Heisenberg Report

Trump Strikes Trade Deal With Mexico, Renames NAFTA

As tipped over the weekend and discussed at length here, the U.S. and Mexico have struck a deal on NAFTA, after weeks of negotiations aimed at clearing roadblocks to a bilateral agreement that would set the stage for Canada to return to the table.

Trump has been teasing this for the better part of a week and, unable to contain himself ahead of an 11:00 AM press conference on Monday, the President tweeted the following:

This is just the first step on the way to bringing Canada back in from the cold. Still, the breakthrough certainly seems to suggest that NAFTA will not in fact be relegated to the dustbin of history, as Trump has variously threatened over the past couple of years.

“I spoke to Justin Trudeau about the status of the NAFTA negotiations and the advance between Mexico and the US”, Pena Nieto said on Monday morning, adding that he “expressed the importance of [Canada’s] reinstatement in the process, in order to conclude a trilateral negotiation this week.”

Here’s what Canadian Foreign Minister Chrystia Freeland had to say in a statement:

Canada is encouraged by the continued optimism shown by our negotiating partners. Progress between Mexico and the United States is a necessary requirement for any renewed Nafta agreement. We are in regular contact with our negotiating partners, and we will continue to work toward a modernized Nafta. We will only sign a new Nafta that is good for Canada and good for the middle class. Canada’s signature is required.

That last bit is amusing and underscores the notion that Canada isn’t particularly keen on the idea that a trilateral agreement can be negotiated bilaterally.

For his part, Trump said this:

We’ll get rid of the Nafta name [and] call it the U.S.-Mexico trade agreement. We’ll get rid of the name. It has a bad connotation to it.

We’ll see if Canada is separate or part of the deal. We haven’t started with Canada yet, we wanted Mexico first. I’ll call Trudeau soon.

Here’s the video:

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And here’s Trump trying to figure out how to use speaker phone with a world leader who speaks a different language.

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Go figure. For what it’s worth, Nieto is still referring to the deal as “NAFTA”.

Trump went on to say he’ll “terminate the existing deal” and “go into this one” with Mexico. “This one” will have to go to Congress for approval.

Everything you’d expect to be up on this (e.g., auto suppliers) is up:

The negotiations have at times seemed intractable at best and hopeless at worst, so confirmation that a deal has been reached is in fact “big news”, as the President says.

As a reminder, this is critical when it comes to sentiment around trade. Market participants are hoping that progress on NAFTA will be a precursor to a deescalation of trade tensions between the Trump administration and Europe. The prospect of auto tariffs still looms large and the USTR will need to decide soon whether to impose duties on an additional $200 billion in Chinese goods.

Even if nothing can be divined from Monday’s news when it comes to how the White House will approach China going forward, it’s possible that a brighter outlook for relations between the U.S. and its traditional allies will blunt any negativity that would accompany a further escalation between Washington and Beijing.

As noted on Sunday evening, the peso could now serve as something of an oasis in the scorched desert that is the EM FX complex.


MXN is up sharply on the day and is sitting at its strongest levels since August 9.