What is Nafta?

The North American Free Trade Agreement between the US, Mexico and Canada has bound the economies of the two countries together for more than 20 years, enabling the free flow of goods.

The agreement dates back to the presidency of Ronald Reagan, who established a US-Canada free trade agreement in the 1980s, before negotiations for the addition of Mexico began under George HW Bush. Nafta was ultimately implemented under Bill Clinton in 1994 to remove import and export barriers between the three countries.

Why is Trump seeking to renegotiate it?

The pros and cons of Nafta have been hotly debated since its introduction more than two decades ago, most prominently in the US, where there has been opposition on both the left and the right. The deal has been blamed for job losses in traditionally heavy manufacturing states such as Michigan, and for holding back wage growth for the roles that have remained.

Trump previously called Nafta “the worst trade deal in the history of the country”, and has used aggressive import tariffs on both Canadian and Mexican goods as a means of influencing the renegotiation.

How has the agreement with Mexico changed Nafta?

The partial renegotiation between the US and Mexico introduced new rules around the production of cars, forcing automotive companies to manufacture at least 75% of a vehicle’s value in North America, up from 62.5%. The deal is designed to encourage production in the US and away from Asia and elsewhere around the world, but is likely to raise car prices for American consumers.

The deal with Mexico puts greater pressure on Canada to negotiate with Donald Trump’s White House. Although the Canadian prime minister, Justin Trudeau, has signalled a deal could be close, he has warned no deal would be better than a bad one.

What does it mean for global markets and trade?

Agreement between the US, Canada and Mexico would be positive for global financial markets, which have been rocked by the dispute in recent months. Such a development would also bolster the prospects of the world economy by suggesting the trade disputes being pursued by Trump can be resolved. Focus will shift towards the president’s dispute with China, where billions of dollars in tariffs are being imposed on imports, threatening to derail global economic growth.