This week will be a big week for political negotiators, and traders are taking notice. Of specific interest is the Iranian nuclear deal which is poised to crumble if a new nuclear deal cannot be reached. Trump has set May 12th as the deadline by which new deals must be reached. Trump has called the prior Iranian nuclear deal the “worst deal ever” and oil prices have jumped to four-year highs as traders question whether a deal will be reached by Saturday.
Also of note is the negotiation surrounding the North American Free Trade Agreement (NAFTA). Later today delegates from Mexico, Canada and the United States will meet in Washington in an effort to resolve critical elements of the deal. The resolution of these issues is timely as Mexico and the U.S. head towards elections which could derail any potential progress. Mexico’s elections will be held on July 1 and Congressional elections in the U.S. will be held in November.
The talks will focus on what percentage of a car must be produced in the NAFTA region in order to be exempt from U.S. tariffs. As part of his protectionist platform, President Trump has lobbied tirelessly to bring production back to the U.S. instead of Mexico, where labor is cheaper, but it reduces U.S. employment opportunities. Negotiations were meant to commence last week, but were abruptly canceled when the U.S. team ended up in China for different negotiations which were as of yet unsuccessful in halting the brewing trade war between the U.S. and China.
The terms of Washington’s proposal require that 40-45 percent of vehicles be produced in areas where the hourly wage is $16 per hour or more. Labor in Mexico is runs between $3-6 per hour. Trump also demands a ‘sunset clause’ that could automatically kill the deal after five years, something which is co-negotiators strongly oppose.