsh words on Mexico have fueled the popularity of an anti-American candidate.

The holdup in starting Nafta negotiations has actually been the U.S. Congress, which jealously guards its authority to shape U.S. trade agreements. The 2015 fast-track trade law requires the president to send Congress a 90-day notice before he can begin trade talks -- and it also requires his U.S. trade representative to brief Congress before submitting that letter. Congress has yet to confirm Mr. Trump's trade representative nominee, Robert Lighthizer, and so he has been unable to start talks. Lawmakers say Mr. Lighthizer may finally win confirmation in early May. That would push the start of the Nafta renegotiation to August at the earliest, or well past Mr. Trump's first 100 days in office.

Mr. Trump has repeatedly blasted Congress over the delays. "We filed a 90-day notice 60 days ago, but it hasn't started because they're holding it up," Mr. Trump told The Wall Street Journal in a mid-April interview. "We have to get this ridiculous 90-day rule."

But lawmakers -- even leaders of Mr. Trump's own Republican Party -- are pushing back against Mr. Trump's rush.

"I know there's a bit of frustration now from the Trump trade team, and they're eager to get moving," Texas Rep. Kevin Brady, chairman of the House Ways and Means Committee, which runs that chamber's trade policy, told The Wall Street Journal in an interview on Wednesday. "But at the end of the day, the time spent now listening to members of Congress...is time well spent."

The confusion this week over Nafta highlights one of the questions surrounding Mr. Trump: whether the deal-making skills he employed in the business world translate to the presidency.

In his first 100 days, it isn't so clear that his methods have paid off. He and White House aides have at times sent conflicting messages about what they intend to do.

While negotiating with Congress over a spending bill aimed at keeping the government up-and-running, some of Mr. Trump's advisers insisted that any deal include money that would go toward a wall along the Southern border.

"I don't think it's an exaggeration to say that the wall is one of his top if not his top priority," Mr. Trump's budget director, Mick Mulvaney, said in an interview on April 21. Three days later, Mr. Trump backed off, saying he was open to waiting until later in the year for border-wall money.

This month, Mr. Trump said he wouldn't reveal any details about his tax plan until Congress passes a health-care overhaul. Mr. Trump backtracked, putting out a tax blueprint on Wednesday.

Watching events play out, veterans of past White Houses say Mr. Trump needs a more consistent, unified message. Part of the trouble may be that his White House is split into factions: a nationalist wing symbolized by chief strategist Steve Bannon that is wary of multinational treaties and trade deals, and a more mainstream group that is comfortable with the trend toward globalization.

That mainstream group has been actively sending reassuring signals to business leaders in other countries, even as they have been locked in internal battles in Washington.

One senior Toronto bank executive said Gary Cohn and Steven Mnuchin -- former Goldman Sachs Group Inc. executives now serving as chairman of the White House National Economic Council and as Treasury Secretary, respectively -- have on a few occasions reached out to senior Canadian business officials in recent weeks to counsel them that despite the internal Trump administration divides over trade policies, they expect no significant Nafta changes.

"This is a disputatious White House and we have to understand this is going to spill out into the public," the Canadian banker said.

Atop the pyramid is Mr. Trump, who in his 1987 book, "The Art of the Deal," wrote that he values flexibility above all: "I never get too attached to one deal or one approach," he said.

Craig Fuller, who served eight years in former President Ronald Reagan's White House, said in an interview: "The trouble here is I don't see how you get a course correction when there isn't a course. It's just erratic.

"He needs to go look at the two factions inside the White House and get rid of one of them. You can't operate that way in the White House."

Mr. Trump dismissed talk about a split inside his White House between aides with a nationalist or globalist orientation. "Hey, I'm a nationalist and a globalist," he said. "I'm both. And I'm the only one who makes the decision, believe me."

--Jacob Bunge in Chicago and William Mauldin in Washington contributed to this article.

Write to Peter Nicholas at peter.nicholas@wsj.com and Paul Vieira at paul.vieira@wsj.com

(END) Dow Jones Newswires

April 27, 2017 19:40 ET (23:40 GMT)