In a hastily arranged Oval Office conference with Mexican President Enrique Pena Nieto joining by speakerphone Trump announced that he is terminating NAFTA as it now stands and entering a different deal with Mexico, and possibly Canada if they want to negotiate “fairly.” If not, Trump will slam tariffs on Canada’s cars.
During the conference, Trump said that: “They used to call it NAFTA, we’re going to call it the ‘United States Mexico Trade Agreement.’ We’ll get rid of the name NAFTA.”
So it’s the USMTA from now on, with a possible expansion to include Canada.
A key provision of the new deal is an increase in the mandated locally-sourced auto content from 62.5% to 75%, and that 40% to 45% of auto content would be made by workers earning average base wage of $16/hour. According to the US Trade Rep, the new rules will “incentivize billions annually” in additional U.S. vehicle and auto parts production” and help preserve and re-shore industry jobs and investment.
The deal also maintains duty-free access in farm products, while the countries have also agreed to stronger rules-of-origin for industrial products such as chemicals, steel-intensive products, glass and optical fiber.
A new “market access chapter” will address non-tariff barriers in re-manufactured goods along with import/export licensing. The US and Mexico also agreed to new language on the textile and apparel trade, which will promote greater use of American-made fibers, yarns and fabrics, and limit the use of non-Nafta inputs for the industry, per the USTR.
Trump called today’s NAFTA revamp “a big day for trade” and said he plans to change the name of a reworked version of the accord.
Nieto said he hoped Canada would soon be incorporated in the revised agreement, while Trump said that remains to be seen. As he announced the move, Trump said he would drop the name Nafta for the trade arrangement because of the bad connotations of a deal that has been criticized as contributing to the flow of jobs from the U.S. to Mexico.
The agreement between the U.S. and Mexico is the biggest development in talks that began a year ago, punctuated by Trump’s repeated threats to quit altogether. Breakthroughs came during the past several days of bilateral talks on automobiles and energy. The three countries trade more than $1 trillion annually, much of it under the pact.
The question remains: what happens to Canada next?
“I think with Canada, frankly, the easiest we can do is to tariff their cars coming in. It’s a tremendous amount of money and it’s a very simple negotiation. It could end in one day and we take in a lot of money the following day,” Trump said.
“We are now inviting the Canadians in as well and hope that we can reach a fair and successful conclusion with them as well,” a senior U.S. trade official told Reuters in an interview. “There are still issues with Canada but I think they could be resolved very quickly,” the official said.
A spokesman for Canadian Foreign Minister Chrystia Freeland said Canada would continue to negotiate, but would only sign a new agreement that is good for the country.
Negotiations between the three trade partners have dragged on for more than a year and repeated threats by Trump that he would ditch the 1994 accord have roiled financial markets, putting pressure on the Mexican peso and the Canadian dollar.
Some other details of what Trump announced, courtesy of from Reuters and Bloomberg:
TRUMP SAYS WE ARE GOING TO CALL THIS THE UNITED STATES-MEXICO TRADE AGREEMENT, GETTING RID OF NAFTA NAME: RTRS
PENA NIETO USES NAME NAFTA IN TALKING ABOUT TRADE DEAL
TRUMP CALLS MEXICAN PRESIDENT TO CONGRATULATE HIM ON THE DEAL
MEXICAN PRESIDENT TELLS TRUMP ON CALL IT IS MEXICO’S WISH THAT CANADA NOW BE INCORPORATED INTO THE DEAL
MEXICAN PRESIDENT SAYS HE IS GRATEFUL FOR TRUMP’S POLITICAL WILL AND PARTICIPATION IN TRADE DEAL
TRUMP SAYS TRADE DEAL WITH MEXICO IS VERY SPECIAL FOR MANUFACTURERS AND FARMERS: RTRS
*TRUMP PITCHES U.S.-MEXICO TRADE DEAL: `INCREDIBLE’ FOR WORKERS
TRUMP: `HAVEN’T STARTED’ WITH CANADA YET; WANTED MEXICO FIRST
TRUMP SAYS HE’LL CALL CANADA PM TRUDEAU SOON
TRUMP SAYS WE COULD DO A SEPARATE DEAL WITH CANADA OR MAKE THEM PART OF THE DEAL WITH MEXICO
TRUMP: `EVENTUALLY WE’LL BE ABLE TO’ WORK OUT DEAL WITH CHINA
TRUMP SAYS THE EASIEST THING TO DO WOULD BE TO PUT TARIFFS ON CANADIAN CARS
U.S.-MEXICO DEAL WOULD SEE 40-45 PCT OF AUTO CONTENT MADE BY WORKERS EARNING AVERAGE BASE WAGE OF $16 PER HOUR – USTR OFFICIAL
U.S.-MEXICO DEAL WOULD INCREASE U.S. AND REGIONAL CONTENT IN AUTOS TO 75 PCT FROM CURRENT 62.5 PCT
USTR LIGHTHIZER SAYS NAFTA “SUNSET” CLAUSE SHIFTED TO A REVIEW PROCESS EVERY SIX YEARS THAT WILL NOT CAUSE TRADE PACT TO EXPIRE
USTR LIGHTHIZER SAYS NAFTA WILL HAVE 16 YEAR LIFE SPAN, TO BE EXTENDED FOR ANOTHER 16 YEARS AFTER COMPLETION OF EACH 6 YEAR REVIEW PERIOD
MEXICO AGREES TO ELIMINATE CHAPTER 19 DISPUTE SETTLEMENT CHAPTER-USTR
The announcement of a U.S.-Mexico agreement lifted financial markets. Trump said he would talk to Canadian Prime Minister Justin Trudeau soon. A senior U.S. trade official said there are hopes that a final three-nation accord can be reached by Friday.
The peso rose ahead of Trump’s remarks. U.S. stocks also advanced, with auto suppliers and rail companies among the top gainers. Canada’s loonie gave up on gains as it emerged that Canada appears to be out in the cold for now.
There is no deal reached yet with Canada, people familiar with the agreement said. The northern neighbor has been on the sidelines of the talks since July as Mexico and the U.S focused on settling differences, Bloomberg notes.
A spokesman for Canadian Foreign Minister Chrystia Freeland issued a statement on Monday that warned against jumping to conclusions. “Canada’s signature is required,” spokesman Adam Austen said in an email. “We will only sign a new Nafta that is good for Canada and good for the middle class” and “we will continue to work toward a modernized Nafta.”
Meanwhile, today’s entire spectacle could be moot because Congress can not ratify the deal this session, and any deal would be effective in 2019 at the earliest.