US, Mexico reach new trade deal
Canada under pressure to agree on terms as neighbors overhaul NAFTA
WASHINGTON — The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (known as NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.
Auto stocks soared and the S&P 500 and the Nasdaq rallied to record highs on the expectation that Canada would sign onto the deal and ease the economic uncertain- ty caused by US President Donald Trump’s repeated threats to ditch the 1994 accord.
Asian shares were mostly higher on Tuesday after the announcement.
Details of gains and concessions in the deal were only starting to emerge on Monday. Trump threatened he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada’s dairy protections.
“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.
Trump and Canadian Prime Minister Justin Trudeau discussed the issue in a telephone call on Monday and “agreed to continue productive conversations”, White House spokeswoman Sarah Sanders said in a statement.
Trudeau’s office said the leaders now “look forward to having their teams engage this week with a view to a successful conclusion of negotiations”.
Negotiations among the three partners, whose mutual trade totals more than $1 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso and the Canadian dollar. Both currencies gained against the dollar after the announcement.
The political stakes are high for all three countries. Trump and Republicans in the US Congress up for re-election in November want to ensure farmers and other voters whose jobs depend on trade with Canada and Mexico that the deal is sealed.
Mexican President Enrique Pena Nieto wants to sign the agreement before leaving office at the end of November, and Trudeau faces a national election expected by October 2019.
The Mexico-US discussions focused on crafting new rules for the automotive industry, which Trump has put at the heart of his drive to rework a pact he has described as a “disaster” for US workers.
The deal would require 75 percent of auto content to be made in the NAFTA region, up from the current level of 62.5 percent, a US trade official said.
That requirement could shift some auto parts manufacturing to Mexico from China, a White House official said, speaking on condition of anonymity.
The US relented on its demand for an automatic expiration for the deal, known as a “sunset clause”.
Instead, the US and Mexico agreed to a 16-year life span for the deal, with a review every six years.