Negotiations for a revised North American Free Trade Agreement (NAFTA) have dragged on for over a year. The deadline for the U.S., Mexico and Canada to reach a new North American Free Trade Agreement (NAFTA) is this Friday, August 31st, 2018. On Monday, the United States and Mexico agreed on a revised deal that did not include Canada. Subsequently, talks with Canada commenced Tuesday. With car trade at the heart of a new NAFTA, General Motors will be impacted by the new terms no matter what shape they take.
Now less than 48 hours away from the target date, here are three potential outcomes by Friday.
Possibility #1: A Deal With Canada Is Reached
With the U.S. and Mexico already having a deal of their own, Canada is under great pressure to accept the terms of the new agreement. Prior to returning to negotiations on Tuesday, the North-most NAFTA nation did express several concerns, though many are hopeful that it will put those behind it and move forward.
On Wednesday, President Trump said he is optimistic that Canada will join the deal.
“They want to be part of the deal,” President Trump was quoted as saying in regards to Canada. “We gave until Friday and I think we are probably on track. We’ll see what happens.”
Meanwhile, a senior U.S. trade official was quoted as saying that “”There are still issues with Canada but I think they could be resolved very quickly.”
A NAFTA with Canada in it would support the spirit of the original agreement, though the U.S. and Mexico don’t have to do much at this point, as both are secure with a deal with one another.
Possibility #2: A Deal With Canada Is Not Reached
According to U.S. Trade Representative Robert Lighthizer, if talks with Canada do not conclude by Friday, then Trump will notify Congress that he has reached a deal with Mexico.
In doing so, the president will also state that he is open to Canada joining, bringing us to the third option.
Possibility #3: All Three Parties Agree To The Deal Afterhours
Though the official deadline is this Friday, Trump has opened the door to Canada joining the new NAFTA after the deadline. In that regard, the Friday target becomes less important.
Though it is highly unlikely that negotiations will continue after the deadline, some analysts believe that Canada will be able to join the agreement thereafter. But not all is without peril.
“I think with Canada, frankly, the easiest we can do is to tariff their cars coming in”, Trump was quoted as saying. “It’s a tremendous amount of money and it’s a very simple negotiation. It could end in one day and we take in a lot of money the following day.”
The New Deal
The new bilateral NAFTA agreement between Mexico and the United States calls for 75 percent of automotive content (parts) to be made in the NAFTA region, up from the current requirement of 62.5 percent. The requirement is expected to shift production of some automotive parts to Mexico from China.
In addition, the revised deal requires 40 to 45 percent of auto content to be made by workers earning at least $16 per hour. The move will likely result in the relocation of some automotive production from Mexico to the United States, but could also result in an increase in Mexican automotive wages.
In addition, the agreement limits exports of Mexican cars and sport-utility vehicles to the United States at 2.4 million vehicles annually, with any volumes above that level being subjected to tariffs.