What's next for Nafta?

Trade talks took a fresh turn during August as the US and Canada failed to reach agreement over the renegotiation of the North American Free Trade Agreement (Nafta). Meanwhile, trade discussions between the US and China broke up without making any significant progress. Elsewhere, as the relationship between Turkey and the US continued to deteriorate, President Trump doubled US tariffs Turkish steel and aluminium imports. 

  • The Turkish lira plunged against the US dollar

  • The Bank of England raised UK base rate to 0.75%

  • Greece’s bailout programme came to an end

Trade talks took a fresh turn during August as the US and Canada failed to reach agreement over the renegotiation of the North American Free Trade Agreement (Nafta). Meanwhile, trade discussions between the US and China broke up without making any significant progress; China imposed tariffs of 25% on US$16 billion-worth of US imports following the US’s imposition of tariffs on US$16 billion-worth of Chinese goods. Elsewhere, the Turkish lira plunged against the US dollar and, as the relationship between Turkey and the US continued to deteriorate, President Trump doubled US tariffs on imports of Turkish steel and aluminium to 50% and 20% respectively. Turkey responded by increasing levies on US imports. The Federal Open Market Committee (FOMC) highlighted the “consequential” risks created by intensifying trade tensions and Dow Jones Industrial Average Index rose by 2.2% over August. 

The Bank of England (BoE) raised its key interest rate by 0.25 percentage points to 0.75% during August to reach its highest level since March 2009. Worries over the possibility of a “no-deal” Brexit deepened during the month; BoE Governor Mark Carney said: “Negotiations are now entering a critical period” and Brexit Secretary Dominic Raab issued “practical and proportionate” information to businesses and individuals in the event of a no-deal Brexit. Meanwhile, Chancellor of the Exchequer Philip Hammond warned that a no-deal Brexit could reduce UK economic growth by 7.7% over 15 years. The FTSE 100 Index fell by 4.1% over August. 

European markets were affected not only by concerns over unresolved trade tensions and Brexit, but also by worries about Italy’s high level of public debt. The Dax Index dropped by 4.3% during August, while the CAC 40 Index fell by 1.9%. Economic growth in the eurozone rose more rapidly than originally calculated during the second quarter, according to the European Commission (EC), rising by 0.4%. Greece’s controversial bailout programme finally came to an end on 20 August: after eight years, Greece’s financial sector is judged to have been strengthened by recapitalisation operations and a revamp of bank governance. Over the month, the Athens Composite Index fell by 4.2%.