Free Trial
USDCAD TECHS

Impulsive Rally Extends

US TSYS

Late Eurodollar/SOFR/Treasury Option Roundup

EURJPY TECHS

Price Is Below The 50-Day EMA

US

Late Corporate Credit Update

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
By Yali N'Diaye
     OTTAWA (MNI) - A bilateral agreement between the U.S. and Mexico has
reduced Canada's leverage ahead of President Donald Trump's end-of-week deadline
for renegotiating the North American Free Trade Agreement, but experts say
Ottawa will have little choice but to seek to sign up to the deal.
     From Canada's standpoint, the U.S.-Mexico deal announced on Monday is not
all negative, since Mexico made concessions on auto workers' wages, which would
make investment in Canada and the U.S. more attractive. Raising the share of
North American auto content is also positive for Canada.
     U.S. negotiators, for their part, watered down demands related to a NAFTA
sunset clause: countries are now set to decide every six years whether to modify
the treaty, instead of every five as Washington originally wanted, and have 10
years to agree on changes, spreading the entire process over a 16-year period.
The U.S. is also reportedly ready to agree to preserve in some form the
dispute-resolution system that Canada has defined as a red line.
     Trump, who has threatened to impose 25% tariffs on auto imports from
Canada, is now saying "we're probably on track" for reaching a deal that
includes Ottawa on Friday. Canada's Foreign Minister Chrystia Freeland said she
was "optimistic" following meetings with U.S. negotiators in Washington.
     While the U.S.-Mexico deal puts Canada in a position of potentially signing
up to an agreement that has already been largely negotiated, with scope for
tweaking it best, the alternative could be for Canada to be left out in the
cold.
--EXPORT DEPENDENCY ON U.S.
     While the U.S. Congress is seen as favoring a three-country deal, Ian Lee,
associate professor at Carleton University Sprott School of Business, warned
that the U.S. legislature might be prepared to accept a simple U.S.-Mexico
agreement.
     He told MNI that, in a mid-term election year, neither Republicans nor
Democrats will want to reject a deal that forces Mexico to raise its wages and
increases American content in cars.
     Canada exports 75% of its goods to the U.S., and the threat of 25% tariffs
on its auto sector is a heavy one. Uncertainty related to U.S. trade policy has
been a key factor holding back the Bank of Canada's normalization of monetary
policy at a time when the economy is already operating close to capacity.
     If "the U.S. would impose the auto tariff, this would hit Ontario heavily,"
Kurt Huebner, a politics professor at the University of British Columbia, told
MNI.
     Trump wants to open up Canada's dairy market, and with 270% tariffs on
imports of U.S. dairy products, experts say there is room to do so.
     Canada is now faced with "take it or leave it," Lee told MNI. "The
negotiations are essentially over," he continued, adding that "just about any
trade deal is better than no trade deal."
     Lee said there is room to modify the dispute resolution mechanism in ways
that could still save Canada's face.
--MNI Ottawa Bureau; +1 613 869-0916; email: yali.ndiaye@marketnews.com
[TOPICS: M$C$$$,MI$$$$]

To read the full story

Why Subscribe to

MarketNews.com

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.