As we write, there’s breaking news that top negotiators from Canada and Mexico have joined U.S. counterparts in Washington on November 27 to discuss the USMCA trade agreement that has been stalled for many months in the U.S. Congress. Recent comments from Speaker Nancy Pelosi and Representative Richard Neal suggest that ratification of the agreement could come by New Year’s. A few days ago, Speaker Pelosi said that House Democrats and U.S. Trade Representative Robert Lighthizer “are within range of a substantially improved agreement for America’s workers.”
The only downside is that there are likely to be modifications that would result in the need for Mexico to re-ratify the agreement. Those modifications may be contentious in Mexico. The Mexican government may need to implement labor reform rules that Mexico’s legislature might view as impinging on the country’s sovereignty, and these rules and new enforcement mechanisms may be perceived in Mexico as too deep a challenge to Mexico’s competitive advantages in labor costs.
However, we continue to believe that passage is likely, and that it will be a positive for all three economies.
Investment implications: Final ratification of the USMCA will be beneficial to all three economies. The end is in sight, but there is still the chance of a final hiccup if Mexico balks at changes that they perceive as too disadvantageous. Barring that, ratification looks likely by the new year.
