New NAFTA: Trump wants to corner Canada, but will Congress let him?
- The US and Mexico have reached a new NAFTA deal and Canada is set to join.
- Trump portrays it as the bilateral deal he always wanted and threatens Canada.
- Congress may have its say, in one composition or another.
After long negotiations during the summer, the US and Mexico have agreed on the details of a new North American Free Trade Agreement (NAFTA). The thorny issues such as what is defined as North American content and cheap Mexican labor were resolved.
The Canadian Dollar jumped on the news as Canada is set to join the agreement within a week as most issues were between the other parties.
But then came the responses. Mexico says it is a trilateral deal but only expresses "hope" that Canada will join.
Canada's Foreign Minister Crysthia Freeland is content with the agreement but stated that it will only sign a deal that is good for Canada.
And then came Trump
The US President portrayed the deal as a bilateral one and wants to call it The United States Mexico Agreement. Trump said he will terminate NAFTA and had some options for Canada, and not only the three-way agreement. The nicer option would be a separate bilateral deal with the northern neighbor.
And a third option would be imposing tariffs on Canadian imports. He called it "the easiest option". Trump was always a proponent of bilateral deals and had a public row with Canadian Prime Minister Justin Trudeau back at the G-7 meeting several months ago.
The Canadian Dollar responded with a retreat from the highs of the risk that Canada will not only be cornered but also excluded.
Congress next to come in
The authority regarding trade deals rests with Congress. Each member represents a district and has special interests. Canada is the top country that most US states export to. Will they go with the bilateral deal with Mexico if Canada is left out? Republican lawmakers have their voters to address, not only the President.
The picture becomes more complicated after the mid-term elections. Democrats have a shot at winning the House. They could do what an opposition party does: oppose the President on any offer he makes. Another option is to force the White House into including Canada.
Conclusion
The US-Mexican breakthrough is a positive development for both countries and perhaps for Canada as well. If Trump goes tough on Trudeau, Canada will suffer, but this is far from being the end of the drama.
NAFTA, new NAFTA, the US-Mexico-Canada agreement or any new branded name it gets will certainly provide headlines for quite some time.
Author
Yohay Elam
FXStreet
Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.
