Auto parts output in Mexico will jump about 10 percent over the next three years as automakers scramble to adhere to stricter content rules laid out in a new North American trade deal, a top industry executive said on Monday.

The United States and Canada reached an agreement on Sunday after weeks of tense bilateral talks to update the 1994 North American Free Trade Agreement (NAFTA). Mexico and the United States first brokered a bilateral accord in late August.

The new trilateral deal, called the United States-Mexico-Canada Agreement (USMCA), will raise the minimum North American content threshold for cars needed to qualify for duty-free market access to 75 percent from 62.5 percent.

“Carmakers, especially Asian and European carmakers, will have to invest more in tools, in North American components to comply with the new content rules,” Oscar Albin, head of Mexican auto parts industry association INA, said in an interview.

The so-called rules of origin dictate what percentage of a car needs to be built in North America in order to avoid tariffs in the trade deal.

General Motors Co., Ford Motor Co., Fiat Chrysler Automobiles Germany’s Volkswagen AG, Japan’s Toyota Motor Corp., Nissan Motor Co. and Honda Motor Co. all build autos in Mexico.

“The American carmakers already have a very well-established footprint in the United States and Mexico” and will more easily adhere to the stricter content rules, Albin told Reuters.

The new rules should boost auto parts production from about $90 billion annually at present to “around $100 billion” over the next three years, he added. In the course of that period, the sector should add about 80,000 new jobs, Albin said.

Stocks in auto parts firms were lifted by the deal.

Shares in Nemak, the auto parts unit of Mexican industrial conglomerate Alfa, closed up by more than 8.5 percent. Stock in Mexican auto parts maker Rassini rose by more than 4.5 percent.

“The United States and Canada will also grow since the three countries will benefit (from the new agreement),” said Albin.

The deal set a five-year transition period once the accord enters into force to meet the new content requirements.

That looked like a tough deadline, Albin said.

“I think (time) is a bit short because any adjustment or change of the supply (chain) for cars already being assembled is practically impossible,” he said.

U.S. President Donald Trump had put creating more manufacturing jobs at the heart of his desire to rework NAFTA.
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American dairy farmers get more access to the Canadian market. U.S. drug companies can fend off generic competition for a few more years. Automakers are under pressure to build more cars where workers earn decent wages.

The North American trade agreement hammered out late Sunday between the United States and Canada, following an earlier U.S.-Mexico deal, shakes up — but likely won’t revolutionize — the way businesses operate within the three-country trade bloc.

The new United States-Mexico-Canada Agreement replaces the 24-year-old North American Free Trade Agreement, which tore down trade barriers between the three countries. But NAFTA encouraged factories to move to Mexico to take advantage of low-wage labor in what President Donald Trump called a job-killing “disaster” for the United States.

Sunday’s agreement is meant to bring manufacturing back to the United States. The president, never known for understatement, said the new deal would “transform North America back into a manufacturing powerhouse.”

But America had to make some concessions, too. For example, it agreed to retain a NAFTA dispute-resolution process that it wanted to jettison but Canada insisted on keeping.

Overall, financial markets were relieved the countries reached a deal. For a time, it had looked like Trump might pull out of a regional free trade pact altogether — or strike one without Canada, America’s No. 2 trading partner. At noon Monday, the Dow Jones industrial average was up more than 240 points.

Economists, trade attorneys and businesses are still parsing the agreement. But here’s an early look at what it means for different players.

How dairy farmers are affected

Trump has raged about Canada’s tariffs on dairy imports, which can approach 300 percent. American dairy farmers have also complained about Canadian policies that priced the U.S. out of the market for some dairy powders and allowed Canada to flood world markets with its own versions.

The new agreement ends the discriminatory pricing and restricts Canadian exports of dairy powders.

It also expands U.S. access to up to 3.75 percent of the Canadian dairy market (versus 3.25 percent in the Trans-Pacific Partnership agreement the Obama administration negotiated but Trump nixed his first week in office). Above that level, U.S. dairy farmers will still face Canada’s punishing tariffs. And the “supply management” system Canada uses to protect its farmers is still largely in place.

Still, trade attorney Daniel Ujczo of the Dickinson Wright law firm said that “the U.S. dairy industry seems happy … for now.”

Shaking things up for automakers

NAFTA remade the North American auto market. Automakers built complicated supply chains that straddled NAFTA borders. In doing so, they took advantage of each country’s strengths — cheap labor in Mexico, and skilled workers and proximity to customers in the United States and Canada.

The new agreement changes things up. For one thing, the percentage of a car’s content that must be built within the trade bloc to qualify for duty-free status rises to 75 percent from 62.5 percent. A bolder provision requires that 40 percent to 45 percent of a car’s content be built where workers earn $16 an hour. That is meant to bring production back to the United States or Canada and away from Mexico (and perhaps to put some upward pressure on Mexican wages).

The provisions could drive up car prices for consumers.

The new deal also provides some protection to Canada and Mexico if Trump goes ahead with his threat to slap 20 percent to 25 percent taxes on imported cars, trucks and auto parts. It would exclude from the proposed tariffs 2.6 million passenger vehicles from both Canada and Mexico.

The impact on multinational companies  

Like other U.S. trade agreements, NAFTA allowed multinational companies to go to private tribunals to challenge national laws they said discriminated against them and violated the terms of the trade agreement. Critics charged the process gave companies a way to get around environmental and labor laws and regulations they didn’t like, overruling democratically elected governments in the process.

U.S. Trade Rep. Robert Lighthizer, who negotiated the new deal, had another complaint: The tribunals took some of the risk out of investing in unstable or corrupt countries such as Mexico. Why, Lighthizer argued, should the United States negotiate deals that encourage investment in other countries?

The new pact scales back provisions protecting foreign investment. Lori Wallach, director of Public Citizen’s Global Trade Watch and a sharp critic of NAFTA, praised the new agreement for reining in what she called NAFTA’s “outrageous” tribunal system that had allowed big companies to launch “attacks on environmental and health policies.”

Windfall for drug companies

The new trade pact delivers a windfall to pharmaceutical companies that make biologics — ultra-expensive drugs produced in living cells. It gives them 10 years of protection from generic competition, up from eight the Obama administration had negotiated in the TPP.

But good news for the pharmaceutical industry could be bad news for users of the drugs and for government policymakers trying to hold down health-care costs.

“New monopoly privileges for pharmaceutical firms … could undermine reforms needed to make medicine more affordable here and increase prices in Mexico and Canada, limiting access to lifesaving medicines,” Wallach said.

Some retailers benefit, other do not

The United States pressured Canada and Mexico to raise the dollar amount that shipments must reach before they become subject to import duties. Canada, for instance, will allow tax- and duty-free shipments worth up to 40 Canadian dollars (about $31), up from 20 Canadian dollars ($16) under NAFTA.

The change makes U.S. products more competitive in Canada because they will be subject to less tax at the border — and delivers savings to Canadians who shop online. However, trade attorney Ujczo notes, the higher threshold poses a threat to Canadian retailers. 
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General Electric ousted its CEO, took a $23 billion charge and said it would fall short of profit forecasts this year, further signs that the century-old industrial conglomerate is struggling to turn around its vastly shrunken business.

H. Lawrence Culp Jr. will take over immediately as chairman and CEO from John Flannery, who had been on the job for just over a year. Flannery began a restructuring of GE in August 2017, when he replaced Jeffrey Immelt, whose efforts to create a higher-tech version of GE proved unsuccessful.

However, in Flannery’s short time, GE’s value has dipped below $100 billion and shares are down more than 35 percent this year, following a 45 percent decline in 2017.

The company was booted from the Dow Jones Industrial Average this summer and, last month, shares tumbled to a nine-year low after revealing a flaw in its marquee gas turbines, which caused the metal blades to weaken and forced the shutdown of a pair of power plants where they were in use.

GE warned Monday that it will miss its profit forecasts this year and it’s taking a $23 billion charge related to its power business.

The 55-year-old Culp was CEO and president of Danaher Corp. from 2000 to 2014. During that time, Danaher’s market capitalization and revenues grew five-fold. He’s already a member of GE’s board.

It’s a track record that GE appears to need after a series of notable changes under Flannery failed to gain momentum immediately, although some analysts wonder whether Culp’s history of accomplishments will be enough to reverse the direction of the company.

The challenges GE faces — including the power sector’s cyclical, structural and operational challenges — are not easily or quickly fixable, but “GE should be commended for selecting a credible, seasoned GE outsider as chairman/CEO who is likely to more candidly and quickly identify how bad things may be and what needs to be done about it,” said Gautam Khanna, an analyst at Cowen Inc., in a note to investors.

Investors will want Culp to “clean house, and fast,” said Scott Davis, founding partner of Melius Research, in a research note where he compared GE’s recent history to a slow but fatal train wreck.

“If I’m a GE employee today, I’m happy for the turnaround, but expectations are about to get a whole lot higher…GE employees will either step up or will be replaced,” Davis said.

Flannery faced a titanic task in redirecting General Electric, which was founded in 1892 in Schenectady, New York.

Just six months after taking over as CEO, Flannery said the company would be forced to pay $15 billion to make up for the miscalculations of an insurance subsidiary. While Wall Street was aware of the issues at GE’s North American Life & Health, the size of the hit caught many off guard.

Flannery on the same day said that GE might take the radical step of splitting up the main company’s three main components — aviation, health care and power — into separate businesses.

In June GE said it would spin off its health-care business and sell its interest in Baker Hughes, a massive oil services company. It’s been selling off assets and trying to sharpen its focus since the recession, when it’s finance division was hammered.

“GE still has too much debt and plenty to fix, but at least we have an outsider with an accelerated mandate to fix it,” Davis said.

Flannery vowed to give GE more of a high-tech and industrial focus by honing in on aviation, power and renewable energy — businesses with big growth potential. The shift is historic for a company that defined the phrase “household name.”

GE traces its roots to Thomas Edison and the invention of the light bulb, and the company grew with the American economy. At the start of the global financial crisis in 2008, it was one of the nation’s biggest lenders, its appliances were sold by the millions to homeowners around the world and it oversaw a multinational media powerhouse including NBC television.

But the economic crises revealed how unwieldy General Electric had become, with broad exposure damage during economic downturns.

Shares of General Electric Co., based in Boston, surged 11 percent in midday trading.

Massachusetts Gov. Charlie Baker, who helped lure GE to Boston from Connecticut in 2016 with incentives like state grants and property tax relief, said he’s not too concerned about GE’s latest travails. He noted that the company is still worth about $100 billion and has what he called a “huge footprint” in Massachusetts in health care, green technology, and renewable energy.

He said the state “did not write a big check to GE based on job projections or anything like that.”
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Fresh from clinching an updated North American commerce pact, U.S. President Donald Trump on Monday criticized Indian and Brazilian trade tactics, describing the latter as being “maybe the toughest in the world” in terms of protectionism.

Addressing reporters at a White House event to celebrate the agreement of an updated trilateral trade deal between the United States, Mexico and Canada, Trump added India and Brazil to a growing list of countries that, he argues, treat the world’s top economy unfairly in terms of commerce.

“India charges us tremendous tariffs. When we send Harley Davidson motorcycles, other things to India, they charge very, very high tariffs,” Trump said, adding that he had brought up the issue with Indian Prime Minster Narendra Modi, who he said was “going to reduce them very substantially.”

Modi’s office could not immediately be reached for a request for comment. India’s government has become more protectionist in recent months, raising import tariffs on a growing number of goods as it promotes its ‘Make in India’ program.

After criticizing India, Trump turned to Brazil, the second-largest economy in the Americas behind the United States.

“Brazil’s another one. That’s a beauty. They charge us whatever they want,” he said. “If you ask some of the companies, they say Brazil is among the toughest in the world – maybe the toughest in the world.”

Brazil is one of the world’s most closed major economies, and in recent months has tussled with the Trump administration over trade in sectors such as ethanol and steel.

After Trump’s comments, Brazil’s Foreign Trade Minister, Abrão Neto, defended the relationship, saying it was “very positive.” He added that over the last 10 years, the United States has enjoyed a trade surplus with Brazil of $90 billion in goods, and of $250 billion in goods and services.

Neto pointed out that the United States was Brazil’s second-largest trading partner, behind China, and that the two countries had a “complementary and strategic” commercial relationship that could, nonetheless, be improved.

Trump’s “America First” trade policies, particularly his escalating trade war with China, are aimed at boosting U.S. manufacturing, but they have spooked investors who worry that supply lines could be fractured and global growth derailed.

There are now U.S. tariffs active on $250 billion worth of Chinese goods, with threats on additional goods worth $267 billion.
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The economy should grow at a healthy pace this year and next, though the Trump administration’s trade policy will likely act as a drag, a group of business economists said. 

Growth should reach 2.9 percent this year, according to a survey of 51 economists by the National Association for Business Economics, released Monday. That would be up from just 2.3 percent in 2017. And growth is forecast to be 2.7 percent in 2019, the survey found. 

Overall, the economists are slightly more optimistic than they were when last surveyed three months ago. Buoyed by solid consumer spending and a healthy increase in business investment, the survey respondents expect the economy will overcome any negative impacts from higher tariffs. 

Just over half of the respondents expect that the next recession won’t arrive until 2020 at the earliest, while one-third said it wouldn’t occur until 2021. 

Inflation should remain in check, the survey found, rising to just 2.5 percent this year from 2.1 percent last year. Yet price gains will then likely moderate to 2.3 percent in 2019, the survey said. 

Still, worries over trade policy have darkened the outlook for many. Nearly 80 percent of the economists surveyed cut their growth forecasts for next year by up to one-half a percentage point, the NABE said, because of trade concerns. The Trump administration has slapped tariffs on most steel and aluminum imports and on nearly half the imports from China.

And one-half of the respondents have increased their inflation forecasts because of the import taxes.

More economists cited “trade policy” as the greatest risk to future growth, the NABE said, than any other issue. Higher interest rates and a large drop in the stock market were tied as the second-most likely risk, while just a few economists cited rising inflation and “labor shortages” as risks to growth. 

 
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After less than two years and a precipitous decline in the share price at General Electric, John Flannery is being ousted as chairman and CEO.

Flannery took over for longtime CEO Jeff Immelt in June 2017 with the company trying to re-establish its industrial roots, albeit a high-tech version of itself.

However, as Flannery has restructured the multinational conglomerate, its value has dipped below $100 billion and shares are down more than 35 percent this year.

GE warned Monday that it will miss its profit forecasts this year and it’s taking a $23 billion charge.

The company said Monday that H. Lawrence Culp Jr. will take over as chairman and CEO immediately.

Shares of General Electric Co., based in Boston, surged 9 percent before the opening bell.

 
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After intense last-minute discussions ahead of a self-imposed midnight deadline, U.S. and Canadian officials announced late Sunday they reached a trade deal, allowing a modified three-way pact with Mexico to replace the nearly quarter-century old North American Free Trade Agreement. 

The U.S.-Mexico-Canada Agreement (USMCA) — underpinning $1.2 trillion in annual trade — is expected to be signed in 60 days by President Donald Trump and his Canadian and Mexican counterparts. 

Trump hailed the “wonderful new Trade Deal” on Monday and calling it a “great deal for all three countries” that “solves the many deficiencies and mistakes in NAFTA.”

 
Trump had made criticism of the North American Free Trade Agreement (NAFTA) a centerpiece of his successful 2016 election campaign. 

“The worst trade deal maybe ever signed anywhere, but certainly ever signed in this country,” Trump had termed NAFTA, blaming it for the loss of American manufacturing jobs since it went into effect in 1994. 

The U.S. Congress is likely to act on USMCA next year. Its fate in the hands of American lawmakers remains far from certain, especially if the Democrats would take back control of the House of Representatives in the November midterm elections. 

“USMCA will give our workers, farmers, ranchers and businesses a high-standard trade agreement that will result in freer markets, fairer trade and robust economic growth in our region,” said U.S. Trade Representative Robert Lighthizer and Canadian Foreign Affairs Minister Chrystia Freeland in a joint statement. “It will strengthen the middle class, and create good, well-paying jobs and new opportunities for the nearly half billion people who call North America home.”

The U.S. agreement with Ottawa will boost American access to Canada’s dairy market — with some concessions on its heavily protected supply management system — while shielding the Canadians from possible U.S. auto tariffs. 

Steel and aluminum tariffs imposed by Washington, will remain, however. Canada had demanded protection from Trump’s tariffs on imported steel and aluminum.

The metal tariffs discussions are on a “completely separate track,” according to a senior U.S. official. 

In a big victory for Canada, NAFTA’s Chapter 19 dispute resolution system will remain intact. 

Leaving a Sunday night 75-minute Cabinet meeting, Canadian Prime Minister Justin Trudeau only said it was “a good day for Canada.”

The Trump administration had imposed a midnight Sunday deadline for Trudeau’s government to reach agreement on an updated NAFTA, or face exclusion from the treaty.

“This deadline was real,” according to a senior U.S. official. “We ended up in a good place that we ultimately think is a good deal for all three countries.” 

U.S. officials, in recent weeks, had been adamant that the text for a new deal — whether it would only be with Mexico or also include Canada — to be released by September 30 to meet congressional notification requirements and to allow outgoing Mexican President Enrique Pena Nieto to be able to sign the deal before he is succeeded by Andres Manuel Lopez Obrador, a left-wing populist. 

Canada’s government had faced strong opposition to elements of the revised pact from the country’s dairy farmers. Voters in Quebec, home to 354,000 dairy cows – the most of any province — head to the polls for provincial elections Monday, which cast a shadow over the last-minute negotiations. 

The National Association of Manufacturers (NAM) in the United States declared itself “extremely encouraged” by initial details of the new three-way pact. 

“As we review the agreement text, we will be looking to ensure that this deal opens markets, raises standards, provides enforcement and modernizes trade rules so that manufacturers across the United States can grow our economy,” said NAM President and Chief Executive Officer Jay Timmons. 

“This administration is committed to strong and effective enforcement of this agreement,” a senior U.S. official told reporters. “This is not going to just be words on paper. This is real.” 
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