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Goldman Warns of U.S. Nafta Exit as Negotiators Seek Small Wins

Goldman Warns of U.S. Nafta Exit as Negotiators Seek Small Wins

Investors remain on alert over the threat of Nafta talks failing even as negotiators meet this week in Washington and seek minor victories on less contentious issues.

The latest meetings to revamp the North American Free Trade Agreement will run through Friday, largely out of the spotlight. Cabinet-level officials won’t attend for the second time since negotiations began in August, and the Trump administration is preoccupied with efforts to push through tax cuts by year-end and avoid a government shutdown.

The distractions in Washington haven’t eased pressure on President Donald Trump to preserve the trade deal, which governs more than $1 trillion in annual commerce. Senators who support Nafta warned the president last week of the economic risks of following through on his threat of withdrawal. Goldman Sachs Group Inc. said it expects Trump will ultimately announce his intention to exit from the accord and that fresh tensions will probably emerge at the next full negotiating round in January.

“While we expect the rising odds of tax reform to put less pressure on the trade agenda, we do not expect passage of tax reform will raise the odds of a successful Nafta renegotiation,” Goldman Sachs said in a note to clients. “And so a withdrawal announcement looks more likely than not, even if tax reform is enacted soon.”

Currency Markets

The move would cause a disruption in currency markets, driving down the peso against the dollar, even if it doesn’t immediately cut back trade, it said. Bouts of weakness in the peso this year have reflected uncertainty over Nafta’s future.

Trump is seeking all the support he can get in the Senate and House to reconcile tax bills and score his first major legislative victory, meaning he’s wooing lawmakers who’ve begun to speak out in favor of keeping Nafta. The last round of Nafta talks ended with U.S. Trade Representative Robert Lighthizer warning that Mexico and Canada need to make concessions, as the only acceptable deal will shift trade flows in the U.S.’s favor.

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