Canada convinced Trump will soon pull plug on NAFTA

Hannah Rogers
January 11, 2018

Mexican auto production and exports hit a record high in 2017, far outpacing growth in 2016, despite fears that shipments could be hurt by a renegotiation of the North American Free Trade Agreement (NAFTA) with top trading partners the United States and Canada.

A sixth round of negotiations will begin this month in Montreal.

The report briefly roiled the Canadian dollar and stocks and pushed down the Mexico peso - providing a look into what might happen if Trump follows through on his previous threats to leave NAFTA. The U.S. dollar also strengthened against Canada's loonie and the Mexico's peso. The yield on 10-year debt was down four basis points to 2.16 per cent. "Outside of the Bank of Canada meeting next week, there should be upward pressure on USD/CAD as that premium increases into the next round".

Trump fell short Monday on making any firm promises that a NAFTA update could be done, although he told farmers he wanted a better deal for them during remarks to the American Farm Bureau Federation convention in Nashville, Tenn.

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"The market's been too complacent regarding Nafta termination risk for too long", said Bipan Rai, a Toronto-based foreign-exchange and macro strategist at Canadian Imperial Bank of Commerce.

- How has the market performed over the last five years?

Mexican Economy Minister Ildefonso Guajardo has said that Mexico won't negotiate under duress and will leave the table if the United States initiates the withdrawal process.

"The Canadian government is aware of the possibility that President Trump may announce the United States' withdrawal from NAFTA", a senior government official said on condition of anonymity. "The timing on this, while potentially unfortunate as we are in a trade negotiation with USA, but the WTO moves poisonously slowly", Dawson said of Canada's move. A party's withdrawal takes effect six months after it provides written notice to the other member countries. "It certainly throws enough doubt on Nafta that it could affect capital spending plans this year".

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