President Trump announced earlier today August 27, 2018) that the U.S. and Mexico have reached a preliminary agreement on a new trade agreement.

In a meeting with reporters from the Oval Office, and President Enrique Pena Nieto of Mexico on the phone, President Trump announced that the two countries have reached an agreement on new trade agreement. According to the President, this agreement will be called the “U.S.-Mexico Trade Agreement” and it will replace NAFTA (which, the President said had bad connotations because it was such a bad deal for the United States). The Administration intends to notify Congress this coming Friday of its attention to sign this new trade agreement (the Administration is required to notify Congress at least 90 days before signing any trade deal and President Nieto leaves office November 30th, which is ~90 days from Friday, so they are trying to get this in under the wire).

As for Canada, the two presidents seemed to express different views. President Trump said that negotiations with Canada had not started yet, but would be begin shortly. He also suggested that they would be short – saying that if Canada wants to negotiate fairly, we will do that; but that, if not, the United States will just impose a duty on Canadian-made automobiles (presumably under the on-going Section 232 investigation). He also said that any deal could be a separate deal, or it could be integrated in to the new U.S.-Mexico trade agreement. President Pena repeated stated that Mexico’s intention was to have a trilateral agreement that included Canada (not two separate bilateral deals, as seems to President Trump’s preference).

The fact sheets put out by the USTR on the U.S.-Mexico Trade Agreement are available here. A video of the meeting in the Oval Office is available on C-SPAN’s website.

While this is a momentous development, there are a few things to keep in mind. First, the United States (and possibly Mexico?) appears to be willing to move forward without Canada. It seems increasingly likely that President Trump intends to use his leverage (over autos, in particular) to present Canada with a ‘take it or leave it’ offer. If Canada is not willing to accept President Trump’s terms, it is not clear whether Mexico would be willing to forego an agreement with the United States (that seems less likely based on today’s meeting). Second, this process is far from over. As mentioned above, the United States and Mexico are racing against a political deadline (when President Nieto leaves office November 30th), but that is not the only political consideration. The U.S. political process/deadlines will also come into play, as mentioned in our previous updates. It is not clear whether a renegotiated agreement can be finalized and ratified in the time available. Nevertheless, all companies will meaningful NAFTA-related investment should be considering how today’s announcement is likely to impact their business and begin planning accordingly.