Apologies in advance to our conservative Canadian friends; but the explainer here is regarding America-First trade and economics against the backdrop of the Trans-Pacific Partnership trade deal, Canada and Mexico’s alignment therein, the APEC Summit and rainbow socks.
Here’s why Canada and Mexico signing up to TPP is great news for the U.S., and couldn’t come at a better time for NAFTA round #5 on November 17th. We don’t want TPP to collapse, because TPP ties the hands of Canada and Mexico to elements of trade that are based on collective interests. Their joining TPP provides the U.S. leverage in NAFTA.
Remember, Vietnam is exactly 12 hours ahead of U.S. Eastern time zone. At 7:450pm last evening in Vietnam (local time), at the last minute, Rainbow Socks backed out of the signing the TPP framework (explained here). Twelve hours later, at 7:20am (local), the AP reported the agreement was “back on” with “a compromise”:
DANANG, Vietnam (AP) — The Latest on the summit of 21 Pacific Rim economies in Vietnam (all times local): 7:20 a.m. – Trade ministers say they have reached a basic agreement on a Pacific Rim trade pact without the United States.
A statement issued in the early hours Saturday says an accord was reached on “core elements” of the 11-member Trans-Pacific Partnership, a deal abandoned by President Donald Trump after he took office. (more)
Rainbow Socks tweets out his appreciation for Japanese PM Sinzo Abe. In essence, beyond the language, Prime Minister Abe just saved political face for Rainbow Socks.
Prime Minister Abe said he also had concerns for the agreement, even though he was one of the 10 foreign heads-of-state ready to sign the accord last night. Just like Businessman Donald Trump, Businessman Shinzo Abe knows how to create leverage. His maneuver to save face of Justin from Canada creates leverage. BFF’s Trump and Abe are masters of the leverage universe… Rainbow Socks, not-so-much.
The APEC CEO Summit is all about economics and trade with a smattering of national security etc. mixed in. The Trans-Pacific Partnership (TPP) is about their collective assembly and how they will agree to share the “trade and economic wealth”.
President Trump, via team USA, isn’t interested in collective wealth sharing agreements; there’s no upside benefit to the U.S. in such matters. As such there was really no reason, based on the primary purpose of the summit, for President Trump to attend. However, President Trump wanted to tell the collective assembly face-to-face what the U.S. policy on trade means. That’s why he was so direct, deliberate and unapologetic last night as he laid out the terms and U.S. position.
Additionally, Trump talked about North Korea with the Summit participants, but you’ll note he did so only at a high level. Trump only needs the APEC group to generally just agree with the USA/China/Japan/S-Korea action regarding the DPRK, they don’t need to do anything extra. Ergo there’s no sense in expending energy on them. The real solution to N-Korea is within China.
President Xi Jinping is 90% of the Trump strategy because Xi can solve the problem unilaterally. [South Korea and Japan hold lesser influence and the rest of the APEC summit participants combined only amass 1% on the DPRK importance scale.]
Back to trade. You’ll note that China (Xi Jinping) also doesn’t seem to be too involved in the details of the APEC summit. The reason is the same as Trump, China’s not in TPP and when/if they ever decide to enter the backdoor to TPP (they’ll wait til it’s all assembled and finalized to look at it), China will demand terms that the rest of the participants will just have to deal with. So China, along with Russia, is also in “just watching” mode.
However, Rainbow Socks and Mexico’s President Enrique Peña Nieto have made their decision to attach their economies to TPP. This means they will agree to binding rules on disagreements, give up their own court system for trade disputes, agree to manufacturing employment laws that benefit Asia and in a general sense screw themselves royally. TPP is not about just trade, it’s actually a legal binding to all kinds of intrusive measures.
By Mexico and Canada signing on to TPP they automatically put their own manufacturing and commerce systems into a compliance model that requires them to adhere to the TPP mandates on how stuff is made.
This is where it gets important. This means two-thirds of the NAFTA participants, Mexico and Canada, are signing up to restrictive trade rules on their own free market systems. Their companies will have to adhere to Asia and the collective TPP policy in their economic sectors, manufacturing, e-commerce, as well as finance laws and employment.
The United States is not participating in the multilateral TPP boondoggle. So when the U.S. is negotiating NAFTA, team USA can insist on manufacturing and trade terms that are entirely outside the framework of TPP.
The makes massive leverage for the U.S. because the details can force Rainbow Socks and Pena Nieto to operate dual systems of manufacturing in various trade sectors. One system TPP compliant, and the second NAFTA compliant.
Obviously, it would be ridiculous for CanaMex to attempt to operate under two costly systems of trade that might be directly in opposition to each other; so there’s no way they could ever agree to such conditions.
Accepting this reality, it makes you wonder if Team USA didn’t intentionally delay NAFTA renegotiations until CanaMex signed up to TPP. Remember: “killers”.
USTR Lighthizer begins Round #5 NAFTA talks on November 17th. This is going to be very telling because Round #4 ended with massive distance between the parties.
USTR […] Frankly, I am surprised and disappointed by the resistance to change from our negotiating partners on both fronts. We have made some headway on the first objective, but even here we have sometimes seen a refusal to accept what is clearly the best text available in spite of the countries having agreed to it in the past.
In certain cases, partners who agree to TPP have actually rejected its text here. I would have thought by now we could have cleared chapters dealing with digital trade, telecommunications, anticorruption, and several sectoral annexes, for example.
As difficult as this has been, we have seen no indication that our partners are willing to make any changes that will result in a rebalancing and a reduction in these huge trade deficits. Now I understand that after many years of one-sided benefits, their companies have become reliant on special preferences and not just comparative advantage. Countries are reluctant to give up unfair advantage. (read more)
With Canada and Mexico signing up to TPP, Lighthizer walks into Round #5 with incredible leverage. Either Canada and Mexico take the knee, or the U.S. just cancels NAFTA and deals with each nation individually. Either way, it’s good for team USA.
The likely scenario is NAFTA is dissolved. Trump, Ross and Lighthizer begin constructing trade deals that are America-First, and U.S. Companies are free to engage in use of the unregulated operational leverage Team U.S.A. has provided.
[Kaizen, Edwards Deming]
The same offer appears on the horizon for South Korea’s Moon Jae-In, if he gets into compliance with the Trump security/trade agenda.
India’s Prime Minister Modi is looking good as the Indo-Pacific plans outlined by the administration also appear to show that Modi has the golden ticket opportunity; The goal is to open India markets to U.S. exports and have Modi drop the excessive tariffs currently in place. Negotiations ongoing…
That leaves Chinese President Xi Jinping. If, BIG IF, President Xi can convince Beijing to allow him to act on Little Rocket Man, well, it won’t exactly be a golden ticket -because they’ve over used (exploited) the prior ticket- but it’ll be much better than the alternative.
POTUS Trump would like nothing more than to return the three air carrier groups away from DPRK posture and provide Shinzo Abe and Moon Jae-in the defense material to take care of themselves, with the U.S. partnership acting as their national security insurance policy.
There’s a great deal of taxpayer value is not spending on the DPRK issue; those saved dollars can be shifted to provide incentives, the underlying trade-ticket value, for China.