US-Mexico-Canada agreement shows a deal with China is ‘possible,’ OECD secretary general says

The U.S. administration’s updated trade agreement with Mexico and Canada shows that a separate deal with China is “possible,” the secretary general of the Organization for Economic Co-Operation and Development (OECD) said Tuesday.

“It’s a victory for the world to see that, even with these trade tensions throughout, it is still possible to continue to cement, to continue to organize and continue to finalize these trade agreements which are going to benefit not only the three countries involved but the whole of the trading system,” Angel Gurria told CNBC’s Charlotte Reed.

Asked whether that could benefit separate negotiations with China, Gurria gave a bullish view: “I hope that it encourages all the parties involved to actually arrive at an understanding and a negotiation with China simply because it shows that it is possible.”

On Sunday, the U.S. and Canada agreed to a deal, called the United States-Mexico-Canada Agreement (USMCA), to replace the North American Free Trade Agreement (NAFTA).

The deal ended tense talks between Washington and Ottawa, and included some key differences to the original NAFTA agreement, like improved access to Canadian markets for U.S. dairy farmers and the requirement that more auto components be built in North America.

The OECD executive highlighted previous trade deals — such as Canada’s Comprehensive Economic and Trade Agreement with the European Union and a revised version of the Trans-Pacific Partnership that excludes the U.S. — as hallmarks of progress in assuring the increased opening up of global trade.

“I would say that concept of open trade… around which we formed the whole of the modern economy is alive and well, and we should, of course, make sure that the trade tensions do not stop the process,” Gurria said.

However, Gurria warned that sluggish trade growth in the first half of the year could threaten the global economic recovery, pointing out that first-half trade growth was lower this year than it was in the previous year.

“I’m worried because the growth of trade in the first half of 2018 was only 3 percent, whereas in 2017 we were growing at 5 percent growth,” he said. “Now, trade should be growing at double the rate of the growth of the world economy. So if the economy is growing 3.7 percent, then trade should be growing at 7.5 percent and it’s growing at 3 percent, so it’s below the growth of the world economy because of these trade tensions.”

Gurria said this development “could hamper the recovery and we should obviously focus on that.”