US rejects NAFTA in favor of a deal with Mexico: what does this mean for the economy

The administration of US President Donald Trump 27 August announced a preliminary agreement with Mexico City on a trade deal to replace the current North American Free Trade Area (NAFTA) Agreement between the United States, Mexico and Canada. According to Trump, a new bilateral deal, in which Canada has been invited to join, will be beneficial for both parties.

Photo: twitter.com/realDonaldTrump

The head of state made a teleconference with the President of Mexico Enrique Pena Nieto on the occasion in the presence of the press, who spoke with Trump through an interpreter, reports TASS. After the Mexican leader thanked his American counterpart for the productive negotiations of trade delegations, the head of the White House told some details of the new agreement. It was announced that NAFTA will cease to exist, and the new document will be called differently.

Bad associations with NAFTA

“I will terminate the current agreement. I cannot say exactly when this will happen, since the time frame will depend on Congress. However, the [NAFTA] deal will end and we are entering into this [bilateral] agreement with [Mexico],” the US President said.

“It used to be called NAFTA, but we will call it the US-Mexico Trade Agreement. We will get rid of the name NAFTA, it has bad associations because the US suffered a lot of damage because of NAFTA. We are now making a great deal for both countries,” Trump explained.

US trade negotiator Robert Lighthizer, who also attended the event, explained that the US administration "expects to send a message to Congress to get the process going this coming Friday." “I would like it to be signed by the end of November because, by regulation, there is a 90-day delay,” explained Lighthizer, who was in charge of NAFTA trade negotiations with Trump adviser and son-in-law Jared Kushner.

Dialogue with Canada

Justin Trudeau, Prime Minister of Canada. Photo: instagram.com/justinpjtrudeau

“As for Canada, we have not yet started [negotiations] with them. We wanted to make an [agreement] with Mexico, see if it could be done,” Trump said. At the same time, he stated that a dialogue on trade with Canada will begin very soon.

“I will be calling the Prime Minister [Justin Trudeau] and starting consultations. If [Canada] wants to negotiate honestly, then we will participate in them,” the president added.

The head of state immediately indicated that one of the simplest options for resolving the US trade dispute with Canada would be the introduction of customs duties on imported Canadian cars, which, in his opinion, would be an adequate response to Canadian duties on some American goods. The latter, according to the Republican, “reach 300% for a number of categories of dairy products.”

“The simplest thing we can do is to impose customs duties on [Canadian] cars coming into our country,” Trump said. - These are just huge amounts of money. In this case, these will be extremely simple negotiations: they can be completed in one day, and the next we will already receive a lot of money.”

Trump still did not rule out the possibility that his country would allow Canada to take a different path and negotiate with the United States on other, probably more favorable terms for the deal for Ottawa. “We can go for a separate agreement, or we can add it to this agreement - to the US-Mexico Trade Agreement,” he said.

Bilateral or tripartite

After the event in the White House, representatives of the US administration held a special briefing for journalists on the announcement of the president, which clarified some points of the upcoming agreement with Mexico and, possibly, with Canada. In particular, one of the administration’s representatives was asked how she was going to notify the Congress of a bilateral agreement with Mexico, if at the same time does not rule out Canada’s accession to it as a third party.

The official explained that the US authorities will be negotiating with Canada until Friday and expect that a letter will ultimately be sent to Congress notifying them of their intention to conclude a trilateral agreement. “Ideally, we will tell Congress that Canadians will be involved [in the deal]. But if the Canadians do not participate, we will notify that we are entering into a bilateral agreement, which Canada can subsequently join,” explained a US administration official.

Enrique Peña Nieto, President of Mexico. Photo: instagram.com/epn

Term of agreement

As explained by the same representative of the executive branch of the United States, the new agreement will have a validity of 16 years, but every six years there will be an audit of it, after which the agreement can be extended and extended for another 16 years.

“How our agreement will work: we have a 16-year term, and we will have a review after six years of validity, during which we hope we can work out the existing problems. Based on the results of this audit, we expect that the contract will be extended for 16 years,” he noted.

About NAFTA

The North American Free Trade Agreement between Canada, the United States and Mexico was signed in 1992 and came into force in 1994. The document provided for the gradual abolition by countries of customs duties in domestic trade. The ultimate goal is the complete removal of trade barriers. In addition to trade in goods, the agreement also covered the liberalization of trade in services and the investment regime, the protection of intellectual property rights, cooperation in the fight against environmental pollution and other areas.

By the time NAFTA came into effect, most tariffs on trade in goods between the United States and Canada had already been eliminated. Effective January 1, 1994, tariffs were eliminated on half of Mexican exports to the United States and one-third of American exports to Mexico. The remaining trade barriers between countries were gradually eliminated over 15 years. The provisions of the agreement were fully implemented by 2008.

The US trade with Mexico and Canada has tripled during the period of the NAFTA, while it grew at a faster pace than trade with the rest of the world. About 14 million jobs were created in the US in trade with Mexico and Canada. Critics of NAFTA claim that the implementation of the agreement led to a reduction in 600 of thousands of jobs and a drop in wages due to the large influx of cheap labor from Mexico and the transfer of many industries to its territory, which particularly affected the automotive sector.

On January 23 last year, Trump signed an executive order to begin negotiations with Mexico and Canada to change the terms of NAFTA. He has repeatedly said that Mexico has a $60 billion trade deficit and that NAFTA was "a one-sided deal from the beginning." According to the president, this agreement led to job losses and falling wages in the United States.

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