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 partner.
“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.
Speaking in Ottawa, Canadian Prime Minister Justin Trudeau said the pact removed uncertainty though he conceded 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.”
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 to lose access to agricultural markets in Canada and Mexico at the same time China has effectively halted purchases of U.S. soybeans and other commodities, helping to shore up a key Trump constituency.
In Mexico, negotiators took to Twitter and radio to celebrate having preserved a single North American trading zone as part of a trilateral pact. NAFTA underpinned $1.2 trillion in trade between the three 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.
Trump’s “America First” trade policies, particularly his escalating trade war with China, are aimed at boosting U.S. manufacturing, but they have spooked investors who worry that supply lines could be fractured and global growth derailed.
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 other parts of the world.
“Everyone is trying to entrench themselves in their region to compete with other regions. Japan is highly integrated in Southeast Asia. The Europeans in Eastern Europe, and in some way the trend is towards regional competition,” 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.
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.
Mexican Foreign Minister Luis Videgaray said earlier that he hoped concerns over the U.S. metals tariffs could be resolved before the new trilateral deal is signed.
U.S. officials intend to sign it by Nov. 30, Peter Navarro, the White House trade adviser, told Fox News. “NAFTA is dead. We have USMCA.”
It would then be submitted for approval by the U.S. Congress, currently controlled by Republicans.
Even if Democrats win back the House of Representatives, the pact’s provisions on autos, labor rights, environmental rules, dairy and currency manipulation are likely to appeal to many in the party who have opposed traditional Republican trade deals that have been more favorable to businesses than workers.
U.S. Senator Joni Ernst of Iowa, a top farming state, praised the agreement in a tweet on Monday: “Our farmers need stability and access to markets.”
Democratic U.S. Senator Amy Klobuchar of Minnesota, which borders Canada, also said she would review the terms and was glad her state’s “number one trading partner” was “back in the mix.”
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.
There were times last week when it looked as if Mexico and the United States would strike out on their own with a bilateral agreement that Canada could join later.
The breakthrough seemed to come on Thursday when Washington asked Ottawa for its final negotiating “red lines” and with the intervention of Canadian and Mexican advisers in direct contact with White House adviser Jared Kushner.
With the Sept. 30 deadline looming, Trudeau’s chief of staff Katie Telford, Videgaray and Kushner were in frequent phone contact over the weekend to “facilitate” Sunday’s agreement, a senior source close to the talks said.
Advisers to Mexico’s incoming government, Marcelo Ebrard and Jesus Seade, were consulted “permanently” and “in real time,” the source said.
The result included the face-saving preservation of a key trade dispute settlement mechanism sought by Canada.
Reporting by Susan Heavey, Lisa Lambert and Steve Holland in Washington, Frank Jack Daniel in Mexico City and David Ljunggren in Ottawa; Editing by Franklin Paul and Paul Simao