What's going on?
On Monday, the US and Mexico agreed a new trade deal to replace the previous one. The ball’s now in Canada’s court as it decides whether to join the party.
What does this mean?
This new deal’s set to replace the North American Free Trade Agreement (a.k.a. NAFTA), which has been around since 1994. The old deal allows Mexico, Canada and the US to trade several products freely (i.e. without tariffs) with each other.
The new deal aims to address the US “trade deficit” – it imports $71 billion more goods from Mexico than vice versa and wants the amount each country spends to be more equal. One of the main changes is that 75% of the value of autos must be made in the US or Mexico (it was 62.5% under NAFTA) – likely capping contributions of car parts from Asia and boosting auto manufacturing jobs in the US.
Why should I care?
The bigger picture: Over to you, Canada.
Canada’s been involved in the negotiations but skipped the last round of talks, which meant the US and Mexico agreed terms without them. Canada will return to the negotiating table but may find it’s under pressure to sign up, or risk being left out and hit with tariffs on its cars – in addition to the steel and aluminum tariffs it’s already facing. On a similar note, further trade talks between China and the US last week ended without either side making a breakthrough.
For markets: Good news for investors.
Stock prices mostly rose in response to the news – in particular, shares of automakers like General Motors and Ford, since carmakers probably won’t incur tariffs within North America (which may well have dented profits). Investors perhaps saw the US-Mexico deal as a sign that cool heads might yet prevail in global trade talks. Investors buying stocks helped push US stock prices to new highs – and so the record bull run continues…