By Will Mauldin and Josh Zumbrun 

The future of the North American Free Trade Agreement, which binds the economies of the U.S., Canada and Mexico, has rarely looked as murky as it does right now.

Negotiators missed a self-imposed deadline to rewrite the deal in May. Then a quarrel between U.S. President Donald Trump and Canadian Prime Minister Justin Trudeau after G-7 meetings in Quebec this month put key players at odds with each other just as negotiators were trying to decide what steps to take next.

The president is strongly guided by his gut and relationships with others, and also prone to impatience -- all of which could signal an intent to leave a treaty he doesn't like. But those presidential instincts are at odds with other forces that give Mr. Trump and his trade team an incentive to stay in the deal and keep negotiating for now.

The stakes are high: $1.1 trillion in trade between the U.S. and its neighbors and $840 billion of investment ranging from the auto industry to food and agriculture.

Mr. Trump won the 2016 presidential election with a promise to make Nafta "a lot better" for the U.S., or pull out altogether. He has already lighted some fuses that could blow up the agreement, warning of possible U.S. tariffs on vehicles and auto parts, following duties imposed June 1 on steel and aluminum from Canada and Mexico. Trump administration officials have been particularly frustrated with Canada for not making more concessions at the negotiating table.

According to the terms of Nafta, if the president decides to leave the deal, he must provide formal notice of intent to withdraw and then may complete the withdrawal six months later. He could then seek bilateral deals with the two U.S. neighbors.

Without Nafta, trade among the countries would be governed by rules and tariffs agreed to among members of the World Trade Organization. The Congressional Research Service has said that trade between the nations would likely be conducted on the same basis as other nations that have no trade agreements but good relations. That would mean average tariffs of 3.5% from the U.S., 4.1% from Canada and 7% from Mexico. The tariffs would be especially high on agriculture, a major hit to U.S. farmers.

Republican lawmakers, especially senators from agricultural states that supported Mr. Trump, have sought to convince the president to stay in the pact and warned him of potential political repercussions in the 2018 midterm elections if he leaves the trade agreement and exposes farmers to tariffs on their exports to Canada and Mexico.

Three key parties could be highly resistant to a unilateral pullout: Canada, Mexico and the U.S. Congress. Congress passed legislation implementing Nafta, and so unilateral withdrawal could set off a messy legal dispute between the two major arms of government. The Constitution gives Congress the authority "to regulate Commerce with foreign nations" while the president has the power, with the advice and consent of the senate, to make treaties.

Meantime, bilateral deals would be hard to achieve. Mexican officials, who are preparing for a presidential election on July 1, have said they aren't willing to negotiate if Mr. Trump starts the process of withdrawal.

Trump's lead trade official, U.S. Trade Representative Robert Lighthizer, has said he is willing to keep working toward a deal. "In his discussion last week with us he did talk about opportunities after the election in Mexico, where there might be an opportunity to find common ground later this fall," Rep. Kevin Brady (R., Texas), the chairman of the House's committee that oversees trade, said Wednesday.

Canadian Foreign Minister Chrystia Freeland seconded that after meeting with Mr. Lighthizer last week. "All three countries are clear that meaningful progress has been made to date and we need to keep working hard to get to a deal on a modernized Nafta," Ms. Freeland told reporters in Washington, after a one-hour meeting with Mr. Lighthizer. The three "will be working hard over the summer," she said.

Areas of deep division remain. For example, the U.S. is seeking deep concessions from Canada to open up its dairy market.

But the three sides have made progress in other areas. This spring, Mr. Lighthizer dropped a demand on Nafta's auto rules that Canada and Mexico had flatly rejected -- the idea that all cars traded duty-free in the bloc should have 50% U.S. content.

Instead, Mr. Lighthizer worked with Mexico on a rule that would require a certain percentage of cars to be made with high-wage labor, according to people familiar with the proposal.

Detroit auto makers were encouraged by the progress, and groups that support Mr. Lighthizer hailed it as a sign that Nafta's puzzle pieces could fall into place.

Major trade negotiations frequently span several years and administrations. The big question is whether Mr. Trump will have the patience to see these trade negotiations through according to those traditional standards.

(END) Dow Jones Newswires

June 17, 2018 13:33 ET (17:33 GMT)