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The NAFTA renewal game
E. Ablorh-Odjidja
August 28, 2018
How come Trump, under all these
attacks, is still capable of winning on the revised NAFTA agreement with
Mexico?
The just-completed NAFTA ( now to
be known as USMCA) agreement forces us to reexamine the man and his
game.
Remember Trump was going to build
the wall. And he still claims Mexico will pay for it?
Mexico was hugely offended and
people opined that a good relationship between the countries had been
dealt a death blow. Besides,
was Mexico going to pay cash for the wall to be built?
Well, the wall is being built.
No hard cash was directly paid by Mexico, only if you would
excuse the tariff in trade adjustment that has been made to favor the
US. But now, Mexico is an
ally with Trump for this NAFTA renewal proposal.
Notice the game being played at
this stage and you can guess the odd men out - China and Canada.
The question is how difficult it
will be for China and Canada to resist Trump now.
They both have their trade and tariff issues with Trump, as did
Mexico before the proposal.
Mexico just found out that
resistance with NAFTA renewal is futile, with Trump at his game.
You will say, China was not part
of the old NAFTA, so the new arrangement will not affect her. Really?
Wait till the end of the game.
The mechanics of the game being
played allows Trump the pick three conquered pieces at the end of the
trade/tariff war game. In this case against Mexico, Canada and China.
Mexico is already a pick off the
board. I predict that the next easy piece is Canada, then China follows.
Canada may have gone down
already. But we will still have to wait for a little while, as we do in
a very fluid game.
But China, believe it or not, is
the principal target of this particular game.
The end is to bring her to heel on tariffs.
Mexico and Canada are the bit
pieces now, but congenitally beneficial to the US as decoys.
The NAFTA renewal effort, in case
we have forgotten, is about tariffs; this being the key among Trump’s
relational objectives on trade with the rest of the countries in the
world.
With Mexico, building the wall is
to put it on the back heel. But
there is no bigger tariff fight out there for Trump than the one with
China now.
Trump has observed that China has
been cheating the US on trade and its related tariff issues for a long
time.
His concerns are about trade
imbalances, intellectual property abuses, and forced technology
transfers – all of which for decades have gone mostly to benefit China,
at the expense of the US in a so-called free-trade relationship.
Trump wants a change in this
relationship; to allow the imbalances removed to the benefit of the US.
And, at least, to make it a fair and full free trade, as he calls his
objective.
So, it is for this Trump
objective that the USMCA, as a replacement for NAFTA, has been proposed
at this stage of the game.
With the NAFTA/Mexico overhaul
part in the bag, Trump is ready to take on China.
Canada compared to China, as said, is still a bit player in this
game.
The game is in motion and Trump
is willing to play hardball with China, to force her to abandon her
unfair trade practices with the US. The Mexico accomplishment gives
Trump the leverage to do so.
The new agreement proposes:
“Under the new agreement,
automobile companies would be required to manufacture at least
three-fourths of a car’s value in North America to qualify for zero
tariffs. This is a 12.5 percent increase from prevailing NAFTA rules,
and renegotiated rules would require that a portion of the car must be
assembled by workers earning at least $16 an hour.
"This is described as a concession
by Mexico to avoid getting an advantage with its more frugal pay for
workers,” writes Wesley Pruden of Washington Times.
In this agreement is the leverage
against China. Mexico and
Canada are two countries that have seen rivalries with China in the
“automotive parts” exports to the US market.
China has so far had the
advantage in manufacturing cheap auto parts.
This has bought her the relatively larger market share in auto
part imports that she enjoys in the US.
The new agreement forces more
manufacturing between the NAFTA/USMCA partners.
With this, China will see her market share potential in the US
reduced. It effectively
places a barrier in auto trade between China and the three North
American countries.
Canada has yet to buy into the
new NAFTA/USMC arrangement, but it will be hard for her to avoid the
bait. She is likely to join soon.
For the US a completed NAFTA/USMC
overhaul will mean the following:
The arrangement will allow the US
to reduce its trade imbalance with Mexico.
Not to mention that the amount
accrued will go to pay for the new border wall, even though Mexico will
refuse to admit that she is helping to pay for the wall.
The $16 an hour provision for
workers in the auto industry in Mexico also helps the US.
It reduces differential labor
costs in the US and Mexico auto industry.
Provides good pay for affected factory workers in Mexico and thus
curtails the need for some Mexicans to want to migrate to the US.
Meanwhile, the balance in labor
cost, produced by the new NAFTA/USMCA, further impacts positively the US
auto manufacturing industry, since job exports to Mexico will be
reduced.
More auto manufacturing jobs will
return to the US from places like Mexico and Canada because of near
parity in labor costs. And the US
companies manufacturing parts in China will be forced by new tariff
imposition to relocate their factories in North America.
The prevailing political wisdom
before Trump, as opined by Obama, was that jobs lost to places like
China “are not coming back.” But
watch how China squirms under the new tariff squeeze as the jobs start
flowing back into the US.
Canada is not in yet.
But I believe that the new NAFTA/USMCA conditions will also put
Canada on the back foot.
She has no choice but to join.
Canada will join she will not
want to lose market share in the US to Mexico.
Nor would she like to miss the windfall provided by the return of
manufacturing jobs to North America, caused by the push on China.
But just like Mexico, Canada will
have to pay a little price in concessions too. She will have to lower
her own astronomically high tariff on imports of US farm products.
Finally, China, the king piece in
the game will fall.
The new USMCA agreement will
force China to come to terms with Trump’s call for a new tariff
arrangement - based on free and fair trade and at the bilateral level.
And no more open-door policies for trade tariffs that do not
favor the US. Game over.
E. Ablorh-Odjidja, Publisher
www.ghanadot.com, Washington, DC,
August 28, 2018
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