U.S. Trade Representative Robert Lighthizer has submitted a regulatory 90-day notification to congress outlining the intent to modify the U.S. trade deal with Mexico according to mutually agreed terms.

However, the Canadian trade priorities; including retention of protectionist tariffs (dairy) and non-regulatory barriers (telecom/banking); in combination with subsidies (lumber/aeronautics), make Canada joining the deal almost impossible.

Canada is scheduled to meet with Lighthizer again on Wednesday, but it seems very doubtful the political needs for Justin Trudeau would allow any three-way agreement.

If you take the U.S-Mexico deal out of the U.S-Canadian discussion and just look at the fundamental baselines for the Canadian position it becomes easier to see the problem.

On the issues at the heart of the Canadian trade priorities any movement away from the current trade relationship with the U.S. is a loss.

In general terms the U.S. wants: the elimination of tariffs, the elimination of subsidies and the elimination of non-tariff barriers to trade. The Trump/Lighthizer position is to create an actual trade bloc (Canada joins),  or a bilateral agreement based on the same principles that would apply to a trade bloc.

President Trump could offer to eliminate the current Steel and Aluminum tariffs so long as Canada agrees to limits on imported Steel/Aluminum from China. However, it doesn’t look like Canada is willing to agree to terms around ‘rules of origin’ because Canada no longer has a heavy industrial base as part of their economic foundation.

Mexico, via President-elect Lopez-Obrador, wants to establish heavy industry to expand the Mexican economy and create a real manufacturing industrial base.

AMLO sees energy resource development as financial collateral toward achieving more actual heavy manufacturing investment in Mexico.  Guess what? He’s right.

Conversely, and showcasing an entirely different set of economic priorities, Canada has slowly removed its heavy industry at the behest of liberal environmental policy and shows no signs of wanting to reestablish that sector.

Without a heavy manufacturing industrial base, Canada needs to retain their import of component parts (made from heavy manufacturing) and simply assemble those parts in Canada. The U.S. and China are their main suppliers for Canadian component goods. A limited industrial base precludes Canada from agreeing to any rules of origin that could essentially limit their economy.

To form a trade relationship with the U.S., based on the same manufacturing priorities applied to the U.S-Mexico deal, Canada would have to fundamentally reverse decades of trade and internal economic/regulatory policy; -OR- Canada would have to limit their Asian purchases and use the U.S. and/or Mexico as the source of their component part origination. This is basic industrial economics.

Again, if you take the U.S-Mexico agreement away from any review of a U.S-Canada agreement, what you discover is that in a bilateral discussion of trade between the U.S. and Canada; the hungry Canadian already eats 2/3rds of the pizza (current terms).

Any move to make the pizza (trade relationship) more equitable in a bilateral deal (50/50) means Canada will have to give up some pie.  Canada doesn’t have any current internal economic policy they are willing to give up.

Canada wants to retain their lumber and aeronautics subsidies; they want to retain their protectionist dairy tariffs; they want to retain their barriers keeping their banking and telecommunications sectors protected from external competition; and they want to keep the current manufacturing and assembly processes for durable goods without the pesky industrial/environmental challenges from creating the components of those goods.

This is what Justin Trudeau and Chrystia Freeland call “protecting Canadian workers, and protecting Canadian values”.

That’s why President Trump simply looks at the challenge and says it is far easier to accept the Canadian position and make an independent move that will remove 1/4 of the pizza.  That move would be to place a 20 to 25% tariff on Canadian manufactured automobiles which will essentially mean those auto companies will relocate back into the U.S.

Beyond automobiles President Trump and Robert Lighthizer will then, inside the bilateral agreement or separately if no agreement possible, establish a duty on any imported durable good that exceeds an established percentage of North American content.  This shuts down the third-party exploitation loophole.

This is where I somewhat disagree with those who say President Trump has been setting up this auto-tariff scenario all along.  It’s not that Trump’s motive/strategy has been to remove the auto-manufacturing per se’, but rather that President Trump has long-accepted the ‘Canadian priorities’ as they exist. Trump understands the problem at its root and basic cause, and he see’s this approach as the most simple and logical solution.

Tax Canadian automobiles at 25% and one-quarter of the pie will revert back to the U.S.

Done.

Canada gets to keep its priorities intact; and Justin/Chrystia get to tell their constituents they maintained the values of the Canadian people.

See how that works?

President Donald Trump makes remarks and signs the “Executive Order to Promote Retirement Security in America” at the Harris Conference Center in Charlotte, North Carolina. Anticipated Start time 3:00pm.

UPDATE: Video Added

WH Livestream Link – RSBN Livestream Link – Fox News Livestream Link

U.S. Trade Represenative Robert Lighthizer releases a statement announcing the administration is filing a NAFTA Section 2202 trade modification “notification of intent” letter to congress:

Washington, DC – U.S. Trade Representative Robert Lighthizer today issued the following statement regarding the status of trade negotiations with Mexico and Canada:

“Today the President notified the Congress of his intent to sign a trade agreement with Mexico – and Canada, if it is willing – 90 days from now.  The agreement is the most advanced and high-standard trade agreement in the world.  Over the next few weeks, Congress and cleared advisors from civil society and the private sector will be able to examine the agreement.  They will find it has huge benefits for our workers, farmers, ranchers, and businesses.

“We have also been negotiating with Canada throughout this year-long process.  This week those meetings continued at all levels.  The talks were constructive, and we made progress.  Our officials are continuing to work toward agreement.  The USTR team will meet with Minister Freeland and her colleagues Wednesday of next week.”  (link)

Under the original 1993 terms and Chapter 22 of the Implementation Act, Lighthizer notifies congress that trade parties have modified the terms; this is the Section 2202 notification of modification. Ninety days after the date of the notification the U.S. and Mexico can sign the new terms of agreement; congressional approval is not required. [Canada can still join the U.S-Mexico agreement but they need to act fast.]

If Canada refuses to join the agreement Lighthizer will follow-up the 2202 modification notification with a Section 2205 notice dissolving the U.S. from the 1993 agreement with Canada; the dissolution is official six months from the date of notification.

During the 6 month period, before official dissolution, the U.S. and Canada can enter into new negotiations for a separate bilateral trade agreement.

If no agreement is made in the six months, prior to the dissolution date, then the terms within an older 1973 trade agreement between the U.S. and Canada take effect.  However, it is more likely a new U.S-Canada trade agreement will be made within the six month NAFTA dissolution period as Canada would not want to revert back to a trade agreement almost fifty years old.

President Trump has executed this plan brilliantly.  The U.S. and Mexico have formed a manufacturing alliance based on common sense principles that are mutually beneficial to both countries.  Incoming Mexican President Lopez-Obrador retains much of the current investment and gets a significant win for his labor policies (a promise kept).  President Trump gains increased U.S. investment and the NAFTA loophole is closed (a promise kept).

Both the U.S. and Mexico have removed trade barriers, eliminated tariffs and subsidies and established mutually beneficial terms of commerce.

However, Canada cannot -and will not- remove protectionist trade barriers (telecommunications and banking); will not eliminate protectionist tariffs (dairy); will not remove subsidies on Lumber and Aeronautics; and will not accept rules of origin in manufacturing that would remove their ability to exploit cheap Asian and Chinese parts and assemble them in Canada.

In essence Canada does not want to open their government controlled markets to competition and pesky capitalism; and they also don’t want a restart of heavy industry.

So it is likely President Trump and Robert Lighthizer will attempt a separate bilateral deal; and if not possible, Trump will place a 25% tariff on all Canadian made automobiles thereby bringing the cross-border auto manufacturing industry back to the U.S.

Oh well… we tried.  Dealing with those duplicitous Canadians gave me a heart attack.

Continual emphasis on the severity of Canadian politics is needed to understand the latest developments in the U.S-Canada trade negotiations.

The Trump administration set a deadline of today for Canada to join the U.S-Mexico trade agreement and make the NAFTA replacement agreement a three-way pact.  The concessions needed by Justin Trudeau and Chrystia Freeland to join the agreement were politically devastating.

In order for Canada to accept or join, via a NAFTA 2202 modification, they would need to agree to the U.S-Mexico modification terms. For Canada they would have to:

• open their telecommunications and banking sector (eliminate non tariff barriers).
• eliminate soft-wood (lumber) and aeronautics subsidies.
• begin a process of lowering their assembly use of Chinese/Asian goods.
• accept the rules of origin for North American manufacturing.
• eliminate protectionist tariffs on dairy and farm products.
• accept the U.S-Mexico terms for arbitration and dispute resolution.

President Trump and U.S. Lighthizer are holding all the cards.  As we previously highlighted they don’t care if Canada doesn’t join; the U.S. would likely prefer to send congress a NAFTA 2205 withdrawal notification removing the U.S. from the original 1993 NAFTA construct in combination with a simultaneous 2202 modification notification for the U.S-Mexico side of the agreement.

This would allow the U.S. to go into a one-on-one trade negotiation where six months and a day from the 2205 notice. The U.S. would then apply 25% auto tariffs on Canadian made vehicles while negotiating a bilateral deal. Canada is in a very weak negotiating position; politics are paramount for the Canadian team; their exit needs political cover.  Media need to help the optics for the Canadian team.

Bloomberg Editor-in-Chief John Micklethwait and Jennifer Jacobs interview President Trump in the Oval Office

Earlier this morning The Toronto Star reported on leaked ‘off-the-record’ comments from a Bloomberg interview with President Trump.  In essence, a brutally honest President Trump said there was no need for the U.S. to compromise, all concessions were likely to come from the Canadian position. However, knowing the political prism for Justin Trudeau and Chrystia Freeland, President Trump did not want to embarrass Trudeau politically with public comments toward that end.

…”Here’s the problem. If I say no — the answer’s no. If I say no, then you’re going to put that, and it’s going to be so insulting they’re not going to be able to make a deal … I can’t kill these people.”…

This was a genuinely honest and factual summary of the current status.

Prime Minister Trudeau and Canadian Foreign Minister Freeland simply cannot accept the terms outlined within the U.S-Mexico trade agreement.  Left-leaning sympathetic media needed a way to assist the Canadian team and attempt to remove the responsibility for any failure in negotiation from the northern liberals.  Hence the Toronto Star leak.

There are simply too many carved-out and protected liberal constituents (trade sectors), within Canadian economic policy to allow for any trade agreement based on open markets and free/fair trade.   The dairy segment is one well known and protected agricultural sector; there are many others.

WASHINGTON (Reuters) – Canada has made no agriculture concessions to the United States in bilateral trade talks aimed at reaching deal in principle to modernize the North American Free Trade Agreement, a spokeswoman for the United States Trade Representative’s office said.

“The negotiations between the United States and Canada are ongoing. There have been no concessions by Canada on agriculture,” the spokeswoman said in a brief emailed statement. (link)

The U.S. and Mexico have agreed to manufacturing origination terms; wage and labor improvements; elimination of AG subsidies and non tariff barriers; and removal of all protectionist tariffs – so long as the structural terms of commerce are upheld.

There’s almost no-way, given the politicization of the Canadian plan, for Justin and Chrystia to agree to those terms and keep their fragmented political support base appeased.

Therefore, absent total acquiescence, it is likely U.S.T.R. will file a 2205 notification dissolving the U.S and Canada trade agreement while simultaneously filing a 2202 notification to modify the U.S. and Mexico agreement to the new terms.

Under dissolution Canada will keep their soft-wood lumber and aeronautics subsidies; keep their protectionist Dairy tariffs; keep their banking and telecommunication rules blocking U.S. access; and six months from now face a 25% duty on U.S. auto imports – effectively destroying their auto manufacturing sector.  Car companies (ex. Toyota) will simply leave Canada and return to building/assembling in the U.S.

This looks like the most reasonable scenario at this moment.

The Trump Doctrine is easiest to describe as: deploying economic leverage to achieve national security interests.  The Trump Doctrine is unique and stunningly effective.

Many of the geopolitical decisions have multiple facets which connect like small gears on a much larger machine.  One of those small dual-purpose gears is the Doctrine as it is applied to Pakistan.  The downstream moves impact China, our #1 geopolitical and economic adversary, then Russia, and also support new alliances with India and the broader Middle-east.

Toward China = ♦Squeeze #3. In 2017 Trump and Secretary Tillerson, now Secretary Pompeo, put Pakistan on notice they need to get involved in bringing their enabled tribal “extremists” (Taliban) to the table in Afghanistan. Pakistan’s primary investor and economic partner is China. The U.S. removed $900 million in financial support to pressure Pakistan toward a political solution in Afghanistan, China has to fill void.  [NOTE: Last month the World Bank began discussions about a financial bailout for Pakistan.]  Again, more one-way bleed for China. {Go Deep}

When President Trump removed the $900 million in aid to Pakistan, he empowered the Pentagon via Defense Secretary James Mattis, with an option to give $300 million to Pakistan if Mattis felt positive steps were being taken to change behavior.  Today the Pentagon announces no change in behavior is noted:

[…]  U.S. Defense Secretary Jim Mattis, in particular, had an opportunity to authorize $300 million in CSF funds through this summer – if he saw concrete Pakistani actions to go after insurgents. Mattis chose not to, a U.S. official told Reuters.

“Due to a lack of Pakistani decisive actions in support of the South Asia Strategy the remaining $300 (million) was reprogrammed,” Pentagon spokesman Lieutenant Colonel Kone Faulkner said.

The disclosure came ahead of an expected visit by U.S. Secretary of State Mike Pompeo and the top U.S. military officer, General Joseph Dunford, to Islamabad. Mattis told reporters on Tuesday that combating militants would be a “primary part of the discussion.”

Experts on the Afghan conflict, America’s longest war, argue that militant safe havens in Pakistan have allowed Taliban-linked insurgents in Afghanistan a place to plot deadly strikes and regroup after ground offensives.  (read more)

The nature of the Trump foreign policy doctrine, as it has become visible, is to hold manipulative influence accountable for regional impact(s), and simultaneously work to stop any corrupted influence from oppressing free expression of national values held by the subservient, dis-empowered, people within the nation being influenced.

There have been clear examples of this doctrine at work.  When President Trump first visited the Middle-East he confronted the international audience with a message about dealing with extremist influence agents. President Trump simply said: “drive them out.”

Toward that end, as Qatar was identified as a financier of extremist ideology, President Trump placed the goal of confrontation upon the Gulf Cooperation Council, not the U.S.

The U.S. role was clearly outlined as supporting the confrontation.  Saudi Arabia, Kuwait, Egypt, Bahrain and the United Arab Emirates needed to confront the toxic regional influence; the U.S. would support their objective.  That’s what happened.

Another example:  To confront the extremism creating the turmoil in Afghanistan, President Trump placed the burden of bringing the Taliban to the table of governance upon primary influence agent Pakistan.  Here again, with U.S. support.  Pakistan is the leading influence agent over the Taliban in Afghanistan; the Trump administration correctly established the responsibility and gives clear expectations for U.S. support.

If Pakistan doesn’t change their influence objective toward a more constructive alignment with a nationally representative Afghanistan government, it is Pakistan who will be held accountable.  Again, the correct and effective appropriation of responsibility upon the influence agent who can initiate the solution, Pakistan.

The process of accurate regional assignment of influence comes with disconcerting sunlight.  Often these influences are not discussed openly.  However, for President Trump the lack of honesty is only a crutch to continue enabling poor actors. This is a consistent theme throughout all of President Trump’s foreign policy engagements.

The European Union is a collective co-dependent enabler to the corrupt influences of Iran.  Therefore the assignment of responsibility to change the status is placed upon the EU.

The U.S. will fully support the EU effort, but as seen in the withdrawal from the Iran Deal, the U.S. will not enable growth of toxic behavior.  The U.S. stands with the people of Iran, but the U.S. will not support the enabling of Iranian oppression, terrorism and/or dangerous military expansion that will ultimately destabilize the region.  Trump holds the EU accountable for influencing change.   Again, we see the Trump Doctrine at work.

Perhaps the most obvious application of the Trump Doctrine is found in how the U.S. administration approached the challenging behavior of North Korea.   Rather than continuing a decades-long policy of ignoring the influence of China, President Trump directly assigned primary responsibility for a reset to Beijing.

China held, and holds, all influence upon North Korea and has long-treated the DPRK as a proxy province to do the bidding of Beijing’s communist old guard.  By directly confronting the influence agent, and admitting openly for the world to see (albeit with jaw-dropping tactical sanction diplomacy) President Trump positioned the U.S. to support a peace objective on the entire Korean peninsula and simultaneously forced China to openly display their closely-guarded influence.

While the Red Dragon -vs- Panda influence dynamic is still ongoing, the benefit of this new and strategic approach has brought the possibility of peace closer than ever in recent history.

No longer is it outlandish to think of North Korea joining with the rest of the world in achieving a better quality of life for its people.

Not only is President Trump openly sharing a willingness to engage in a new and dynamic future for North Korea, but his approach is removing the toxic influences that have held down the possibility for generations.  By leveraging China (through economics) to stop manipulating North Korea, President Trump is opening up a door of possibilities for the North Korean people. This is what I mean when I say Trump is providing North Korea with an opportunity to create an authentic version of itself.

What ultimately comes from the opportunity President Trump has constructed is entirely unknown.  However, the opportunity itself is stunning progress creating a reasonable pathway to prosperity for the North Korean people.   Chairman Kim Jong-un has the opportunity to be the most trans-formative leader within Asia in generations; but it is still only an ‘opportunity’.

The commonality in all of these foreign policy engagements is the strategic placement of responsibility upon the primary influence agent; and a clear understanding upon those nation(s) of influence, that all forward efforts must ultimately provide positive results for people impacted who lack the ability to create positive influence themselves.

One of the reasons President Trump is able to take this approach is specifically because he is beholden to no outside influence himself. It is only from the position of complete independence that accurate assignments based on the underlying truth can be made.

A U.S. foreign policy that provides the opportunity for fully-realized national authenticity is a paradigm shift amid a world that has grown accustomed to corrupt globalists, bankers and financial elites who have established a business model by dictating terms to national leaders they control and influence.

When you take the influence of corporate/financial brokers out of foreign policy, all of a sudden those global influence peddlers are worthless. Absent of their ability to provide any benefit, nations no longer purchase these brokered services.

As soon as influence brokers are dispatched, national politicians become accountable to the voices of their citizens. When representing the voices of citizens becomes the primary political driver of national policy, the authentic image of the nation is allowed to surface.

….And that my friends is why Senator John McCain hated President Trump.

Prime Minister Justin Trudeau speaks Friday, August 31, 2018 about the Canadian perspective on trade negotiations with the U.S. – Everything about the Canadian position is framed through the prism of politics not economics. Virtue signalling is the primary tactic.

Trudeau and Foreign Minister Chrystia Freeland are in a tenuous position, they cannot accept the terms of the U.S-Mexico deal because they cannot afford to drop the protections and carve-outs within their highly controlled and subsidized economy. Canada would have to: drop telecommunications and banking barriers; drop protectionist tariffs on Dairy and agricultural products; and drop subsidies for the lumber and aeronautics industry.