Donald Trump says he was ready to "terminate" the North American free-trade agreement by the end of this week until Prime Minister Justin Trudeau and Mexican President Enrique Pena Nieto talked him out of it in a pair of emergency telephone calls.
Now, the U.S. President is ready to "give renegotiation a good, strong shot" and is confident of reaching agreement. But he warned he would still shred the agreement if he cannot get a "fair deal."
The President said on Thursday that he had been prepared to take a hard line the previous day, when White House officials had anonymously told U.S. media that Mr. Trump was considering an executive order to start the process of U.S. withdrawal from NAFTA.
"Well, I was going to terminate NAFTA as of two or three days from now. The President of Mexico, who I have a very, very good relationship, called me, and also the Prime Minister of Canada, who I have a very good relationship with, and I like both of these gentlemen very much, and they said: 'Rather than terminating NAFTA, could you please renegotiate,'" the President said during an unrelated Oval Office photo opportunity. "I said: 'I will hold on the termination. Let's see if we can make it a fair deal.'"
He acknowledged that pulling out of NAFTA unilaterally would be "a shock to the system," but said the option is still on the table if negotiations fail.
Mr. Trump's new-found collegiality was the latest development in a week of NAFTA whiplash, in which the President suddenly launched a barrage of attacks on Canada's trade practices, considered unilaterally pulling out of the deal, then abruptly backed down and declared himself ready to start talks.
It remained unclear whether the world's most powerful leader really reversed himself on a major file based purely on persuasive conversations with two other leaders or if the entire thing had been a high-stakes bluff all along.
It also showcased the power of an emerging alignment between Canada and Mexico, which both want to preserve as much of NAFTA's open market as possible.
Canadian government sources said Ottawa viewed Mr. Trump's prospective executive order as pure posturing. They also understood the move to be a way to put pressure on the U.S. Congress, which has held up the confirmation of Mr. Trump's trade czar, Robert Lighthizer, delaying the start of NAFTA talks. Still, Canada took the threat seriously enough to have Mr. Trudeau call the President.
Mr. Trudeau said on Thursday that Mr. Trump told him he "was seriously considering withdrawing from" NAFTA. But Mr. Trudeau said he warned Mr. Trump that pulling out would cause "a great deal of suffering" on both sides of the Canada-U.S. border.
Pulling out of the trade deal would result in tariffs on goods entering Canada and Mexico from the United States, leading to a drop in U.S. exports and increasing production costs for manufacturers and other companies with supply chains that cross international borders, such as the automotive industry.
"For now, we're trying to keep this on a positive and co-operative level, and in fact the President himself said that he wanted the same thing, in our discussion," Mr. Trudeau told reporters during a visit to Saskatchewan.
Mr. Trudeau said he sought common ground with Mr. Trump during the conversation, noting that "he, like me, got elected on a platform of helping people, helping the middle class, growing the economy in ways that bring along people who don't always feel like they've had a fair shake."
Foreign Affairs Minister Chrystia Freeland also spoke with her Mexican counterpart, Luis Videgaray, to compare notes after the reports of Mr. Trump's NAFTA withdrawal surfaced on Wednesday, Mr. Videgaray told Radio Formula.
And Mr. Trudeau spoke with Mr. Pena Nieto on Thursday. A summary of their call released by the Prime Minister's office said the pair "welcomed" Mr. Trump's decision the previous day to renegotiate NAFTA and "reiterated their respective readiness to do likewise."
Both Canada and Mexico adopted similar play-it-cool strategies, opting not to escalate the dispute by hitting back publicly at Mr. Trump.
Now, attention will turn to the negotiations themselves. Senate Republicans and Democrats reached a deal earlier this week that will likely mean Mr. Lighthizer can be confirmed within the next two weeks. After that, the White House will formally notify Congress of NAFTA talks, triggering a 90-day countdown to negotiations.
Robert Holleyman, the number two U.S. trade official under president Barack Obama, said the United States cannot realistically pull out of NAFTA because it would be so economically damaging. This means the countries will have to reach an agreement all three can live with.
"Withdrawal is not a viable option," he said. "Walking away from a deal only works if you don't need the deal or if you have a different viable option. Neither of these exist with NAFTA. When you have an integrated economy, withdrawing would be painful. The United States does not have another option to make up for the loss of NAFTA."
Canadian industry leaders and analysts gave high marks to Mr. Trudeau's strategy for handling Mr. Trump before negotiations. They said the country should ignore the day-to-day rhetorical flourishes coming from the White House while continuing the vigorous lobbying campaign to impress upon U.S. politicians how important NAFTA is to their economy.
Flavio Volpe, president of the Automotive Parts Manufacturers' Association of Canada, likened Canada to a hockey goalie in a shootout. "The shooter's coming at you. He may have 100 moves, he may have one move. At one point that puck leaves his stick. You've got to keep your eye on the puck."
Patrick Leblond, a professor in the graduate school of public affairs at the University of Ottawa who specializes in trade, said senior Canadian business leaders should join the government's back-door diplomatic efforts.
"There are a lot of North American companies, American companies, Canadian companies that are big on either side of the border and those companies need to bring that message to Washington and explain that the world has changed," Prof. Leblond said.