The US-Mexico trade deal a threat for others, Trump to single out China, Europe

President Donald J. Trump signs Executive Order Promoting Agriculture and Rural Prosperity in America with Secretary of Agriculture, Sonny Perdue, in the Roosevelt Room of the White House in Washington, D.C., Tuesday, April 25th, 2017. It’s questionable though if in the long run the new NAFTA deal leaves the US farmers better off. (Official White House photo by Shealah Craighead).

The North American Free Trade Agreement (NAFTA) between US, Mexico and Canada is reborn. It was discarded and denounced by the American President Donald Trump since the first days of his campaign to conquer the White House, and now it returns almost undamaged, just under another name. Last Monday, after more than one year of negotiations, the US and Mexico concluded a full free trade deal to replace the NAFTA and Canada is expected to forcibly join soon. Despite Trump’s rhetoric against NAFTA during the past few years, the Agreement is to return having undergone just light cosmetic adjustments. Let’s see the details.

The most criticized by the ‘America First’ President provision of NAFTA was the arrangement for cars produced in Mexico and imported to the US. Trump had condemned it as a ‘disaster’ for American workers. Under the previous Agreement, automobiles produced in Mexico by American, German and other automotive companies could be exported to the US without difficulties, if they contained added value of 62.5% created in the NAFTA region. Now, under the new deal, the White House accepted that this percentage be increased to 75%. Understandably this is an insignificant increase, which can be offset by creative accounting. The new arrangement also demands that 40% to 45% of the value of the car be produced by workers earning at least $16 an hour.

Cosmetic modifications

Last but not least, the new deal doesn’t contain a ‘sunset clause’ or automatic expiration as the American President had repeatedly demanded and advertised. The US, Mexico and Canada have been negotiating for more than one year now to replace the 1994 NAFTA. However, Canada has only five days until this Friday to agree to the terms and join the US-Mexico deal. Otherwise, the White House is expected to solemnly notify the Congress that the President is to sign the new deal with Mexico.

If Canada doesn’t sign until tomorrow Friday, the country will be obliged to negotiate her terms of adherence right from article one and may not get what is on offer today. Trump didn’t miss the opportunity to threaten Canadian made automobiles with more tariffs, if the country doesn’t join the US-Mexico deal now. Obviously, this is an open threat to Canada also intended by the White House to be disparaging.

A full U-Turn

In reality then, the Trump administration is clearly making a full 180 degrees U-Turn vis-à-vis Mexico. In place of statements like the one about ‘the Mexicans stealing hundreds of thousands American jobs’, Trump is now making a favor to the southern neighbor. To make it sound as a good deal, Trump said the Mexicans promised to buy more American soybeans and maize. In this way, he is caressing the ears of republican voters in the agricultural mid West without guaranteeing anything.

Is this full favorable change of Trump attitude to be repeated in the other trade fronts the US has opened all over the world? Let’s count the wars; with China the US is reaching the point of no return, Washington has abandoned the Trans-Pacific Partnership on trade and now threatens Europe with 25% super tariffs on car imports. Is the White House to retreat on all those accounts and show the favorable attitude it adopted towards Mexico? Rather not, and since it’s more possible that Trump has struck this deal with Mexico to corner Canada, he is more likely to do worse in the cases of China and Europe.

China and Europe on the spot

Only last week, Trump repeated his threat of levying 25% super tariffs the cars made in Europe and imported in the US. He also actively prepares a mammoth package of tariffs on imports from China of a value of $200 billion. Add to that the $50bn of Chinese goods being super levied so far and one arrives at half of the Chinese exports to America, amounting to $500bn. It would have been a wonderful surprise for the entire world, if Trump backed down on all those fronts. The global order would have been restored within hours and the stock markets would have reached new historical highs. But no, this is not going to happen.

What the Trump administration did with Mexico is a perfect move to create a solid economic zone in North America. Not to forget, the three NAFTA countries exchange goods of a value of one trillion dollars every year, covering each other’s needs. It’s more likely, then, that Trump is to raise the stakes in confronting both China and Europe.

So, both those economic entities have better prepare for the worse. Even the French President Emmanuel Macron, probably the best friend of Trump in mainland Europe, is not at all at ease with what is happening in the US. Last week, while addressing the annual conference of the French ambassadors, he accused the US of ‘aggressive isolationism’. At the same time, Germany is increasing her openings to Putin’s Russia. Unfortunately, all those signs do not indicate peaceful and calm prospects for the entire world. In conclusion it’s not a wild guess to say the powerful agents are out in search of victims to pay the cost of the next financial crisis.

 

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