US demands for NAFTA reshaping Latin American Trade Agreements

by Oct 11, 2017Economy, Headlines0 comments

An upcoming round of negotiations on NAFTA from October 11-15 could help determine the future of the largest trade agreement between the United States, Canada, and Mexico. President Trump has previously called NAFTA “the worst trade deal” ever made, citing the loss of American jobs and industry shifts south of the border. While the President has since softened his language, going back on his claim that NAFTA was “obsolete,” the Trump administration may yet pull the US out of the pact if negotiations do not meet the US’s demands.

The previous round of negotiations, held in Canada, proved contentious largely because of demands coming from US negotiators. President Trump prioritizes cutting the trade deficit between the US and Mexico, focusing specifically on the auto industry, which is the largest source of America’s $64 billion goods gap with Mexico. The Trump administration wants to make import taxes on cars from Mexico more widespread. A car made in Mexico is not subject to a tariff if a certain percentage of the vehicle was made in North America. The Trump administration wants to raise that minimum percentage so that more Mexican made cars are subject to an import tax. This is supported by the large automobile unions in the United States. This primary demand has also been coupled with a plan to get the United States more involved in the arbitration process; the system whereby member countries can do away with measures that violate the trade deal.

Mexico has taken on a new sense of urgency to form new economic ties outside of its existing link with the US. NAFTA has created a link that would be difficult to transition away from: Approximately 80 percent of Mexico’s exports go to the US, remittances from Mexicans living in the US to relatives back home reached $24.6 Billion between January and November of 2016, and about 6 million US jobs depend on trade with Mexico.  

Despite the negative effects a more US centered NAFTA might exact on Mexico, it is also an opportunity for the country to form new trade arrangements with the broader Latin American world. In 2011, Mexico, Colombia, Chile, and Peru entered the Pacific Alliance, a trade pact covering more than 200 million people and since then the agreement has expanded considerably. As of this year 94% of goods moved tax-free across borders in the Pacific Alliance between Mexico, Colombia, Chile and Peru. Mexico is also in discussion with Brazil and the European Union to have a free trade agreement with the Mercosur trading bloc, a region comprising Argentina, Brazil, Paraguay, and Uruguay, and Venezuela as well as a potential deal with China as well.

Such trade rearrangements could also prove beneficial to the hurricane stricken Puerto Rico. With the signing of NAFTA Puerto Rico lost some trade advantage to Latin American countries as the right to duty-free imports to the US market were expanded. Puerto Rico is projected to have an upward trend of increasing exports to the US and the repositioning of NAFTA could facilitate this further.