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

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.

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Mike "Mish" Shedlock

Couldn't agree more with your position Mish. Trump could easily start a Trade War, which could be the Black Swan event that starts a global recession. When the US imposed tariffs on Canadian softwood lumber recently, softwood imports to the US from Europe and Russia skyrocketed. Lumber prices shot up for US builders and consumers as a result. With all the rebuilding needed in California, Houston, Florida, and Puerto Rico, the US is only hurting itself by forcing up prices. Multiply this for hundreds of other products and US businesses and consumers will be forced to pay more for much of what they buy which will result in fewer jobs, not more.

Please Mish,

US (really massive international conglomerates) Corporate manufactures DO NOT HAVE THE BEST INTEREST OF AMERICA OR AMERICAN WORKERS in their agenda.

Their agenda is to maximize profit. PERIOD. And if that means closing every single American factory and firing every single American worker (minus VPs and CEOs, of course) to maximize their bonuses and stock options - THEY WILL DO SO.

Do we need to go over GE CEO Jeffery Immelt? Who, as obama's JOBS CZAR closed dozens of GE factories and shipped thousands of GE American jobs overseas?

+++

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

I know! They should just set up an AU, modeled at the the EU. (Just kidding, obviously....)

It isn't as simple as Mish proposes. Canadian dairy is "protected" by rules about hormones and anti-biotics. There are a lot of similar rules which means that one is not comparing similar goods. If the goods are similar, than price differences often approach each other much more closely than they are often represented.

"If it's good for the consumer, it's good for the country."

Well, if an item was costing $100 and the consumer could afford it (because he had a job that paid well) and now the same item costs $19.95 but the consumer has to go into debt to be able to buy it, then what is apparently good for the consumer is not good for him/her and not good for the country either.

It's not too hard to understand - except for those whose salary might depend on not understanding it!

Follow the money and the United States huge trade deficit with Mexico becomes even more disturbing as you begin to understand where the money eventually ends up. When you start thinking about all the money and jobs we shift into Mexico each year you would think by now Mexico would be rolling in cash.

A bit of research quickly confirms that the money Mexico receives by way of trading with America quickly passes through its lands and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. More on the problem with this in the article below.

Follow The Money - Trade Deficit With Mexico Misleading!
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