Justin from Canada has drawn a line-in-the-sand during negotiations toward a U.S-Canada trade agreement. Justin has stated that any market negotiations must necessarily exclude the “Candian Cultural Industries”; those industries cover telecommunications and media. Justin will not allow any media competition within Canada.
On the Ezra Levant Show he is joined in a pragmatic discussion with Frank H. Buckley, Foundation Professor at the Antonin Scalia Law School, George Mason University, to discuss a recent appearance on the Canadian Broadcast Channel where he criticized the Liberals’ incompetence during the NAFTA negotiations.

In case anyone was wondering, Commerce Secretary Wilbur Ross is in Europe talking trade with the European Union.  Within the delegation of trade negotiation, the EU trade agreement is designated to Ross, while USTR Lighthizer covers Canada and Mexico and Treasury Secretary Mnuchin is holding point on China.  Secretary Ross is getting the royalty treatment in Greece today.

Meanwhile, Ambassador Robert Lighthizer is still engaged with Chrystia from Canada as negotiations continue to see if a U.S-Canada trade deal is possible.  He must have the patience of Job. The 52,000 lost Canadian jobs announced today has shifted the landscape a little.  Canada appears slightly more likely to back-away from prior demands to carve out the Canadian Dairy industry and continue the process of protectionist tariffs.
Ms. Freeland is heading back to Canada tonight, leaving her negotiation team in DC to continue working.  However, Canada still demands to exempt their “cultural industries”, telecommunications and media sectors, from any trade agreement. The issues for Canada to join the U.S-Mexico agreement are/were:

• open their telecommunications and banking sector (eliminate non tariff barriers).
• eliminate soft-wood (lumber) and aeronautics federal subsidies.
• begin a process of lowering their assembly use of Chinese/Asian goods.
• accept the rules of origin for North American manufacturing.
• eliminate protectionist tariffs on dairy and farm products.
• accept the U.S-Mexico terms for arbitration and dispute resolution.

The Telecommunications/media sector is non-negotiable according to Justin from Canada. There may be flexibility within banking (not much information).  The lumber and aeronautics subsidies could be dropped.  Rules of origin are non-negotiable for President Trump.  Protectionist tariffs on dairy and farm products are the current issue being discussed.  Dispute resolution is an outstanding issue.
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Earlier today National Economic Council Chairman Larry Kudlow appeared on CNBC for an extensive interview about the current U.S. economy. Jobs growing; wages growing; economy growing; trade deals improving…. Lots of good MAGAnomic stuff:

(Via CNBC) White House economic advisor Larry Kudlow is extremely optimistic about the U.S. economy.
“The economic boom continues,” he said on CNBC’s “Squawk on the Street” Friday, citing the August jobs report and the month’s wage gain data. “It’s the big story of 2018. Jobs, growth, wages. It doesn’t get much better than that.”

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From a pure economic/financial perspective this Nike  branding campaign doesn’t make sense…. unless, you realize a much bigger picture. A hidden bigger picture.

On its face, it just seems absurd. Why would any major corporation intentionally stake out a branding position that is adverse to their financial interests?
I’ve spoken to some very excellent business actuaries on this late today; and one specific conversation finally helped to make it all make sense.  During that conversation a good ally shared: “a multinational corporation would never make a branding decision adverse to their financial interests. Unless there is a hidden risk unrelated to what is visible on the surface.” ….BINGO, there it is, the lightbulb went on.
A hidden risk that likely has nothing whatsoever to do with Colin Kaepernick.
The bigger risk to Nike has nothing to do with Black Lives Matter, U.S. Consumers, or Antifa-like political advocacy. The bigger financial risk to the Nike Corporation has everything to do with geopolitics and a reset of international trade agreements.
Here’s the hidden aspect with research to back it up.  Nike Inc. has hitched its massive corporate existence to a 10-year business plan that is dependent on the continuance of recently negotiated manufacturing contracts.
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When China announced the One-Road/One-Belt initiative (now banned from discussion in Beijing); in combination with a looming trade confrontation with President Trump; CTH pointed out that sketchy pandas’ bamboo economy was very vulnerable because it was deep, but narrow – simply too dependent on manufacturing and exports.
Slow down the manufacturing sector and, well, there is no fall-back position….. Cue:

BEIJING (Reuters) – China’s manufacturing activity grew at the slowest pace in more than a year in August, with export orders shrinking for a fifth month and employers cutting more staff, a private survey showed on Monday.
The gloomy findings reinforce views that China’s economy will cool further in coming months, even as the United States ramps up tariffs on Chinese goods. That is likely to prompt more spending and other growth boosting steps from Beijing.

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The Trump Doctrine is easiest to describe as: deploying economic leverage to achieve national security interests.  The Trump Doctrine is unique and stunningly effective.

Many of the geopolitical decisions have multiple facets which connect like small gears on a much larger machine.  One of those small dual-purpose gears is the Doctrine as it is applied to Pakistan.  The downstream moves impact China, our #1 geopolitical and economic adversary, then Russia, and also support new alliances with India and the broader Middle-east.

Toward China = ♦Squeeze #3. In 2017 Trump and Secretary Tillerson, now Secretary Pompeo, put Pakistan on notice they need to get involved in bringing their enabled tribal “extremists” (Taliban) to the table in Afghanistan. Pakistan’s primary investor and economic partner is China. The U.S. removed $900 million in financial support to pressure Pakistan toward a political solution in Afghanistan, China has to fill void.  [NOTE: Last month the World Bank began discussions about a financial bailout for Pakistan.]  Again, more one-way bleed for China. {Go Deep}

When President Trump removed the $900 million in aid to Pakistan, he empowered the Pentagon via Defense Secretary James Mattis, with an option to give $300 million to Pakistan if Mattis felt positive steps were being taken to change behavior.  Today the Pentagon announces no change in behavior is noted:
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U.S. Trade Represenative Robert Lighthizer releases a statement announcing the administration is filing a NAFTA Section 2202 trade modification “notification of intent” letter to congress:

Washington, DC – U.S. Trade Representative Robert Lighthizer today issued the following statement regarding the status of trade negotiations with Mexico and Canada:
“Today the President notified the Congress of his intent to sign a trade agreement with Mexico – and Canada, if it is willing – 90 days from now.  The agreement is the most advanced and high-standard trade agreement in the world.  Over the next few weeks, Congress and cleared advisors from civil society and the private sector will be able to examine the agreement.  They will find it has huge benefits for our workers, farmers, ranchers, and businesses.
“We have also been negotiating with Canada throughout this year-long process.  This week those meetings continued at all levels.  The talks were constructive, and we made progress.  Our officials are continuing to work toward agreement.  The USTR team will meet with Minister Freeland and her colleagues Wednesday of next week.”  (link)

Under the original 1993 terms and Chapter 22 of the Implementation Act, Lighthizer notifies congress that trade parties have modified the terms; this is the Section 2202 notification of modification. Ninety days after the date of the notification the U.S. and Mexico can sign the new terms of agreement; congressional approval is not required. [Canada can still join the U.S-Mexico agreement but they need to act fast.]
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Continual emphasis on the severity of Canadian politics is needed to understand the latest developments in the U.S-Canada trade negotiations.
The Trump administration set a deadline of today for Canada to join the U.S-Mexico trade agreement and make the NAFTA replacement agreement a three-way pact.  The concessions needed by Justin Trudeau and Chrystia Freeland to join the agreement were politically devastating.

In order for Canada to accept or join, via a NAFTA 2202 modification, they would need to agree to the U.S-Mexico modification terms. For Canada they would have to:

• open their telecommunications and banking sector (eliminate non tariff barriers).
• eliminate soft-wood (lumber) and aeronautics subsidies.
• begin a process of lowering their assembly use of Chinese/Asian goods.
• accept the rules of origin for North American manufacturing.
• eliminate protectionist tariffs on dairy and farm products.
• accept the U.S-Mexico terms for arbitration and dispute resolution.

President Trump and U.S. Lighthizer are holding all the cards.  As we previously highlighted they don’t care if Canada doesn’t join; the U.S. would likely prefer to send congress a NAFTA 2205 withdrawal notification removing the U.S. from the original 1993 NAFTA construct in combination with a simultaneous 2202 modification notification for the U.S-Mexico side of the agreement.
This would allow the U.S. to go into a one-on-one trade negotiation where six months and a day from the 2205 notice. The U.S. would then apply 25% auto tariffs on Canadian made vehicles while negotiating a bilateral deal. Canada is in a very weak negotiating position; politics are paramount for the Canadian team; their exit needs political cover.  Media need to help the optics for the Canadian team.
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Prime Minister Justin Trudeau speaks Friday, August 31, 2018 about the Canadian perspective on trade negotiations with the U.S. – Everything about the Canadian position is framed through the prism of politics not economics. Virtue signalling is the primary tactic.
Trudeau and Foreign Minister Chrystia Freeland are in a tenuous position, they cannot accept the terms of the U.S-Mexico deal because they cannot afford to drop the protections and carve-outs within their highly controlled and subsidized economy. Canada would have to: drop telecommunications and banking barriers; drop protectionist tariffs on Dairy and agricultural products; and drop subsidies for the lumber and aeronautics industry.

The financial media is all a flutter based on a Bloomberg report that President Trump is likely to apply tariffs on $200 billion in Chinese goods.  DUH !  Why do they think U.S.T.R. Lighthizer has been conducting open section 301 tariff hearings for the past week?  Of course President Trump is considering tariffs on $200 billion in trade goods; this approach is not exactly a secret.
Then again, most of the financial media are clueless about the larger economic strategy and how China ties into the negotiations with North Korea.  I digress.

The proposed tariffs are a supplemental action in response to China’s unfair trade practices related to technology transfer, intellectual property, and innovation, based on the findings in USTR’s investigation of China under Section 301 of the Trade Act of 1974. Tariffs on $34 billion in goods from China are currently in effect, and tariffs on an additional $16 billion took effect on August 23rd, 2018.
The issue is not *if* President Trump will apply the 301-tariffs, the question is *how* and *when*?
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