The United States and Canada are moving closer to resolving their trade differences and could reach a deal by the end of the week that keeps the three-country North American Free Trade Agreement intact.
Both countries are under pressure to find a way to keep NAFTA intact and to avoid the United States and Mexico from moving ahead without Canada, as President Trump has threatened. Republican lawmakers are warning the White House that a bilateral agreement will not pass congressional muster, while industry groups said a NAFTA without Canada would take a significant economic toll.
In an appearance in front of reporters in the Oval Office on Wednesday, Trump said that he was optimistic that the Canadians would soon become a part of an expanded deal made earlier in the week with Mexico.
“Right now we call it the US-Mexico trade agreement and we’ll see whether or not Canada gets into it,” the president said. “I think it’s probably not going to be good at all if they don’t.”
In what he indicated was a hint to the country’s willingness to join into new trade deal, Trump said he had spoken to Justin Trudeau, the prime minister of Canada, by phone the night before. “Hey, he called me,” the president said. “I didn’t call him.”
On Wednesday, Chrystia Freeland, Canada’s foreign minister, expressed optimism that the talks were moving in a positive direction and said that Canadian and American officials were working intensely to try and resolve remaining differences.
“Mexico has made some significant concessions which will be really good for Canadian workers,” Freeland told reporters outside the office of the US trade representative. “On that basis, we are optimistic about having some really good productive conversations this week.”
Asked if the negotiations were nearing completion, Freeland said: “You’re tempting me to say something Churchillian — is this the end of the beginning, is this the beginning of the end? Let me just say a lot has been accomplished.”
The agreement appears to be giving the United States much of what it has been demanding over the past year, particularly related to automobiles. Mexican officials have essentially agreed to limit imports of cars and car parts into the United States by accepting a deal that would impose punitive tariffs of up to 25 percent on imports that exceed a certain threshold, according to officials.
Mexican exports of cars and SUVs in excess of 2.4 million could be subject to the auto tariffs that Trump has threatened to impose as a matter of national security. The deal would also impose tariffs on Mexican exports of auto parts that exceed $90 billion. Both figures are higher than Mexico’s shipments to the United States last year, giving Mexico some ability to boost its exports. The quotas would apply to all Mexican cars and car parts.
Mexican officials insisted Wednesday that the pact would offer their industry important protection from the threat of Trump’s auto tariffs by carving out an exemption for a large volume of autos and car parts.
Ildefonso Guajardo, the Mexican economy secretary, described the auto provisions as a win for Mexican carmakers, saying that around 70 percent of Mexican automotive exports will qualify for free trade under NAFTA and that the side agreement would help ensure that any impact from Trump’s proposed auto tariffs would be limited.
“It respects our existing capacity, it respects the new plants that are being developed, and it provides room for growth,” Guajardo said.
But auto industry executives said such an agreement could ultimately limit the number of imports from Mexico, push production outside of North America and raise prices for vehicles.
“If we run up against these quotas, we are going to make manufacturing more expensive in the United States. Period,” said Ann Wilson, senior vice president of government affairs of the Motor & Equipment Manufacturers Association.
Freeland has called Mexico’s concessions on cars “significant,” indicating that Canada is comfortable with the agreement the United States has reached. She met with Mexican officials to discuss the trade agreement they reached with the United States. She described those talks as productive.
The intense negotiations come as relations between Canada and the United States have declined to their lowest point in recent memory. In June, Trump berated Canadian Prime Minister Justin Trudeau as “very dishonest and weak” following a contentious Group of Seven summit. Later that month, Freeland angered some in the White House when she suggested in a speech that the United States under the Trump administration was turning its back on the democratic values that it once championed.
But the Trump administration may be more willing to strike a deal with Canada given blowback from Congress — which has the ultimate legal authority over trade agreements — over the potential for a NAFTA that includes just Mexico.
White House officials have been attempting to sell the agreement it reached with Mexico as one that Canada cannot refuse, but several issues still remain to be worked out between the United States and its Northern neighbor — including Canada’s dairy tariffs and a legal framework for settling trade disputes.
Legal experts remain divided about what would happen to the US-Canada trading relationship if they are no longer knit together through NAFTA. Relations between Canada and Mexico would likely be governed by the Trans-Pacific Partnership, which the countries are likely to approve early next year. But that pact excludes the United States and the relationship could wind up reverting to the rules of an earlier US-Canada free trade agreement.
Also unclear is whether the United States can move forward with a bilateral deal with Mexico without terminating NAFTA and restarting the process of notifying Congress about the administration’s intentions.