NAFTA is dead and the name is now banished and in its place we have the principles of a new US-Mexico trade agreement (USMTA), points out the research team at Rabobank.
Key Quotes
“What it entails is still light on details but it has been reported there are upped rules of origin requirements for autos from 62.5% to 75%, and 40-45% should be made by workers earning an average of USD16 per hour. That would mean a major shift in auto-parts production back to the US, according to some initial estimates.”
“We also know that the US has backed down with respect to including a sunset clause. In short, by dropping the ‘suicide pill’ of a sunset clause the US has managed to onshore a significant chunk of auto production.”
“For free-trade economists that might be a black eye, but for the US and Trump it must surely be seen as a major victory and validation of his extraordinary strong-arm tactics. Even better, MXN has rallied on the news, so he gets a weaker USD to boot!”
“Of course, Canada is still missing. Canada’s Foreign Minister, Freeland, released a statement prior to the USMTA news noting: “Canada is encouraged by the continued optimism shown by our negotiating partners. Progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement”¦We are in regular contact with our negotiating partners, and we will continue to work toward a modernized NAFTA” but “we will only sign a new NAFTA that is good for Canada and good for the middle class.”
“Without Canada there can be no new ‘NAFTA’ deal. That said, the announced agreement between the US and Mexico is not a bilateral agreement either. Instead, today’s development is effectively two out of three parties agreeing to what a trilateral agreement should look like.”
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