Donald Trump strikes deal with Mexico to rewrite NAFTA

Donald Trump has struck a deal with Mexico to recast NAFTA to make it more favorable to the United States.

Donald and Melania Trump. Picture: AFP.

Donald Trump has moved to transform the world’s largest trade pact by striking a deal with Mexico which would recast NAFTA to make it more favorable to the United States.

In a crucial but still tentative breakthrough, the president said he had struck a new trade deal with Mexico which could replace the 24 year old NAFTA. The agreement comes after more than a year of difficult negotiations and gives the president a needed boost on trade amid the escalation of his tariff war with China.

But the US-Mexico deal could collapse if Canada, the third party in the three-nation NAFTA deal, cannot be persuaded to join.

Mr Trump said Canada would be invited to join but only if it was willing to “negotiate fairly.”

“It’s a big day for trade. It’s a big day for our country,” Mr Trump said as he spoke with Mexico’s president Enrique Peña Nieto by phone from the White House.

“This is something that is very special for our manufacturers and out farmers...it makes it a fairer bill.”

President Nieto told Mr Trump; “I think this is something very positive for the United States and Mexico.”

But the formation of the new trade pact, which would require congressional approval, may depend on Canada’s involvement. Mr Nieto says he wants Canada to be a part of the new deal and it was not clear of the US-Mexico pact could go ahead if Canada opposed it.

Mr Trump said he would discuss Canada’s involvement with its Prime Minister Justin Trudeau. “If they’d like to negotiate fairly, we’ll do that,” the president said although he has left open the possibility that Canada could be cut from a new US-Mexico deal.

Mr Trump said he wanted the new pact to be called the United States-Mexico Trade Agreement rather than NAFTA, although this would presumably change if Canada is included. Mr Trump said the name NAFTA had “bad connotations.”

A spokesman for Canada’s foreign minister Chrystia Freeland said Canada’s approval was needed for any new trade act.

“We will only sign a new NAFTA that is good for Canada and good for the middle class...Canada’s signature is required,” he said.

The re-negotiation of NAFTA has been a core promise of Mr Trump who has described the trade pact as a “disaster”, saying it rips off American workers.

The president argues that NAFTA, as it currently stands, encourages US companies to operate in Mexico using local workers to avoid paying the higher labour costs in the US.

The US-Mexico agreement is a timely one for Mr Trump’s whose America First’ trade policy sees him in an escalating trade war with China over tariffs. Early last year, shortly after he assumed office, Mr Trump pulled the US out of the Trans-Pacific Partnership trade pact claiming it was a bad deal for American workers.

The new US-Mexico trade deal tries to ensure that more cars are built on the continent using locally-produced steel and with higher wages for the labour force.

It calls for 75 per cent of cars produced in the trade bloc get duty free benefits, up from 62.5 per cent and says that at 40-45 per cent of cars must be made by workers earning at least $US16 an hour.

In a briefing, US officials said the deal would boost regional content requirements for steel, chemicals and industrial products as well as strength supply chains.

Until now, the Trump administration’s efforts to renegotiate NAFTA had been unable to secure a breakthrough, with both Mexico and Canada unwilling to accept new terms which would disadvantage them.

Cameron Stewart is also US Contributor for Sky News Australia