Mexico deal shows Trump's trade strategy succeeding brilliantly

President Trump is following through on his promise to restructure the framework of U.S. foreign trade, and his strategy looks brilliant.  The deal he just negotiated with Mexico, leaving Canada on the sidelines, is described as a win-win pact, benefiting both countries.

The key to benefit both sides is that China is the big loser.  With the deal tightening local (U.S. and Mexico) content requirements to 75%, up from 62.5%, and imposing a requirement that workers be paid at least $16 an hour on 40 to 45% of the content, Chinese auto parts and other supplies will be squeezed out.  The exports China gives up will be replaced by content produced by Mexican and U.S. workers.

It is becoming clear to me that President Trump is mobilizing the principal trade partners of the U.S. to unite to pressure China.  That nation's gigantic ongoing theft of intellectual property, its currency manipulation, and its trade restrictions have led to chronic huge trade surpluses with the United States most notably, but every manufacturing country on Earth has felt the impact of Chinese manufacturing exports powered by those unfair practices.  So, by using bilateral deals rather than the multilateral approach favored for the last three decades or so, President Trump is putting together a global alliance that will stand up to China and force it to stop its takeover of the world's manufacturing sector and compete like a normal country.

Yesterday, U.S. trade representative Robert Lighthizer was interviewed by Bret Baier on Special Report and gave a good explanation of how this bilateral approach works to the U.S.'s advantage and how both Mexico and the United States are making gains with this pact.


By accomplishing this agreement with Mexico, and publicizing it with the televised telephone conversation with outgoing president Peña Nieto, Trump also makes his critics who predicted a disaster in U.S.-Mexico relations (because he's such a raaaaacist) look like fools.

Televised phone call with Mexico's president (Fox News screen grab).

Speaking of fools, Justin Trudeau has put Canada in a very bad position if it does not come to an agreement with the U.S. on several contentious issues.  Trump was characteristically blunt in threatening the auto export jugular:

"I think with Canada, frankly, the easiest we can do is to tariff their cars coming in.  It's a tremendous amount of money and it's a very simple negotiation.  It could end in one day and we take in a lot of money the following day," Trump said.

That's the bad cop speaking.  But of course, there's a good cop ready to help "Justin from Canada."

"There are still issues with Canada but I think they could be resolved very quickly," a senior trade official told Reuters in an interview.

Lem's Levity points out:

Trudeau painted his country into a lose-lose corner.

In order for Canada to join the U.S./Mexico deal they must:

1) eliminate soft-wood subsidies in the lumber sector
2) eliminate protectionist tariffs in AG, specifically dairy
3) accept the 75% rules of origin that eliminates the NAFTA loophole.
4) agree to enforcement mechanisms
5) open their financial sector by allowing U.S. banks to operate in Canada

... These five issues are locked into the agreement between U.S. and Mexico.  They are not negotiable.  Given the politicization of all this Trudeau cannot agree to these terms and keep his fragmented political support intact.  So the blame for failure then goes to voters of Canada who prefer their government protections more than they prefer free trade with the U.S., they're saying through their voting patterns they require imbalanced trade, or no trade.  Free trade is too scary.  Too competitive.  Too insecure.  They'd rather have less through imbalance tariff-ridden protectionist trade, and higher prices for key commodities from milk to lumber and automobiles and financial services.  They're saying they need government protection from big scary U.S.  It's a very narrow and fearful approach and it won't be shaken until their voters shake off the political entities interfering with their freedom and limiting their ability to thrive.

The deal is not yet set in stone.  The agreement in principle goes to Congress, as Ambassador Lighthizer explains in the video above.

The New York Times points out

One contentious issue that remains unresolved is whether the administration will exempt Mexico from its steel and aluminum tariffs.  Mr. Trump hit Mexico, along with Canada, the European Union and other nations, with 25 percent tariffs on steel and 10 percent tariffs on aluminum, in part to force concessions on other trade issues.  Mexican officials said they expected the tariffs to be addressed down the road.

"I don't think it was necessary to address them now," Mr. Videgaray [Mexico's foreign minister Luis Videgaray Caso] said.  "We'd like those to be addressed alongside Canada.  It would be great if we could have a trilateral agreement on lifting those and our retaliatory tariffs on U.S. goods."

It is unclear how eager Canada will be to sign on to the revised deal.  Relations between the United States and Canada have been strained for months and Mr. Trump has personally berated Prime Minister Justin Trudeau of Canada as "very dishonest and weak" and accused him of "false statements" after a tense meeting of global leaders in June.

I have little doubt that Trudeau will meet a satisfactory portion of the U.S. demands.  The level of Canada's dependence on trade with the United States demands that.  Using his good cop-bad cop approach, President Trump will ease Trudeau through the process, at China's expense to the degree possible.  Then it will be on to our other principal trade partners, all of whom suffer from China's predation but none of whom have had the guts to stand up to its bullying.

This is what leading from in front looks like.

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