Stoked by bilateral progress toward a revised NAFTA deal, markets for sure got off to a solid start to the week. I’ve hinted at progress with Mexico for a few days; and believe Canada will fall in line quickly. Ottawa’s Foreign Minister had said that ‘as soon as Mexico and the US come to terms’ they will join-in the talks for a revised NAFTA.
Simply put: the key provision that would bring North America together may be a provision that a certain portion of automobiles cannot be built without using steel made among this Continent’s members; and that portions must be assembled by workers not earning less than $16 an hour. That alone is enough to make things closer to a level playing field and offsets the really complex issue of various components made among the 3 nations.
As I’ve mentioned before, a revised NAFTA could be the basis for a better deal with the EU (which is not a low-cost producer) and move closer to the kind of deal we need with China. The bilateral Mexico/USA deal will prove one point, regardless of the swirl of politics around Trump and speculation he doesn’t want a deal until after Midterms. First that he does want a deal; and probably secondarily that achieving it now would mitigate the concern that everything is a sideshow and not an effort to really bring it together.
Of course regardless of details with Mexico, it tends to focus on economic contours being improved, and a bit away from the truly extraordinary circus that revolves around many legalities that encircle Trump’s Administration. I would point out the strength in the Canadian Dollar and Mexican Peso that also support the idea of an Agreement and not just more talking ahead. In the Canadian case, they won’t ‘cave’ as some put it; but again that they do want this to go forward if (especially) the steel and wage levels are sorted.
In sum: legislation to revise NAFTA requires permission from Congress if it’s truly bilateral. Existing law permits only a ‘trilateral’ rearrangement. So it will be interesting how it goes. I suspect Canada will come on board.
