NAFTA is as precarious as a slow-spinning plate on a stick. Mexico and Canada are both taking half-hearted turns recharging the momentum – while simultaneously looking for trade options due to, well,.. the inevitable.
[February 19, 2018 | The Last Refuge]
The basic issue is a simple one; for the U.S. NAFTA has a fatal flaw. Canada and Mexico are used by China and Asian nations as a way to work-around direct trade with the U.S. and use NAFTA as a backdoor into the U.S. market. It works out great for Canada and Mexico, but terrible for the U.S. It’s a structural issue and no amount of negotiation is going to remove the fatal flaw unless Canada and Mexico agree to terms that are directly against their current financial interests.
Ergo POTUS Trump is positioned to withdraw.
Trying to keep the U.S. in NAFTA, but understanding the likelihood of exit, Justin from Canada originally approached China for a big trade deal. Justin didn’t find Happy Panda in his discussions; instead he found The Red Dragon behind the Panda mask. China was willing to talk trade, but China tiered their approach because Canada is only valuable to China as long as the NAFTA door is open. Without NAFTA China has no use for Canada.
Justin left China with dragon burns and immediately realized his trade cards were getting weaker by the day…. so he had to sign-up for the Trans-Pacific-Partnership. Unfortunately for Justin, though some think he didn’t realize the consequence, signing TPP guaranteed POTUS Trump would exit NAFTA.
Why? Because if the U.S. stayed in NAFTA the TPP nations would now have a collective backdoor into the valuable U.S. market through Canada. The NAFTA fundamental flaw just became more flawed.
Mexico discovered the same. China will talk expanded trade, but only on tiered terms. One tier with NAFTA (good stuff for Mexico); one tier without NAFTA (not as good for Mexico).
The $20 trillion U.S. market is what China wants access to; Xi Jinping doesn’t care about Canada or Mexico – beyond how each of them can benefit China’s products entering the U.S. market.
China plays a zero-sum game; if it doesn’t benefit China, it isn’t done.
So Justin from Canada now realizes he nailed his nations’ trade feet to ASEAN economies [sans Trump’s BFF golf partner Shinzo Abe (Japan)], who care about Canada as a door to the U.S. more than an actual trade partner. FUBAR eh’?
Simultaneously, Justin from Canada still has red-face from Beijing burns and has to accept he just guaranteed: “no U.S. NAFTA deal is possible”.
Where does rainbow socks turn now…. India. Except, well,… there’s a problem.
You see, while Justin from Canada was trying to find his way through the China, ASEAN and TPP trade matrix, POTUS Trump and India’s Prime Minister Modi were hugging it out on trade deals; with U.N. Ambassador Nikki Haley courting the national Indian crowd.
Yup, Justin from Canada shows up in India, and the airport -much like the rest of the diplomatic venues- is empty. POTUS Trump arrived early and stole all the trade hugging last year; then used a geopolitical strategy of punching Pakistan in the teeth to elevate his own Indian magnanimity. A bazillion India peeps loves-them-some-Trump now.
More FUBAR eh’?
So Justin from Canada is traveling around India with his family and not getting any love.
POTUS Trump began with China (Feb ’17). Outlines drawn. Handshakes. But he did so knowing he was dealing with Xi Jinping the dragon, not the panda. Trump acted like he was accepting magnanimous panda, his granddaughter helped exhibit panda deference, but all while Trump was really viewing Xi with dragon-face. Brilliant.
POTUS Trump then expanded economic influence through Saudi Arabia and the GCC creating new economic allies based on new definitions; and strategic security partnerships without the traditional U.S. cultural demands. Stunning results ongoing.
POTUS Trump worked quickly through the economics of Europe gauging who was on-board and who was not. France, Poland, Hungary all quickly joined up. Germany and the U.K. not-so-much… [Two visits to Macron and a reciprocal state visit soon] …Now go look at the economic results each EU state is facing; look who is winning.
POTUS Trump moved quickly on India as leverage with China trade discussions. If China does stupid,… Trump hugs Modi tighter. Trump kicks Pakistan in teeth with brutal truth over Afghanistan and their co-dependent enabling of Taliban. Modi smiles bigger still.
POTUS Trump moved BIGLY in Asia. Trump gave BFF Shinzo Abe first place. Japan has golden ticket to U.S. market based on reciprocity – everything is possible and Abe is on top of the world. Trump knows China will *ONLY* do that which is in their interests… and he knows Xi Jinping needs the U.S. more than the U.S. needs China. Worst part for Xi is he knows that Trump knows…
We always knew there was a generally good trade strategy visible from POTUS Trump, but it needs to be said that NO-ONE realized just how well thought out it really is. Now I know what this guy does instead of sleeping… he maps out the matrix of trade leverage and economic strategy….. it’s almost absurd how keenly insightful Trump is on the geopolitical side of economics.
Our president has flaws and faults, we all accept that…. but he is engaging in international economics with a mastery never seen by a U.S. president. EVER.
That truth is why the multinationals (corporations and banks) hate him so much, yet fear him a thousand times more. If you doubt, or perhaps just need confirmation, just look at what happened in Davos.