United States-Mexico Trade Agreement Replaces NAFTA -Trump

by Ike Obudulu Posted on August 27th, 2018

Washington D.C., USA : U.S. President Donald Trump confirmed on Monday that Mexico and the U.S. had reached a bilateral agreement over issues in the renegotiation of the North American Free Trade Agreement (NAFTA), while at the same time suggesting that the “NAFTA” name be gotten rid of.

“We will call it the United States-Mexico Trade Agreement,” Trump said.

The U.S. President indicated that the deal with Mexico is in place and noted that discussions have yet to begin with Canada.

Trump emphasized that he planned to telephone Canadian President Justin Trudeau to get talks underway “soon”, although he said it was unclear whether he would reach a separate deal with Canada or they would form part of the agreement with Mexico.

The U.S. President emphasized that the agreement with Mexico was excellent for American manufacturers and farmers and highlighted that Mexico would immediately begin purchasing more agricultural products from the U.S.

During the brief announcement, he spoke by telephone with Mexican President Enrique Peña Nieto, who offered congratulations on the new pact, adding, “Canada will be incorporated in all this.”

Any revisions to NAFTA will also require congressional approval, and some Republican legislators have been critical of Trump’s plans to reshape the agreement.

US Senate Finance Committee Chairman Hatch said the U.S.-Mexico trade announcement is “important step toward modernizing NAFTA,” a final agreement should include Canada, and he looks forward to reviewing details “so that a revamped NAFTA can pass Congress and become law.”

An agreement to revise the pact would give Trump a significant victory in a trade war he started. The United States in May imposed steep tariffs on steel and aluminum from several countries, including Mexico. Mexico retaliated with tariffs on $3 billion of U.S. exports, including pork, apples, potatoes, bourbon and cheese.

Trump has pressed for changes to the rules involving auto manufacturing in an effort to bring more production jobs to the United States. The U.S. plan calls for increased regional content for autos. At least 75 percent of an automobile’s value must be made in North America, up from 62.5 percent previously, to qualify for zero tariffs. Use of more local steel, aluminum and auto parts will be required, and a certain proportion of the car must be made by workers earning at least $16 per hour, which would benefit the United States and Canada.

Although the deal will not be finalized immediately, the progress in negotiations comes as a relief to U.S. businesses that find themselves in the middle of trade wars with Mexico, Canada, China and the European Union

Mexican President Enrique Peña Nieto indicated earlier that he had spoken to Trudeau, stating that it was important for Canada to rejoin the talks this week.

A spokesperson for Canada’s foreign minister Chrystia Freeland had also stated that Canada was encouraged by reports of the agreement between the U.S. and Mexico but that Canada would need to sign off on the deal.

Canada is encouraged by the continued optimism shown by its NAFTA partners and will continue to negotiate for a deal, but will only sign a new agreement that is good for Canada, a spokesman for Foreign Minister Chrystia Freeland said on Monday.

“Progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement. We are in regular contact with our negotiating partners, and we will continue to work toward a modernized NAFTA. We will only sign a new NAFTA that is good for Canada and good for the middle class. Canada’s signature is required,” spokesman Adam Austen said.

Outside of ongoing NAFTA renegotiations, Trump said that it was not time to talk trade with China, but suggested that the time would come and felt a deal would eventually be reached.

The Trump administration had been expected reach a deal with Mexico on a rewrite of the North American Free Trade Agreement, but the two sides now need a relatively quick buy-in from Canada, which is expected to return to the bargaining table.

The new U.S.-Mexico deal would require 75 percent of auto content to be made in U.S. and Mexico, up from current level of 62.5 percent

The administration’s preliminary agreement with Mexico, which includes a tightening of auto rules to increase production in North America, was struck after several weeks of talks and a marathon session over the weekend in Washington, sources monitoring the talks said Monday.

U.S. and Mexican trade negotiators worked through the weekend and were meeting again on Monday morning at the Office of the U.S. Trade Representative to complete the deal on key provisions of the agreement.

The United States still has significant unresolved issues with Canada, including President Trump’s insistence that Canada open up its dairy market. And time is of the essence.

Mexico and the United States want to have a three-way agreement by the end of this month, to allow enough time for Mexico’s parliament to ratify a revamped NAFTA before its new president takes office on Dec. 1. With various procedural requirements, the earliest U.S. lawmakers could vote on the deal would be next year, when a new Congress is seated.

Still, a handshake with Mexico was a welcome development after a year of difficult negotiations and repeated threats from Trump to withdraw from the pact.

The preliminary bilateral agreement is expected to pave the way for renewed discussions with Canada, which has said it is open to resuming talks once the U.S. and Mexico have settled their differences.

The next step is bringing Canada back into the talks to complete the modernization of the 24-year-old three-nation pact.

President Trump has called NAFTA “the worst trade deal ever made” and said he would fix it so the United States would get the bulk of the benefits.

But on Monday he was reveling in the prospects that a new deal could be nearing completion after more than a year of negotiations.

“A big deal looking good with Mexico!” Trump tweeted on Monday.

Brian Kuehl, executive director of Farmers for Free Trade, said that “while any news of progress on restoring NAFTA certainty is reassuring for American farmers, there are questions that remain on the nature of a final deal.”

The group said that farmers will judge any new NAFTA deal on whether it provides new market access for U.S. agriculture exports and whether it will erode the gains made from the original NAFTA.

“On those points, it will be necessary for Canada to rejoin the negotiations and for an agreement to be reached among all parties before a judgment can be made,” Kuehl said.

“American farmers know better than most that a deal isn’t done until the ink is dry and all parties have agreed.”

U.S. stocks posted strong gains on Monday, with the benchmark S&P 500 and the Nasdaq hitting all-time highs, as news that the United States and Mexico were closing in on a trade deal added to optimism about the economy.

Also helping sentiment was Washington pressing the European Union to speed up trade negotiations.

Nine of the 11 major S&P 500 sectors were higher. The top gainer was the materials sector .SPLRCM with a 1.38 percent increase, as prices of metals and gold rose. The trade-sensitive industrials sector .SPLRCI was up about 0.82 percent.

Boeing (BA.N) and Caterpillar (CAT.N) rose 1.5 percent and 2.5 percent, respectively. Shares of automakers Ford (F.N), General Motors (GM.N) and Fiat Chrysler (FCAU.N) were up between 1.86 percent and 2.26 percent.

“What we are seeing is optimism that there is going to be some resolution to trade difficulties and then there’s the news of the U.S. and Mexico closing in on the NAFTA deal,” said Scott Brown, chief economist at Raymond James in St. Petersburg, Florida.

“Easing trade and NAFTA are probably the biggest things today but I think it’s more fundamental than that, because we’re still seeing a lot of signs of strength in the domestic economy and earnings stories have been very robust.”

Federal Reserve Chairman Jerome Powell said on Friday that the central bank’s gradual interest rate hikes were the best way to protect the economic recovery, maintain strong job growth and keep inflation under control.

At 10:01 a.m. EDT the Dow Jones Industrial Average .DJI was up 213.17 points, or 0.83 percent, at 26,003.52, the S&P 500 .SPX was up 18.15 points, or 0.63 percent, at 2,892.84 and the Nasdaq Composite .IXIC was up 54.28 points, or 0.68 percent, at 8,000.25.

The defensive utilities sector .SPLRCU dropped 0.29 percent, and the real estate sector .SPLRCR dropped 0.01 percent.

Chipotle Mexican Grill (CMG.N) slipped 3 percent, the most on the S&P, after Wedbush downgraded its shares, citing higher risks to the burrito chain’s near-term same-store sales and margin estimates.

Tesla Inc (TSLA.O) dropped 1.9 percent after abandoning a plan to take the electric carmaker private.

Advancing issues outnumbered decliners for a 3.01-to-1 ratio on the NYSE and a 2.61-to-1 ratio on the Nasdaq.

The S&P index recorded 42 new 52-week highs and no new lows, while the Nasdaq recorded 121 new highs and 13 new lows.

Author

Ike Obudulu

Ike Obudulu

Versatile Certified Fraud Examiner, Chartered Accountant, Certified Internal Auditor with an MBA in Finance And Investments who has both worked for and consulted with some of the world's largest companies on main street and wall street in over 20 countries, Ike brings his extensive reporting and investigations experience to bear on his role as Chief Editor.
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