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Loonie, Peso Jump As White House Caves On Key Nafta Demand

Courtesy of ZeroHedge. View original post here.

Given the market’s violent reaction to headlines about Chinese tariffs that had already been announced last week (and then it’s recovery after Larry Kudlow essentially told traders to relax), it’s hardly surprising that the Trump administration has chosen Wednesday to adopt a “sunnier” approach to Nafta negotiations after threatening to scrap the whole agreement over Mexico’s refusal to stop migrants headed toward the US border.

After announcing earlier this week that the administration is pushing for an agreement on Nafta during the next two weeks so the revamped agreement could be unveiled at the upcoming Summit of the Americas in Peruo, Bloomberg reported Wednesday that the Trump administration is softening one of its most controversial Nafta demands.

Nafta

The Trump administration has long been pushing for a new rule that would require 85% of car parts to be sourced from the three Nafta countries. But now, it’s considering a less-restrictive deal that would group car parts into five categories. Some of thee categories would then be exempt from the 85% require. While the restriction would still apply for major components like transmissions and engines – smaller components like nuts and bolts would be exempt.

While this arrangement would be less arduous than Trump’s initial ask, automakers would still be responsible for applying the restrictions on other components.

However, traders welcomed the news, sending CAD and MXN spiking higher.

MEX

Nafta currently requires a typical vehicle to have 62.5% of its components manufactured in North America or else face stringent automobile tariffs.

Still, the three sides remains far apart on other key issues, and that whether a deal can be reached before the pan-American summit remains unclear, according to one Canadian official.

“I don’t know what an agreement in principle looks like, really,” David MacNaughton, Canada’s ambassador to the U.S., told reporters Wednesday in Toronto. “There’s still lots of issues. There’s differences of opinion and we’re going to work hard to try and narrow down the gaps and get to as much of an agreement as we possibly can.”

Canadian Foreign Minister Chrystia Freeland said Wednesday that “promising” progress had been made by the three sides on the auto issue.

“We’re making good progress,” she said. “Having said that, we’re not there yet.”

One issue is that, presently, no cars manufactured in North America would meet this 85% threshold, possibly creating a serious problem for manufacturers.


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