After months of fear and apprehension regarding U.S. President Donald Trump’s tariff threats against other countries, a White House news release published on Monday reported that the U.S. and Mexico had made a preliminary agreement that will allegedly work to drastically decrease the U.S.’s trade deficit and “replace unfair deals with free, fair, and reciprocal trade.” Trump has stated numerous times that the North American Free Trade Agreement (NAFTA) between the U.S., Mexico, and Canada is the “single worst deal ever approved,” including mentioning it way back in September of 2016 during a presidential debate with then-presidential hopeful Hillary Clinton. If Trump gets the end result he wants out of the new deal, the U.S. will benefit greatly, including automakers and American auto workers.
Despite many referring to the deal as the “United States–Mexico Trade Agreement,” including Trump himself, the agreement is not only between the two countries. Instead, Canada must sign on and agree to the terms as well, which is being viewed as a potentially huge obstacle. Jeremy Diamond of CNN reported that both Mexico and Canada have stated that the only agreement they will sign is a trilateral one between them and the U.S. A New York Times article published after Monday’s announcement reported that Trump has threatened to impose auto tariffs if Canada refuses to “negotiate fairly.”
The topic of tariffs did not arise during U.S.-Mexico talks, and Trump’s previously imposed 25% tariffs on steel and 10% tariffs on aluminum are still in place. Officials from Mexico stated they would prefer the tariff talks to happen at a later date with both the U.S. and Canada present.
Regardless, even though Canada’s approval is pending and the U.S. Congress will have to read and approve the deal, shares of General Motors and Ford Motors increased after the announcement, possibly indicating that automakers are optimistic about the deal. Instead of placing exorbitant taxes on automobiles and auto parts, the U.S. and Mexico agreed that there will be no duties on imports if at least 75% of their parts are made in either the U.S. or Mexico. Previously, the rule was 62.5%. This would likely be a huge win for Trump’s agenda, as it means auto companies will have to use more locally-sourced auto parts, steel, and aluminum.
Additionally, the new plan will cater to labor unions who have long railed against NAFTA by requiring that between 40 and 45 percent of every car must be produced by employees who are getting paid a minimum of $16 per hour.
David Reid of CNBC indicated Tuesday that the CEO of the Canadian American Business Council believes Canada will sign the agreement, and some are hopeful that an agreement could be made as early as this week. Of course, Trump has demeaned Canadian Prime Minister Justin Trudeau and accused him of being “dishonest and weak” among other things, so it is unknown if Canada will take these personal attacks into consideration when agreeing to or rejecting the new terms.
The preliminary pact between the countries to update the 1994 NAFTA terms could turn out to be a big win for the auto industry; however, as we have seen in the past, Trump is adamant that any deal must be “fair” and he will not sign anything that he deems could be detrimental to the U.S. in any way.
