U.S. manufacturers breathed a collective sigh of relief and the stock market jumped more than 200 points at news today that the U.S. and Mexico have reached a preliminary trade deal to replace NAFTA that would benefit both countries. The deal, which President Trump wants to rename the U.S.-Mexico Trade Agreement, gives him a “win” in this particular trade dispute. Inclusion of Canada in the new agreement remains iffy, as it was not present at the table.
According to the New York Times, “many of the most significant changes agreed to by Mexico and the United States simply update the pact to take into account the rise of the internet and the digital economy since the agreement was negotiated. But Mr. Trump’s advisers have also pressed for big alterations to the rules governing automobile manufacturing, in an effort to bring more car production back to the United States from Mexico.”
Qualifying for zero tariffs under the renegotiated agreement would require that car companies “manufacture at least 75% of an automobile’s value in North America,” an increase from 62.5% in the previous trade agreement. “They will also be required to use more local steel, aluminum and auto parts, and have a certain proportion of the car made by workers earning at least $16 an hour, a boon to both the United States and Canada,” said the New York Times article.
Mexico’s automotive and aerospace manufacturing sectors are huge and growing as global companies, particularly from the U.S., have invested in manufacturing plants in that country over the past 30+ years. Foreign companies in Europe and Asia also see Mexico as a conduit for goods to North America as well as Central and South America. Mexico’s manufacturing infrastructure has risen to meet the demand for these companies, including demand for skilled workers through numerous large trade schools in major manufacturing hubs.
While many manufacturing businesses and others in agriculture have had—and still have—their doubts about Trump’s trade policies in an attempt to give the United States a “fair” global playing field, perhaps this proves that U.S. leadership can be tough and win. After all, it involves the “art of the deal.”