Trump makes deal with Mexico that benefits US manufacturing to replace NAFTA
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 markets responded positively to the move which will put more pressure on Canada to drop its excessive tariffs. The deal should continue to be a positive for Texas which has increased trade with Mexico since NAFTA was approved and continues to expand the export of oil and gas to Mexico. There is also a lot of mutually beneficial agricultural trade with Mexico.
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.