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What is the 'new Nafta' and why was the old one controversial? 

This week, President Donald Trump and Mexican president Enrique Pena Nieto announced details of a US-Mexico trade deal, an historic break from the North American Free Trade Agreement (Nafta) which has been in force for over two decades. 
President Trump has sought to rearrange agreements with various countries since he came into office, including Nafta, which he has called "the worst trade deal in the history of trade deals". 

How Nafta began


Ronald Reagan got the ball rolling in his presidential campaign of 1980, when he argued the case for a north American trade deal. In a televised speech announcing his campaign bid, he argued that moving goods more efficiently across the continent would “improve the life of all its inhabitants”.
Canada (at the time led by Pierre Trudeau, father of current Prime Minister Justin), and Mexico were sceptical at first, believing the US would dominate the deal.
What is the 'new Nafta' and why was the old one controversial? 

President Enrique Pena Nieto of Mexico (left) meeting Donald Trump when he was a presidential candidate in August 2016.

Credit:
Marco Ugarte/AP
A change of leadership in Canada let talks begin in the mid-1980s, leading to the signing of the unpronounceable CUSFTA (Canadian-US Free Trade Agreement) in 1988.
CUSFTA was the ur-north American trade deal: it removed or reduced tariffs on goods from a range of industries as well as services. It also had a dispute resolution mechanism and rules on government procurement.
It's time we stopped thinking of our nearest neighbours as foreignersRonald Reagan, campaigning for the presidency in 1979
Mexico later joined trade talks, resulting in Nafta, which came into effect on 1st January 1994. Similarly to CUSFTA, it covers various industries, government procurement and services.
The terms were implemented gradually from 1994 to 2008. According to the US Chamber of Commerce, American trade with Canada and Mexico has almost quadrupled since 1994, adding 800,000 jobs in the US economy.

The case for Nafta


Isolating the effect of Nafta on economies is difficult, and estimates vary. However, many economists believe that Nafta has been a positive thing for the US, Canada and Mexico. They argue that increased trade has lowered prices for consumers in all three countries and created jobs from increased trade.
One 2014 study found that two million US jobs depend on trade with Mexico, and that for each job lost in the US due to NAFTA, the American economy gains $450,000 from increased productivity and lower prices.
The US Chamber of Commerce estimates that increased trade due to NAFTA supports five million jobs in the US.

The case against Nafta


Other economists have made the case that although there are net gains across the US from NAFTA, some industries and regions have been negatively affected.
The Council on Foreign Relations estimated that a third of US jobs in car manufacturing have been lost since NAFTA came into effect in 1994. At the same time Mexico increased its number of car workers from 120,000 to 550,000.
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The relocation of these manufacturing jobs, many of which provided stable middle-class incomes for Americans without a college degree, has been much discussed and politicised. Bestselling books like Hillbilly Elegy by JD Vance have told how towns, communities and families can struggle when a major manufacturing employer moves.
Trump has also complained about specific tariffs on US goods, which he considers to be too high. He has singled out US dairy exports to Canada and Mexican automobile exports to the US as particular issues.

Canada and Mexico are important markets for the US


The US Chamber of Commerce estimated that in 2017 $3.5bn of trade with Canada and Mexico moved across American borders every day.
Canada and Mexico are America’s second and third largest trade partners in terms of overall flows after China. In total, US total trade flows with China were $660bn in 2017, compared with $536bn with Canada and $520bn with Mexico. For comparison, China’s trade flows are just 23pc above Canada’s, despite having a population that is 3800pc larger.
Canada and Mexico are also the top two importers of American goods and services, even above China. In 2017, Canada consumed $236bn of American exports, and Mexico consumed $206bn, compared to $155bn in China.
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The new deal


Earlier this week, President Trump announced “a much more fair bill”, the US-Mexico Trade Agreement. Trump said that he would be getting rid of the name because it has “NAFTA has a lot of bad connotations for the United States because it was a rip-off.”  .
The new deal includes stricter requirements on Mexican car exports. In the new deal, Mexican cars imported into the US would have to be at least 75pc made in north America, an increase from the current 62.5pc.
Another clause stipulates that 40-45pc of the vehicle must be made by workers earning at least $16 per hour. This is to reduce the incentives for American automakers to move production to lower wage Mexico.
The deal also pledges to keep tariff-free trade in agriculture.
NAFTA's collective GDP is higher than the EU's, thanks to the US
There is also a so-called “sunset clause”, meaning that the deal requires re-authorisation every six years, or it expires after 16 years.
Full details of the US-Mexico deal, and ongoing negotiations with Canada, are being kept secret by the three countries' governments for the time being.
The US-Mexico deal is not a fait accompli: it needs approval from Congress before it comes into force. A bill may come before legislators after the midterm elections in November, after which there may not be a Republican majority to approve a Trump proposal.

What about Canada?


So far, talks have been bilateral between Mexico and the US and have not included Canada. In the televised phone conversation between the presidents of the US and Mexico this week, both men expressed support for Canada joining in, creating a new NAFTA.
Mexican president Enrique Pena Nieto said that it was Mexico’s “wish” to have Canada incorporated into the deal, while Trump said he would be “calling the Prime Minister very soon”.
What is the 'new Nafta' and why was the old one controversial? 

Canadian Foreign Affairs Minister Chrystia Freeland speaks to the media as outside the Office of the US Trade Representative on Tuesday.

Credit:
Andrew Harnik/AP
Canada’s foreign minister Chrystia Freeland has been holding trade talks in Washington this week. She told reporters that "we are optimistic about having some very good, productive conversations this week”, but there was “a huge amount of work to do” on the deal.
Trump has criticised trade with Canada on several occasions. After meeting at a G7 summit in June, Trump tweeted that Trudeau was “Very dishonest & weak”, and that “Our Tariffs are in response to his of 270% on dairy!”
PM Justin Trudeau of Canada acted so meek and mild during our @G7 meetings only to give a news conference after I left saying that, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!— Donald J. Trump (@realDonaldTrump) June 9, 2018
Trump is also wary of the Canadian automobile industry, which he said is “flooding the US market”. Both these areas will presumably have to be addressed before a US-Canada trade deal can be struck.
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