Commerce Secretary Wilbur Ross talks about the importance of trade “reciprocity”. As Wilburine outlines phase-2 MAGAnomics is only just beginning the reciprocity discussion.
Additionally, Secretary Ross talks about the issues with Chinese steel trans-shipment and the reason for Steel and Aluminum tariffs to be global in order to address China’s use of proxy nation states to continue dumping. In this interview Ross begins to outline the fine points behind the pending 2018 trade negotiations. It is going to take a lot of repeated effort to awaken the larger U.S. electorate to the issues.
Why ship directly to the U.S., or manufacturer inside the U.S., when you could just assemble in Mexico and Canada and use NAFTA to bring your products to the ultimate goal, the massive U.S. market?
From the POTUS Trump position, NAFTA always came down to two options:
Option #1 – renegotiate the NAFTA trade agreement to eliminate the loopholes. That would require Canada and Mexico to agree to very specific rules put into the agreement by the U.S. that would remove the ability of third-party nations to exploit the current trade loophole. Essentially the U.S. rules would be structured around removing any profit motive with regard to building in Canada or Mexico and shipping into the U.S.
Canada and Mexico would have to agree to those rules; the goal of the rules would be to stop third-party nations from exploiting NAFTA. The problem in this option is the exploitation of NAFTA currently benefits Canada and Mexico. It is against their interests to remove it. Knowing it was against their interests President Trump never thought it was likely Canada or Mexico would ever agree. But he was willing to explore and find out.
Option #2 – Exit NAFTA. And subsequently deal with Canada and Mexico individually with structured trade agreements about their imports. Canada and Mexico could do as they please, but each U.S. bi-lateral trade agreement would be written with language removing the aforementioned cost-benefit-analysis to third-party countries (same as in option #1.)
All nuanced trade-sector issues put aside, the larger issue is always how third-party nations will seek to gain access to the U.S. market through Canada and Mexico. [It is the NAFTA exploitation loophole which has severely damaged the U.S. manufacturing base.]
The U.S. has to look upstream, deep into the trade agreements made by Mexico and Canada with third-parties, because it is possible for other nations to skirt direct trade with the U.S. and move their products through Canada and Mexico into the U.S.
Additionally, with Canada now joining TPP it has become impossible for the U.S. to remain in NAFTA and simultaneously conduct trade negotiations with TPP nations.
EXAMPLE: If the U.S. remained in NAFTA all TPP nations would engage in trade discussion knowing there was a Canadian and/or Mexican option to gain access to the U.S. market. Therefore, despite the size of our market, we could never negotiate a better trade agreement than the deal existing between Canada, Mexico and their TPP partner nations.
President Trump, Commerce Secretary Wilbur Ross, Trade Adviser Peter Navarro and U.S. Trade Representative Robert Lighthizer well understand this structural problem. ONLY Trump, Ross, Mnuchin, Navarro and Lighthizer are willing to confront this problem. If Trump had lost the 2016 election, Clinton would have joined the multinationals and U.S. workers would have suffered greatly.
Lastly, the issue of Canada and Mexico making trade agreements with other nations (especially China), while brokering/leveraging their NAFTA position with the U.S. as a strategic part of those agreements, is a serious issue that cannot adequately be resolved while the U.S. remains connected to NAFTA.
At the conclusion of Round #6, this was the direct issue at the heart of a very frustrated U.S.T.R. Lighthizer’s strongly worded response to Canada:
[…] In another proposal, Canada reserved the right to treat the United States and Mexico even worse than other countries if they enter into future agreements. Those other countries may, in fact, even include China, if there is an agreement between China and [Canada]. This proposal, I think if the United States had made it, would be dubbed a “poison pill.” We did not make it, though. Obviously, this is unacceptable to us, and my guess is it is to the Mexican side also. (read full remarks)