I think we’ve figured out why President Trump is doing the Steel and Aluminum tariffs ahead of the NAFTA withdrawal. Perhaps, the wolverine administration is using Steel and Aluminum to draw attention to the NAFTA fatal flaw.
Earlier today Canadian Foreign Minister Chrystia Freeland stated:
“Should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers,” Foreign Minister Chrystia Freeland said in a statement, calling any trade restrictions“absolutely unacceptable.” (link)
The key word in that statement from Freeland is “products”. Why? because Canada doesn’t make more than a boutique amount of raw Steel. (Top 40 List) The Canadians, like the Mexicans, import the vast majority of their raw steel from China. Canada then fabricates products from the Chinese steel. This nuanced point is almost always lost on people who discuss trade. This point of origination is also the fatal flaw within NAFTA.
In essence Canada is a brokerage for Chinese manufactured material, and NAFTA is the access trade-door exploited by China for entry into the U.S. market. More on that in a moment. First watch Justin from Canada explain his country’s position. (prompted, just hit play):
See, that verbal parseltongue twisting is what happens when you attempt to walk the precarious fine-line of talking points on trade. Canada doesn’t manufacture steel, they purchase steel and manufacture ‘products’. A considerable difference.
Now, here’s where I think President Trump is using the steel example to highlight the NAFTA flaw and awaken people to the larger hidden issues within the heavily manipulated North American Free Trade Agreement.
There’s always that vocal group of GOPe Wall Street defenders, the professional political and purchased republicans, who attempt to hide the NAFTA flaw. So for those who are dismissive, and for the purpose of intellectual honesty, allow me to introduce the example of Chinese Billionaire Mr. Liu Zhongtian.
Mr. Liu Zhongtian is one of the Chinese billionaires who are extremely skilled at exploiting the NAFTA loophole, generating profit and hiding the reality of NAFTA from the American people. Mr. Liu is not alone, he is simply one of many – Mr. Liu is also the Deputy Secretary of China’s communist party.
Mr. Liu has imported over one million metric tonnes of aluminum ingots into Mexico, that’s over 6% of the world supply, and he stores them there in order to avoid tariffs from the United States.
Chinese billionaire Liu Zohgtian uses Mexico’s NAFTA backdoor access to avoid any U.S. tariff.
2016 […] The pile, worth $2 billion and measuring one million metric tons, represents six per cent of the world’s aluminum.
It was discovered two years ago after a California aluminum executive sent a pilot over San José Iturbide, a city in central Mexico, the Wall Street Journal reported in an investigative piece Friday.
Trade representative Jeff Henderson believes Chinese billionaire Liu Zhongtian, an aluminum magnate, routed merchandise through Mexico to avoid paying US tariffs.
Liu controls China Zhongwang Holdings Ltd, the world’s second largest aluminum producer in its category. His current fortune is estimated at $3.2 billion according to Forbes.
Aluminum manufacturers receive subsidies in China. This means Chinese companies could be able to sell aluminum at a lower price than American firms.
The United States protected domestic trade by enforcing tariffs, which have to be paid when aluminum is imported.
Bringing in merchandise through Mexico would enable a Chinese manufacturer such as Zhongwang to avoid paying those tariffs. (read more)
A photograph of Mr. Liu Zhongtian’s aluminum stockpile in Mexico.
In its current form NAFTA is an exploited doorway into the coveted U.S. market. Asian economic interests, large multinational corporations, invested in Mexico and Canada as a way to work around any direct trade deals with the U.S.
By shipping parts to Mexico and/or Canada; and by deploying satellite manufacturing and assembly facilities in Canada and/or Mexico; China, Asia and to a lesser extent EU corporations exploited a loophole. Through a process of building, assembling or manufacturing their products in Mexico/Canada those foreign corporations can skirt U.S. trade tariffs and direct U.S. trade agreements. The finished foreign products entered the U.S. under NAFTA rules.
Why deal with the U.S. when you can just deal with Mexico, and use NAFTA rules to ship your product directly into the U.S. market?
This exploitative approach, a backdoor to the U.S. market, was the primary reason for massive foreign investment in Canada and Mexico; it was also the primary reason why candidate Donald Trump, now President Donald Trump, wanted to shut down that loophole and renegotiate NAFTA.
This loophole was the primary reason for U.S. manufacturers to relocate operations to Mexico. Corporations within the U.S. Auto-Sector could enhance profits by building in Mexico or Canada using parts imported from Asia/China. The labor factor was not as big a part of the overall cost consideration as cheaper parts and imported raw materials.
If you understand the reason why U.S. companies benefited from those moves, you can begin to understand if the U.S. was going to remain inside NAFTA President Trump would have remained engaged in TPP.
As soon as President Trump withdrew from TPP the problem with the Canada and Mexico loophole grew. All corporations from TPP nations would now have an option to exploit the same NAFTA loophole.
Why ship directly to the U.S., or manufacturer inside the U.S., when you could just assemble in Mexico and Canada and use NAFTA to bring your products to the ultimate goal, the massive U.S. market?
From the POTUS Trump position, NAFTA always came down to two options:
Option #1 – renegotiate the NAFTA trade agreement to eliminate the loopholes. That would require Canada and Mexico to agree to very specific rules put into the agreement by the U.S. that would remove the ability of third-party nations to exploit the current trade loophole. Essentially the U.S. rules would be structured around removing any profit motive with regard to building in Canada or Mexico and shipping into the U.S.
Canada and Mexico would have to agree to those rules; the goal of the rules would be to stop third-party nations from exploiting NAFTA. The problem in this option is the exploitation of NAFTA currently benefits Canada and Mexico. It is against their interests to remove it. Knowing it was against their interests President Trump never thought it was likely Canada or Mexico would ever agree. But he was willing to explore and find out.
Option #2 – Exit NAFTA. And subsequently deal with Canada and Mexico individually with structured trade agreements about their imports. Canada and Mexico could do as they please, but each U.S. bi-lateral trade agreement would be written with language removing the aforementioned cost-benefit-analysis to third-party countries (same as in option #1.)
All nuanced trade-sector issues put aside, the larger issue is always how third-party nations will seek to gain access to the U.S. market through Canada and Mexico. [It is the NAFTA exploitation loophole which has severely damaged the U.S. manufacturing base.]
This is not direct ‘protectionism’, it is simply smart and fair trade.
Unfortunately, the U.S. CoC, funded by massive multinational corporations, is spending hundreds of millions on lobbying congress to keep the NAFTA loophole open.
The U.S. has to look upstream, deep into the trade agreements made by Mexico and Canada with third-parties, because it is possible for other nations to skirt direct trade with the U.S. and move their products through Canada and Mexico into the U.S.
Do you see Canada or Mexico on the Steel Production List?