Peso suffers as reports say US to leave NAFTA

Canada believes Trump planning imminent pullout: sources

A report adding to speculation that the United States plans to announce its intention to withdraw from NAFTA was met with renewed assertions from Mexico that such a move would lead it to walk away from the negotiating table.

ADVERTISEMENT

The news agency Reuters reported yesterday that two Canadian government sources said Canada was convinced that President Donald Trump would soon announce that the United States intends to pull out of the 24-year-old trilateral trade agreement.

The news also placed further pressure on the already ailing Mexican peso.

The currency dropped 0.5% to trade at just over 19.3 pesos to the US dollar soon after the report broke and has continued to slide further today. The Canadian dollar also briefly lost ground against the greenback.

A White House spokesman said that “there has been no change in the president’s position on NAFTA,” in response to the Reuters claim but a source close to the administration contradicted that position, quoting Trump as saying, “I want out.”

A Canadian government official also labeled the Reuters report as “inaccurate,” stating instead that “progress on NAFTA was made during previous rounds . . . and we expect more progress to be made in January.”

Nevertheless, whether a U.S. withdrawal is imminent or not, the damage to the peso was already done and many analysts believe that while uncertainty about the future of the agreement remains, the currency will remain vulnerable to volatility.

ADVERTISEMENT

Three Mexican sources familiar with the talks told Reuters that if Trump were to announce a NAFTA withdrawal, Mexico would be forced to walk away from the discussions.

Their statements reiterate what Foreign Affairs Secretary Luis Videgaray already said in August last year.

“I think it’s indisputable that if Trump announces a U.S. withdrawal from NAFTA, well at that moment the negotiations stop,” the head of international trade for the Agriculture Secretariat, Raúl Urteaga, told the news agency.

The two other unnamed sources echoed the position.

However, while a letter from Trump announcing the intention to terminate NAFTA would trigger a six-month process to end the agreement, it would not necessarily guarantee a U.S. withdrawal.

Some analysts believe that the U.S. could be contemplating using the strategy as a way to gain leverage and bargaining power over Mexico and Canada. The sixth and penultimate round of renegotiation talks will take place in Montreal from January 23 to 28.

“He can gain political mileage out of a big announcement to quit NAFTA without actually doing it,” said Gary Hufbauer of the Petersen Institute for International Economics.

Canadian Foreign Affairs Minister Chrystia Freeland was cautious and diplomatic about the future of the agreement.

“I think we need to take our neighbors at their word, take them seriously, and so Canada is prepared for every eventuality,” she said.

Speaking at the American Farm Bureau Federation Convention in Nashville, Tennessee, Monday, Trump told farmers that his administration was working hard to achieve a better deal for the agricultural and manufacturing sectors of the U.S. economy.

“It’s under negotiation as we speak,” he said, adding that “when Mexico is making all of that money, when Canada is making all of that money, it’s not the easiest negotiation.”

Some observers in both Mexico and Canada interpreted his remarks as a sign of optimism given that he has made far more provocative comments about the agreement in the past, including repeated threats to pull out if it is not reworked to better favor the U.S.

Urteaga said that Trump’s speech was an “interesting signal” and that “no news means good news sometimes.”

If the agreement is to survive, a number of contentious issues still need to be agreed on.

They include rules of origin as they apply to auto manufacturing, a so-called sunset clause that would automatically terminate the deal if it is not renegotiated every five years and the future of the dispute resolution mechanism which rules on complaints about illegal subsidies and dumping cases.

Source: Milenio (sp), The Hill (en), Reuters (en)

Stories from our archives that you might enjoy

  • cooncats

    On 27 December, the exchange rate was 19.9 Today’s close was 19.22 and it has been basically flat since 6 January. So exactly where does the writer of this piece get their information?

    Before the Reuters story, the rate was 19.2.

    And then these “journalists” wonder why they don’t have a lot of credibility these days.

    Mexico better look at that positive hundred billion or so cash flow from the U.S. and stop the blustering.

    • Showing my age

      Why did you anchor to December 27? That is not referenced in the article at all. It is true that the peso has improved since 12/27, but it’s also true that it dropped yesterday.

      If you’re disputing the 19.3 close with a 19.22 close, disclose your source and let us decide if you’re right. I just checked two different converters and got two different numbers, but neither was 19.22. (I checked XE and OANDA.)

      Journalistic credibility suffers when critics hold journalists accountable for things journalists didn’t actually say.

      • cooncats

        I used XE, the graphic day by day close. Checked again, my numbers are correct. Intraday is just that, the close is what you usually get when using a CC.

        I used December 27 to illustrate that well prior to this article the exchange rate was considerably lower. If you do you see the contention by this author that the NAFTA rumor, and that is all it is, did not have any significant impact on the exchange rate at all. This author states categorically the story affected the exchange rate, the close data do not support that at all.

        “The news also placed further pressure on the already ailing Mexican peso.”

        Not really

  • Pat

    On Jan. 8 the peso was at 20.2 or so. So the exchange rate has actually improved for the peso.

    • cooncats

      On January 8 the peso was at 19.2 according to XE.

      • Pat

        I got money out of CI Banco and the posted rate was 20.2

      • On January 8 it was 19.273700 – the official rate is published every day in the DOF http://www.dof.gob.mx

  • Roy S

    Not relying on NAFTA and negotiating/entering agreements with Euro or Asian companies would soundly strengthen the economy of Mexico. Be a player on the world market and not a dependent of world players would change the conversation. The new conversation would be what is México doing for Mexicans not what the US is doing for Mexicans.

    • cooncats

      Show me any country that is trading with Asian countries and not having a serious trade deficit in short order. This idea that Korea or China or Japan or any of the others are suddenly going to start buying enough from Mexico to even come close to offsetting what they sell here is pure nonsense.

      Mexico runs a large trade surplus with the U.S. large enough to offset the negative trade balances with China and Korea. When all trade and tourism, aid, remittances and, yes, drug sales are taken into account we are easily talking 100 billion per year coming into Mexico from the U.S. alone net of what Mexico buys from there.

      Mexico also earns more than $20 billion per year trade surplus with Canada.

      By contrast, Mexico’s trade deficits with China and Korea exceed 40 billion annually.

      Europe? Mexico’s trade deficit with Europe approaches $30 billion per year. Almost as bad as China.

      The U.S. is Mexico’s best customer and will remain so as far as the eye can see.

      And how do you respect your best customer? By actively encouraging illegal immigration across their borders and demonstrating/waving your flag in their streets, something that wouldn’t be tolerated here for a New York minute? You think this won’t eventually lead to a backlash?

      It will and it has. And like all backlashes, some of what is said and done is excessive and unfair. The remedy is not to create said backlash to begin with.

      Don’t bite the hand that feeds you and live in some fantasy world where you think the hands that exploit you, namely the Asians, are all the sudden going to become fair traders. They aren’t that with anyone. They are the mercantilists of our age. The U.S. is waking up to this and Mexico needs to wake up too.

      Although in fairness this cannot be said of the Europeans, the problem is simply that Mexico doesn’t have enough of what they want, and can get from the Americans and Asians, to offset what Mexico spends there in trade. Tourism can’t begin to make up the difference.

      Like it or not, Mexico will sink or swim with the U.S. and Canada. Time to wise up, cut the best deal you can and stop the blustering about walking out of the NAFTA talks. Believe me, with factories being as heavily automated as they are now the Americans can and will replace what they’ve been buying down here if they are pissed off enough.

      • Mike S

        What a bunch of confused hogwash. The drug problem is a totally separate issue from trade policy. We are talking trade and NAFTA here. I’m all for orderly and accountable border and immigration control. Simply enforcing labor hiring laws with some teeth would greatly reduce number of undocumented residents (which has been steadily declining anyway the last 9 years). Those undocumented Mx workers in the US who send remittances home make our lives much easier and our cost of living much lower. You seem to forget that benefit. They are doing hard work in jobs very disagreeable to most US citizens. The numbers speak for themselves:
        Current trade imbalance with Mx is around $65 billion out of $540 billion total trade. Trade imbalance with China was $347 billion out of total trade of $580 billion. The problem is obviously China not Mexico. Six million high-paid jobs depend on that Mx-US trade. Mx buys US products; China does not. Mx is not a military rival. Mx is a democracy.
        Trump has his priorities all screwed up but then he owes Chinese National bank $400 million and Ivanka runs a sweat shop there and Jared peddles green cards to Chinese investors in his family real estate ventures.

    • Mexico has a trade agreement with the European Union and 45 other countries including Japan. It has a better trade deal with Japan than the US. The TPP was supposed to lock China out of the Pacific rim region in favor of the US. With TPP duties on US agricultural products to Japan were to be eliminated which caused a lot of investment in agricultural products, beef and pork. Japan was to eliminate its 39% duty on US beef and Pork. Due to the US pullout of TPP, Japan has raised that duty on US products to over 50% and eliminated the duty on Mexican pork and beef. Texas ranchers are moving much of their beef and pork production to Mexico as a result so they can ship to Japan without duty.

  • Eugene Nero

    I don’t know what universe the author is in, but here on planet Earth the dollar is still dropping against the Mexican peso. XE universal currency exchange says so.

    • Showing my age

      Everything the article said was true at the time of publication. XE chart says so.

    • The US dollar is still high compared to a few months ago, it is slowly improving. On January 2, 2018 it was 19.662900 pesos to 1 USD. Today it costs 19.343300 pesos to buy 1 USD. On Dec. 1, 2017 it was 18.622900 pesos to 1 USD. November 1, 2017 it was 19.147800. October 1, 2017 it was 18.159000.

  • Mike S

    Current trade imbalance with Mx is around $65 billion out of $540 billion total trade. Trade imbalance with China was $347 billion out of total trade of $580 billion. The problem is obviously China not Mexico. Trump is all over Mexico but says little about China. He owes the Chines national bank $430 million and Ivanka runs a sweat shop there and Jared sells green cards to Chines investors for his family real estate business. We have a while collar criminal in the White house and his cult is totally gullible.

    • cooncats

      You don’t suppose that China holding 1.4 trillion of U.S. debt might have some bearing on things, eh?

      Hmm, didn’t your boy Barack or Barry or whatever he calls himself add a trillion to U.S. debt?

      You are the last guy who should be labeling others as gullible.

      • Mike S

        “According to the Treasury, the largest foreign holder of U.S. debt is China, which owns more than $1.24 trillion in bills, notes, and bonds or about 30% of the over $4 trillion in Treasury bills, notes, and bonds held by foreign countries. In total, China owns about 10% of publicly held U.S. debt.”

        Every time there is an auction, there has never been any trouble finding buyers. China has been slowing down buying US Treasury debt and may stop altogether in 2018. Chinese owning low interest treasury bills is their problem more than ours. You really need to study some well established Keynesian economic theory and the total economic meltdown of 2008 before you spout off on Obama. We are in good, stable economic times right now thanks partly to Obama and the last thing we should be doing during “good times” is putting a $1.4 trillion dollar tax cut for the wealthy on a credit card to be paid back by the middle class ten years from now.

        • Garry Montgomery

          Oh, so now Keynes is the key to budgetary and financial success?

          • Mike S

            Keynes economic theory of increasing government spending and raising deficits during economic recessions and depressions and balanced budgets during good economic times has been proven many times. Milton Friedman was thoroughly discredited in 2008 and admitted it. So called “supply side” trickle down economics has been a failure every time it has tried but that does stop Republicans from their endless desire to create a full blown plutocracy. Trump and his massive tax cuts for the 1% and his attacks on the middle class and poor during economic “good times” is classic “trickle down”. Of course the stock market will go on a “sugar high” if you drastically cut the corporate tax rate and put those tax short falls on the deficit. That will eventually come back to bite us just like 2008. Trump and his cronies are laughing all the way to the bank.

          • Mike S

            “…does NOT stop…” typo

  • Roy S

    Interesting. You turned NAFTA article into anti-Trump rant and somehow managed to include China in that. Perhaps you’re still smarting from last November 2017?
    I you live in a home I hope you’ve no fences on your property lines.

  • From South of the Border

    To tell you the truth all 3 countries will survive, if NAFTA ends! No one really knows who wins or losses here! If I were the U.S. I’d try to set up a bilateral free trade agreements with Canada and Mexico separately not all together. Bilateral always works better than in multi-national blocks. Just like the U.S. has begun preliminary talks with the U.K. on a free trade deal! One way or the other the people of the U.S. will get their way, because the U.S. has a lot more leverage than Canada or Mexico. It should be a very interesting chess match for the next few months.

  • Garry Montgomery

    Regardless, it’s a typical U.S. tactic . . . leaking that they’re about to “announce” something. So in fact, they announce in detail that they’re “about” to announce something.

  • WestCoastHwy

    NAFTA is not benefiting Mexico. NAFTA is benefiting powerful Global Corporations. Just as China, Japan, Korea, ….etc were once 3rd world countries, they didn’t allow powerful Global Corporations to continue the cheap labor rape of their citizens and devalue their currencies like Mexico. It’s time for Mexicans and their fellow Indians to pull themselves up by their “Boot Straps”.

  • Crewlaw

    Well, having been here when we were getting 11 pesos per dollar, I’ll take 18 or 19 and be grateful, no matter what the ‘big global picture’ reason for it.

FreeCurrencyRates.com
ADVERTISEMENT