U.S. President Donald Trump announced last week that negotiators had reached a deal with Mexico to replace the North American Free Trade Agreement (NAFTA), a pact that he has repeatedly denounced as flawed and harmful to the United States. The new deal does not include Canada, the third member of NAFTA. Trump insists that while Canada can join the new arrangement, he can proceed without Ottawa, a questionable assertion. Either way, Trump has created substantial uncertainty regarding trade in North America and that will unnerve businesses looking for stable, predictable outcomes on which to base investment decisions.
Trump has long dismissed NAFTA as "the single worst deal ever approved," arguing that it prompted U.S. businesses to export manufacturing jobs to Mexico in search of low-cost labor, gave foreign businesses a platform to export to the U.S, and allowed Canada to shield parts of its economy from U.S. competition. During the 2016 campaign he promised to repeal and replace it with something better, and after being elected he threatened to withdraw from the agreement, a move often seen as a negotiating tactic.
Negotiations were slow, and progress was impeded by a war of words that erupted this summer between Trump and Canadian Prime Minister Justin Trudeau, whom the U.S. president now sees as a foil. As a result, U.S. negotiators focused on a bilateral deal with Mexico, the contours of which were announced last week.