As the 25th anniversary of the North American Free Trade Agreement approaches, Trump seeks to expedite his revisions to the document. The changes range from policy concerning car manufacturing outside of the United States, to incorporating more modern limitations on electronic trade. The alterations aren’t without criticism though. President Trump has even gone as far as threatening to officialize the document without Canada, drawing widespread disapproval.
The most notable change to the agreement has been to the motor industries. The new deal requires that 75 percent of the value of a vehicle has to be made in North America, which is quite a bit more than the previous 62.5 percent. In addition, the agreement also requires that 40 percent to 45 percent have to be made in areas which pay at least $16 an hour to workers. This would discourage companies from producing cars in areas where labor is especially cheap, potentially allowing more jobs in the U.S to remain viable.
Also related to labor, is a section of the deal which requires Mexico to follow International Labour Organization standards. The Trump administration has also agreed not to put a limit on how many vehicles can be imported from Mexico. Instead, the U.S will get to leave the steel and aluminum tariffs that were put into place earlier this year. This is meant to drive Mexican industry wages higher, lessening its advantage over American and Canada.
Also worthy of notice is the agreement to increase the minimum duty-free shipment threshold from $50 to $100. Largely included due to lobbying by online retailers such as Amazon, this would largely reduce the cost of shipping to Mexico for small goods.
Thus far, most of the changes to the agreement have been bilateral between the United States and Mexico. This is largely due to the absence of Canada from the negotiating table.
Canada has recused itself from the agreement up to this point due to the existence of a sunset clause. The clause states that the new agreement has a lifespan of 16, years with a review every six years that can extend the duration for another 16 years or more. The Canadian prime minister, Justin Trudeau, said in a recent interview that Canada would not sign any contract with a sunset clause. This, of course, would make any talk of finalizing the deal no longer a North American free trade agreement, but a U.S – Mexico free trade agreement.
This has been pointed out repeatedly by Trump. The President in fact, has stated that he is willing to finalize the deal if Canada refused to negotiate. This has been almost universally condemned, and many doubt the legality of such action. With this being said, it is unlikely that any movement toward finalizing this preliminary deal without Canada will be taken. If the current NAFTA agreement were to end, a slew of automatic tariffs would be placed on Canada. The same could be expected to happen on Canada’s end as well. Trudeau as well as Trump both have agreed that this is unfavorable for both parties, so it is likely a compromise will materialize in the near future
The President has long assaulted NAFTA as being one of America’s worsts deal, blaming it for the loss of manufacturing jobs, trade deficits and general undermining of the U.S economy. His adjustments to the deal will work to solve these, making efforts to even the playing ground between the U.S and Mexico. However, the trade deficit, one of Trump’s favorite complaints, will be largely unaffected.
If Trump wants to hail this as a complete reconstruction from the old deal, he either must make drastic changes in the coming weeks or he will be simply making small adjustments. This being said, Canada is yet to influence the agreement, and any preliminary work thus far is exactly that, preliminary.