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5th Round of NAFTA Talks Collapse: Who's to Blame? What's at Stake?

By: Mike Shedlock | Tuesday, November 28, 2017
The 5th round of NAFTA talks between the US, Canada, and Mexico was a complete disaster. It's a lose, lose, lose setup.
 

A major warning sign of an impending NAFTA talk failure came when the Trump administration updated its NAFTA demands despite the fact that negotiations had already bogged down.

U.S. officials explicitly stated, for example, that it would work to eliminate "unjustified measures" limiting U.S. dairy products' access to Canadian markets.

Canada disputes the US position while accusing the US of the same thing. The US is also moaning about Canadian lumber.

Finally, Trump wants NAFTA to end in 5 years unless all three nations get together to extend it.

Talks End, Progress Negative

On November 21, the New York Times reported Nafta Round Closes With Talks Bogged Down by Conflict.

Robert Lighthizer, the United States trade representative, blamed his Canadian and Mexican counterparts.

“Thus far, we have seen no evidence that Canada or Mexico are willing to seriously engage on provisions that will lead to a rebalanced agreement. Absent rebalancing, we will not reach a satisfactory result,” said Lighthizer.

New Rules of Origin

  • Rules of origin, govern the amount of a good that needs to be manufactured in North America in order to qualify for zero tariffs. The US wants to raise the threshold for the automobile industry to 85 percent, up from 62.5 percent previously.
  • The US seeks a new requirement that half of a car be manufactured solely in the United States — a provision at odds with the wishes of American automakers, who fear it will drive up their costs and make them less competitive globally.

Canadian and Mexican officials did not make counterproposals to US requests on rules of origin.

Instead, they presented data showing the harm the proposition would inflict on the auto sector and pressed the United States.

This infuriated team Trump, despite the fact that US manufacturers do not even want such rules.

 

Mexico also rejected an American demand that would allow new seasonal restrictions on imports of Mexican produce like tomatoes and avocados.

Of course the US wants corn to go the other way unimpeded.

Dear Team Trump

More than 70 bipartisan members of Congress sent a letter to the administration on Nov. 15 saying the United States proposal for the automobile sector would diminish America’s competitiveness globally.

Read the letter, it's quite interesting. And not even the manufacturers want the protections Trump seeks.

Team Trump believes it knows better.

Who's to Blame for NAFTA Collapse?

This one is easy: Team Trump. No one wins trade wars, and in this case Trump is fighting a war the largest manufacturers don't even want.

What's at Stake?

The answer is major trade wars.

US vegetable growers complain about the influx of watermelons, tomatoes and other vegetables that are cheaper to produce in Mexico than here, but want to deliver US corn, that grows better here, to Mexico.

Mexico is already making arrangements with Brazil.

No one wins trade wars. Tariffs are a mistake. Unrelated to NAFTA, Trump is upset that China "dumps steel". The charge is baseless, but if true, the US should thank China.

The reason should be easy to spot: China would be subsidizing the US auto industry. And if the EU placed tariffs while the US did not, US cars would be even more competitive globally.

Good for the Consumer, Good for the Country

If it's good for the consumer, it's good for the country. NAFTA is not perfect. A perfect agreement would can be written on a napkin.

As I have proposed many times, "All tariffs and subsidies on all goods and services are eliminated, effective immediately."

It's important to note this holds true regardless of what any other country does.

 
 

By Mike "Mish" Shedlock

Author: Mike Shedlock

Mike Shedlock / Mish
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Mike Shedlock

Michael "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com/ to learn more about wealth management for investors seeking strong performance with low volatility.

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