NAFTA No More: U.S. Reaches Deal With Mexico, Puts Pressure on Canada [Updated]
President Donald Trump announced a trade “understanding” with Mexico on Monday — not to be confused with an official deal — that would lead to an overhaul of the North American Free Trade Agreement. Trump made the announcement from the Oval Office, with Mexican President Enrique Pena Nieto listening in by speakerphone.
While it’s still too early to show up in a Lockheed S-3 Viking and tell the world “mission accomplished,” the announcement is the most overt example of progress on NAFTA we’ve seen. Interesting, considering it seemed as if Trump was openly calling for its death during the meeting.
Earlier in the day, Mexican officials said trade talks with the U.S. had concluded, adding that an announcement could come later in the day. The White House confirmed the reports an hour later on its government website, with Donald Trump stating there was a “big deal looking good with Mexico” via twitter.
Negotiators from the United States and Mexico have worked for weeks to resolve differences on numerous contentious issues while Canada waits in the wings. Among the biggest issues for Mexico are the rules of origin, which dictate that a certain percentage of every automobile must be built from parts that originated from countries within the NAFTA region to avoid tariffs. The U.S. wants to get that percentage up, while Mexico has taken a hard stance against it. The Trump administration also pushed for the inclusion of a sunset provision, under which the revised NAFTA agreement would expire after five years unless all three countries take steps to extend it. Both Canada and Mexico turned their nose up at the idea.
It’s assumed those issues and a handful of others served as sticking points that frequently stalled meaningful discussion on other aspects of trade. However, Mexican Economy Minister Ildefonso Guajardo Villarreal said Monday that the nations have “continued making progress,” and would eventually reach some kind of agreement. He expects Canada to return to the table soon.
“Once the bilateral issues get resolved, Canada will be joining the talks to work on both bilateral issues and our trilateral issues,” Chrystia Freeland, Canada’s foreign minister, said Friday. “And will be happy to do that, once the bilateral US-Mexico issues have been resolved.”
“Big day for trade. Big day for our country,” Trump said in the opening moments of the hastily assembled announcement before handing the floor over to the Mexican president.
“[We would like to] celebrate the understand we’ve had between both negotiating teams on NAFTA,” said Peña Nieto over the phone before announcing his pleasure that Canada could now rejoin the debate.
Trump seemed less interested in a multilateral deal that included Canada, saying he would contact Prime Minister Justin Trudeau shortly, but noted that he would be happy to establish a separate deal and abandon the NAFTA name, due to negative connotations — calling the current understanding the “United States-Mexico Trade Agreement.”
Specifics on the deal are practically nonexistent, however. Likely referring to the automotive industry, the president said it would be especially great for the manufacturing sector, but gave no details. Future (more formal) announcements are planned. But the president’s statement from the Oval Office seemed targeted at letting American’s know a deal had been reached with Mexico, signatures were forthcoming, and that the trade ball was now in Canada’s court.
Update: Later in the day, details emerged about some of the agreed-upon issues. The new arrangement stipulates that U.S. and Mexico-based, car companies would be required to manufacturer at least 75 percent of an automobile’s total value within North America. The existing rules require 62.5 percent. It was also said that a certain proportion of the vehicles will have to be built by workers earning at least $16 an hour in both countries. Mexican-based companies that don’t adhere to the new regulations would be subjected to a 2.5 percent tariff when exporting to the U.S.
Trump also said he would consider upping tariffs on Canadian automobiles in response to its high dairy taxes, saying it would be the easiest way to hammer out a deal. But he was more than willing to have talks that would result in a mutually beneficial agreement. “We are looking at helping our neighbors too,” he said. “If we can help our neighbors that’s a good thing, not a a bad thing.”
[Image: NAFTA Secretariat]
A staunch consumer advocate tracking industry trends and regulation. Before joining TTAC, Matt spent a decade working for marketing and research firms based in NYC. Clients included several of the world’s largest automakers, global tire brands, and aftermarket part suppliers. Dissatisfied with the corporate world and resentful of having to wear suits everyday, he pivoted to writing about cars. Since then, that man has become an ardent supporter of the right-to-repair movement, been interviewed on the auto industry by national radio broadcasts, driven more rental cars than anyone ever should, participated in amateur rallying events, and received the requisite minimum training as sanctioned by the SCCA. Handy with a wrench, Matt grew up surrounded by Detroit auto workers and managed to get a pizza delivery job before he was legally eligible. He later found himself driving box trucks through Manhattan, guaranteeing future sympathy for actual truckers. He continues to conduct research pertaining to the automotive sector as an independent contractor and has since moved back to his native Michigan, closer to where the cars are born. A contrarian, Matt claims to prefer understeer — stating that front and all-wheel drive vehicles cater best to his driving style.
More by Matt Posky
Comments
Join the conversation
No, there's no deal. The US and MX have an agreement, but to make a deal they now need to get Canada on board. If there's any justice at all in this world, Canada will string he proceedings along until after the mid terms, the way Iran waited for uncle Ronnie to be crowned before releasing their hostages.
On the surface, the new bilateral deals look like a strong slap against China, especially the unlawful routing of components from China, through Mexico. More importantly, this is part of a bigger strategy to start undermining China and strengthen the economies of our southern neighbors. It is much better for America's immigration policy to try and push lower labor cost manufacturing here in the Americas (think Guatemala, Nicaragua, Honduras). The low cost labor manufacturing is going to somewhere, and frankly, I'd rather it stayed in the Americas to help strengthen our neighbors than to support China's rise.