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July 21, 2019

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Trump strikes a trade deal with Mexico, threatens to freeze out Canada


Doug Mills / The New York Times

President Donald Trump speaks with Mexico’s Economy Minster Ildefonso Guajardo, left, and Foreign Minister Luis Videgaray, second from left, before calling Mexican President Enrique Peña Nieto after the announcement that the U.S. and Mexico have reached an agreement to revise the North American Free Trade Agreement, in the Oval Office of the White House, in Washington, Aug. 27, 2018. Also pictured, from right: Senior Adviser Jared Kushner and Vice President Mike Pence.

WASHINGTON — President Donald Trump said on Monday the United States and Mexico had reached an accord to revise key portions of the North American Free Trade Agreement and would finalize it within days, suggesting he was ready to jettison Canada from the trilateral trade pact if the country did not get on board quickly.

Speaking from the Oval Office, Trump promoted the preliminary agreement with Mexico as a deal that could replace NAFTA and threatened to hit Canada with auto tariffs if it did not “negotiate fairly.”

“They used to call it NAFTA,” Trump said. “We’re going to call it the United States-Mexico Trade Agreement,” adding that the term NAFTA — which he has called the “worst” trade deal in history — had “a bad connotation” for the United States.

Yet while Trump may try to change the name, the agreement reached with Mexico is simply a revised NAFTA with updates to provisions surrounding the digital economy, automobiles, agriculture and labor unions. The core of the trade pact — which allows U.S. companies to operate in Mexico and Canada without tariffs — remains intact.

Now, the question becomes whether a trilateral pact becomes a bilateral deal — or if Trump’s threats pressure Canada to return to the negotiating table and accede to many of the United States’ demands.

The president’s apparent willingness to move on without Canada prompted confusion and concern among lawmakers, who said it may not be legally permissible, let alone smart, and businesses whose supply chains depend on a deal encompassing all three countries.

“Because of the massive amount of movement of goods between the three countries and the integration of operations which make manufacturing in our country more competitive, it is imperative that a trilateral agreement be inked,” Jay Timmons, president and chief executive of the National Association of Manufacturers, said in a statement.

Mexican officials said Monday that they wanted to have Canada back in the process and were working toward a trilateral deal by the end of the week. President Enrique Peña Nieto of Mexico, who joined the White House announcement via phone, said “It is our wish, Mr. President, that now Canada will also be able to be incorporated in all this.”

But later in the day, Luis Videgaray Caso, Mexico’s foreign minister, signaled that Mexico might be willing to move forward without Canada.

“There are things that we don’t control, particularly the political relationship between Canada and the U.S., and we definitely don’t want to expose Mexico to the uncertainty of not having a deal,” Videgaray said in an interview. “Not having a trade agreement with the U.S., that’s a substantial risk to the Mexican economy. Literally millions of jobs in Mexico depend on access to the U.S. market.”

Both the Mexicans and Americans have been eager to reach a fully revised NAFTA deal by the end of August, a date that would give the Trump administration enough time to notify Congress that a deal had been finalized and still have that deal be signed by the outgoing Mexican administration of Peña Nieto.

“Ideally we’ll have the Canadians involved,” said Robert Lighthizer, the U.S. trade representative, adding that the administration planned to officially inform Congress by Friday of its intent to sign a new deal, a step that is required before Congress votes on a trade pact. “If we don’t have Canada involved, we will notify that we have a bilateral agreement that Canada is welcome to join.”

Chrystia Freeland, the Canadian foreign minister, will travel to Washington on Tuesday to continue negotiations, said her spokesman, Adam Austen, on Monday.

“We will only sign a new NAFTA that is good for Canada and good for the middle class,” Austen added. “Canada’s signature is required.”

The revised deal with Mexico makes significant alterations to rules governing automobile manufacturing, in an effort to bring more car production back to the United States from Mexico. Those changes are being watched carefully by the U.S. auto industry, which has built its global supply chain around NAFTA and expressed concern that the Trump administration’s efforts to rewrite it could raise prices of U.S.-made cars and trucks. Automakers like General Motors and Ford have set up plants in Canada and Mexico, and U.S. automakers routinely import car parts from other countries.

Under the changes agreed to by Mexico and the United States, car companies would be required to manufacture at least 75 percent of an automobile’s value in North America under the new rules, up from 62.5 percent, to qualify for NAFTA’s zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have 40 to 45 percent of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada and a win for labor unions, which have been among NAFTA’s biggest critics.

“Automakers urge the U.S. and Mexico to quickly re-engage with Canada to continue to build on this progress,” the Alliance of Auto Manufacturers, which represents most carmakers that sell vehicles in the United States, said in a statement. “The industry is hopeful that any changes to NAFTA auto rules of origin continue to strike the right balance by incentivizing production and investment in North America while keeping new vehicles affordable for more Americans.”

In a briefing Monday, administration officials said the United States and Mexico had also reached an agreement over a “sunset clause,” proposed by the Trump administration, that would cause NAFTA to automatically expire unless the three countries voted to extend it.

The two countries agreed to a review of the trade pact every six years that would extend its lifetime for 16 more years, officials said. That longer time horizon would give lawmakers a chance to review the pact’s progress, while giving businesses certainty for the near future.