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Another deadline is approaching in the North American Free Trade talks between the U.S., Mexico and Canada. And while headlines on Monday were full of Trump's new “hard-line” approach to the trade deal, most economists think that the deal gets done with minimal changes.
Minimal. Say whaaaa???
Economists surveyed by FocusEconomics said recently that they expect NAFTA survives the renegotiation process but are split on the specifics of the revised deal. The survey was released on May 3.
The big takeaway is that most of them think the changes will be "relatively minor," according to Christopher Thomas, the Canada economist for FocusEconomics.
Survey respondents said the existing rules of origin will be updated with other items likely to be revised in the favor of the U.S., namely intellectual and digital property rights. The contentious sunset clause is seen by most of those surveyed as being excluded from a revised deal, but they do expect the current dispute resolution mechanism to be maintained as is. This would be a loss from the U.S. standpoint, as the Trump Administration wanted to reserve the right to take countries to arbitration within World Trade Organization rules.
Most respondents said the automotive sector was the most likely to experience the biggest changes.
No one is willing to bet the threesome gets a deal done before the July 1 presidential election in Mexico. If not, then it is probably back to the drawing board for many of these economists who will have to rethink life with a populist president in Mexico should Andrés Manuel López Obrador win the presidency as expected.
Everyone agrees Mexico has the most to lose if talks fail.
"Mexico's economy is much more dependent on exports than the other two," says Jesse Wheeler, a country risk analyst at BMI Research. Any surprising unraveling of NAFTA would hit all three countries and "the impact would be negative all around," Wheeler says.
See: NAFTA Cracks Won't Be Patched Before Mexico's Elections -- Forbes
What A Populist President Means For Mexico -- Forbes
Build The Wall! Por Favor -- Forbes
That may be a bit of an overstatement as the three would revert to WTO trade rules for favored-nation status. It would be an adjustment, and inflation would increase on certain items, possibly forcing the Fed to hike more than expected this year and next. Markets would react negatively to a dead deal.
The NAFTA countries began a days-long negotiating round on Monday in hopes to get an agreement signed before July.
Mexico delivered their counterproposal to the U.S. on autos yesterday, forcing a delay on the first Canada-U.S. session. That's now taking place on Tuesday.
"We'll be here for as long as is necessary," Mexico's Ildefonso Guajardo said in the Canadian press yesterday from Washington.
U.S. Trade Representative Robert Lighthizer warned that the window for a deal is closing this month.
The negotiating "landscape has changed considerably from when Donald Trump assumed the presidency promising to shake up his country’s existing trade deals," says Thomas of FocusEconomics. Negotiators from the U.S. are now "pushing to wrap up talks quickly," he thinks.
Nearly three-quarters of those surveyed said a revised NAFTA was either “somewhat necessary” or “very necessary."
Pollsters have not had an easy go of things lately. The market still believes the base case of a revised, stronger NAFTA, remains intact.
