Trump pledges to scrap NAFTA after deal with Mexico; attention shifts to Canada

UPDATED: 8/27/18 12:16 pm ET — new story

President Donald Trump said he would terminate the North American Free Trade Agreement and sign a new trade accord with Mexico, potentially leaving Canada out of the bloc.

Trump announced the agreement with Mexico at the Oval Office on Monday with Mexican President Enrique Pena Nieto joining by conference call. Pena Nieto said he is “quite hopeful” Canada would soon be incorporated in the revised agreement, while Trump said that remains to be seen.

Trump said he would speak with Canadian Prime Minister Justin Trudeau “in a little while” and hoped to begin negotiations with him “almost immediately.” A U.S. trade official told Reuters the goal is to reach a final agreement by Friday. The nation has been on the sidelines of the talks since July as Mexico and the U.S focused on settling differences.

As he announced the move, Trump said he would drop the name NAFTA from the accord because of its unpopularity.

“We’re going to call it the United States/Mexico Trade Agreement,” he said. NAFTA “has a bad connotation because the United States was hurt very badly by Nafta for many years.”

The president hailed the Mexico agreement as “a big day for trade.”

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According to a New York Times report, automakers would be required to manufacture at least 75 percent of a light vehicle’s value in North America under the new rules — up from 62.5 percent — in order to qualify for zero tariffs. They will also be required to use more local steel, aluminum and auto parts, and have a certain proportion of the vehicle made by workers earning at least $16 an hour, the Times reported.

A spokesman for Canadian Foreign Minister Chrystia Freeland issued a statement on Monday that warned against jumping to conclusions. “Canada’s signature is required,” spokesman Adam Austen said in an email. “We will only sign a new NAFTA that is good for Canada and good for the middle class” and “we will continue to work toward a modernized NAFTA.”

Nieto said in a tweet on Monday that he spoke with Trudeau and stressed the importance of Canada rejoining NAFTA talks.

Talks between the U.S. and Mexico had focused largely on cars. The U.S. wanted to bring back auto manufacturing jobs that had gone to Mexico. The countries are said to have agreed that automakers who don’t comply with the new NAFTA rules will pay a 2.5 percent tariff, the same as they would if they skirted the existing NAFTA, while any new Mexican plants wouldn’t have a guarantee. That could potentially expose them to U.S. auto tariffs of 20 to 25 percent, which Trump is considering under national security grounds. The new rules would also likely require key components to have more domestic content.

Jesus Seade, the NAFTA representative for Mexican president-elect Andres Manuel Lopez Obrador, has predicted that the nations will agree on a softened version of a so-called “sunset clause,” an automatic expiration after five years — a key U.S. demand. The recent push for a deal is in part to have it signed before the new president takes office in December.

Bloomberg and Reuters contributed to this report.

This report will be updated.