Nafta deal: throwing sand in the global trade engine

The revamped Nafta deal between the US and Mexico does little to support global trade. In fact, it may do the opposite.


Global trade may have passed its peak
(Image credit: Art Wager)

The US and Mexico reached a breakthrough in talks to revamp the Nafta trade agreement last week. Their new deal potentially ends "an acrimonious impasse in relations between the countries since Donald Trump became president", say James Politi and Sam Fleming in the Financial Times.

So far the new agreement has gone down well with markets. The S&P 500 rose to a new record, and the Mexican peso rallied briefly. The deal was seen as signalling a willingness to ease strains between the US and its traditional allies, in welcome contrast to tensions with China.

However, it remains unclear whether Canada, Nafta's third member, will be included in the agreement. In the long run, the deal does little to support global trade, according to Frank Heiniger in Finanz und Wirtschaft. In fact, it may do the opposite. According to Commerzbank, it is likely to hamper the overall liberalisation of markets. In the automobile sector, for example, 40%-45% of a car has to be produced by employees who earn at least $16 an hour. Only then can the car can be imported without facing tariffs. The intention is to slow the pace of American outsourcing to Mexico. Trump "has repeatedly put the protection of American industries at the heart of his economic policies".

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Meanwhile, there are signs the trade dispute between China and the US is denting confidence and taking its toll on activity. The World Trade Outlook Indicator from the World Trade Organisation suggests global export orders have declined.

Volumes of air freight and container-port throughput "remain above trend but growth momentum in both appears to be past its peak". By 2019, says Heiniger, the impact on global growth will be clear.

Marina has a PhD in globalisation and the media from the London School of Economics, where she worked as a teaching assistant on the MSc Global Media. In 2014 she was invited to be a visiting scholar at Columbia University's sociology department in New York.

She has written for the Economists’ Intelligent Life magazine, the Financial Times, the Times Literary Supplement, and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany. She is trilingual and lives in London. She writes features and is the markets editor at MoneyWeek..