The United States and Mexico Reach a Preliminary Trade Deal to Replace NAFTA

    JN Fund Managers
    JN Fund Managers

    Canada and the United States are racing to renegotiate a new trade agreement by Friday to prevent a breakdown in trade relations between the two nations. Earlier this week, President Donald Trump indicated that the United States’ had reached a new trade deal with Mexico to replace the North American Free Trade Agreement (NAFTA), a trade agreement originally signed by Canada, Mexico, and the United States, which essentially eliminated most tariffs between the nations. However, after months of negotiations, the US and Mexico have agreed on a preliminary deal primarily focused on automobile manufacturing but excludes the third member of NAFTA, Canada. Under the new agreement, 85% of the parts of cars imported into the United States without tariffs must be made in North America to be considered for tariff-free imports. Cars that do not meet this requirement will attract a tariff of 2.5%. By requiring more domestic based inputs, the new trade deal may positively impact employment in the U.S, which has been operating near full employment, with an unemployment rate of 3.9% as at July 2018. However, this may be negated by lower consumption due to the possibility of higher relative domestic prices.

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