United States and Mexico reach a preliminary trade deal

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"There will be elements of this understanding which I think Congress will seriously question, as will the Canadians, so I think we're still a fair distance away from a new NAFTA 2.0", said Gary Hufbauer, senior fellow and trade specialist at the Peterson Institute for International Economics.

Although Trump threatened to slap additional tariffs on Canada if it didn't come to terms on a new pact this week, administration officials said the side agreement with Mexico wasn't meant to put pressure on Ottawa.

The sides also agreed that 40-45 percent of cars must be made at "high wage" factories where workers receive $16 an hour in order to receive duty-free treatment, something that could deter off-shoring U.S. auto manufacturing to Mexico.

The deal would require 75 per cent of cars to be made in the NAFTA region, up from the current level of 62.5 per cent, a USA trade official said.

President Trump has been highly critical of the North American Free Trade Agreement (NAFTA) and has complained it effectively sends jobs to Canada and Mexico.

"We'll start negotiating with Canada relatively soon", Trump said during the conference call.

Calling the deal "very good" for U.S. farmers and manufacturers, Mr Trump said Mexico has agreed to purchase "as much farm product as possible" immediately.

In an Oval Office phone call with Mexican President Nieto, President Trump explained his reasons for renegotiating the North American Free Trade Agreement, including dropping the name NAFTA.

The new deal will keep tariffs on agricultural products traded between the United States and Mexico at zero and seeks to support biotech and other innovations in agriculture. Alternatively, the White House could just ship the new Mexico deal to Congress-but then lawmakers would be able to substantially rewrite the pact, which could scuttle all the agreements already reached with Mexico. Both those items may improve on the 1994 NAFTA agreement as technology has evolved, Casario said.

A source in South Korea's auto industry said many automakers would find it hard to meet the rule on workers' wages, which are much cheaper in Mexico. That aim also may lie behind his comment that "we'll see" whether Canada remains a part of the trade deal.

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On Tuesday, the Journal ripped apart the president's trade deal with Mexico in a scathing op-ed. Currently, about 62% of parts are required to be produced in the United States, Mexico or Canada.

Wilbur Ross, the U.S. commerce secretary, confirmed on Tuesday that the Trump administration is "fully prepared to go ahead with or without Canada" in ripping up Nafta and warned that Canada's economy "can't survive well" without a USA deal.

USA officials, when asked by reporters for clarity, could not say if Mexico is comfortable with a bilateral trade deal instead of the three-way accord they have been seeking for nearly two years.

But some economists argue hefty tariffs on cars and other products could lead to a trade war that may only harm a booming United States economy. Specifically, Trump called to congratulate Peña Nieto and himself on replacing NAFTA with what Trump called the United States-Mexico Trade Agreement.

At that point the call was finally connected, with Trump able to share the news of his deal with President Pena Nieto.

Matt Blunt, president of the American Automotive Policy Council, which represents General Motors Co, Ford Motor Co and Fiat Chrysler Automobiles NV, said the group was optimistic about the new deal, though it was still reviewing the details.

Mexican officials have insisted all along that the NAFTA must be a trilateral deal, but also acknowledged that either way it will have free trade commitments with both nations.

A fact sheet describing the bilateral agreement specified the content would be made in the United States and Mexico.

Auto manufacturing: The new deal would require that 75% of the parts in any vehicle sold in North America be produced in the United States or Mexico.

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