US, Mexico strike trade deal that could pave the way for an overhaul of NAFTA

Michael Collins | USA TODAY

Show Caption Hide Caption AP Explains: What is NAFTA? Donald Trump called NAFTA the “worst trade deal maybe ever signed anywhere.’’ So he wants to renegotiate it -- or kill it altogether. So just what is NAFTA? (May 18)

WASHINGTON – President Donald Trump said Monday the United States and Mexico have reached a new trade deal, paving the way for the possible revision of the North American Free Trade Agreement.

In an Oval Office announcement, Trump said the new agreement would be called the United States-Mexico trade agreement and would replace NAFTA, which he said had “bad connotations” for the United States.

“It’s a big day for trade,” he said. “It’s a big day for our country.”

Trump said that he intends to terminate NAFTA and that the United States would immediately begin negotiations with Canada, the third party in the trilateral trade pact that he has called the “worst deal ever.”

“If they would like to negotiate fairly, we will do that,” Trump said. He said it’s possible that a separate deal could be reached with Canada.

Stocks soared on news of the deal between the two countries. The Dow Jones Industrial Average climbed 259 points, or 1 percent, to 26,049. The Nasdaq climbed 72 points, or nearly 1 percent, to 8,018. The S&P 500 rose 22 points, or 0.8 percent, to 2,897.

The United States and Mexico have held five consecutive weeks of talks to revise parts of the NAFTA.

In a phone call with Trump, Mexican President Enrique Peña Nieto called the deal “something very positive for the United States and Mexico.”

The two nations hope to get a final deal signed before Peña Nieto leaves office Dec. 1. Before the United States can sign the deal, Congress must be given 90 days’ notice. U.S. Trade Representative Robert Lighthizer said a formal notice would be sent to Congress on Friday and the deal would be signed by the end of November.

Peña Nieto repeatedly expressed interest for Canada to be incorporated into the agreement. Trump said the United States would have a deal with Canada "one way or another."

"It’ll either be a tariff on cars, or it’ll be a negotiated deal," he said. "Frankly, a tariff on cars is a much easier way to go. Perhaps the other would be much better for Canada.”

In Mexico City, Marcelo Ebrard, Mexico’s incoming foreign minister under President-elect Andres Manuel Lopez Obrador, said Monday he was pleased to see the United States and Mexico craft a new trade deal, according to Reuters.

“We see the agreement announced today as positive progress. ... In the coming days, we will continue in trilateral negotiations with Canada, which is vital to be able to renew the (trade) pact,” Ebrard said.

Douglas George, the Detroit-based consul general of Canada responsible for Michigan, Ohio, Indiana and Kentucky, sounded upbeat Monday.

“We’re encouraged by the optimism shown by our negotiating partners,” George told the Detroit Free Press on Monday. “Progress between Mexico and the U.S. is a necessary requirement for any renewed NAFTA agreement. While they’ve been negotiating, we’ve been in regular contact with them over the last weeks. We’ll continue to work toward a modernized NAFTA. We have a three-way negotiation that’s been ongoing.”

He added, “We’ll only sign a new NAFTA that’s good for Canada and the middle class."

George declined to comment on the idea of renaming NAFTA.

A big deal looking good with Mexico! — Donald J. Trump (@realDonaldTrump) August 27, 2018

Negotiators for the United States and Mexico worked over the weekend to iron out remaining differences and strike a deal before Canada is brought back to the table.

One of the sticking points in the talks has centered on the so-called auto rules of origin, which dictate that, to avoid tariffs, a certain percentage of an automobile must be built from parts that originated from countries within the NAFTA region.

Under the new rules, cars must be built with at least 75 percent of parts made in North America, up from 62.5 percent under NAFTA. Also, 40 to 45 percent of an auto will have to be made by workers earning at least $16 an hour.

Other stumbling blocks included the procedure to settle disputes between corporations and governments and the Trump administration’s push for a sunset provision under which the revised NAFTA agreement would expire after five years unless all three countries took steps to extend it.

Mexico and Canada balked at such a provision, arguing that trade agreements are supposed to offer the assurance of continuity for businesses and make it easier for them to comply with regulatory requirements.

The compromise reached between the United States and Mexico calls for the new deal to run for 16 years. The deal will be reviewed after six years and could then be extended another 16.

Besides the auto provisions, the agreement also includes standards designed to protect intellectual property and trade secrets, tougher labor requirements for Mexico and environmental obligations designed to combat trafficking in wildlife, timber and fish.

In Congress, which must approve any new deal, some lawmakers took a wait-and-see attitude toward the agreement.

Sen. John Cornyn, R-Texas, called the deal “a positive step” but stressed that the final deal should include Canada and have bipartisan support. “A trilateral agreement is the best path forward,” he said.

Sen. Sherrod Brown, D-Ohio, one of the most ardent critics of NAFTA, said that although he needed to review the text of the agreement, “this is an important step forward.” But “we still have a lot of work to do to bring Canada on board and write the legislation needed to make any deal a reality.”

The Alliance of Automobile Manufacturers, which represents major automakers on policy issues in Washington, sounded an optimistic note Monday after reports of a preliminary trade deal.

Automakers had expressed concerns that a breakdown in NAFTA could compromise their profits, lead to higher vehicle prices and force them to shift production.

“Automakers support modernizing NAFTA to bring this nearly 25-year-old agreement into the 21st century,” the Auto Alliance said Monday in a statement. “We are pleased to hear that the U.S. and Mexico have reached a consensus on several issues, including automotive rules of origin, and we look forward to learning more.”

Trump’s supporters argued that Mexico unfairly benefited from NAFTA and the deal should be reworked.

Mexico’s share of vehicles manufactured in North America has grown from about 12 percent in 2007 to about 23 percent in 2017, according to the Center for Automotive Research. The U.S. share has fallen from 70 percent to 62 percent during that period.

The Auto Alliance urged the United States and Mexico on Monday to “quickly re-engage with Canada to continue to build on this progress.”

The group called for negotiators to “continue to strike the right balance by incentivizing production and investment in North America while keeping new vehicles affordable for more Americans.”

Contributing: Nathan Bomey of USA TODAY and Phoebe Wall Howard of the Detroit Free Press.

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