Remember last weekend when we outlined how the sudden sense of urgency from Europe toward a trade agreement with Mexico? that agreement had little to do with purchasing row crops from Mexico, and everything to do with what Europe needs as access to the United States {Go Deep}.

The language being used by the United States trade office is specific. [SEE HERE] The first bilateral round of negotiations between the United States and Mexico for the USMCA free trade agreement has concluded. (Emphasis mine)

PRESS RELEASE – “MEXICO CITY — “Today, the United States and Mexico concluded the first bilateral round related to the Joint Review of the United States-Mexico-Canada Agreement (USMCA).

The United States concluded discussions with the goals of reducing the trade deficit with Mexico and strengthening American supply chains. During this first round, negotiators discussed priority issues related to automotive rules of origin, steel and aluminum, and economic security.

The United States and Mexico recognize the importance of advancing cooperation to enhance regulatory compatibility to strengthen sectors, including medical devices, pharmaceuticals, cosmetic products, and others.

We will continue advancing these discussions on June 16-17 in Washington, D.C., in addition to agriculture and a level playing field. The third round will be held during the week of July 20 in Mexico City.

The United States continues to emphasize the importance of ensuring the Agreement benefits U.S. manufacturers, farmers, ranchers, workers, service suppliers, and businesses of all sizes, and of addressing free-riding from third countries.” (source)

Currently, European automakers have billions invested in Mexican auto plants.  Much of the component material for those vehicles comes from Europe for assembly in Mexico.  That was the primary focus of the Europeans in their trade agreement with Mexico.

According to information coming from within the U.S-Mexico bilateral discussion, President Trump and USTR Greer are now changing the USMCA trade rules to require 50% of all automobiles be from American manufacturing.  [The previous USMCA agreement was 70% from North America.]

When you consider EU and Asia component use in North American autos, and when you consider this is a bilateral discussion between only two nations, there is a big difference between 50% of the vehicle made in America (bilateral equity) and 70% of the vehicle made in North America (old trilateral FTA).

If European auto giant BMW is building cars in Mexico, in order to sell them into the U.S. market 50% of the vehicle must be components from the USA.

Then shift this baseline dynamic toward a bilateral with Canada, and again if Asia auto giant Toyota wants to build cars in Canada, then 50% of the vehicle must come from the USA.

Even the use of the statistic “fifty percent” or “half” implies equity by consequence; a bilateral agreement between two parties where both parties benefit.  What I am emphasizing is the core baseline for the bilateral itself predicts the outcome of the next phase, another bilateral.

Once the U.S-Mexico bilateral is completed, Trump and Greer will then turn to Canada to begin another bilateral. This is the part that Canada is not prepared for – at all.  Canada needs the granular stuff inside a trilateral trade agreement that permits the exploit of a one-third division.  Take that foundational block out of the USMCA (CUSMA) and turn it into a two-way bilateral deal, and there’s no room for maneuvering.

A sector-by-sector agreement amid a group, becomes an agreement between just you and me. That’s an entirely different agreement.