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Minister of Foreign Affairs Chrystia Freeland speaks to the media before the Liberal cabinet retreat in London, Ont., on Friday, January 12, 2018.

Nathan Denette/The Canadian Press

At the end of a week during which fears of the demise of NAFTA sent markets gyrating, the United States is giving Canada and Mexico hope that the continental trading block may not be doomed after all.

U.S. President Donald Trump said the renegotiation of the North American free-trade agreement is "moving along nicely," while House Speaker Paul Ryan called for the United States to change the pact from within rather than abandon it.

Canada expressed cautious optimism in the face of the softer tone – but warned that with the unpredictable Mr. Trump, Ottawa would not let down its guard.

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In a wide-ranging interview with The Wall Street Journal, Mr. Trump said he still planned to "terminate" NAFTA if a deal cannot be reached, but that he would prefer it did not come to that.

"I would rather be able to negotiate," the President was quoted as saying in a transcript of the discussion. "We've made a lot of headway. We're moving along nicely. [U.S. Trade Representative] Bob Lighthizer and others are working very hard, and we'll see what happens."

Mr. Trump even suggested he might extend talks past his current deadline in March, to after the Mexican presidential election in July. Asked if he had a timetable for deciding whether to pull out of NAFTA, he replied: "No."

"I'm leaving it a little flexible because they have an election coming up," the President said. "There's no rush."

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Mr. Trump's assessment is surprisingly positive compared with his administration's usual rhetoric. His words came a day after a Reuters story that cited unnamed Canadian officials speculating Mr. Trump would start the process of pulling out of NAFTA this month caused the loonie to take a hit and rattled the bond markets.

Foreign Minister Chrystia Freeland said she hoped Mr. Trump would follow through on his idea to extend the deadline.

"I thought that was a sensible suggestion from the President," she told reporters on Friday at a cabinet retreat in London, Ont. "We've always felt that imposing artificial deadlines was not necessary from the Canadian standpoint."

Prime Minister Justin Trudeau was more circumspect.

"People know that we remain positive and hopeful, but we know that this particular administration can be somewhat unpredictable, and we are prepared for anything. We have contingency plans," he said at the retreat.

Mr. Trudeau pointed to pro-trade politicians and business groups speaking out in favour of NAFTA. A key part of Ottawa's strategy for the past year has been lobbying those people to put pressure on the White House.

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NAFTA-loving legislators from Mr. Trump's Republican Party, most prominently Kansas Senator Pat Roberts, have met with the President to sell him on the deal's benefits. And U.S. Chamber of Commerce president Tom Donohue warned in a speech on Wednesday to business leaders that pulling out of NAFTA would be "a major mistake" that "would send us five steps back."

On Friday, Mr. Ryan reiterated his long-standing complaint about Canada's supply-management system for dairy, which protects domestic producers at the expense of cheese makers such as those from the Speaker's native Wisconsin, but said such problems could be resolved without tearing up NAFTA.

Luz Maria de la Mora, a Mexican business consultant and former trade negotiator, said two key factors are working in NAFTA's favour. The passing of a major tax-cut bill last month has relieved pressure on Mr. Trump to deliver a major victory to his base and freed up the pro-trade Republican caucus to turn its attention to NAFTA. And midterm congressional elections in the fall have got legislators in Midwestern farm states, which rely heavily on the Mexican market to buy their corn and soybeans, increasingly jittery they will be punished at the polls if Mr. Trump shreds the deal. But she cautioned that the result of the renegotiation is still "a toss-up."

"With Mr. Trump, you never know," Ms. de la Mora said in an interview. "Today, he's in a good mood for whatever reason. Tomorrow, he'll be in a bad mood."

The sixth session of talks is scheduled to start on Jan. 23 in Montreal.

Despite his newly softened stand, Mr. Trump told The Wall Street Journal the United States has a $17-billion (U.S.) trade deficit with Canada. In fact, his country's own calculations show it had a $12.5-billion surplus in 2016, the most recent year for which numbers are available.

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And he shrugged off concerns the markets would not look kindly on any decision to unravel one of the world's largest free-trade zones.

"I can tell you I'm not sure about world markets, but I can tell you I think the American market would go up if I terminated NAFTA and renegotiated a new deal," Mr. Trump said.

And he insisted a renegotiated NAFTA would somehow make Mexico pay for his promised wall along the U.S. border with that country – an assertion Mexico swiftly shot down.

"Let this be clear," tweeted Kenneth Smith Ramos, Mexico's chief NAFTA negotiator, "the issue of the payment for a #border #wall is not, and will never be, part of the #NAFTA #negotiations #wearenotjoking."

With a report from Bloomberg

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