Critical Update – Critical Update – Critical Update

Those who are watching the NAFTA negotiations must pay close attention to the activity in the past 36 hours.  There is a key video at the bottom.  First the backdrop:

As most are aware the NAFTA fatal flaw, the “loophole”, surrounds Mexico and Canada structuring their economic manufacturing policy -and trade deals- through the exploitation of a back-door into the U.S. Market. Understanding this key issue is paramount to understanding President Trump’s approach therein.

Remove the NAFTA “loophole” and there is no longer an incentive for U.S. manufacturers to locate their operations in Mexico or Canada. However, the removal of this loophole also means China, ASEAN nations and the EU lose the same incentive.

There have been hundreds of billions of previous investment by multinational corporations in Mexico and Canada.  Every dollar spent was intended to continue this exploitation.

Then came Trump.

In terms of investment size and scale of manufacturing, the auto-sector is perhaps the primary industry attempting to position themselves to avoid any reversal of the NAFTA scheme; and it is a self-interested economic scheme. In the short term there are billions at stake; in the longer term there are trillions within the equation.

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NAFTA is at a critical stage.  Mexico has committed themselves to a full-court press this week in an effort to retain the investment influx from multinational corporations.  To retain their advantage, Mexico needs to keep the NAFTA loophole allowing Asia and EU to use Mexico and Canada as back-doors to the U.S. market.

Additionally, AM-LO, a self-described soft-Marxist (similar to Hugo Chavez) is likely to win the July 1st Mexican election.   Yesterday, Mexican Foreign Secretary Luis Videgaray travels down the street to the State Department for a meeting with Secretary Pompeo. From the U.S. perspective, anything from Secretary Videgaray is essentially moot at this point; the Mexican government is moving toward a more socialistic economic model.

[Transcript] SECRETARY POMPEO: Good afternoon. Today it is my pleasure and a great honor to welcome the Mexican Foreign Secretary Luis Videgaray to the State Department. Welcome.

We had a great discussion and we had so because Mexico is one of the United States’ closest partners. Together we are working to build a more secure, prosperous, and democratic hemisphere. We are neighbors, allies, and friends.

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There is a geopolitical strategy happening this week that is essentially under the radar.

U.S. Treasury Secretary Steven Mnuchin, USTR Robert Lighthizer, Economic Council Chairman Larry Kudlow, and the U.S. trade team are heading to China.

The outcome of their discussions connects the initiatives behind North Korea, China and NAFTA.  The steel and aluminum tariffs are part of the toolbox.  Only one media personality, our favorite suspicious cat, appears to understand the larger economic play and how it is being deployed.

From the U.S. perspective, NAFTA has a fatal flaw. Mexico and Canada admitted the flaw for the first time a few weeks ago. The flaw is Mexico and Canada’s exploitation of NAFTA as a backdoor into the U.S. market for Asian, mostly Chinese, manufactured products. Multinational corporations who have invested in Canada and Mexico are determined to retain the flaw.

President Trump understands that as long as Canada and Mexico can unilaterally make trade agreements with the EU and ASEAN nations, any NAFTA agreement between the U.S., Canada and Mexico is moot. The NAFTA talks are paused.

The U.S. Team now heads to China. There’s no doubt part of the objective is to begin a structural discussion that must happen for the U.S. trade team to approach closing the fatal NAFTA flaw from the source of origin. [*note* on the EU side of this issue, Commerce Secretary Wilbur Ross is leading a similar discussion. Mnuchin and Lighthizer are focused on Asia, Ross has responsibility for Europe]

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U.S. Trade Representative Robert Lighthizer and the trade ministers from Canada and Mexico are not in Washington DC this weekend; however the trade staff from all three nations stayed in DC working to finalize agreement on NAFTA with increased urgency.

The nation pushing hardest to complete an agreement quickly is Mexico.  The Mexican national election is July 1st and the soft-Marxist Andres Manuel Lopez Obrador (AM LO) has increased his lead.  AM LO is now 22 points ahead of his next closest competitor. Lopez Obrador, a self-described Hugo Chavez ideologue, is guaranteed to win – and Mexico will become Venezuela 2.0 within five years.

The looming Mexican election, and the radical political departure therein, means if a deal is not made soon, there will be no deal.

Andres Manuel Lopez Obrador will likely nationalize large segments of the Mexican economy for more progressive wealth distribution…. Enter, quickly, and with a transparency in their desperation, the multinational corporations who have already invested hundreds of billions into Mexican ports, transportation infrastructure, raw material procurement contracts, manufacturing/processing and assembly facilities, and all around exploitation of NAFTA as a tariff-free, profit-driven, back-door to the U.S market…

Yes, as oft repeated, there are trillions at stake.

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Trade Representatives from Canada, Mexico and the U.S. are in the deepest weeds within NAFTA negotiations, and some of the current proposals are flat out nuts.

Within the auto-sector the “Rules of Origin” continue to be one of the biggest sticking points.  The U.S. position is that 80% or more of a vehicle made in the U.S., Mexico or Canada should be made from parts from the U.S., Mexico or Canada, ie. North America.  Canada and Mexico are trying to argue for lower North American content because they want more Asian/Chinese parts in American automobiles. [Reuters Link]

On its face their position is ridiculous.  Canada and Mexico are not arguing for more Canadian and Mexican content; they are arguing for more Chinese content.  The U.S. is arguing for more North American content.  Canada and Mexico want to support China’s economy; the U.S. wants to support Canada, Mexico and the U.S. economy.   Let that sink in for a moment.

In an effort to enhance their ridiculous position, Canada and Mexico have come up with a proposal that is, well, bananas. Can/Mex want the United States to tax vehicles made in Canada and Mexico.  Stop. Re-read that.  Yes, that is correct.  Canada and Mexico want Chinese parts so badly, they are arguing for the U.S. to tax American (NAFTA) automobiles.

Nuts.

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Allow me to introduce:”SUPER-MAGA-NAFTA-WINNING“

This Reuters article is framed around Mexico making a surprise announcement they will support the U.S. steel tariff against China by shutting down the NAFTA back door on that specific trade segment….  However, the bigger story is Mexico’s admission/concession to the U.S. trade position that Canada and Mexico structure access to the U.S. market inside their trade deals with other nations.

With a Marxist about to win the July 1st election; and with certain nationalization of private industry soon to follow; and with free capital markets anticipating and responding by shifting investment into the U.S.; Mexico proposes to close the fatal flaw in NAFTA.

MEXICO CITY (Reuters) – The ministers leading the renegotiation of the North American Free Trade Agreement (NAFTA) could meet again on Thursday in Washington as they push for quick progress, Mexican Economy Minister Ildefonso Guajardo said on Monday.

Guajardo said he had spoken to Canadian Foreign Minister Chrystia Freeland on Monday and would talk to U.S. Trade Representative Robert Lighthizer on Tuesday to see about agreeing a trilateral meeting in Washington on Thursday.

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The next president of Mexico, Andres Manuel Lopez Obrador, or “AM LO” as he is known locally, is a well known Marxist.  AM LO is virtually certain to be the winner of the July 1st Mexican election.  The U.S. will have a Hugo Chavez ideologue at our southern border.

Today, front-runner AM LO told an audience in Rosarito (Baja California peninsula) that President Trump’s bad experiences investing in Mexico, and encountering corrupt officials throughout government, were likely the reason for his negative view of the country.

“[Trump] invested here in Rosarito and also in Cozumel, Quintana Roo, and because of Mexico’s corrupt governments he had to leave,” Lopez Obrador said. “That’s why he got a bad impression of our country.”  (Reuters link)

AM LO went on to say his national government would eliminate the decades-long corruption within government and the judicial system.  Keep eyes-wide-open; once in office AM LO will likely repeat Chavez/Maduro and remove blocks to his agenda including legislative opposition, elections and eventually term limits.

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The Eagle and the Arrow – An Aesop’s Fable

An Eagle was soaring through the air. Suddenly it heard the whizz of an Arrow, and felt the dart pierce its breast. Slowly it fluttered down to earth. Its lifeblood pouring out. Looking at the Arrow with which it had been shot, the Eagle realized that the deadly shaft had been feathered with one of its own plumes.

Moral: We often give our enemies the means for our own destruction.

The United States economy is the Eagle; the shaft is Wall Street; the feather is the U.S. middle-class, and the archer is U.S. Chamber of Commerce President Tom Donohue.

Need proof?  Please, don’t take my word for it, read:

Tom Donohue: Tonight feels like a gathering of old friends. Five years ago, I had the pleasure of being in this beautiful city to help start a hemispheric business dialogue, and I’m pleased to be back in Lima for this year’s CEO Summit of the Americas.

[…] I also want to talk a little about the priorities within our government. Because, as everyone knows, many of the policy decisions coming out of Washington today not only impact the U.S. economy and its businesses and workers, but indeed those across this hemisphere and around the world.

[…] The Chamber has helped lead the fight to protect the status of more than one million people who are at risk of deportation. It makes no sense to send one million talented workers back to their home countries when we don’t have enough labor to get the job done in our own. This includes the young men and women who were brought to our country as children through no fault of their own—known as “the Dreamers”—as well as hundreds of thousands of individuals who are working in the U.S. under temporary protected status.

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After three days of discussions between U.S Trade Representative Robert Lighthizer, Canadian Foreign Minister Chrystia Freeland and Mexican Economy Minister Ildefonso Guajardo they were not able to develop any consensus on the major issues within the North American Free Trade Agreement, NAFTA.

The likely outcome of the upcoming Mexican national election on July 1st brought the principals together for non-scheduled talks, as U.S. President Trump instructed Ambassador Lighthizer to explore whether the three nations could find common ground on the ‘big picture’ issues behind the largest schism.  The auto sector and rules of origin is the epicenter of the biggest difference between the U.S., Mexico and Canada.

The U.S. auto-sector NAFTA position is that North American content of vehicles made in NAFTA countries be increased to 85 percent from 62.5 percent.  The Canadian and Mexican position is for lower North American content.

Canada is not arguing for higher Canadian content.  Mexico is not arguing for higher Mexican content… Instead both Canada and Mexico are arguing for higher imported content (China and Asia).  Honestly, I cannot fathom why more people don’t see the inherent ridiculousness of NAFTA against the reality of Canada and Mexico arguing for more Chinese imports.

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President Trump delivers the weekly address on April 7th, 2018, on the subject of border security and the latest laws passed by the state of California that undermine U.S. federal immigration laws.

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