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Is a New NAFTA Agreement Close?

In recent days news has been circulating in the financial media that the parties involved are wanting to get the agreement done. Whilst many insist more urgency has been created due to the potential of a US-China trade war.

NAFTA agreement

Negotiations have been taking place and continued long into Friday evening. Held in Washington, the talks were attended by the Canadian foreign affairs minister Chrystia Freeland, The US trade negotiator Robert Lighthizer and Mexican Economy Secretary Ildefonso Guajardo.

President Trump intent on pushing through a deal

Trump has always remained self-assured that if a trade war between the US and China was to break out it would be ‘easy to win’ however, it will almost certainly be easier to win with trading partners. Trump is now keen on finding a conclusion and by his own on admission believes fast progress is being made.

“we’re working very hard on NAFTA with Mexico and Canada. We’ll have something, I think, fairly soon.”

His comments are a far cry from the president’s previous remarks and social media activity, potentially highlighting the US’s necessity to ensure trade partners are in place before any potential fall out with the US.

Trump recently claimed that he planned to impose $100 Billion Dollars a threat which duly replied to with a list of US products that it could also impose tariffs upon. However, his more open and reasonable approach to the talks could also be used to signal that the US would embrace talks with China also, therefore averting a trade war.

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Whilst a looming trade war provides a great incentive for the US to sure up key trading relationships it’s also understood that timing could be key for Trump. The Whitehouse would need to provide at least 90 days notification to Congress, a rule set out by the Trade Promotion Authority.

Prime Minister Trudeau hails progress

NAFTA progress has also been hailed by the Canadian Prime minister who stated that talks had recently picked up momentum:

“We are in a moment where we are moving forward in a significant way, hopefully, there will be some good news coming. Right now, we are having a very productive moment.”

Trudeau also clearly wants progress and the NAFTA agreement renewed, signalling that Canada remains open to the agreements continuation and willing to meet as much as the US requires.

NAFTA news sees CAD rally

The Canadian Dollar has benefited from the newly found urgency to get the deal done, this has been reflected in the USD to CAD uptick. As mentioned in previous articles investors believe if a palatable deal was made the Loonie could enjoy gains of up to 7 % against its US counterpart. This week has seen the US Dollar lose quite a bit of ground, with the Dollar to CAD weekly high being 1.2942. The NAFTA developments have significantly weakened the USD to CAD and the pair dropped to a 1.2738.

USD/CAD exchange rates technical chart on April 10 2018

Continually weakened by uncertainty and Trump’s endeavours the pair have dropped significantly over the last month, Dollar to CAD exchange rates were at 1.3119 around the third week of March and have dropped since that date.

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The Mexican Peso has capitalised formidably this year despite NAFTA uncertainties, rising significantly against the US and Canadian Dollar, the Peso has enjoyed gains of 8.7% and 9.5% respectively.

Outstanding NAFTA hurdles

A critical sticking point in the NAFTA deal progress had always been the USA’s insistence to dominate the key demand on autos, a stance which has softened in recent days. Initially, the US had been firm on wanting the US to produce 85% of the key car parts in assembly, an increase of 23% from the current quota.

It is now understood that part allocations will be split into 5 parts or sectors, which on parts such as engines and transmissions could see the US produce 85% of the allocations in the agreements. More negligible parts such as nuts, bolts and screws could not have a threshold.

The Mexican elections also add to the time constraints, held on the 1st of July with Robert Lighthizer urging a deal to be agreed before then in order to avoid further issues.

All parties regroup again at the summit of Americas this where the framework for the deal is anticipated, if concluded expect the Canadian dollar to strengthen again.

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