NAFTA: Renegotiations begin - Nomura

NAFTA renegotiations began on 16 August 2017 with trade representatives from Canada, Mexico and the US and its success depends on how populist Trump and Congress turn out to be, according to analysts at Nomura.

Key Quotes

“The opening remarks from US Trade Representative (USTR) Lighthizer were stronger and more antagonistic than expected, highlighting the main contention in these talks: US demands that Canada and Mexico will not agree to.”

“We expect the negotiators to conclude talks by early 2018 in order to precede elections later in the year in Mexico and the US. For Mexico, the presidential and congressional elections are scheduled for 1 July 2018, while the US will hold congressional elections on 6 November 2018.”

“Given the tight deadlines, the number of complex issues and differences in priorities, we expect that the early 2018 agreement will not be a comprehensive overhaul of NAFTA, but instead a set of “fixes”. We expect there will be enough progress so that each country can claim some minor victories.”

“One of the larger risks we see stems from rhetoric from Trump relative to what can be accomplished. On the campaign trail, then-candidate Trump frequently singled out NAFTA as a poorly negotiated trade deal that had adversely affected the US economy. However, the Mexican government has said publically that it wants a “win-win-win” on a renegotiated NAFTA and would reject any changes negative to the Mexican economy. Much uncertainty remains whether these two forces can be reconciled, and it may be several months before it is clear whether the renegotiation can lead to an outcome that is deemed acceptable by all.”