Trump announces US-Mexico trade deal, setting stage for Nafta overhaul

President hails deal ‘incredible for both parties’ and says negotiations with Canada will start ‘relatively soon’

Donald Trump has said he will strike a new trade deal with Mexico while ripping up the North American Free Trade Agreement (Nafta) and threatening a trade war with Canada.

“I’ll be terminating the existing deal and going into this deal,” the US president told reporters in the Oval Office on Monday. “We’ll be starting negotiating with Canada relatively soon. They want to negotiate very badly.”

He added: “One way or the other, we have a deal with Canada. It’ll either be a tariff on cars or it will be a negotiated deal. Frankly, a tariff on cars is a much easier way to go but perhaps the other would be much better for Canada.”

Trump also said it might be possible to make a deal involving all three countries, like the 24-year-old Nafta pact, but that separate bilateral agreements are also a possibility.

However, any trade deal would have to first be approved by Congress, and time is running out. Mexico’s president, Enrique Peña Nieto, will soon leave office and there is no guarantee his successor, Andrés Manuel López Obrador, will agree to the same terms.

Nafta reduced most trade barriers between the US, Mexico and Canada. But Trump and other critics say it encouraged US manufacturers to move south of the border to exploit low-wage Mexican labour.

With typical showmanship, the president invited reporters into the Oval Office, where he called Peña by speakerphone, but aides had to offer the president their technical help. “Hello?!” Trump said into the machine at one point.

NBC News journalist Josh Lederman tweeted: “This is very likely a first in history: A White House pool spray where the president of the US puts a foreign leader on speakerphone.”

The announcement came after months of negotiations between the US and its southern neighbour.

Trump said it would be called the United States-Mexico Trade Agreement. “We’ll get rid of the name Nafta,” he said. “It has a bad connotation because the United States was hurt very badly by Nafta for many years and it’s now a really good deal for both countries.”

He added: “I think it is one of the largest trade deals ever made – maybe the largest trade deal ever made.”

The agreement with Mexico requires 75% of a car’s value to be manufactured in North America, up from Nafta’s current level of 62.5%, Reuters reported. It would also require 40% to 45% of the car to be made by workers earning at least $16 per hour.

Trump has repeatedly called Nafta a job-killing “disaster” for the US.

In the conversation with Peña, Trump said of the new deal: “This is something that’s very special for our manufacturers and for our farmers from both countries, for all of the people that work for jobs. It’s also great trade and it makes it a much more fair bill and we are very, very excited about it.”

Speaking through an interpreter, Peña said he hoped Nafta partner Canada will eventually be incorporated into the deal. “It is our wish, Mr President, that now Canada will also be able to be incorporated in all this. I assume that they are going to carry out negotiations of the sensitive bilateral issues between Canada and the United States.”

But Trump said: “We haven’t started with Canada yet. We wanted to do Mexico and see if that was possible to do.”

Later, Trump and Justin Trudeau discussed trade in a telephone call and “agreed to continue productive conversations,” White House spokeswoman Sarah Sanders said in a statement.

Trump earlier said of Canada: “If they’d like to negotiate fairly, we’ll do that. They have tariffs of almost 300% on some of our dairy products so we can’t have that, we’re not going to start with that.

“I think with Canada, frankly, the easiest thing we can do is to tariff their cars coming in. It’s a tremendous amount of a money and it’s a simple negotiation. It could end in one day and we take in a lot of money the following day.

“But I think we’ll have a chance to probably have a separate deal. We could have a separate deal or we could put it into this deal.”

Trump tweeted on Monday morning: “A big deal looking good with Mexico!”

Nafta reduced most trade barriers between the US, Mexico and Canada, but Trump and other critics say it encouraged US manufacturers to move south of the border to exploit low-wage Mexican labor.

US and Mexican negotiators were preparing on Monday to announce a deal that would set the stage for an overhaul of the North American Free Trade Agreement. The White House said it planned an announcement on trade later on Monday morning. The US trade representative, Robert Lighthizer, and the Mexican secretary of economy, Ildefonso Guajardo, walked together into the White House without talking to reporters on Monday. The delegation also included Jesús Seade, a World Trade Organization veteran tapped by the Mexican President-elect Obrador as his future chief trade negotiator.

“A big deal looking good with Mexico!” Trump tweeted on Monday morning. Earlier, Guajardo told reporters, “There is one very important issue to finish.”

US and Mexican negotiators worked over the weekend to narrow their differences.

“There likely will be a deal today,” said Daniel Ujczo, a trade attorney with Dickinson Wright PLLC who has followed the Nafta talks closely.

Once they reach an agreement, the third country in Nafta, Canada, would be brought back in to finalize a revamp of the 24-year-old pact. But the countries still must resolve difficult issues, including US complaints about Canada’s protection for its dairy farmers and the way disputes are resolved under Nafta.

Adam Austen, a spokesman for the Canadian foreign minister, Chrystia Freeland, said: “Canada is encouraged by the continued optimism shown by our negotiating partners. Progress between Mexico and the United States is a necessary requirement for any renewed Nafta agreement.”

Austen said the Canadians had been in regular contact with the Nafta negotiators. “We will only sign a new Nafta that is good for Canada and good for the middle class,” he said, adding that “Canada’s signature is required”.

Talks to overhaul the Nafta agreement began a year ago and have proven contentious. The Trump administration wants a higher percentage of auto production to come from within the Nafta bloc before qualifying for duty-free status. It also has complaints about Canada’s protection for its dairy farmers and the way disputes are resolved under Nafta.

Trump also spoke by telephone with German chancellor Angela Merkel on Monday and the two leaders “strongly supported ongoing discussions between Washington and Brussels to remove barriers to a deeper trading relationship,” the White House said in a statement.

Associated Press contributed to this report