The United States and Mexico agreed on Monday to overhaul the North American Free Trade Agreement (NAFTA), putting pressure on Canada to agree to new terms on auto trade and dispute settlement rules to remain part of the three-nation pact.
Auto stocks soared and the S&P 500 and the Nasdaq rallied to record highs on the expectation that Canada would sign onto the deal and ease the economic uncertainty caused by U.S. President Donald Trump’s repeated threats to ditch the 1994 accord.
Details of gains and concessions in the deal were only starting to emerge on Monday. Trump threatened he still could put tariffs on Canadian-made cars if Canada did not join its neighbors and warned he expected concessions on Canada’s dairy protections.
“I think with Canada, frankly, the easiest we can do is to tariff their cars coming in. 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,” Trump said.
Trump and Canadian Prime Minister Justin Trudeau discussed trade in a telephone call on Monday and “agreed to continue productive conversations,” White House spokeswoman Sarah Sanders said in a statement.
Negotiations among the three partners, whose mutual trade totals more than $1 trillion annually, have dragged on for more than a year, putting pressure on the Mexican peso MXN= and the Canadian dollar CAD=. Both currencies gained against the U.S. dollar after Monday's announcement.
The political stakes are high for all three countries. Trump and Republicans in the U.S. Congress up for re-election in November want to ensure farmers and other voters whose jobs depend on trade with Canada and Mexico that the deal is sealed.
Mexican President Enrique Pena Nieto wants to sign the agreement before leaving office at the end of November, and Trudeau faces a national election expected by October 2019.
Canadian Foreign Minister Chrystia Freeland is expected to travel to Washington for talks on Tuesday. Her spokesman said Canada would sign only a new agreement that is good for the country.
Trump’s economic adviser, Larry Kudlow, told reporters the deal with Mexico should serve as a “reset” for talks with Canada.
