Dive Brief:

• The second round of talks to renegotiate NAFTA begins today in Mexico City amid high tensions between the United States and Mexico over President Donald Trump's threats to withdraw from the deal. The latest round will end on Tuesday, Sep. 5.
• Despite the rhetoric, the second round of talks may yield the first set of deals, as stakeholders begin discussing specific positions on key clauses of the deal. El Heraldo de Mexico reports the talks will focus on intellectual property, labor and energy.
• The second round, therefore, presents an opportunity for the three countries to score victories for their constituents. Canda and the U.S. are expected to demand Mexico raise its salaries and standards, while Mexico seeks to gain further access to the North American energy market after reforming its state-run monopoly. 

Dive Insight:

President Donald Trump put NAFTA negotiators in a tough position last week when he tweeted a threat to terminate the agreement since Mexico and Canada were "being very difficult" in the renegotiation.

The news made waves around trade circles, and while widely seen as posturing, prompted a quick and equally tough response from Mexico: if Trump begins the withdrawal process, further talks are off the table. Most recently, Mexico's Economy Minister Ildefonso Guajardo said Mexico and Canada would likely remain in NAFTA even if the U.S. withdrew.

Such a move would reshape incentives for countless companies, likely making it cheaper to produce in Canada and export to the U.S., which runs counter to the administration's goal of reducing the trade deficit. In brief, while the U.S. threatens NAFTA, Mexico is countering with rhetoric that makes it clear the U.S. would be the largest loser of such an action.

We are in the NAFTA (worst trade deal ever made) renegotiation process with Mexico & Canada.Both being very difficult,may have to terminate?

— Donald J. Trump (@realDonaldTrump) August 27, 2017

But beyond the high-level disputes between Mexico and the U.S., news surrounding the agreement reveal progress is being made and the negotiators remain committed to a new deal by 2018.

Over the course of the week, Mexican officials met with counterparts in the U.S. — including Jared Kushner, USTR Robert Lighthizer, and Secretary of State Rex Tillerson — to touch base on progress since the first round of talks. Similarly, the U.S. and Mexico held talks on other aspects of the bilateral relationship, such as border security and aid for natural disasters.

Meanwhile, specifics on NAFTA are scarce as the three countries signed a non-disclosure agreement at the start of the first round, but individual reports suggest the Mexico City meeting may mark a milestone in negotiations. The topics outlined for discussion, it should be noted, may be among the easiest — or at least, the clearest in terms of interest and limitations from all countries — and should present an opportunity for success.

In light of recent tensions, a win-win-win announcement at the end of the round would be welcome news. However, it is still unclear how much each country will reveal at the end of this round.