Whiplashed? 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 Americas (April 13-14 in Peru).
The art of the deal is getting to the deal. After 15 months in office, some political commentators suggest Trump is feeling more comfortable as President. Investors also becoming more familiar with his style. Bold demands. Compromise. Deal.
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’s 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. Neither chamber is required to affirmatively approve the renewal, but either can prevent it from being extended.
The White House could be seeking an agreement next week, at least in part, because the rules under TPA require that the president gives Congress at least 90 days advance notification and to publicly release the text of the renegotiated agreement 60 days beforehand. With TPA authority to end at the end time is of the essence.
