U.S., Mexico reach trade ‘understanding’ to overhaul NAFTA: Trump

Editorial note: This story was updated at 2:30 pm EST to add that Canada’s foreign affairs minister will head to Washington to join NAFTA negotiations.

Donald Trump said Monday that the United States and Mexico have reached a bilateral trade “understanding” that could lead to an overhaul—or perhaps the termination—of the three-country North American Free Trade Agreement.

The U.S. president also invited Canada to rejoin trade negotiations with its NAFTA partners—while also threatening Ottawa that if it can’t reach a deal then he will impose devastating tariffs on automotive imports.

“We’ll start negotiating with Canada relatively soon, they want to negotiate very badly,” Trump said in the Oval Office, with Mexican President Enrique Pena Nieto joining by speaker phone.

“But one way or the other, we have a deal with Canada. It will either be a tariff on cars, or it will be a negotiated deal; and frankly a tariff on cars is a much easier way to go, but perhaps the other would be much better for Canada.”

Through an interpreter, Pena Nieto said several times that he hoped Canada would be part of an eventual trilateral agreement.

Trump also wants to re-baptize the trade agreement with Mexico.

“I like to call this deal the United States-Mexico trade agreement,” he said.

“I think it’s an elegant name. I think NAFTA has a lot of bad connotations for the United States because it was a rip off.”

Trump suggested he would terminate the 24-year-old trilateral pact with Canada and Mexico—a pact that has been critical for the Canadian economy—and replace it.

“When that happens, I can’t quite tell you, it depends on what the timetable is with Congress, but I’ll be terminating the existing deal and going into this deal,” he said.

“We’re looking to help our neighbours. If we can help our neighbours, that’s a good thing, not a bad thing. So, we’ll start that negotiation imminently. I’ll be speaking with Prime Minister [Justin] Trudeau in a little while.”

In emailed commentary, CIBC chief economist Avery Shenfeld says Trump’s comments underscore that “Canada is going to be presented with more of a take-it-or-leave-it offer, with the now not-so-subtle threat that the U.S. is prepared to leave Canada out and work on a bilateral basis with Mexico.” He adds that Mexico is signalling its interest in staying with a trilateral pact involving Canada, and that he expects Canada and the U.S. to get a deal done.

Following Trump’s announcement, Trudeau’s office issued a statement saying the prime minister spoke with Pena Nieto on Sunday about NAFTA’s renegotiation and “shared their commitment to reaching a successful conclusion to this agreement for all three parties.”

Trump also called on Canada to negotiate fairly, especially when it comes to dairy products.

Canada has been absent from the NAFTA bargaining table since trilateral talks paused last spring.

Observers have raised concerns that Canada’s absence from the talks could put Ottawa in a position where it might be pressured into accepting a deal reached between the U.S. and Mexico.

Trudeau has insisted his government will only sign a deal that’s good for Canada.

Foreign Affairs Minister Chrystia Freeland will head to Washington on Tuesday to re-join face-to-face negotiations with the U.S. and Mexico on the future of the NAFTA.

Still, uncertainty remains, and if not resolved quickly could keep the Bank of Canada on hold in September, says Shenfeld. “We would not therefore take this as a good news story for the [Canadian dollar] just yet,” he adds.

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