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Updated 10:50 16/06/19

US, Canada, and Mexico agree on new trade deal

Liam Sheasby

By Liam Sheasby, News Editor

02 Oct 2018

Left to Right: Presidents Nieto (Mexico), Trudeau (Canada), and Trump (USA)

The United States, Canada, and Mexico have finally agreed upon a new North American Free Trade Agreement after months of negotiations and resistance against concessions from all sides.

The deal, known as the US Mexico Canada Agreement (USMCA), will be signed in November by Presidents Trump, Trudeau, and Nieto.

The agreement follows most of the same trading principles as before, much to the surprise of many journalists who – based upon President Trump’s threat to rip up the existing agreement – expected more changes.

In a joint statement, US trade rep Robert Lighthizer, and Canada's Foreign Minister Chrystia Freeland, said that the deal was a victory that would "result in freer markets, fairer trade and robust economic growth in our region.

Following confirmation of the deal, the Japanese Nikkei stock exchange rose by 5% to hit a 27-year high of 24,245; boosted by the prospect that the USA’s latest deal gives hope for the China trade war to be resolved. The Yen, a safe-haven currency, is sitting at near-record lows against the US Dollar as a result of this strong stock interest. Both the Canadian Dollar and the Mexican Peso went up in value too - the Dollar hitting a four-month high and the Peso at its best since August - while the US stock markets also rallied behind the news:

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The Deal:

Canada’s dairy industry is huge, employing hundreds of thousands, but the US was unhappy at tight restrictions that ultimately excluded America from entering their market and competing. The new NAFTA deal now grants 3.6% market share access to the USA, which will be a big benefit to states like Wisconsin and New York. The deal also relaxes restrictions on which dairy products can be sold, meaning the US can send milk protein concentrate, skim milk powder, and infant formula – all of which is easy to transport and easy to store.

Shopping and duty-free regulations have also been changed, with Mexico increasing their import duty limit from $50 to $100 and Canada raising theirs from C$20 to C$150. The idea is to make it easier to buy products online, allowing e-commerce to flourish, but also to speed up shipping times as less goods need inspection for duties.

The final part, and the biggest sector, is the automotive industry. The three nations are agreed that Canada and Mexico will be exempt from tariffs on automobiles (tariffs likely to hit the EU) so that production and sales aren’t disrupted. The agreement, which will kick in from 2020, means that cars or trucks must be 75% made in NAFTA countries (an increase from 62.5%). This should be enough to dissuade expansion interests from the EU and Japan. The other agreement is that 40-45% of the work on said vehicles must be done by workers earning at least $16 per hour. This is three times the average of a Mexican car plant worker and will stand as a deterrent against an exodus to Mexico for cheap labour.

Not everyone is happy with the new deal though. Canadian farmers were the big group that President Trudeau was keen to keep on side with the deal, but the new USMCA deal permits the United States access to Canada’s dairy market – as well as lowering the quality threshold for said access. The industrial group ‘Dairy Farmers of Canada’ accused President Trudeau and his government of sacrificing 220,000 Canadians who work in the dairy sector, saying: "The livelihood of these thousands of Canadians and the future generations of dairy producers is seriously at risk”.

Further discussions will take place in the coming months and into 2019 between the three countries as they attempt to resolve the separate issue of tariffs on steel and aluminium set by the US.

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