President Trump on Monday claimed he had achieved a major breakthrough in trade relations between the United States and Mexico, suggesting he’d reached a deal to replace the North American Free Trade Agreement.
But the administration’s own description calls the deal a “preliminary agreement in principle.” That’s not a finished product, and it can’t become one without clearing the high hurdles of approval from Congress and Mexico.
NAFTA also includes Canada, a country conspicuously absent from Monday’s announcement and whose leaders have clashed repeatedly with Trump on trade.
Monday’s deal could become a big win for Trump, but hard negotiations await. Here’s a rundown of what’s in the deal — and the many hurdles to clear before it becomes final.
What’s in the deal? Broadly, it aims to update the 1993 agreement and spur more auto manufacturing in the United States and Mexico. The full text has not been made available, and major issues remain unresolved, but details released Monday include new trade rules for cars, intellectual property protections and labor rights. Several trade experts noted that many provisions in Monday’s agreement resemble what was in President Barack Obama’s Trans-Pacific Partnership, a deal Trump pulled out of as soon as he took office.
New rules for automobiles: Under the deal, to escape tariffs, 75 percent of “auto content” — parts and amenities — must be made within the United States or Mexico. That would be a bump from the existing 62.5 percent minimum of North American content, a boost aimed at creating automobile industry jobs domestically, rather than in Asia.
New rules for auto wages: In addition, the rules stipulate that 40 to 45 percent of the auto content must be made by workers earning more than $16 per hour. The average hourly pay for a U.S. autoworker is more than $22 an hour, according to the Labor Department, but $16 is huge for Mexico, where auto parts workers average less than $3.50 an hour, according to the Center for Automotive Research. This provision is considered a win for Trump because Mexico had been advocating a much smaller percentage.
New rules for intellectual property, the environment and labor: Nearly everyone agreed that NAFTA needed to be updated for the digital economy. This agreement would make it harder to steal intellectual property. The deal also requires Mexico to do more to allow collective bargaining for workers and to protect air quality and marine wildlife, including whales and sea turtles. These provisions were all part of the TPP, which Mexico and Canada both signed onto after Trump took the United States out of that deal.
How long would it last? The United States and Mexico agreed to revisit the deal after six years, and if everyone is pleased, to extend it for 16 years. If some sides are not happy, there would be a new round of negotiations. The length arrangement reflects a U.S. move toward the requests of Mexico and Canada, as the Trump team originally advocated for the deal to terminate after five years unless all parties agreed to extend it.
What would this mean for most Americans? If the deal clears all the hurdles and goes into effect, it will probably make cars and trucks more expensive for American buyers. Some economists also warn that a U.S.-Mexico deal that doesn’t include Canada would be very confusing (and expensive) for businesses to navigate, potentially killing jobs or shifting them overseas. On the upside, White House officials hope the agreement will create more North American jobs by making it harder for countries like China to ship cheap products through Mexico and on to the United States.
What’s not in the deal? The deal does not resolve the tariffs the Trump administration put on steel and aluminum earlier this year, taxes that have proved a major sticking point in trade relations and led to Mexican retaliation against U.S. goods. The deal also does not resolve a broader issue over what are known as “232 tariffs,” taxes on foreign goods the Trump administration has imposed in the name of national security. The administration used that process for the steel and aluminum tariffs, over the strong objections of many U.S. allies and trading partners — including Canada. And Trump is considering 232 tariffs on foreign autos.
What happened to Canada? Canada is part of NAFTA, but it was not included in the U.S.-Mexico agreement announced Monday. Trump said Monday that “we’ll see” whether Canada can join the agreement. Canadian foreign affairs minister Chrystia Freeland is coming to Washington this week to talk trade.
Trump is pressing Canada to join the pact, and he threatened hefty tariffs on Canadian cars and auto parts if it won’t join. But Canadian officials say their country, which has already been hit by Trump’s steel tariffs and retaliated against them, won’t join any deal that hurts their workers and businesses.
A key sticking point for Canada is what is known as the “dispute resolution” process, which allows companies to challenge some government rules. Canada is upset by how many U.S. companies have challenged Canadian environmental laws. A senior administration official said the U.S.-Mexico deal does have a revised dispute resolution process that will be modified for some sectors.
Does Congress need to approve the deal? Yes. Trump would have to formally submit a deal to Congress, which would have 90 days to make an up-or-down decision on it. And what lawmakers are willing to approve may have a lot to do with how talks go with Canada. Congress gave Trump the authority to do only a trilateral deal, with both Canada and Mexico. Many members, in sending their initial reactions to the deal, called on Trump to bring Canada into the fold. If he ends up submitting a deal without Canada, it increases the chances that lawmakers will balk.
What else does Mexico have to do? Mexico also needs to sign off on the deal, and that’s more complicated because Mexico is in the midst of a change of government. Mexico’s current president, Enrique Peña Nieto, is set to be replaced by President-elect Andrés Manuel López Obrador on Dec. 1. And Nieto’s administration has been racing to finish a deal so Mexico’s Congress will have time to ratify it before the newcomer takes office.
Is this the end of NAFTA? Trump said Monday that he wants to scrap the name, saying it was a “rip-off” that had “bad connotations.” He called the new arrangement the “United States-Mexico Trade Agreement,” and a senior administration official said if Canada ultimately joins, they’ll find a new name.
That doesn’t mean NAFTA is dead, however. Nothing is final, and while the new deal works its way through multiple steps, NAFTA’s trade rules remain in effect. Even if the new deal is finalized, it may be more a renaming than a scrapping. The administration’s fact sheet about the deal described it as “modernizing NAFTA” and an “update to the 24-year-old NAFTA,” a nod to the fact that many of the trade agreement’s provisions remain in place.
Trump also threatened to “terminate” NAFTA, but it’s unclear whether he can do that without Congress, and few lawmakers want to scrap the deal that has benefited some industries greatly.