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US seeks lower trade deficit in NAFTA renegotiation

US outlines tough negotiating strategy for revising the 1994 North American Free Trade Agreement with Mexico and Canada.

Trump

The United States on Monday outlined a tough negotiating strategy for revising the 1994 North American Free Trade Agreement and for the first time in a US trade deal said it would seek to deter currency manipulation by trading partners.

In a much-anticipated document sent to legislators in the run-up to talks expected next month, US Trade Representative Robert Lighthizer said the Trump administration aimed to reduce the US trade deficit by improving access for US goods exported to Canada and Mexico, the two other countries in NAFTA.

The document asserts that no country should manipulate currency exchange to gain an unfair competitive advantage.

The 18-page summary of negotiations for NAFTA offers a glimpse into what a Trump administration trade agenda could look like. Until now, US President Donald Trump's agenda has been shaped by campaign rhetoric and tweets.


READ MORE: NAFTA and the US - An explainer


While Canada and Mexico are not considered currency manipulators, the reference in the list of objectives could set a template for future trade deals such as a pending negotiation to modify a five-year-old US-South Korea free trade deal.

South Korea is on a US Treasury monitoring list for possible signs of currency manipulation.

Among the priorities, Lighthizer said the administration would seek to eliminate a trade dispute mechanism that has largely prohibited the US from pursuing anti-dumping and anti-subsidy cases against Canadian and Mexican firms.

It also plans to eliminate a range of non-tariff barriers to US agricultural exports to Canada and Mexico. These include subsidies and unfair pricing structures.

USTR said it would seek to strengthen NAFTA's rules of origin to ensure that the pact's benefits do not go to outside countries and to "incentivise" the sourcing of US goods. It offered no details on such incentives and did not specify how much of a product's components must originate from within North America.

The demands that the Trump administration makes in the NAFTA talks could have far-reaching implications for US trade relations across the globe, with China eager to make inroads with Mexico and Canada if the US is seen to be retreating.

Lighthizer said the negotiations would begin no earlier than August 16, 2017.

NAFTA has quadrupled trade among the three countries, surpassing $1 trillion in 2015. Over a decade to 2010, however, the US lost nearly six million manufacturing jobs. 

By last year, the US ran a $64bn trade deficit with Mexico and a nearly $11bn gap with Canada.

Neither trade deficit is near its peak level. The trade deficit with Canada hit a high in 2008, while the trade gap with Mexico nearly reached $75bn in 2007.

'Made in America'

"No longer are we going to allow other countries to break the rules, to steal our jobs and drain our wealth," Trump said at a 'Made in America' event at the White House earlier on Monday - the event showcased products made in all 50 states, everything from a fire truck to a baseball bat - as he vowed to boost US manufacturing by cutting the trade deficit with Mexico

But the president has a conflicted relationship with global trade. His namesake clothing business depended on the work of low-wage workers living overseas, as does the fashion line of his daughter and White House aide, Ivanka Trump.

As of now, Ivanka Trump's firm continues to have its products made overseas.

Her lawyer, Jamie Gorelick, said in a statement on Monday that the president's daughter "has resigned from the company, does not control its operations, and has been advised that she cannot ask the government to act in an issue involving the brand in any way, constraining her ability to intervene personally."

NAFTA has had a mixed impact in Mexico. It gave a major boost to Mexican farm exports, auto-manufacturing jobs,  productivity and consumer prices.

But Mexico's economy grew at an average rate of just 1.3 percent a year between 1993 and 2013 during a period when Latin America was undergoing a major expansion, and poverty remains at similar levels to 1994, while mass unemployment has increased.

Some believe that, instead of fulfilling its promise of providing cheaper food to Mexicans, NAFTA deepened Mexico's dependency on food imports, leaving it unprotected from volatility in international food prices and exchange rates, reported recently.


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