The Trump administration announced a deal Monday with Mexico to update the North American Free Trade Agreement to force auto manufacturers to source more parts from North America, among other changes.
The deal did not involve NAFTA’s third partner, Canada, and President Trump said his preference was to cut a separate trade agreement with Canada that would “terminate” the existing NAFTA framework and instead replace it with two bilateral trade deals, at which point NAFTA in its current form would be “terminated.”
“We have an agreement… both with Canada and with Mexico: I will terminate the existing deal. When that happens, I can’t quite tell you, it depends on what the timetable is with Congress,” Trump said. “But I’ll be terminating the existing deal and going into this deal.”
Trump added that the deal with Canada would either be a negotiated agreement, or the imposition of new U.S. tariffs on autos to compensate for Canada’s high tariffs on U.S. dairy products.”
The main aspect of Monday’s deal with Mexico was raising to 75 percent, up from 62.5 percent, the amount of North American-made parts a car or truck must have to qualify as duty-free under NAFTA. The change will make it less economical for manufacturers to rely on supply chains that extend into Mexico. The Trump administration has long sought to force more manufacturing back into the United States. The deal also requires at least 40 percent of auto content to be made by workers earning at least $16 per hour.
“This is something that is very special for our manufacturers,” Trump said, “It is something that many people thought wasn’t even doable when we started.”
The deal was unusual in that only two of NAFTA’s three partners participated. Canada was not invited to the talks, despite reports that it made back channel efforts to participate. U.S. officials have often complained that Canada was the main obstacle to a new deal, using Mexico to create a united front against U.S. proposals and at times proposed splitting NAFTA into two bilateral deals.
[Previous coverage: Canada watches nervously as US, Mexico work out NAFTA deal]
The press announcement, held at the White House Monday, featured President Trump awkwardly patching in Mexican President Enrique Peña Nieto via conference call. The Mexican leader said it was important to “to modernize, to update” the agreement and that he wanted Canada to included in subsequent talks. Trump replied he would call Canadian Prime Minister Justin Trudeau soon, but that he would prefer to do a separate bilateral deal with the country. Peña Nieto then reiterated that he wanted Canada to be involved so all NAFTA partners could be involved. After the call with Peña Nieto ended, Trump again repeated he preferred a separate deal with Canada.
“I think we’ll give them a chance to… probably have a separate deal. We could have a separate deal or we could put it into this deal,” Trump said. “We will see whether or not we decide to put up Canada, or just do a separate deal with Canada.”
Trump, a long-time NAFTA critic, said Monday’s deal shouldn’t be referred to a NAFTA deal but as simply a U.S.-Mexican one. He added that he didn’t like the term “NAFTA,” arguing it had a “bad connotation.”
A senior administration official, speaking on background, told the Washington Examiner that that the administration will not necessarily pull out of NAFTA, which would require giving six months advance notice to Congress and its trading partners. Rather, the official said, the new trade deal will supplant the old one.
“How you do that is still something that we are in the process of looking at,” the official said. “At a minimum, the new agreement will supplant the old agreement, just as a technical matter.”
Monday’s deal will be submitted to Congress, probably within the next few days. The administration said they believed it would have bipartisan support thanks to labor provisions that would bring Congressional Democrats on board.
The current Mexican government under Peña Nieto was under pressure to seal a deal before the incoming administration of President-elect Andrés Manuel López Obrador takes office on Dec. 1. Mexico and U.S. officials meet throughout last week and into the weekend. “We are going through a period of transition,” Peña Nieto said. López Obrador’s tradition team was involved in the talks.
The deal will likely increase pressure on Canada to agree to U.S. demands when three-way talks resume, mostly likely after López Obrador takes office.
Canada sought to downplay any impression that it had been left out.
“Progress between Mexico and the United States is a necessary requirement for any renewed NAFTA agreement,” Adam Austen, a spokesman for Canadian Foreign Minister Chrystia Freeland, told Reuters. “We are in regular contact with our negotiating partners, and we will continue to work toward a modernized NAFTA. We will only sign a new NAFTA that is good for Canada and good for the middle class. Canada’s signature is required.”
