Stock markets worldwide rose to a six-month high on Tuesday as fears of a global trade war receded after Donald Trump announced a US-Mexico trade deal.

Global stocks reacted positively to the breakthrough, with investors expressing optimism the deal could signal a change in the Trump administration’s provocative stanceon global trade.

Trump announces US-Mexico trade deal, setting stage for Nafta overhaul Read more

The US treasury secretary, Steven Mnuchin, said he was optimistic that Canada will join Mexico in signing up to the proposed restructuring of the 25-year-old North American Free Trade Agreement (Nafta) trilateral trade pact.

“I think our objective is to try to get Canada on board quickly,” he said, speaking to CNBC on Tuesday.

The Trump-Mexico deal announcement had pushed the S&P 500 and Nasdaq indexes to fresh records on Monday, and on Tuesday, Europe and Asia followed Wall Street’s lead, inching to multi-month highs. The FTSE 100 closed up about 40 points, or 0.5%, on Tuesday, while trading on Wall Street nosed the S&P 500 and the Nasdaq up to close at record closing highs for the third consecutive session.

Asian shares joined the rally on Wednesday with markets in Tokyo, Seoul, Hong Kong and Sydney all in positive territory. Stocks in mainland China were down, however, as concerns mounted about next week’s deadline for a settlement on tariffs between the US and China.

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“Global trade tensions have undoubtedly been the most significant source of risk in 2018,” said Hussein Sayed, chief market strategist at FXTM, told Reuters.

“The US–Mexico deal seemed to boost confidence that the trade war is moving closer to an end, and the next question is who’s next to close a deal with Trump?” he said.

The Canadian foreign minister, Chrystia Freeland, cutting short a trip to Europe, was due in Washington on Tuesdayto start talks with US trade negotiators, as pressure mounts on Ottawa to agree to join the agreement.

Freedland’s arrival signals Canada’s return to the Nafta talks after being sidelined following a meeting between Trump and the Canadian prime minister, Justin Trudeau, at the G7 in Quebec in June.

In that meeting, Trudeau described the US actions to raise tariffs on steel and aluminium on national security grounds as “insulting”. Trump retorted that his Canadian counterpart was “very dishonest and weak”.

Wilbur Ross, the US commerce secretary, said on Tuesday that the Trump administration is “fully prepared to go ahead with or without Canada” in ripping up Nafta and warned that Canada’s economy “can’t survive well” without a US deal.

“We hope that Canada will come in. I think it’s a good idea if they do. There’s really not much they should object to. But if not, they will then have to be treated as a real outsider,” Ross told Fox Business Network.

Mnuchin also indicated that the US would go ahead with the US-Mexico deal with or without Canadian support.

But senior Republicans voiced opposition, objecting to both the potential exclusion of Canada and additional restrictions on trade. Pat Toomey, the Republican senator from Pennsylvania, warned in a statement that the administration would not be able to use expedited procedures to get the deal through congress.

“The administration … must reach an agreement with Canada. Nafta was a tri-party agreement,” Toomey said.

But US-Canadian trade experts said they were surprised at the speed of the US-Mexico agreement and how exposed Ottawa had been rendered by apparent willingness of Mexico to scrap the old tripartite Nafta in favor of a bilateral deal with the US.

On Monday, after Trump provocatively proposed to renaming the revised Nafta pact “the United States-Mexico Trade Agreement”, the Mexican foreign minister, Luis Videgaray Caso, explained simply: “There are many factors that we can’t control—including the relationship between the US and Canada and actions taken by the government of Canada.”

According to the Wall Street Journal, the US-Mexico deal was largely the result of talks between the president’s son-in-law and White House adviser Jared Kushner, US trade representative Robert Lighthizer and Mexico’s then finance minister, Videgaray Caso.

The Journal reported that Kushner and Videgaray Caso had met during Trump’s controversial campaign trip to Mexico City. Videgaray had visited the White House around 45 times as the two men developed a bond that went “beyond a working relationship into a friendship”.

“The most surprising thing is that Mexico agreed to move forward without Canada, which few expected, and that’s left Canada exposed in these negotiations,” says Daniel Ujczo, an expert in US-Canada trade law at the US law firm Dickinson Wright.



Three central issues for Canadian negotiators, he says, are to protect Canada’s dairy quota system, issues the US-slanted changes to system of trilateral dispute resolution, and intellectual property rights around pharmaceuticals manufacturing.



But with the US and Mexico set to formally announce their deal this Friday, starting a 90-day clock to a completion date that must fall before the new Mexican president, Andrés Manuel López Obrador, takes office on 1 December, Canadian negotiators are under pressure to reach an agreement by the end of this week or then have an opportunity to seek revisions before the full text is published on 30 September.



“That’s a great deal of ground to cover in a very short period of time and Canada still needs to review the text of the agreement. That doesn’t leave many hours left to strike a deal.”

Once the US-Canadian side of the negotiations are complete, the Trump administration has indicated that it will move on to its next two trade priorities: the European Union and China.

US business groups sought to remind the administration that Canada remains its largest export market.

“In order to do no harm to the 14 million US jobs that depend on trade with Canada and Mexico, the agreement must remain trilateral,” the US Chamber of Commerce said in a statement on Monday.

Under the new agreement with Mexico, 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, up from 62.5% under the current Nafta.

But Canada is likely to object to revisions in Nafta that include rules that will make it harder for treaty members to challenge US trade penalties. While Mexico accepted that change, Canadian officials have said for months that would be unacceptable.

In announcing the deal on Monday, Trump said: “With Canada, frankly, the easiest thing we can do is to impose a tariff on their cars coming in.”

But despite the show of cordiality between Trump and the outgoing Mexican president, Enrique Peña Nieto, over Nafta renegotiations, tensions between the two countries remain.

After Trump told reporters at the White House on Tuesday that the administration’s proposed $25bn addition to the US-Mexico wall “will be paid for very easily by Mexico”, Videgaray Caso issued an emphatic message of his own on Twitter.

“We just reached a trade understanding with the US, and the outlook for the relationship between our two countries is very positive. We will NEVER pay for a wall, however. That has been absolutely clear from the very beginning.”