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Mexico hands Trump a partial victory in proposed trade deal

US President Donald Trump shakes hands with Mexico's Foreign Minister Luis Videgaray Caso as he arrives to speak on trade in the Oval Office.
President Trump shakes hands with Mexico's Foreign Minister Luis Videgaray Caso in the Oval Office on August 27, 2018. Photo: Mandel Ngan/AFP/Getty Images

The U.S. and Mexico announced on Monday that they had reached a tentative agreement over several outstanding and contentious issues in NAFTA negotiations. Canada is expected to rejoin the negotiations on Tuesday, but the U.S. and Mexico have hinted they are willing to proceed without it.

The big picture: The announcement marks an important political victory for Trump, and a pyrrhic one for Mexico. President Trump got quite a bit of what he wanted, while Mexico seemed content to bypass Canada to get a worse deal. Despite both Canada's and Mexico's characterization of the U.S. proposals as unacceptable, Mexico accepted some version of them without getting in return either more NAFTA visas for Mexican nationals or dispute-resolution mechanisms that address the power imbalance.

Rather than joining forces with Canada to preserve key parts of the agreement, Mexico appears to have conceded to all three of Trump’s main demands, including increasing North American–manufactured content requirements in the auto industry, introducing a sunset provision to potentially end the agreement every six years (after the first 10), and diluting trinational dispute-resolution mechanisms.

Although Mexican negotiators see this as a breakthrough, by eschewing trilateral talks they limited their bargaining power and ultimately left money on the table. The proposed rules will negatively affect Mexico's auto-manufacturing industry by mandating that 40% to 45% of auto content be made by workers making at least $16 per hour, while the sunset mechanism will shorten investors' time horizons to about 16 years.

A U.S.–Mexico trade agreement without Canada would face an uphill battle in Congress, not to mention legal challenges to the president’s authority to undo NAFTA. It would also be a far cry from the fully revamped agreement that Trump had promised.

The bottom line: Regardless, the announcement gives Trump the ability to tout the fulfillment of a major campaign promise ahead of the November midterm elections: the extraction of important concessions from Mexico.  

Gustavo Flores-Macías is an associate professor of government at Cornell University.