NAFTA on early chopping block for Team Trump; talk rattles Mexican peso and Canadian dollar
Breaking with Republican orthodoxy, a new Trump administration will work quickly to re-do the North American Free Trade Agreement, a massive trade pact with Canada and Mexico that has boosted trade but still stings laid off workers across the Midwest, President-elect Donald Trump’s pick for commerce secretary told Congress on Wednesday.
At his confirmation hearing, billionaire investor Wilbur Ross said all free trade agreements should be systematically re-opened every few years to make sure they are working in the best interests of the US.
Ross said he is pro-free trade, but noted his close relationship with the United Steelworkers union as proof that he will fight to protect American jobs. The union has endorsed him.
“NAFTA is logically the first thing for us to deal with,” Ross said. “We must solidify relationships in the best way we can in our own territory before we go off to other jurisdictions.”
“That will be a very, very early topic in this administration,” Ross added. “I think all aspects of NAFTA will be put on the table.”
Trump’s views on trade are at odds with most congressional Republicans, who generally support America’s trade pacts as a way to boost US exports and to provide affordable consumer goods.
The currencies of both Mexico and Canada tumbled after Ross said renegotiating NAFTA will be a priority.
Mexico’s peso sank to record low and Canada’s dollar posted the biggest slide since June. Currencies will still be challenged as “Trump risks to trade don’t appear fully priced in,” Citigroup analysts including Dirk Willer and Kenneth Lam wrote in a note to clients.
“The idea that this is likely to happen sooner rather than later caught the market offside,” said Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York. “Everything he said tends to confirm fears that a NAFTA repeal as early as next week is a distinct possibility,” he said.
The loonie has rallied this year, part of a broad-based surge against the US dollar, which has wilted amid a revaluation of growth prospects under a new administration. Still, Bank of Canada Governor Stephen Poloz flagged Trump uncertainty as a factor in saying a rate cut is still a possibility.
The peso has led losses among major currencies amid concern trade with US will fizzle as the nation accounts for 80 per cent of the Latin American country’s exports.
The Mexican peso fell 2 per cent to trade at 21.9544 per dollar on Wednesday, while the Canadian dollar dropped 1.7 per cent to trade at 1.3269 per dollar.
Ross’s comments not only signal the trade agreement will be changed, they leave foreign-exchange markets struggling to price in the potential impact of such an action, said Andres Jaime, a currency and rates strategist at Barclays Plc in New York.
“The important question is: how much is already priced in?,” he said. “Nobody knows at this stage.”
Trade is a divisive issue in much of the country, and Trump’s attacks on NAFTA and other pacts during the election played well in parts of Pennsylvania, Ohio, Michigan and Wisconsin — all states the businessman won.
NAFTA was negotiated and signed by President Bill Clinton, with broad support among Republicans in Congress.
Senators from both political parties were deferential to Ross at the nearly four-hour hearing, which was much more subdued than the confirmation hearings of other Trump nominees.
Ross’ remarks on trade were welcomed by some Democrats, who are generally less enthusiastic than Republicans about trade agreements.
The commerce secretary has several roles in promoting American business interests in the US and abroad. The department handles trade issues, working to attract foreign investment to the US. The department also oversees agencies that manage fisheries, weather forecasting and the Census Bureau, which will conduct a census in 2020.