Features, north america, manufacturing, automotive

By Jon Elkin | August 28, 2018

August 28 - Yesterday, President Trump announced significant revisions to NAFTA in a bilateral agreement with Mexico, leaving Canada out. What's changed and what's going to happen to Canadian trade and manufacturing?

 

What's the deal with the U.S. and Mexico?

President Trump said on Monday that the U.S. and Mexico had agreed to revise significant areas of the North American Free Trade Agreement (NAFTA).

Trump's trade advisers have indicated that the U.S. is prepared to leave Canada out of its revised NAFTA deal with Mexico.

Well, this deal is pretty well put together with Mexico. So the president, as he’s indicated, is fully prepared to go ahead with or without Canada. We hope that Canada will come in.

 - Wilbur Ross, U.S. Secretary of Commerce

Other U.S. lawmakers - particularly free trade Republicans - have expressed skepticism that the revised trade deal would secure the necessary approval from Congress.

Mexico has indicated that they would prefer a trilateral agreement.

Canada remains the U.S.'s largest export market.

 

What's happening now/what happens next?

The U.S. and Mexico have stated they hope to have the deal finalized before the end of President Enrique Pena Nieto's term on December 1. Because Congress requires a 90-day review period, Congress must thus be notified by this Friday.

Chrystia Freeland, the Canadian foreign minister, cut short a visit to Europe to meet with Robert E. Lighthizer, the United States trade representative, this Tuesday afternoon.

Lighthizer confirmed that the Trump administration planned to officially notify Congress of the intent to sign a new deal by Friday. 

More on this story as it develops.

 

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What has the U.S. and Mexico agreed to?

The U.S. and Mexico has agreed to updates to provisions surrounding the digital economy, automobiles, agriculture, and labor unions. American companies being able to operate in Mexico and Canada without tariffs - seen as a core of the trade pact - remains unchanged.

The biggest change surrounds automobile manufacturing with the aim of bringing car production back to the U.S. from Mexico. These changes include:

  • Car companies are now required to manufacture at least 75% of an automobile’s value in North America under the new rules, up from 62.5 percent, to qualify for Nafta’s zero tariffs.
  • Car companies will be required to use more local steel, aluminium, and auto parts
  • 40 - 45% of the car must be made by workers earning at least $16/hour

What's the potential impact of these changes?

The biggest impact is on the U.S. auto industry - which has largely built its supply chain around NAFTA. Some industry groups and analysts have said that the changes would ultimately raise prices on American automobiles and reduce American automakers' competitiveness. This could ultimately give American automakers greater incentive to shift to foreign production.

 

What remains unresolved?

It is still unclear if the Trump administration will exempt Mexico from its steel and aluminium tariffs. Mexican officials have said that this will be addressed later.

As previously reported by OMX, the U.S. had previously hit Mexico, Canada, and the European Union with a 25% tariff on steel and a 10% tariff on aluminum.

The U.S. is expected to negotiate with Canada regarding the latter's agriculture and dairy markets. The U.S. has in the past called upon Canada to open its dairy market to greater competition. Canada is likely to "seek some tweaks to provisions on investor dispute settlement and new rules of origin in car production, which could affect its own auto sector."

Jon Elkin

Jon graduated from Queen's University with a degree in Political Studies and then went on to earn his Master's Degree in War Studies from the Royal Military College of Canada. He is an active member of the NATO Association of Canada, and outside of work enjoys skiing, running and mountain biking.

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