President Donald Trump speaking with the Mexican president as Trump made an announcement on NAFTA in the Oval Office. Kevin Lamarque/Reuters
The Mexican peso and the Canadian dollar were surging Monday morning after the US and Canada struck an agreement that strengthens the trading relationship of the three North American economic powerhouses.
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Trade negotiators for the US and Canada on Sunday evening put the finishing touches on a deal to reshape the 25-year-old North American Free Trade Agreement, known as NAFTA. It is the largest trade-deal rewrite of President Donald Trumps tenure.
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The agreement came just hours before a deadline set by the Trump administration and will now need congressional approval. It follows more than a year of negotiations between the US, Canada, and Mexico over the trilateral agreement.
Trumps agreement with Canada concludes a lengthy negotiation period and adds to the agreement struck in August by the US and Mexico, ensuring continued strong ties among the three nations.
The president greeted the agreement as “wonderful” on Monday morning, calling it “a great deal for all three countries.”
“Late last night, our deadline, we reached a wonderful new Trade Deal with Canada, to be added into the deal already reached with Mexico,” Trump said on Twitter, adding that NAFTA would be renamed the United States-Mexico-Canada Agreement.
“It is a great deal for all three countries, solves the many deficiencies and mistakes in NAFTA, greatly opens markets to our Farmers and Manufacturers, reduces Trade Barriers to the U.S. and will bring all three Great Nations together in competition with the rest of the world,” he said. “The USMCA is a historic transaction!”
As the smallest of the three economies, Mexico sees outsize benefits from its trading partnership with the US and Canada.
The peso has rocketed, gaining about 0.7% in trade against the dollar on Monday morning. By just after 10 a.m. BST, or 5 a.m. ET, the currency was trading at 18.54 to the dollar, as the chart below illustrates (this pairing shows the dollars fall against the peso, rather than the pesos gains):
The new NAFTA deal also came on the last day before a Trump-imposed deadline to reach an agreement. Trump is renegotiating NAFTA under what is known as Trade Promotion Authority. While TPA gives Trump the ability to send a deal to Congress for a simple majority vote, it also includes a statutory 60-day notification period.
“Investors have been waiting patiently for some good news regarding trade since the US escalated trade tensions earlier this year,” Jasper Lawler, the head of research at London Capital Group, said in an email. “There is clear elation that a deal has been struck.”
The Canadian dollar has followed a similar pattern to the peso, gaining against the US dollar in overnight and European morning trading, though gains have been a little smaller:
Trade negotiators for the US and Canada on Sunday evening put the finishing touches on a deal to reshape the 25-year-old North American Free Trade Agreement, known as NAFTA, sealing the largest trade-deal rewrite of President Donald Trumps tenure.
All the days economic and financial news, as US, Canada and Mexico hammer out a new trade agreement called USMCA
U.S. President Donald Trump speaking during a press conference to discuss a revised U.S. trade agreement with Mexico and Canada in the Rose Garden of the White House today Photograph: Chip Somodevilla/Getty Images Graeme Wearden
President Trump: “Once approved by Congress, this new deal will be the most modern, up-to-date, and balanced trade agreement in the history of our country with the most advanced protections for workers ever developed.” pic.twitter.com/yJhKbF1aaU
Donald Trump ends his victory lap by pointing to Americas strong labour market, and the 50% stock market rally since his election.
In a warning to Beijing, Trump says its too early to hold talks with China to resolve the ongoing trade dispute.
He claims that China wants to talk very badly….however, China did actually warn that it wouldnt negotiate unless Trump dropped his threats.
Presidents message on U.S-Canada trade is also meant to be a message to China; Trump says its too early to talk w/Beijing – a not-so-subtle suggestion that he wants China to twist in the wind a bit longer
Trump says he plans to sign the new trade deal with Canada and Mexico by the end of November. pic.twitter.com/RUkno6HnZJ
Getting into his stride, Trump now hits at the babies who claim that tariffs dont make a difference.
He adds that other countries such as India have been on the phone to the White House trying to renegotiate trade deals, because theyre scared that the US will hit them with tariffs.
Its so weird how, even during what some might consider a win, Trump name calls: babies complaining about tariffs. pic.twitter.com/QdHLmxXoLd
Once USMCA is approved, it will be a new dawn for the US auto industry and the US auto worker, continues Trump.
But he also points out that the deal hasnt been approved by Congress, suggesting that some on Capitol Hill might oppose the deal just because Trump likes it.
Trump says USMCA is the most modern, up-to-date and balanced trade agreement ever, with the most advanced protections ever for workers.
It will help US farmers and ranchers export wheat, poultry, eggs and dairy products to Mexico and Canada.
The president also singles out the provision that higher-paid workers produce a proportion of cars n the region, and the new protection for intellectual property.
Trump then thanks a string of top officials for their work on USMCA, singling out US trade representative Robert Lighthizer for special praise.
Whenever you called Lighthizer, youd find him working in his office or another office, says Trump, hailing his work ethic.
He also says Mexicos outgoing president Enrique Peña Nieto should get credit, calling him a terrific person.
Donald Trump begins by saying its a beautiful, beautiful day in Washington…. and a day in which he brings truly historic news for our nation, and the world.
We have successfully completed negotiations on a brand new deal to terminate and and replace Nafta with an incredible new deal with Canada and Mexico, called USMCA, Trump says proudly.
The president then lays into Nafta, calling it the worst trade deal ever made, which cost America one in four auto jobs.
Trump: “The agreement will govern nearly $1.2 trillion in trade, which makes it the biggest trade deal in United States history.”
Donald Trump has arrived at the podium at the White House Rose Garden to speak about the USMCA trade deal, and presumably take a victory lap….
In the Rose Garden, waiting for President Trumps press conference on the new #Nafta deal pic.twitter.com/j7B5ESkjXH
Theres a good round-up of the key differences between Nafta and USMCA here in the Washington Post, by Heather Long.
New name. Goodbye NAFTA. The new deal will be known as the United States-Mexico-Canada Agreement, or USMCA
Starting in 2020, to qualify for zero tariffs, a car or truck must have 75 percent of its components manufactured in Canada, Mexico or the United States, a substantial boost from the current 62.5 percent requirement.
Theres also a new rule that a significant percentage of the work done on the car must be completed by workers earning at least $16 an hour, or about three times what the typical Mexican autoworker makes.
Trumps victory: Canada opens up its milk market by giving a larger share to U.S. farmers and eliminating its Class 7 pricing scheme.
That means U.S. dairy farmers can probably send a lot more milk protein concentrate, skim milk powder and infant formula to Canada (and those products are relatively easy to transport and store).
Canadas victory: Chapter 19, allowing for a special dispute process, stays intact. Chapter 19 allows Canada, Mexico and the United States to challenge one anothers anti-dumping and countervailing duties in front of a panel of representatives from each country. This is generally a much easier process than trying to challenge a trade practice in a U.S. court
On cars, Mexico and Canada get assurance that Trump wont pound them with auto tariffs. The US administration signed side letters allowing Canada and Mexico can continue sending about the same number of vehicles and parts across the border free of charge, regardless of whether auto tariffs go into effect down the road. Only parts above that quota could face tariffs. Trumps steel tariffs stay in place (for now). Canada wanted Trump to stop his 25 percent tariffs on Canadian steel, but theres no deal (yet)
For example, the USMCA stipulates that Mexican trucks that cross the border into the United States must meet higher safety regulations and that Mexican workers must have more ability to organize and form unions.
Increased intellectual property protections. There are more-stringent protections for patents and trademarks, including for biotech, financial services and domain names – which werent considered when Nafta was created in the 1990s.
Chapter 11, giving investors a special way to fight government decisions, is (mostly) gone. That will please critics, who say it allowed investors to sue governments and win money off the taxpayer.
NAFTA to USMCA is perhaps instructive.Trump shouts, he gets a nominal/cosmetic change, he declares victory and moves on.
If USMCA isnt as historic a change as president Trump claims, why has it been well-received in the markets?
Well, economists will be relieved that the agreement maintains zero tariffs on swathes of goods between the three countries. That removes the risk of hefty new levies that would curb demand.
But also, a pattern is emerging; the Trump White House demands major changes, gets some progress, declares a famous victory, and moves onto the next battle.
Donald Trump is expected to speak about the USMCA deal at the White House at around 11am local time (4pm BST).
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