Negotiators from the U.S. and Canada have reached a revised deal on NAFTA that keeps in place the three-nation agreement, although by a different name and with vastly different terms. While Mexico and the U.S. had already reached a deal, negotiations with Canada proved to be a sticking point that brought process down to the wire on a rather dramatic midnight deadline.
The USMCA (United States, Mexico and Canada Agreement) will replace the long-derided NAFTA and, according to representatives from Ottawa and Washington, will "give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region."
Sunset Clause
For the U.S., one point of contention was the desire to have Sunset Clauses that would allow the agreement to be renegotiated every six years. Pundits have accused Canadian Prime Minister Justin Trudeau of trying to win the “anti-Trump vote” by pulling the deal review system off the table. It seems that all parties have now agreed to include them.
Allowing the deal to be reviewed and renewed periodically is seen as a big win for business, especially tech companies, as innovation tends to move faster than government bureaucracy.
Promises Kept
Whilst campaigning for the presidency, Donald Trump made a pledge to renegotiate the 25-year-old trade deal to the benefit of the U.S. This will almost certainly be seen as another accomplishment the president can tick off as the midterms approach. But it nearly didn’t happen.
Those who doubted Trump’s reputation as “The Great Negotiator” will be eating a fair amount of free-trade crow with this news. Just days ago, the president was asked if he had rejected a meeting with Trudeau. His response?
“Yeah, I did … Because his tariffs are too high, and he doesn’t seem to want to move, and I’ve told him to forget about it.”
A risky move, certainly. But Canada has agreed to allow greater access to dairy markets and to adjust tariffs for automotive exports.
Market Certainty
Perhaps unsurprisingly, both the Canadian dollar and the Mexican Peso received a boost as the revitalized deal shifted from “never going to happen,” to “almost done;” 0.5% and 0.9% respectively.
Market Watch predicts that the S&P 500 could see a record session with news of the announcement. Despite the U.S. trade representative Robert Lighthizer informing Congress that a deal was unlikely just a few days ago, the markets appear to have a little more faith in President Trump’s ability to get deals signed. Investors seemed to “shrug off” warnings and bank on completion.
Jay Timmons, National Association of Manufacturers (NAM) president, said that the deal being trilateral was a positive sign for business:
“Manufacturers are extremely encouraged that our call for a trilateral agreement between the United States, Canada and Mexico has been answered … What’s more, as the United States works to put an end to China’s cheating and unfair trade practices, we are better off united with our North American allies."
Details?
Exact details have yet to be released, but several aspects have filtered out:
U.S. farmers will have access to a percentage of Canadian dairy markets.
Canada will have some protections for its auto industry against tariffs.
U.S. tariffs on aluminum and steel will remain in place.
This is a three-fold victory for President Trump and the United States. First, industry and markets have a tri-lateral deal that governs an estimated $1 trillion per year. Second, other nations can now see that the president is willing to go to the line, and even walk away if he sees a deal is not in U.S. interests. And finally, perhaps most importantly at this crucial juncture, Donald Trump has demonstrated to the American people that he is a man who gets things done and succeeds when his critics predict failure.
It is this tenacity that will set the pace and the tone for the next two to six years of his presidency. If he keeps on delivering his promises, it’s difficult to see how he can lose.
