U.S. industry groups are cautiously optimistic about Monday’s announcement that the U.S. and Mexico reached a preliminary agreement to update a key trade deal between the two countries and Canada.
The uncertain future of the North American Free Trade Agreement, which President Trump has frequently criticized, has weighed on automakers, retailers, farmers, and others. Trump previously threatened that the U.S. might simply withdraw from NAFTA if the negotiations aren’t successful, a move that would send American businesses scrambling to adjust their supply chains and manufacturing operations in Mexico and Canada.
The tentative two-year deal with Mexico still requires approval from Congress.
Trump suggested Monday that an agreement with Canada, which wasn’t party to the most recent discussions, might be made separately and that he would terminate NAFTA in favor of the new bilateral trade deal, a move intended to put pressure on Prime Minister Justin Trudeau to accept the new terms. Mexican President Enrique Pena Nieto repeatedly pressed for the three countries to re-engage.
[More: Can the US exclude Canada from its trade deal with Mexico?]
The resolution of a slew of contentious points between the U.S. and Mexico was seen by industry associations as a key step toward updating NAFTA. Trump said he preferred ditching the acronym and proposed calling the latest deal the “United States-Mexico Trade Agreement,” a name he described as “elegant.”
“We are pleased to hear that the U.S. and Mexico have reached a consensus on several issues, including automotive rules of origin, and we look forward to learning more,” the Alliance of Automobile Manufacturers said in a statement. “Automakers urge the U.S. and Mexico to quickly re-engage with Canada to continue to build on this progress.”
Of particular interest to the group — which counts Ford, General Motors and Fiat Chrysler as members – is the future of the auto rules of origin, a provision that until recently stymied talks between the three countries. Under the existing agreement, a minimum 62.5 percent of the net price of an automobile has to originate in the U.S., Mexico or Canada in order to avoid tariffs.
The deal announced Monday would raise that ratio to 75 percent – less than the 85 percent threshold initially sought by the Trump administration – potentially forcing companies to return some manufacturing to the U.S. The White House is separately weighing a new 25 percent tariff on automotive imports.
Industry groups representing oil and natural gas producers, farmers, and retailers also praised the preliminary deal, but stressed the importance of continued talks with Canada.
“By clearing the way for Canada to rejoin negotiations, this progress provides farmers with a renewed sense of hope,” Americans for Farmers & Families spokesman Casey Guernsey said in a statement. “As President Trump works to resolve disputes with other trading partners, finalizing this important trade deal will be a significant win.”
“Coming to terms with Mexico is an encouraging sign, but threatening to pull out of the existing agreement is not,” Matthew Shay, chief executive officer of the National Retail Federation, said in a statement. “The administration must bring Canada, an essential trading partner, back to the bargaining table and deliver a trilateral deal.”
The National Association of Manufacturers urged “for the sake of our workers and a successful manufacturing industry here in America” that a final trade deal include Mexico, Canada and the U.S.
“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,” Chief Executive Officer Jay Timmons said in a statement.
The stock markets also reacted positively to the news. The S&P 500 and the Nasdaq both surged, while the blue-chip Dow Jones Industrial Average climbed more than 1 percent to break 26,000.
Still, many businesses are bracing for fallout from the Trump administration’s protectionist trade agenda in the second half of 2018.
The White House previously levied tariffs on steel and aluminum imports, a move that elicited retaliatory duties from trading allies like the European Union, Canada, and Mexico.
Companies like Caterpillar say they are raising prices to offset the higher costs of raw materials, while others are fretting about Trump’s escalating trade war with China. His administration has, to date, imposed tariffs on $50 billion worth of Chinese goods and is considering additional levies on another $200 billion in products from the country.
Trump has threatened to increase the total amount of goods subjected to tariffs to $500 billion, while Chinese officials say they will retaliate in kind.
