NAFTA: Why Trump wants a deal next week - BBH

According to analysts from Brown Brother Harriman, a deal on NAFTA (North American Free Trade Agreement) would be a success for Trump. They point out that the White House could be seeking an agreement next week, because the rules under the Trade Promotion Authority requires the president to give Congress at least 90 days advance notification.

Key Quotes: 

"Last weekend, President Trump threatened again to walk away from NAFTA.  Within 48 hours, reports suggest he wanted an agreement at next week's Summit of the America (April 13-14 in Peru).”

“One of the stickiest issues is about the US demand to lift the domestic content threshold from 62.5% to 85% for car parts to be qualify for duty-free trade. Some producers as this is impossible to achieve currently, which is a way to say that the US demand was over the top. Reports suggest the US has signaled a compromise. The idea is to break down the car parts into five categories. Each would have a different domestic content requirement. The 85% threshold may apply only to the major components, like engines and transmissions. The simplest of the 30,000 parts in a car, like a nuts and bolts, might not have any threshold.”

“US Trade Representative Lighthizer has urged that a deal be found before the July 1 Mexican elections, but neither the approaching election nor the fact that the leftist AMLO is still ahead in the polls has been a factor for investors. The peso itself is the strongest currency in the world since the end of last year, rising 8.75% against the greenback and nearly 9.5% against the Canadian dollar.”

“The US does not want to deal for Mexico sake. July 1 is also when the President's trade-promotion authority expires. The White House made a formal request to extend the TPA at the end of March.  It is not clear whether Congress will renew it.”

“With TPA authority to end at the end time is of the essence. With the US seeming to push hard for a deal, Canada seemed less enthusiastic. Canada's ambassador to the US was skeptical, saying he did not know was an agreement in principle looks like.”

“A NAFTA deal, following the heels of KORUS, would be a success for the US President. Also, it would strengthen his hand in dealing with China by showing he is reasonable and is not being provocative just to be provocative.

“If the administration's goal is to get rid of the US trade deficit, it is bound to fail. The broad measure of US trade, the current account balance, is a function of numerous forces, including growth differentials, and of course, savings and investment. The large dollop of fiscal spending when the economy is already growing near trend is expected to spur a widening of the US trade deficit.”