US: A brighter NAFTA outlook - Nomura

The past few weeks have seen a flurry of positive NAFTA developments, which stands in contrast to the Trump administration’s trade announcements involving China and steel and aluminum tariffs, points out the research team at Nomura.

Key Quotes

“We think the likelihood of a NAFTA break up now sits at 25%, lower than the 40% we assigned at the beginning of 2018.”

“The negotiations have evolved from a framework of rounds on specific dates to a “continuous negotiation” with occasional breaks. The trade ministers from the US, Canada, and Mexico and their teams took a break on 27 April, after four days of intense negotiations, and they will resume talks on 7 May.”

“On the US side, USTR Lighthizer has sounded more positive of late. He is reportedly trying to reach an agreement in principle between the three NAFTA countries within the next few weeks. In addition to Lighthizer, other economic advisers to President Trump, including Commerce Secretary Ross, CEA Chair Hassett, and NEC Director Kudlow, have all indicated that a deal is likely, as widely reported.”

“President Trump has also recently sounded more positive about NAFTA. For example, at a recent meeting in West Virginia, he noted that he expects a deal to be announced “fairly soon” despite the original NAFTA agreement being an “embarrassment.”

“Despite our increased optimism, the outlook for NAFTA remains clouded for a number of reasons. As noted above, the softening of US comments on NAFTA contrasts sharply with the fierce rhetoric aimed at China over recent weeks. Moreover, many complicated and important issues remain unresolved, including: auto rules of origin, whether to include a sunset clause, investment-state dispute settlement (ISDS) and government procurement.”