Big picture move by President Trump today that has massive, and generally misinterpreted, ramifications for any trade deal with China, EU and most importantly NAFTA.
China is using U.S. nuclear negotiations with North Korea as leverage for more beneficial trade outcomes; the communist regime is in full manipulative dragon-mode. President Trump can see through the economic play and is dropping the Panda outreach. Eagle-one now hits back at Chairman Xi for deploying such dangerous tactics.
If you have been following trade nuance, the Automobile Sector is one of the biggest points of contention within varying trade negotiations. In the NAFTA discussion the auto-sector, via rules of origin, runs at the heart of NAFTA’s fatal flaw.
The fatal flaw is the use of Asian, mostly Chinese, auto components within auto manufacturing. Mexico and Canada arguing to allow more Chinese auto parts in North American manufacturing; and President Trump demanding more North American parts for North American auto manufacturing.
Many U.S. Auto manufacturers have moved to Mexico to exploit the NAFTA loophole (fatal flaw). Vehicles assembled in Mexico use cheaper Chinese parts and are shipped into the U.S. without any tariff under NAFTA rules.
It didn’t take long before EU auto-manufacturers, mostly German, to begin taking the same approach. Albeit to a lesser extent, German auto companies also invested in building vehicles in Mexico/Canada for tariff-free transfer into the U.S. This works out great for Canada and Mexico auto-workers, but not for the U.S.
In essence, the auto-sector is representative of much of the manufacturing exploitation by multinational corporations beyond vehicle production. China has supported this approach because they produce the components for multiple sectors (furniture, appliances etc).
Additionally, during President Obama’s administration General Motors also spent a great deal of money in China, and many of the GM brands are built exclusively -and entirely- in China.
The auto-sector is much more than just complete assembled vehicles. In many ways the core trade issues of part origination, manufacturing and assembly of multiple durable goods sectors are represented within the auto industry process.
Current trade negotiations with the EU, China and NAFTA have reached a loggerhead status around these core issues. Multinational ‘Wall Street’ corporations are unwilling to lose their prior multi-billion investments and take a new ‘America-First’ approach. POTUS Trump is rightly angered by many of them because he specifically offset any investment losses with a new U.S. corporate tax structure.
All of that said, the issues with the auto-sector have now rippled out into other trade sectors with discussions coming to a standstill until the auto issues are resolved.
Enter President Trump with the plan.
Knowing all of the outlier, generally lesser, trade sectors are being impacted over the Chinese auto component issue, President Trump cuts the Gordian Knot and tells Commerce Secretary Wilbur Ross to consider a Section 232 review of the auto industry as it pertains to imports.
Statement from the President on Potential National Security Investigation into Automobile Imports
Today, I met with Secretary of Commerce Wilbur Ross to discuss the current state of our automobile industry. I instructed Secretary Ross to consider initiating a Section 232 investigation into imports of automobiles, including trucks, and automotive parts to determine their effects on Americas national security. Core industries such as automobiles and automotive parts are critical to our strength as a Nation. (link)
Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862) authorizes the Secretary of Commerce to conduct comprehensive investigations to determine the effects of imports of any article on the national security of the United States. As often stated by President Trump, Treasury Secretary Mnuchin and Commerce Secretary Wilbur Ross: “economic security is national security.”