Accord a relief for 3 nations

Biggest fear: No deal, say economists

President Donald Trump shakes hands with U.S. Trade Representative Robert Lighthizer during a news conference on the trade agreement among the United States, Canada and Mexico, and the nomination of Judge Brett Kavanaugh to the Supreme Court, in the Rose Garden of the White House on Monday in Washington.
President Donald Trump shakes hands with U.S. Trade Representative Robert Lighthizer during a news conference on the trade agreement among the United States, Canada and Mexico, and the nomination of Judge Brett Kavanaugh to the Supreme Court, in the Rose Garden of the White House on Monday in Washington.

The revised trade accord reached over the weekend by the U.S., Canada and Mexico should aid growth, mainly by eliminating President Donald Trump's threat of a potential withdrawal from the original North American Free Trade Agreement, economists say.

The relatively tepid reaction from analysts compares with a joint statement that the updated agreement will bring "freer markets, fairer trade and robust economic growth." Trump said Monday that it "will send cash and jobs pouring into the United States" and called it America's most important trade deal ever.

U.S. stocks ended mixed, with multinational companies rising and domestically focused small caps sinking the most since July. Canada's dollar remained higher, while Mexico's peso gave back morning increases.

Canadian Prime Minister Justin Trudeau said Monday that his country was in a more stable place now that it had completed the negotiations. He said the deal needed to be fair since one trading partner was 10 times larger. He said Canada did not simply accept "any deal."

"We got the right deal. We got a win-win-win for all three countries," Trudeau said.

Likewise, outgoing Mexican President Enrique Pena Nieto said via Twitter that the deal negotiated over the past 13 months "achieves what we proposed at the beginning: a win-win-win agreement."

Trump noted that the agreement would need to be ratified by Congress, a step that could be affected by the outcome of the fall elections as Democrats seek to regain majorities in the House and Senate. When a reporter suggested he seemed confident of approval after his announcement, he said he was "not at all confident" -- but not because of the deal's merits or defects.

"Anything you submit to Congress is trouble, no matter what," Trump said, predicting that Democrats would say, "Trump likes it so we're not going to approve it."

The renamed United States-Mexico-Canada Agreement updates 1994's NAFTA with changes including higher wages for workers making auto parts and improved access for U.S. farmers to the Canadian dairy market. While economists weren't rushing to boost their forecasts for gross domestic product, they said the trade pact eliminates the downside scenario of no deal or just a bilateral agreement, and should support expansion over the long term.

"Everybody is happy, and why is that? Because the alternative would be much, much worse," said Raoul Leering, head of international trade analysis at ING Groep NV. The possibility of tariffs on a variety of Canadian goods "would have a much more negative effect on world trade."

In terms of the U.S. economy, Leering said the new agreement will be positive in the long run as U.S. companies expand operations domestically, while some sectors may become more protected from foreign competition. Steel and aluminum tariffs remain, which will continue to push up prices, a near-term threat.

The Conference Board of Canada recently estimated that auto tariffs along with failing to renew the trade pact would curb growth by 0.6 percentage point next year and another 0.7 point in 2020, nearly a third of the expected pace of expansion.

"It doesn't majorly affect the economic outlook for Canada, but what it does is limit the downside risk from trade uncertainty over the next year, which was pretty prevalent, and puts a little upside risk on trade," Douglas Porter, chief economist at Bank of Montreal. "What's been weighing on Canada over the past year is the uncertainty, and it was clouding business investment plans."

JPMorgan Chase & Co. economists for Mexico said Monday that a trilateral accord was their "base-case scenario." They left their growth forecast unchanged at 2.4 percent for 2019.

"If you're looking at what they agreed to, versus the baseline of NAFTA, for the U.S. it's not really that much difference at all," said Jay Bryson, global economist at Wells Fargo & Co. "For Canada and Mexico, maybe it's eliminated some uncertainty there."

"As long as you have expansionary budgetary policy, I see imports rather going up than going down," Leering said.

The new version would give U.S. farmers greater access to the Canadian dairy market. But it would keep the former North American Free Trade Agreement dispute-resolution process that the U.S. wanted to jettison. It offers Canada protection if Trump goes ahead with plans to impose tariffs on cars, trucks and auto parts imported into the United States.

NAFTA reduced most trade barriers in North America, leading to a surge in trade among the three countries. But Trump and other critics said it encouraged manufacturers to move south of the border to take advantage of low-wage Mexican wages.

The new pact will require regional content of 75 percent for automobiles, and also that 40 to 45 percent of vehicles coming to the U.S. be produced in plants paying at least $16 per hour. That's about triple the average wage in a Mexican factory right now, and administration officials hope the provision will force automakers to shift suppliers from Mexico to Canada or the United States. The provisions could drive up car prices for consumers.

Mexico's incoming foreign relations secretary, Marcelo Ebrard, said some new regulations may pose challenges for companies to adapt to. However, he also said that "finishing this process of renegotiation provides certainty for financial markets, investment and job creation in our country."

The agreement gradually opens the Canadian market to more exported U.S. dairy products, including "fluid milk, cream, butter, skim milk powder, cheese and other dairy products." The "supply management" system Canada uses to protect its farmers is still largely in place.

The U.S. sought to eliminate the so-called Chapter 19 provision, which gives the three countries a sort of neutral playing site -- a panel with representatives from each country -- to challenge one another's impositions of tariffs, and other actions. Canada won the fight to keep that provision in the revised agreement.

For Trump, the agreement offered vindication for his hard-line trade policies that have roiled relations with China, the European Union and America's North American neighbors while causing concerns among Midwest farmers and manufacturers worried about retaliation. Trump's advisers view the trade pact as a political winner in battleground states critical to the president's 2016 victory and home to tens of thousands of auto workers and manufacturers who could benefit from the changes.

Trump said he would sign the final agreement in late November, in about 60 days, and the pact is expected to be signed by Trudeau and by Nieto, who leaves office Dec. 1. Trump said he spoke to Trudeau by phone and that their recent tensions didn't affect the deal-making. "He's a professional. I'm a professional," Trump said, calling it a "fair deal."

Canada, the United States' No. 2 trading partner, is by far the No. 1 destination for U.S. exports, and the U.S. market accounts for 75 percent of what Canada sells abroad.

Information for this article was contributed by Katia Dmitrieva and Eric Martin of Bloomberg News; by Ken Thomas, Rob Gillies and Paul Wiseman of The Associated Press; and by Jim Tankersley of The New York Times.


https://www.arkansa…">State farmers, politicians welcome new trade deal

A Section on 10/02/2018

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