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Trump's China trade bashing gives new hope for NAFTA progress

CNBC logo CNBC 7/11/2018 Patti Domm

Mexico's National Regeneration Movement (MORENA) presidential candidate, Andres Manuel Lopez Obrador© Provided by CNBC Andres Manuel Lopez Obrador U.S. officials are visiting Mexico Friday, adding to speculation that the Trump administration may be looking for a victory on another trade front while tensions escalate with China.

"We believe the administration is looking to cut a deal on NAFTA or some deal on zero tariffs for autos," said Dan Clifton, head of policy research at Strategas Research. "We believe that of the two, NAFTA has a better shot at conclusion."

Secretary of State Michael Pompeo will be in Mexico on Friday meeting with the current president and the president-elect of Mexico, Clifton noted. 'It's worth keeping an eye on since so much work has already been done on NAFTA."

Pompeo and White House adviser Jared Kushner, President Donald Trump's son-in-law, are expected to travel to Mexico City to meet incoming president Andres Manuel Lopez Obrador. Treasury Secretary Steven Mnuchin and Homeland Security Secretary Kirstjen Nielsen also will be attending a meeting with Lopez Obrador at his campaign headquarters, according to news reports.

"We know Lopez Obrador would want to move forward and modernize NAFTA. It could be a talking point. It's probably being discussed, but I don't see that as the most critical issue on the agenda," said Juan Carlos Hartasánchez, Albright Stonebridge Group senior director. He said security and immigration are likely higher on the agenda.

With the administration's latest batch of tariffs against China still stinging markets, some think the administration will not want to wage trade wars on all fronts and could move to resolve disputes with the European Union or with Canada and Mexico over revamping NAFTA. The visit Friday could be a warm up for renewed talks on the North American Free Trade Agreement.

"There's actually people getting optimistic on Mexico," said Jens Nordvig, CEO of Exante Data.

"I think what's happening on trade is we have this endless escalation against China, but I don't think we'll have an escalation on the other fronts," Nordvig said. "The push back against that is going to be extreme."

He added that the administration may be using a new found relationship with Mexico as a lever to pressure Canada.

Trump has said he would like bilateral trade talks with Canada and Mexico, so that may be an agenda item for the U.S.

NAFTA talks were put on hold until after the Mexican election July 1, and it was assumed there would be no progress until after the U.S. midterm elections in November. Canadian Prime Minister Justin Trudeau briefly spoke with Trump Wednesday on the sidelines of the NATO meeting. It was their first discussion since the G-7 meeting, when Trump withdrew from the communique because of Trudeau's comments on trade, according to news wires. They were said to discuss the new dynamic of trade talks with the inclusion of Lopez Obrador.

"Lozpez Obrador has tried to smooth the concerns of international investors and American companies but he hasn't really discussed much around immigration and security," said Hartasánchez. He said the president-elect, a sociailist, has also shown that he will work with the outgoing administration and that he's willing to speak with the U.S., both positives.

a close up of a map© Provided by CNBC

That has helped the peso recover, and it is now up 5 percent since election day and 8 percent since the middle of the month.

But Hartasánchez said he is skeptical much headway will be made on NAFTA. "It seems that everybody has kind of accepted that they are putting this off to November. What they might try to discuss is whether they can advance in the interim so they are in place to announce an agreement in November," he said.


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