US President Donald Trump says he'll be "terminating" the three-party North American Free Trade Agreement (NAFTA), as he pursues a preliminary deal with Mexico and starts negotiations with Canada.

Key points: The new US-Mexico agreement would mark the end of NAFTA

The new US-Mexico agreement would mark the end of NAFTA Mr Trump said he was open to Canada joining the deal if they "negotiate fairly"

Mr Trump said he was open to Canada joining the deal if they "negotiate fairly" Critics say cutting Canada out could hurt companies trading across all three nations

Mr Trump said Monday during an Oval Office event that he would be calling the emerging agreement the "United States-Mexico Trade Agreement," which he says it will mark the end of the NAFTA name.

Mexican President Enrique Pena Nieto was on speakerphone and said he hoped NAFTA partner Canada would eventually be incorporated into the deal.

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Mr Trump said he was open to including Canada — "if they'd like to negotiate fairly" — and threatened to impose new taxes on Canadian auto imports to intensify pressure on Ottawa to a agree to deal to Mr Trump's liking.

"I think with Canada, frankly, the easiest we can do is to tariff their cars coming in," he said.

"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."

Adam Austen, a spokesman for Canadian Foreign Minister Chrystia Freeland, said Canada had been in regular contact with the NAFTA negotiators.

Ms Freeland is cutting short a trip to Europe to fly to Washington to try to restart talks.

"We will only sign a new NAFTA that is good for Canada and good for the middle class," she said, adding that "Canada's signature is required".

"There is still a great deal of uncertainty … trepidation, nervousness — a feeling that we are on the outside looking in," said Peter MacKay, a former Canadian minister of justice, defence and foreign affairs who is now a partner at the law firm Baker McKenzie.

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.

Cutting Canada could hurt supply chains

Critics denounced the prospect of cutting Canada out of a North American trade pact, in part because of the risks it could pose for companies involved in international trade.

Many manufacturers have built complex but vital supply chains that cross all three NAFTA borders.

Mr Trump was quick to proclaim victory, though, pointing to Monday's surge in stock prices, which was fuelled in part by the apparent breakthrough with Mexico.

"We just signed a trade agreement with Mexico, and it's a terrific agreement for everybody," he said.

"It's an agreement that a lot of people said couldn't be done."

Mr Trump has frequently condemned the 24-year-old NAFTA trade pact as a job-killing "disaster" for American workers. NAFTA reduced most trade barriers between the three countries.

But the president and other critics say it encouraged US manufacturers to move south of the border to exploit low-wage Mexican labour.

The preliminary deal with Mexico might encourage more manufacturing in the United States.

However it is far from final. Even after being formally signed, it would have be ratified by politicians in each country.

The US Congress wouldn't vote on it until next year — after November midterm elections that could end Republican control of the House of Representatives.

Mr Trump said nothing on Monday about dropping tariffs on Mexican or Canadian steel, which were imposed in part to pressure those countries to reach an agreement on NAFTA.

AP/Reuters