Trump, US, Mexico, Canada, NAFTA trade deal takes aim at China

Cameron
Spencer/Getty; Win McNamee/Getty; Shayanne Gal/Business
Insider

• The US, Canada, and Mexico reached a preliminary agreement on
  an update of the North American Free Trade Agreement (NAFTA),
  which will be called the US-Mexico-Canada Agreement (USMCA).
• The deal also includes a small provision that could make it
  more difficult for members to make free-trade deals with China.
• The deal could also free up President Donald Trump to
  escalate the trade war with Beijing.

While Sunday night’s
agreement between the US and Canada marked an important step
forward for North American trade relations, the newly minted

US-Mexico-Canada Agreement, or USMCA, also contains a
potential shot at China.

President Donald Trump’s obsession with the US-China trade
relationship has launched
a trade war, with roughly $360 billion worth of goods going
between the two countries
now subject to tariffs. 

Chapter 32 of the new deal addresses the ability of members to
enter into a free-trade agreement with a country that has a
“non-market economy.” While there are many countries
considered “non-market economies,” the most notable member of the
list is China.

The USMCA text stipulates that three months before the
US, Canada, or Mexico begin trade negotiations with a non-market
economy, the other two countries must be notified. Additionally,
any formal text of a deal with a non-market economy must be
provided to the other members at least 30 days before signed.

The USMCA also contains a poison pill that could stop Canada or
Mexico from entering into a deal with China. 

“Entry by any Party into a free trade agreement with a non-market
country, shall allow the other Parties to terminate this
Agreement on six-month notice and replace this Agreement with an
agreement as between them (bilateral agreement),” the text reads.

In practice, this could mean that the US could tear up the USMCA
if Canada or Mexico makes a deal with China that it does not
like. Given the tight links between the three North American
economies, maintaining the USMCA would likely take priority over
a deal with China.

The Trump administration
reaffirmed that the US considers China a “non-market economy”
in late 2017.

Late last year,
Canada and China publicly
flirted with the possibility of launching formal talks to
create a bilateral trade deal.

The USMCA could also embolden Trump to take a harder line against
the Chinese. Reports indicated that the Trump trade team was
spread thin — negotiating NAFTA, a potential agreement with the
European Union, and taking on China. By closing a major front in
the trade battles, said Ed Mills, a public policy analyst at
Raymond James, Trump can hammer China harder.

“President Trump is racking up trade victories, which
will embolden him to double down in his trade fight
with China,” Mills wrote in a note to clients
Monday. “He could use these victories to start
building a coalition to join allies in
the China trade
dispute. We continue to believe the trade fight
with China has more risks
than the market is anticipating.”