What You Need to Know About Trump’s New NAFTA Deal

One of the big campaign promises from then-U.S. presidential candidate Donald Trump was to renegotiate what he perceived to be unfair trade deals. In addition to seeking a fair trade deal with China, one specific pact that regularly drew the ire of Trump is NAFTA, or the North American Free Trade Agreement, between the U.S., Canada and Mexico. On the campaign trail, Trump regularly referred to it as one of the worst deals ever negotiated. As president, revamping NAFTA has been one on his agenda since day one.

This week, less than two years into his presidency, Trump has successfully renegotiated NAFTA. The U.S., Mexico and Canada reached an agreement earlier this week on a deal in principle, and it’s expected that Congress will pass it soon. The deal is the result of more than a year of negotiations with the two other nations, and while it’s not so much of a total revamp as it is some adjusting and fine-tuning, it still ranks as a major accomplishment for the Trump administration and a campaign promise kept.

Here’s a closer look at some of the key changes in the new NAFTA agreement:

Automotive Protection
Though the roots of the automotive industry are in America – specifically Detroit – there’s no question that automotive production is now more globalized than ever. This includes plants and facilities throughout North America, including Mexico and Canada.

One key provision in the new NAFTA agreement offers protection for auto companies in Mexico and Canada, while encouraging more automotive production in the U.S. Specifically, it will mandate that 75 percent of auto production be performed in the U.S., a number that’s up from about 62 percent in the old agreement. Per terms of the deal, there’s a five-year transition period after formal approval to get to this increase. Additionally, passenger cars, trucks and many auto parts from Mexico and Canada are exempt from any potential tariffs. This part of the new NAFTA agreement has already been lauded by several automakers, perhaps most notably the Ford Motor Company and General Motors.

70 percent of steel and aluminum must be sourced from either the U.S., Canada or Mexico. Up to 45 percent of a vehicle’s assembly must be built in a country where workers earn at least $16 per hour, a stipulation designed to bring more jobs back to the U.S. and avoid outsourcing to save on labor costs.

Greater Dairy Access
The other main change in the new NAFTA agreement pertains to U.S. farmers’ access to the dairy market. Under the new terms, U.S. farmers will now get access to about 3.5 percent of Canada’s $16 billion dairy market. This was a big talking point, which included compromise from both the U.S. and Canada to reach.

What About China?
Now that a new NAFTA agreement has been reached, many are turning their eyes to China, and a situation that is becoming increasingly tense.

Weeks ago, the U.S. announced that tariffs on hundreds of Chinese imports would increase to 25 percent if a better trade deal with China is not reached by January 1, 2019 – something that makes lots of manufacturers and equipment makers uneasy.

Though China wasn’t the focus when Trump announced the new NAFTA agreement, trade with the Asian economic powerhouse was brought up in the news conference. Trump responded by saying that it was too early to resume negotiations with the country. However, now that the NAFTA deal is done, it only makes sense for China to be the next major trade hurdle that the administration tackles. While talks are likely to start back up soon, it appears that nothing is imminent.

Like we said in the opening, the revamped NAFTA agreement ranks as a promise kept by this presidential administration – and it marks a key update to an agreement originally signed in 1993. It also puts the minds of several key industries at ease, and seems to have approval from the major players that are affected by the agreement.

Regards,

Ethan Warrick
Editor
Wealth Authority

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