LDN - Business

Trump hails Canada, Mexico trade pact as win for U.S. workers

[October 02, 2018] By Steve Holland and David Lawder

WASHINGTON (Reuters) - President Donald Trump on Monday touted a new trade deal with Canada and Mexico as a win for U.S. workers while investors breathed a sigh of relief that the key pillars of NAFTA had survived his hardball strategy to reshape global commerce.

Washington and Ottawa reached an agreement on Sunday after weeks of tense bilateral talks to update the 1994 North American Free Trade Agreement. The United States had forged a separate trade deal with Mexico, the third member of NAFTA, in August.

The new agreement, called the United States-Mexico-Canada Agreement (USMCA), is aimed at bringing more jobs into the United States, with Canada and Mexico accepting more restrictive commerce with the United States, their main export customer.

"These measures will support many - hundreds of thousands - American jobs," Trump said at the White House, describing the trade deal as "the most important" the United States had ever made.

"It means far more American jobs, and these are high-quality jobs," he said. Trump had repeatedly called NAFTA a terrible deal for the United States.

Any U.S. job gains are likely years away, but the deal provides Trump with a victory that he can tout at campaign rallies over the next month on behalf of fellow Republicans running in the Nov. 6 congressional elections.

But auto industry officials privately said job gains would be more limited, partly because tighter autos content rules would raise their costs even as the deal eases worries that they would have to tear up supply chains and move existing assembly plants.

Praise from the lobbying group representing Ford Motor Co <F.N>, General Motors <GM.N> and Fiat Chrysler <FCHA.MI> was measured.

Matt Blunt, president of the American Automotive Policy Council, called the deal "a workable agreement" achieved through a close relationship between the automakers and U.S. negotiators.

Speaking in Ottawa, Canadian Prime Minister Justin Trudeau said the deal removed uncertainty, but he conceded that Canada had made some difficult compromises. Canada's dairy industry criticized him for giving more market access to U.S. imports.

"We had to make compromises, and some were more difficult than others," Trudeau said at a news conference. "We never believed that it would be easy, and it wasn't, but today is a good day for Canada."

Trudeau did win a face-saving preservation of a key trade dispute settlement mechanism to fight U.S. anti-dumping tariffs.

Initial U.S. reaction was effusive, with auto workers, dairy farmers and wheat producers saying the deal would likely create job opportunities and open up agricultural markets.

A NAFTA collapse could have caused U.S. farmers, a key Trump constituency, to lose access to major agricultural markets in Canada and Mexico at the same time that China has halted purchases of U.S. soybeans and other commodities due to a tariff war. NAFTA underpins about $1.2 trillion in annual trade between its three member countries.

U.S., Canadian and Mexican stocks jumped early on Monday before paring gains later.

The Canadian dollar <CAD=D4> strengthened to a four-month high against the U.S. dollar, while the Mexican peso <MXN=D3> rose to near a two-month high against the greenback.

EYES ON CHINA

The deal ends a major source of trade irritation as the Trump administration pivots to a much bigger fight with China, where U.S. tariffs now are active on $250 billion worth of Chinese goods and threatened on $267 billion more.

The head of the International Monetary Fund, Christine Lagarde, issued a new warning on Monday that rising tariffs were dimming the global growth outlook.

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Flags of the U.S., Canada and Mexico fly next to each other in Detroit, Michigan, U.S. August 29, 2018. REUTERS/Rebecca Cook/File Photo

U.S. Trade Representative Robert Lighthizer has been working to recruit Japan and the European Union to help pressure China to change its trade, subsidy and intellectual property practices. With a deal that preserves U.S. market access, Canada and Mexico now are more likely to join that effort.

While Trump's goals for revising NAFTA were to shrink U.S. trade deficits, claw back lost manufacturing jobs and add new IP protections and digital trade chapters, the new pact leaves North American trade flows largely unaltered.

"The most significant thing about this new deal is that they changed the name," said David Kelly, chief global strategist for JPMorgan Asset Management. "It really is tweaks to NAFTA."

The deal effectively maintains the auto industry’s current footprint in North America, and spares Canada and Mexico from the prospect of U.S. national security tariffs on their vehicles.

Over time it will force auto companies to spend billions of dollars to produce more of their future products in the United States or Canada to meet new requirements that 40 percent to 45 percent of a vehicle’s value content come from high-wage areas.

Auto makers, particularly from Europe and Asia, may be pushed to move more of their supply chain into the region.

Mexican Economy Minister Ildefonso Guajardo, who led his country's trade negotiations, said the agreement was an attempt to make the region more competitive versus Asia and Europe.

"Everyone is trying to entrench themselves in their region to compete with other regions," Guajardo told Mexican radio.

Unifor, Canada's biggest private sector union, said the deal was likely positive for auto workers, as it requires a much higher percentage of parts to be made in North America, with a significant proportion produced in areas paying at least $16 per hour.

STEEL TARIFFS STAY

The deal does not include any changes to separate U.S. tariffs on steel and aluminum levied earlier this year on Canada, Mexico, China, the European Union and others.

Trump said the those tariffs - 25 percent on steel and 10 percent on aluminum - would remain in place for Canada and Mexico until they "can do something different like quotas, perhaps."

"We are not going to allow our steel industry to disappear," Trump said, adding that Sunday's deal would not have happened without the tariffs.

Both Trudeau and Mexican Foreign Minister Luis Videgaray said the tariffs needed to be removed before the new trade deal is signed on Nov. 30.

Passage of the deal by the U.S. Congress is not expected until the spring of 2019, after November elections could shift control of the House of Representatives to Democrats from Republicans.

Some Democrats may be reluctant to give Trump a victory and may oppose the deal, but some of the deal's stronger rules on labor, autos and the environment may appeal to more liberal Democrats, who often opposed free trade deals in the past.

Senate Democratic leader Chuck Schumer said Trump "deserves praise for taking large steps" to improve NAFTA, but said he would judge the deal on U.S. dairy access to Canada and "real enforcement of labor provisions."

Mexico's Guajardo on Monday said the new accord could be signed by the three countries' leaders when they meet at a Group of 20 summit in Buenos Aires in late November.

(Reporting by Steve Holland and David Lawder; Additional reporting by Susan Heavey, Lisa Lambert and in Washington, Frank Jack Daniel in Mexico City and David Ljunggren in Ottawa; editing by Paul Simao and Leslie Adler)

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