US, Mexico reach trade "understanding", Trump threatens to cut out Canada

Mexican Foreign Minister Luis Videgaray and Mexico's Secretary of Economy Ildefonso Guajardo leave the Office of the US Trade Representative after a day of meetings on the NAFTA treaty

Nafta reduced most trade barriers between the US, Mexico and Canada, but Trump and other critics say it encouraged US manufacturers to move south of the border to exploit low-wage Mexican labor. Timelines set out under US trade law mean that would nearly certainly be done by the next US Congress, raising the prospect of further hurdles. Functionally, that likely means more vehicle parts will be built and assembled in the U.S. But it could also raise wages or add more higher-paying positions in Mexico, too.

The three North American countries do about one trillion dollars in trade among themselves annually.

"We could have a separate deal, or we could put it into this deal". This will be a major boon to American automotive workers and that industry's domestic supply chain.

Addressing reporters in the White House Oval Office on Wednesday, Trump praised the preliminary agreement as an "incredible deal" for both countries.

Industrial companies, banks and big technology stocks are among the biggest winners in midday trading on Wall Street.

Ultimately, Canada may accept the deal but there's clearly a strategy here to isolate the Canada and it's one that caught them by surprise.

On Monday, they have been proved wrong by an unmitigated victory for the USA. Because we all negotiate tough. Trump realized the power this gives us and made a decision to use it to level the playing field for American workers-unlike other recent presidents.

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This is all risk friendly so far - but the Chinese part is something to take note of and while there are no truces there between the U.S. and China's trade dispute, so far, that has been good news for the dollar bulls, in the short term, on inflationary expectations - (US tariffs implemented on Chinese imports = higher import prices).

Trump said "we haven't started with Canada yet"-when in fact the USA has negotiated with Canada extensively, though Canada has been excluded from NAFTA talks in recent weeks-and "we'll start negotiations shortly". Her boss, Prime Minister Justin Trudeau, even though it was a good idea to antagonize Trump at his failed G7 summit in June.

In Washington, Pena Nieto said Mexico will wait for Canada to be "integrated in this process".

Europe previous year had a $151 billion surplus with the USA. The U.S. plan calls for increased regional content for autos. He also threatened to impose tariffs on Canadian auto imports, suggesting that might be the "easier option".

TRT World's Harry Horton reports.

"We are now inviting the Canadians in as well and hope that we can reach a fair and successful conclusion with them as well", a senior USA trade official told Reuters in an interview. Now, China is reeling and American is ascendant. There was no indication on Monday that Mexico had abandoned that position. Delivering on that promise with plenty of time to convey facts to voters means his prospects for reelection look excellent.

On the same call, a senior administration official said it was only in the last few weeks that inking a two-way deal was viewed as the best next step in the NAFTA talks.