Former Treasury Secretary Says Scrapping Nafta Would Be Handing a 'Gift' to China

Sam Hodgson/Bloomberg News

Ending the U.S. free-trade deal with Mexico, as Donald Trump threatened during his presidential campaign, would hand a significant victory to China, former Treasury Secretary Lawrence Summers said.

Continuing with an unfriendly policy toward Mexico could lead to the election of a president along the lines of Venezuela’s Hugo Chavez and a strained relationship with the U.S., he said March 23 in an interview with Bloomberg Television. Summers, who served in President Bill Clinton’s administration, spoke on the sidelines of the nation’s annual banking convention in the Mexican resort city of Acapulco.

Trump, who in January withdrew the U.S. from the Trans-Pacific Partnership trade deal that would have tied it more closely to Japan and other economies in Asia, has vowed to end or renegotiate the North American Free Trade Agreement. Trump blames Nafta, which also includes Canada, for the loss of American manufacturing jobs and the nation’s trade deficit with Mexico. He’s also demanded Mexico pay for a border wall to stop undocumented immigration.

"There is no bigger strategic and economic gift we could give China than for the United States to move away from Nafta," Summers said. "It would mean less effective production, and less efficient production in North America, which would be a huge windfall to China-led Asia."

Trump’s timetable to renegotiate Nafta threatens to slip into an election year for Mexico, which could feel the economic impact of the uncertainty especially if the agreement starts disintegrating. The ruling party of President Enrique Pena Nieto, who is prevented by law from running for re-election, is likely to face pressure from populist opposition candidate Andres Manuel Lopez Obrador, who has led potential rivals in early polls ahead of the July 2018 vote.

“Indeed it’s possible to imagine that if the United States were to stay on a hostile path to Mexico, Mexico could find itself with a government in the tradition of Hugo Chavez in Venezuela, and China put $65 billion behind that government," Summers said. "We are putting at risk the creation of a major Chinese beachhead in our region on the trajectory we are following if we really were to abrogate Nafta.”

Trump’s top trade adviser, Peter Navarro, raised hopes last week that the U.S. might take a more conciliatory approach toward Mexico. In an interview with Bloomberg News, Navarro said he hoped the U.S. could ally with Mexico to form a “mutually beneficial regional powerhouse” that would benefit manufacturers and workers on both sides of the border.