For those following the nuance within ongoing U.S. trade discussions you have likely noted Commerce Secretary Wilbur Ross and U.S. Trade Representative Robert Lighthizer speaking optimistically about a potential for a U.S. Mexico trade agreement. However, simultaneously the U.S. trade team is not optimistic about any deal with Canada.
Mexico’s President-Elect Lopez Obrador (AMLO) has changed the trade dynamic internally within NAFTA for two reasons: #1) because the agriculture sector is much more critical to Mexico than it is to Canada; and #2) AMLO acknowledges and accepts the NAFTA fatal flaw; his manufacturing economy is based on the assembly of imported parts – like Canada, Mexico doesn’t actually manufacture much (ex. no aluminum smelters).
[Pompeo congratulating AMLO – Not an accidental delegation]
In the big picture AMLO wants to advance the Mexican manufacturing base; expand the aggregate economic base; and also stop the corporate exploitation of the Mexican farm worker. In these objectives U.S. President Trump is more than willing to be a partner with President Lopez Obrador. Heck, President Trump would actually love to assist AMLO on that agenda; it is mutually beneficial.
Diametrically, in Canada Prime Minister Justin Trudeau has doubled-down on the retention of the fatal flaw and does not want an expanded domestic manufacturing base. The enviro-nuts of his base just will not support it. Therefore, Canada is loggerheads with the United States because Canada is demanding to retain their NAFTA access to the U.S. market, and simultaneously retain their ability to broker imported Chinese goods.
[Again, not an accidental congratulatory delegation. Think about the Trump Doctrine]
This means a trade deal with Mexico is possible; and a trade deal with Canada is almost impossible. So the U.S. has focused on negotiations with Mexico for terms of an ‘agreement in principle’, at an “unprecedented speed.” In this regard, according to U.S.T.R. Lighthizer, the U.S. and Mexico are very close to coming to that agreement. The U.S. team and Mexican team are meeting again today in Washington DC.
If they come to an agreement, two key issues are resolved which puts even more leverage and pressure on Canada: First, the biggest downside concern for the U.S. agriculture sector would be belayed. Second, it isolates Canada providing Prime Minister Trudeau an excuse (political cover) to take a knee – presuming he’s not an idiot.
It is still tenuous, however the U.S. and Mexico look close to an agreement. Together we then present a take-it-or-leave-it opportunity for Canada to join. If Canada doesn’t join based on the U.S./Mexico terms, then NAFTA is dead…
…Politically President Trump explains why NAFTA is dead; the U.S. and Mexico immediately unveil the framework of the joint bilateral trade agreement; AMLO and Trump have political cover, a partnership is immediate; and U.S./Mexican business interests move along without an immediate hitch.
Brilliant.
Smart play.
WASHINGTON DC – [Ambassador Lighthizer] “U.S. is closing in on a deal to renegotiate the North American Free Trade Agreement (NAFTA), but said China is going to be a “longer-term problem. That isn’t to say we’re going to be in a trade war with China, in my judgment. But I think we have to change the dynamic.” On NAFTA, Mr. Lighthizer said the administration has been renegotiating the free-trade deal at “an unprecedented speed.”
“Hopefully, we are in the finishing stages of achieving an agreement in principle that will benefit American workers, farmers, ranchers, and businesses,” he said. (read more)
The momentum for this bilateral U.S./Mexico approach comes from an agreement in principle with the European Union. The EU is heavily invested in Mexico. It makes sense that President Trump would leverage the EU money (sunk cost) into Mexico as part of the U.S./EU trade negotiations….. which is why Wilbur Ross was the tip-of-the-spear.
Leverage.
See how that works?
Nudge, nudge…
Wink, wink….
Say-no-more….. Say-no-more !!
Killers. We have them.
Bigly.
