Ending Nafta Could Cause Rural `Depression,' GOP Senator Says

(Bloomberg) -- President Donald Trump risks triggering a “depression” in the nation’s rural areas if he withdraws from Nafta, Iowa Republican Senator Chuck Grassley said. He also urged Trump to rejoin the Trans-Pacific Partnership trade agreement to counter China.

“Pulling out of NAFTA would be catastrophic for farmers, based on the fact that Mexico is our number one export market for corn,” Grassley said in an interview in his Capitol Hill office Wednesday. “That could signal a real agricultural, at least Midwestern agricultural depression.”

Grassley was part of a group of senators who went to the White House last week and urged Trump to stay in the North American Free Trade Agreement among the U.S. and Canada and Mexico, which are the second- and third-biggest destinations for U.S. farm goods after China. Grassley’s state is a major producer of corn, soybeans and pork.

Trump has denounced the accord as a bad deal for the U.S. and threatened to scuttle it unless the three nations can agree to revisions. The next round of talks are scheduled to begin Feb. 25 in Mexico.

Residents of rural areas supported Trump in the presidential campaign, but many farmers are reliable supporters of Nafta as well. A disruption in trade flows with Canada and Mexico would be a financial hit in farming communities already struggling with low prices for corn, wheat, soybeans and other commodities that the Agriculture Department said may push U.S. farmer profits this year to their lowest since 2006.

Trump’s Leverage

“I think he heard us,” Grassley said of Trump. “But he didn’t give one inch on the leverage that the threat of pulling out has to accomplishing his goals.”

Trump has come under increasing pressure on trade policy from his fellow Republicans in Congress. In addition to warnings about pulling out of Nafta, Republican lawmakers in a separate meeting this week challenged him on his vow to impose tariffs on steel and aluminum imports. Trump last month imposed tariffs on washing machines and solar panels.

Treasury Secretary Steven Mnuchin said during testimony before the House Ways and Means Committee on Thursday that he has had weekly meetings with U.S. Trade Representative Bob Lighthizer and was optimistic about getting a new deal on Nafta.

Grassley sounded hopeful Trump will reconsider the Trans-Pacific Partnership, or TPP, a 12-nation Obama-era trade pact the president trashed on the campaign trail and withdrew from early in his presidency. Trump told CNBC in an interview in Davos, Switzerland, that he might consider rejoining TPP if he could get a better deal for the U.S.

“I’m encouraged that the president said in Switzerland he might think about getting back in TPP,” Grassley said. “I would hope he would see that as very necessary, not only for the economic benefits for it, but because, since he has pulled out, it’s emphasized how nervous the other 11 countries are about China’s hegemony in that area, and that they will use it.”

The other 11 nations that were part of the pact reached a deal to press ahead with a revised agreement without the U.S. The original Trans-Pacific Partnership, which would have covered 40 percent of the global economy, was seen as a guarantee of U.S. involvement in Asia and a counterweight to Chinese clout.

“If he’s really concerned about China, and I know he is concerned about China, then I think TPP would send a very clear signal that not only militarily, but we’re backing it up with our economic muscle," Grassley said.

Mnuchin said in his testimony that while Trump prefers bilateral trade deals, he has expressed an openness to rejoining the Pacific Rim trade agreement.

--With assistance from Toluse Olorunnipa

To contact the reporter on this story: Steven T. Dennis in Washington at sdennis17@bloomberg.net.

To contact the editors responsible for this story: Joe Sobczyk at jsobczyk@bloomberg.net, Justin Blum

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