President Donald Trump is seriouslyconsidering separate trade negotiations with Canada and Mexico buthe doesn't plan to withdraw from the North American Free TradeAgreement (NAFTA), White House economic adviser Larry Kudlowsaid.“His preference now, he asked me to convey this, is toactually negotiate with Mexico and Canada separately,” Kudlow saidTuesday during an interview on Fox News. “I know this is just threecountries but still, you know, oftentimes when you have tocompromise with a whole bunch of countries you get the worst of thedeals.”Kudlow's comments suggest Trump is serious about theposition he staked out Friday, when he floated the idea of pursuingbilateral pacts with the NAFTA partners in response to questionsfrom reporters about the status of negotiations. Canada and Mexicoon Tuesday both repeated their commitment to keeping the 1994 tradeagreement a trilateral accord.Trump doesn't plan to quit NAFTA,Kudlow said on Tuesday, addressing a repeated threat from thepresident to walk away from the deal since talks started inAugust.

|

'Different Approach'

“The president's not going to leave NAFTA. He's not going towithdraw from NAFTA,” said Kudlow. “He's just going to try adifferent approach. I can't offer timing here, but judging fromwhat he told us yesterday, I think he'd like to start that approachrather quickly.”Negotiators have reached agreement on about nine of30 chapters for an updated NAFTA, and the U.S. had been pushing toget a deal passed in this Congress, which would require anagreement around now. A key Republican senator, John Cornyn, saidon Monday that window is now closed and talks are expected toproceed more slowly going forward.The peso sank to its weakestlevel in more than a year on Tuesday amid concern a trade pact withthe U.S. won't be approved by Congress before 2019.Any of the threecountries can quit NAFTA on six months' notice. No country hasgiven such a warning, and only Trump threatens to. If he gave itand did actually exit, Canada has a pre-existing bilateralarrangement to fall back on, but it would probably require anupdate too.

|

What Happens in 2019

Pushing NAFTA talks into next year—as is likely—may change thedynamic of negotiations. Democrats may take one or both chambers ofCongress from Republicans in November midterms and push backagainst a new trade deal, while Mexicans will elect a new president in July.The current front-runner, Andres Manuel Lopez Obrador, has at timestaken a strong anti-Trump tone and has been a vocal critic ofNAFTA.Lopez Obrador favors updating the treaty with all threenations, his economic adviser Gerardo Esquivel said on Tuesday. “Wewant to have a NAFTA 2.0 not a NAFTA 0.5. That means we want abetter and updated NAFTA,” said Esquivel.Three-way talks to updatethe pact are continuing, a Canadian government official saidTuesday, speaking on condition of anonymity after Kudlow'sremarks.Negotiations over rewriting NAFTA are already largelybilateral, given most meetings typically occur between two nationsat a time, the official said, playing down any significant shiftaway from the current format of talks. The president has regularlyraised the prospect of a bilateral deal so Tuesday's commentsaren't new, the official added.

Copyright 2018 Bloomberg. All rightsreserved. This material may not be published, broadcast, rewritten,or redistributed.