United States and Mexico reach a preliminary trade deal

Canada will be joining the talks after the United States and Mexico come to an agreement to replace NAFTA, which was signed in 1994. “I like to call this deal the United States-Mexico trade agreement”.

When the reality show spectacle of Trump’s Oval Office phone call with Pena Nieto had subsided, senior US officials briefed journalists on a conference call.

“We’ll start negotiating with Canada relatively soon, they want to negotiate very badly”, Trump said in the Oval Office, with Mexican President Enrique Pena Nieto joining by speaker phone. “It’s a very good deal for both countries and I look forward to it”, Trump said.

Last week and over the weekend, there had been whispers of a bilateral agreement being reached between the USA and Mexico, with Trump tweeting, “Deal with Mexico is coming along nicely”.

Canada’s NAFTA negotiator, Foreign Minister Chrystia Freeland, is cutting short a trip to Europe to fly to Washington Tuesday to try to restart talks.

Mr. Trump said the new deal was better for the U.S. and rendered obsolete the 24-year old agreement between the U.S., Mexico and Canada.

And there are political reasons to keep Canada inside the regional bloc: “Mexico will have a hard time selling “Trump’s deal” back home if Canada does not think it is a good deal”, said Daniel Ujczo, a trade attorney with Dickinson Wright PLLC.

US, Mexican and Canadian stocks opened higher on Monday on optimism about a trade deal.

Trump even gave the bilateral agreement a name: the “US-Mexico Trade Agreement”, which he said would replace the trilateral free trade deal. Last year, the United States of America had a large $71 billion trade in goods deficit with Mexico, owing in part to much lower worker pay.

The United States and China held two days of talks last week without a major breakthrough as their trade war escalated with the activation of another round of dueling tariffs on $16 billion of each country’s goods.

The U.S. president extended an invitation to Ottawa to join what he cast as American-Mexican trade negotiations, which have stretched through the summer without Canadian officials at the table.

Citing the “bad” connotations of the term, Trump said: “We’ll get rid of the name NAFTA”. He said: “You know, they have tariffs of nearly 300 per cent on some of our dairy products, so we can’t have that”.

If Canada is excluded in the new deal, it would mark a major shift in US trade policy.

Under the deal, the amount of NAFTA-made content required for vehicles to qualify as tariff-free rises from the current 62.5 per cent to 75 per cent.

The deal also requires companies to respect collective bargaining, which is the process by which trade unions can make labour agreements on behalf of workers, and requires that companies adhere to all applicable labour laws. The administration’s tariffs on steel and aluminum have already raised prices for consumers and hammered many manufacturing industries in the United States. The preliminary deal also says that 40 to 45 percent of the auto content must be made by workers earning at least $16 an hour.

None of that stopped Trump from giving the impression on Monday morning that he was “terminating” NAFTA “and going into this deal” with Mexico. Details on other issues including dispute resolution and US rules on government procurement remained unclear.