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Thursday, April 27, 2017

Trump Changes Mind On NAFTA, Decides Not To Terminate Treaty; Loonie, Peso Soar

President Trump assured a sleepless night for currency traders when in the span of just a few hours, he appeared to change his mind on NAFTA by 180 degrees, and shortly after White House officials disclosed that the president was contemplating an executive order to exit NAFTA, perhaps in days, late on Wednesday Trump told the leaders of Canada and Mexico on Wednesday that he will not terminate the NAFTA treaty at this stage, but will move quickly to begin renegotiating it with them, a White House statement said.
The White House had been considering an executive order exiting NAFTA as early as Trump's 100th day in office on Saturday, Politico reported n Wednesday, but there was a split among his top advisers over whether to take the step. As Reuters first reported, the White House said Trump spoke by telephone with Mexican President Enrique Pena Nieto and Canadian Prime Minister Justin Trudeau and that he would hold back from a speedy termination of NAFTA, in what was described as a "pleasant and productive" conversation.
"President Trump agreed not to terminate NAFTA at this time and the leaders agreed to proceed swiftly, according to their required internal procedures, to enable the renegotiation of the NAFTA deal to the benefit of all three countries," a White House statement said.
"It is my privilege to bring NAFTA up to date through renegotiation. It is an honor to deal with both President Peña Nieto and Prime Minister Trudeau, and I believe that the end result will make all three countries stronger and better," Trump was quoted as saying in the statement. During his election campaign Trump threatened to renegotiate NAFTA and in the past week complained bitterly about Canadian trade practices.
Having tumbled earlier in the day, when the news of Trump's NAFTA pullout first emerged, both the Mexican and Canadian currencies spiked in Asian trading after Trump said the U.S. would stay in NAFTA for now. The U.S. dollar dropped as much as 0.6% against the loonie and 1% against the peso. 
"To totally abandon that agreement means that those gains are lost," said Paul Ferley, an economist at Royal Bank of Canada.

Trump has repeatedly vowed to pull out from the 23-year-old trade pact if he is unable to renegotiate it with better terms for America. He has long accused Mexico of destroying U.S. jobs. The United States went from running a small trade surplus with Mexico in the early 1990s to a $63 billion deficit in 2016. Details about the draft executive order on NAFTA were not immediately available.
Withdrawing from NAFTA would enable him to say he delivered on one of his key campaign promises, but it could also hurt him in states that voted for him in the election, Reuters pointed out. "Mr. President, America's corn farmers helped elect you,” the National Corn Growers Association said in a statement. "Withdrawing from NAFTA would be disastrous for American agriculture."

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