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Is "Not-NAFTA" an issue for China?

| Posted by: Paul Donovan | Tags: Paul Donovan Weekly

  • Canada, Mexico and the US have redone NAFTA and have come up with a deal that looks a lot like NAFTA. Economists are not rushing to change forecasts on the back of the "not-NAFTA" deal. This is too similar to what already exists to make a difference. The deal is not absolutely certain, as it has to pass the US Congress. Nonetheless, the deal has reduced investor fears about the future of North American trade.
  • The deal may matter to other economies. Investors are concerned that with a North American deal in place, US President Trump may feel free to put more pressure on China. The threat of taxing all Chinese imports into the US is still a real risk. Investors could read parts of the deal with Canada as being quite anti-China in tone.
  • Not-NAFTA gave quite a lot of detail on auto trade. The US gave Canada and Mexico generous quotas to export cars and car parts to the US, in the event that the US taxes this trade. Investors might possibly worry about taxes being applied to European and Japanese auto trade. If the tax threat is not real, why would Canada and Mexico need quotas?