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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.
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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Join more than 165,000 subscribers and keep yourself informed with latest financial news, insights and expert analysis to help you understand what really matters when it comes to your finances.
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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.
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Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.
Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.
Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.
