If NAFTA were to fail it would put bilateral trade worth $1.2 trillion at risk

Although the U.S. aim could be portrayed as being noble and patriotic – that of reducing the U.S. trade deficit, – the demands of negotiators however risk risk derailing the highly integrated supply chains that U.S. manufactures depend on; it would also risk the imposition of stiff import duties. Trump’s America First policy could be a very expensive affair.

 

In a development that raises further doubts on the possibility of renewing the North American Free Trade Agreement, the Trump administration has demanded that U.S.-made content account for at least 50% of the value of the vehicles, including cars and trucks, sold under the agreement.

As per three sources briefed on the U.S. protectionist proposal, which is in sync with U.S. President Donald Trump’s aim of reducing U.S. trade deficit with Mexico which could boost U.S. manufacturing jobs, the U.S. proposal seeks to significantly overhaul NAFTA’s automotive content.

Many Mexican sources have denounced the U.S. proposal as “absurd”.

Mexico’s deputy economy minister, Juan Carlos Baker, however put a brave face on the state of NAFTA negotiations, and said “There’s no question there are some difficult proposals”.

“It’s clear to us that there are certain things that are proposals that go against the country’s objectives,” said Baker.

Trump claims the original NAFTA deal has worked out to be a disaster for the U.S. and has threatened to walk away from it unless it undergoes major changes.

Sources briefed on the talks have described the mood as being sour. However, Canadian and Mexican politicians have said, there is question of leaving the table, for now.

If NAFTA were to collapse, it would wreck the North American economy, disrupting its highly integrated manufacturing supply chains as well as the region’s agricultural exports.

Trade between countries in North America has more than quadrupled to over $1.2 trillion annually, since 1994. All of these would be at risk.

Although Trump has made it amply clear he wants bilateral trade deals, skeptics however wonder whether the U.S. demands of an “America First” strategy are designed to ensure the current talks fail.

Significantly, the U.S. Chamber of Commerce has listed the demand for a greater use of U.S.-made products for vehicles among a number of “poison pill” proposals that it said would torpedo the agreement.

“Frankly, I think this is a bully move by the American government,” said Jerry Dias, Unifor’s President in a statement.

Clearly U.S. officials have identified weaknesses in Mexico’s and Canada’s economy.

Mexico is heavily dependent on the U.S. and NAFTA for its economic viability: the uncertainty over the outcome of the negotiations has resulted in the Mexican peso hitting its five month low this week.

On Friday, U.S. negotiators have formally asked Canada to address a bilateral dispute over dairy pricing, a move that Canadians are likely to resist, said sources familiar with the talks.

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