Aug. 29, 2018

U.S. President Donald Trump announced a new, preliminary trade agreement between the US and Mexico, which he said could replace NAFTA.

North American Free Trade Agreement (NAFTA):

  • NAFTA is an agreement signed by Canada, Mexico, and the United States, creating a trilateral trade bloc in North America.

  • The agreement came into force on January 1, 1994.

  • According to Donald trump, NAFTA is the “worst trade deal ever made by United States”. Thus, he is planning to renegotiate or replace it.

Mexico-U.S. Agreement:

  • Agreement details:
    • 75% of automobile content must be made in the U.S. and Mexico, up from the current level of 62.5%.

    • Further, 40-45% of such content must be manufactured using labour that costs at least $16 an hour.

  • Benefits for U.S.: The U.S. hopes that this will discourage manufacturers from moving their facilities to Mexico, where labour is available at rates lower than in the U.S.

  • Way ahead: Trump administration has also invited Canada to join talks for a renegotiation of trade terms in favour of U.S. interests.

Comment on ongoing trade war:

  • Mexico’s decision could set an example for other countries like China which have resorted to retaliatory tariffs to deal with Trump’s aggressive trade war against them.

  • Retaliatory tariffs can only cause further harm to the world economy by increasing the burden of taxes on the private sector, which is crucial to fuel growth and create jobs. Further it deprives domestic consumers of access to useful foreign goods.

  • The right response to Trump’s trade war will be to abstain from any mutually destructive tit-for-tat tariff regimes while simultaneously pushing for peace talks.

Source : The Hindu