Canada is vowing to retaliate against the U.S. if President Trump subjects NAFTA partners to the same tariffs as other trade nations and eliminates the NAFTA loophole. {Go Deep}

The NAFTA Loophole allows Canada and Mexico to broker independent trade deals with Asian and European companies; then use their Mexican and Canadian access to the U.S. market as a backdoor around U.S. Tariffs.

This loophole has been exceptionally rewarding for both Canada and Mexico and for more than a decade they have structured their economies around loophole retention. U.S. corporations, seeing advantages from cheap Asian parts in Mexico and Canada, have moved some manufacturing there to take advantage.  In an effort to reset the trade imbalance created by the loophole President Trump is threatening to close it.

OTTAWA (Reuters) – Canada will “respond appropriately” to any U.S. steel and aluminum tariffs, Foreign Minister Chrystia Freeland said on Wednesday, less than two days before the punitive measures are due to kick in.

“The government is absolutely prepared to – and will defend – Canadian industries and Canadian jobs. We will respond appropriately,” Freeland told reporters when asked about possible U.S. action.

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Buried in a Wall Street Journal article outlining their shock and horror over President Trump following through with a Phase-I trade penalty of $50 billion, you find the following quote from Captain Obvious at Cornell University:

“The Trump administration is clearly signaling, ahead of Wilbur Ross’s trip to Beijing, that the gloves are off given China’s unwillingness to agree to a trade deficit reduction target or to make broader trade concessions,” said Eswar Prasad, a Cornell University professor of international trade. In addition, the “hardline stance may partly reflect the perception that China played a part in nearly derailing the Trump-Kim summit.” (link)

Gee, ya think?

The White House announced today it will clarify by June 15 a final list of $50 billion in imports from China that would be subject to tariffs of 25%, with the duties implemented “shortly thereafter.”  Additionally, future investment restrictions aimed at preventing Chinese acquisition of American technology will be announced by June 30.

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The 30-day extension on exemptions for Steel and Aluminum tariffs is scheduled to expire June 1st.  President Trump is positioning the U.S. Trade Team for a substantial reset. According to reports, U.S. Trade Representative Robert Lighthizer and Canadian Foreign Minister Chrystina Freeland held a terse meeting today over the tariffs and Canada’s unwillingness to close the NAFTA ‘fatal flaw‘ (loophole).

Both Canada and Mexico have structured key parts of their trade agreements to take advantage of their unique access to the U.S. market.  Mexico and Canada generate billions in economic activity through exploiting the NAFTA loophole.  China, Asia (writ large), and the EU enter into trade agreements with Mexico and Canada as back-doors into the U.S. market.  So long as corporations can avoid U.S. tariffs by going through Canada and Mexico they will continue to exploit this approach.

If the U.S. applies the same tariffs to Canada and Mexico we apply to all trade nations, then the benefit of using Canada and Mexico -by those trade nations- is lost. Corporations will no longer have any advantage, and many are likely to just deal directly with the U.S.  However, this would mean hundreds of billions in lost economic activity for Mexico and Canada.  It is the NAFTA fatal flaw.

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South Korean Prime Minister Moon Jae-in is the Asian version of Barack Obama, and much like North Korean Chairman Kim Jong-un essentially irrelevant in this geopolitical confrontation.  Take a seat, or make a sandwich…. it matters not.

Behind the fanciful Korean ‘denuclearization talks‘ and lofty ‘peace initiatives‘ a far more consequential geopolitical economic battle is taking place between the worlds largest two economies.  U.S. President Donald Trump and Chinese Chairman Xi Jinping are engaged.

The Sandwich Maker Summit –  (Reuters) – “South Korean President Moon Jae-in held a surprise meeting with North Korean leader Kim Jong Un on Saturday in an effort to ensure that a high-stakes summit between Kim and U.S. President Donald Trump takes place successfully, South Korean officials said.

[…]  Their two hours of talks at the Panmunjom border village came a month after they held the first inter-Korean summit in more than a decade at the same venue. At that meeting, they declared they would work toward a nuclear-free Korean peninsula and a formal end to the 1950-53 Korean War.

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Current Steel and Aluminum tariff exemptions expire June 1st.  Secretary Ross scheduled to be in Beijing, China June 2nd, 3rd, 4th.  The G7 Summit in Charlevoix, Quebec is on June 8th and 9th.  The tenuous Singapore summit was previously scheduled for June 12th.

Tweet Link

The MSM is insufferable in their intentional disconnect of the dynamic behind the North Korean denuclearization talks.  It was Chinese Chairman Xi Jinping who brought the DPRK to the table; and it was Chinese Chairman Xi Jinping who pushed North Korea away from the table in their manipulative efforts to extract trade concessions. Every other review of the geopolitical gamesmanship is chaff and countermeasures.

U.S. President Trump is holding massive steel and aluminum tariffs as an economic sword of Damocles over the head of Beijing during ongoing trade negotiations.  Chairman Xi sought to increase his own leverage by pulling North Korea’s Chairman Kim Jong-un away from bilateral peace and denuclearization talks.  However, POTUS Trump responded to the Beijing power-play by announcing a Section 232 trade review over the entire auto-industry; and then bolstered his counter-move by cancelling talks with Kim Jong-un.

Red Dragon didn’t expect President Trump to respond so effectively to the customary schemes notoriously famous in any Chinese negotiation encounter. I really believe Chairman Xi underestimates how adept POTUS Trump is at cutting through the obfuscation and obtuse moves.

President Trump simply doesn’t operate in the land of traditional diplomatic discomfort… he doesn’t have any inclination to play these insufferable games.

Within minutes of President Trump withdrawing from the June 12th summit, Beijing realized all of their trade leverage was just wiped out.  Playing deceptive panda isn’t going to work this time.

(Via AP) – North Korea says it is still willing to sit down for talks with the United States “at any time, at any format” after President Donald Trump abruptly canceled his planned summit with Kim Jong Un.

Vice Foreign Minister Kim Kye Gwan issued a statement Friday saying North Korea is “willing to give the U.S. time and opportunities” to reconsider talks.

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Economic security is national security. “Economic growth, national security, those are the Presidents’ two most important priorities” ~ Secretary Mnuchin.

Treasury Secretary Steven Mnuchin discusses the ongoing trade negotiation with China and the specifics of sector-by-sector agreements in principle. The overall approach by the Trump administration is to balance the trade relationship through opening of Chinese markets to U.S. exports and retain stability within U.S. manufacturing sectors.

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The dragon is in the details…. and that’s where you find slayer-Secretary Wilbur Ross!

After over a year of discussions and structured way-points, China came into last weeks U.S. trade talks with outstretched steel fists. The delegation they sent to the negotiating table were some of the most loyal and die-hard communist leaders within their national economic team.

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The White House has released a “Joint Statement of the United States and China Regarding Trade Consultations“:

“At the direction of President Donald J. Trump and President Xi Jinping, on May 17 and 18, 2018, the United States and China engaged in constructive consultations regarding trade in Washington, D.C. The United States delegation included Secretary of the Treasury Steven T. Mnuchin, Secretary of Commerce Wilbur L. Ross, and United States Trade Representative Robert E. Lighthizer. The Chinese delegation was led by State Council Vice Premier Liu He, Special Envoy of President Xi.”

“There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States.”

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National Economic Council Chairman Larry Kudlow appeared on Fox Business earlier Thursday to talk about the ongoing U.S. China trade negotiations. Those who follow the Dragon -vs- Panda strategies of China saw earlier yesterday how Chairman Xi Jinping was positioning N-Korea as leverage for the current trade negotiations.

The DPRK dragon-play didn’t work because President Trump knows the dragon’s moves, and predicted their approach from the outset. Remember, POTUS Trump began executing a geopolitical economic strategy toward both North Korea and China well over a year ago. [During the first meeting with Chairman Xi Jinping in Mar-a-Lago (Feb, 2017)]

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After over a year of discussions and structured way-points, China came into the current round of U.S. trade talks with outstretched steel fists. The line-up they sent to the negotiating table are some of the most loyal and die-hard communist leadership within their economic team.

It is obvious China is in dragon-mode knowing they are dealing with an entirely different administration than they faced before.

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Critical Update – Critical Update – Critical Update

Those who are watching the NAFTA negotiations must pay close attention to the activity in the past 36 hours.  There is a key video at the bottom.  First the backdrop:

As most are aware the NAFTA fatal flaw, the “loophole”, surrounds Mexico and Canada structuring their economic manufacturing policy -and trade deals- through the exploitation of a back-door into the U.S. Market. Understanding this key issue is paramount to understanding President Trump’s approach therein.

Remove the NAFTA “loophole” and there is no longer an incentive for U.S. manufacturers to locate their operations in Mexico or Canada. However, the removal of this loophole also means China, ASEAN nations and the EU lose the same incentive.

There have been hundreds of billions of previous investment by multinational corporations in Mexico and Canada.  Every dollar spent was intended to continue this exploitation.

Then came Trump.

In terms of investment size and scale of manufacturing, the auto-sector is perhaps the primary industry attempting to position themselves to avoid any reversal of the NAFTA scheme; and it is a self-interested economic scheme. In the short term there are billions at stake; in the longer term there are trillions within the equation.

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