Washington and Ottawa reached an agreement on Sunday after weeks of tense bilateral talks to update the 1994 North American Free Trade Agreement. The United States forged a separate trade deal with Mexico, the third member of NAFTA, in August.
The new agreement, called the United States-Mexico-Canada Agreement (USMCA), is aimed at bringing more jobs into the United States, with Canada and Mexico accepting more restrictive commerce with the United States, their main export customer.
“These measures will support many – hundreds of thousands – American jobs,” Trump said at the White House, describing the trade deal as “the most important” the United States had ever made.
“It means far more American jobs, and these are high-quality jobs.” Trump has repeatedly described NAFTA as a terrible deal for the United States.
Any U.S. job gains are likely years away, but the deal provides Trump with a victory that he can tout at campaign rallies over the next month on behalf of fellow Republicans running in the Nov. 6 congressional elections.
U.S. Commerce Secretary Wilbur Ross said on Bloomberg TV on Monday the deal would return the “vast majority” of the 250,000 auto parts manufacturing jobs lost in the United States in recent years. New rules in the deal will require 40-45 percent of a vehicle’s value to be produced in the United States or Canada.
But auto executives and analysts questioned Ross’ estimate, saying the deal would raise costs even as it eases worries that they would have to tear up supply chains and move major assembly plants.
Speaking in Ottawa, Canadian Prime Minister Justin Trudeau said the deal removed uncertainty but conceded that Canada had made some difficult compromises. Canada’s dairy industry criticized him for giving more market access to U.S. imports.
“We had to make compromises, and some were more difficult than others,” Trudeau said in a press conference. “We never believed that it would be easy, and it wasn’t, but today is a good day for Canada.”
Trudeau did win a face-saving preservation of a key trade dispute settlement mechanism to fight U.S. anti-dumping tariffs.
Initial U.S. reaction was effusive, with auto workers, dairy farmers and wheat producers saying the deal would likely create job opportunities and open up agricultural markets.
A NAFTA collapse could have caused U.S. farmers, a key Trump constituency, to lose access to major agricultural markets in Canada and Mexico at the same time that China has halted purchases of U.S. soybeans and other commodities due to a tariff war. NAFTA underpins about $1.2 trillion in annual trade between its three member countries.
U.S., Canadian and Mexican stocks jumped early on Monday before paring gains later in the trading session.
EYES ON CHINA
The deal also ends a major source of trade irritation as the Trump administration pivots to a much bigger trade fight with China, where U.S. tariffs now are active on $250 billion worth of Chinese goods and threatened on $267 billion more.
International Monetary Fund Managing Director Christine Lagarde issued a new warning on Monday that rising tariffs were dimming the global growth outlook.
U.S. Trade Representative Robert Lighthizer has been working to recruit Japan and the European Union to help pressure China to change its trade, subsidy and intellectual property practices. With a deal that preserves U.S. market access, Canada and Mexico now are more likely to join that effort.
While changing provisions of NAFTA and bringing down U.S. trade deficits were key White House goals in the trade talks, the agreement largely leaves the broader deal intact.
“The most significant thing about this new deal is that they changed the name,” said David Kelly, chief global strategist for JPMorgan Asset Management.
The deal effectively maintains the auto industry’s current footprint in North America, and spares Canada and Mexico from the prospect of U.S. national security tariffs on their vehicles.
Over time it will force auto companies to spend billions of dollars to produce more of their future products in the United States or Canada to meet new requirements that 40 percent to 45 percent of a vehicle’s value content come from high-wage areas.
Auto makers, particularly from Europe and Asia, may be pushed to move more of their supply chain into the region.
Mexican Economy Minister Ildefonso Guajardo, who led his country’s trade negotiations, said the agreement was an attempt to make the region more competitive versus Asia and Europe.
“Everyone is trying to entrench themselves in their region to compete with other regions,” Guajardo told Mexican radio.
Unifor, Canada’s biggest private sector union, said the deal was likely positive for auto workers, as it requires a much higher percentage of parts to be made in North America, with a significant proportion produced in areas paying at least $16 per hour.
STEEL TARIFFS STAY
The deal does not include any changes to separate U.S. tariffs on steel and aluminum levied earlier this year on Canada, Mexico, China, the European Union and others.
Trump said the import tariffs – 25 percent on steel and 10 percent on aluminum – would remain in place for Canada and Mexico until they “can do something different like quotas, perhaps.”
“We are not going to allow our steel industry to disappear,” Trump said, adding that Sunday’s deal would not have happened without the tariffs.
Both Trudeau and Mexican Foreign Minister Luis Videgaray said the tariffs needed to be removed before the new trade deal is signed on Nov. 30.
Passage of the deal by the U.S. Congress is not expected until the spring of 2019, after November elections could shift control of the House of Representatives to Democrats from Trump’s Republican Party.
Some Democrats may be reluctant to give Trump a victory, and oppose the deal, but some of the deal’s stronger rules on labor, autos and the environment may appeal to more liberal Democrats, who often opposed free trade deals in the past.
Senate Democratic leader Chuck Schumer said Trump “deserves praise for taking large steps” to improve NAFTA, but said he would judge the deal on U.S. dairy access to Canada and “real enforcement of labor provisions.”
Mexico’s Guajardo on Monday said the new accord could be signed by the three countries’ leaders when they meet at a G20 summit in Buenos Aires in late November.
Reporting by Susan Heavey, Lisa Lambert and Steve Holland in Washington, Frank Jack Daniel in Mexico City and David Ljunggren in Ottawa; editing by Paul Simao and James Dalgleish