Trump said Monday there was progress on NAFTA, and he repeated his threat to end the deal if the U.S. does not get a favorable agreement. He also commented directly on farmers, saying if China hits farmers because they think it hurts him, the administration will make it up to the farmers, suggesting some form of aid or subsidy.
“We’re fairly close on NAFTA, and if we don’t make the right deal, we’ll terminate NAFTA and make the right deal after that,” he told the media after a cabinet meeting. “We have a chance to make a deal on NAFTA.”
Trump’s economic team over the weekend emphasized the potential for negotiating trade concessions with China after the violent stock market reaction Friday to the president’s threat.
Success with NAFTA would help show flexibility.
“There are still issues to be resolved and the U.S. will not get everything Trump wants on issues such as a dispute resolution mechanism and agriBusiness subsidies, but sources continue to believe that an agreement in principle could be unveiled in the next few weeks, especially since all sides apparently have agreed on auto content rules,” notes Greg Valliere, chief global analyst at Horizon Investments.
The Trump administration may also be concerned more broadly about what could happen to Business activity if the U.S. appears protectionist and inflexible. “I think they’re starting to understand how you negotiate these deals has an effect on your economy,” said Juan Carlos Hartasánchez, a senior director of Albright Stonebridge Group.
On Monday, Mexico’s economy minister, Ildefonso Guajardo, said in a television interview that he sees an 80 percent chance for a new deal by the first week of May.
White House economic advisor Larry Kudlow on Monday told CNBC that talks are moving forward and “good progress is being made.” He noted that Trump exempted both Canada and Mexico from aluminum and steel tariffs, pending a successful reworking of NAFTA.
Valliere said even rough outlines of a deal would be encouraging for the markets.
“Many Republican lawmakers fear the electoral implications of a China dispute in the U.S. farm belt, and supply-siders — including Larry Kudlow — fear the dollar amount of potential tariffs could negate some of the impact of tax cuts, even though the overall GDP impact of the trade dispute still looks modest — for now,” Valliere said.
Analysts say Canada and Mexico may have more leverage in the negotiations now that the U.S. has become more interested in a deal.
“It’s become a win-win for Trump. He has a double consideration,” said Carlos Peterson, Mexico analyst at Eurasia Group. “He has the Midwest manufacturing states that want to see NAFTA change, and he has the traditional Republican states [in the farm belt] that want to see him preserve most of NAFTA and what has benefited most of these other states.”
Peterson said the talks between the negotiators are now very technical. While there has been more agreement on auto content, he said there is not total agreement. For instance, Mexico is unlikely to give in to a U.S. demand that automotive salaries be raised to $15 an hour for workers in the auto sector.
The U.S. has sought 85 percent NAFTA content in all vehicles and 50 percent U.S. content. Peterson said components are being grouped in five categories and some components will receive stricter content requirements than others.
Canada has also pushed for dispute resolution to remain as something arbitrated among the three NAFTA members, instead of having complaints go to Local courts, as the U.S. demands.
source : CNBC