world

Trudeau indicates he will not bend on key NAFTA demands at talks

2 Comments

The requested article has expired, and is no longer available. Any related articles, and user comments are shown below.

© (c) Copyright Thomson Reuters 2018.

©2024 GPlusMedia Inc.

2 Comments
Login to comment

The global capital markets across various assets have been overall flat or neutral where the global money flows are going to be traded and invested in with this NAFTA drama in the last few months. Finally here we are and looking more clearer and clearer by the day. As a full time personal, private institutional macro fundamental investor and technical intrinsic value-based trader like me who trades and invest 7-9 USD figure voluminous transactions through Forex futures & spot, options, bonds, stock indexes, ETFs, commodities, precious metals, cryptocurrencies and real estate, it's been a challenge tracking this deal due the fact that it's been politicized by Canada's leaders more so than handling it like a business. Global money outflows and big institutional players like myself hate politics more than anything when it relates to trading and investing especially for short to medium term participants.

Anyway, it will be doubtful for PM Trudeau to join in a 3-way deal based on his current political needs viewpoint rather than economic perspective. More importantly is dealing with issues of the adverse trade arrangements that Canada has included the reservation of 1) non regulatory barriers in telecom/banking sectors, 2) protectionist tariffs in the dairy areas and 3) in aggregation with subsidies of the lumber as well as aeronautics sectors.

As someone who has a business and economic background, when it comes to trade and commerce I always look at the structural baselines to have a better bird's eye view and understanding of underlying issues. So let's take a look at this way... since it's trilateral party type of engagement, I would take the Mex-Merica agreement out of the equation during the CAN-US discussions. You see the problem now becomes easier to see.

On the subject matters at the heart of the Trudeau/Freeland's trade priorities, any regression and backsliding from the present trade affiliation with Merica is a sure, big deal loss. Pres. Trump in conventional terms, desiderates the expulsion of subsidies, tariffs and non-tariff barriers if Canada wants to trade with Merica. The whole point of this is that Trump is yearning to actually form a trilateral trade bloc if Canada agrees to join. Or if not, then go to a bilateral accord basing it on virtually similar principles of an actual trade bloc applications.

Here is Pres. Trump's play... He could propose to get rid of the existing aluminum and steel tariffs as long as Trudeau concurs to significantly curb on imported aluminum/steel from China. But this proposition is a long shot from materializing for Freeland/Trudeau to agree to the most difficult terms to compromise regarding the "rules of origin" trade issue (a.k.a. the infamous NAFTA loophole). Why? Justine plays hard ball on this because (and this is big) Canada's heavy industrial base is almost non-existent and gradually dying which is an integral part of a nation's economic foundation especially for exporting countries.

You see, on the other side Mexican Pres. elect senior Obrador, in one of his campaign promise to his citizens, needs to develop heavy industry for Mexico's economic expansion plans in order to engineer a genuine manufacturing industrial base. AMLO as they call him in Mexico, smartly sees energy resource creation as financial collateral favoring achievement of authentic heavy manufacturing investment in Mexico. And you know, he's absolutely correct in that line of thinking.

On the contrary, PM Justine Trudeau is demonstrating wholly a different set of economic engagements. He is showing no signals of trying to reestablish the heavy industry in Canada but instead gradually eliminating that sector at the injunction of his liberal environmental policy. Without a heavy manufacturing industrial sector, the country essentially has to maintain their import of component products (constructed from heavy manufacturing base) and frankly compile those parts in Canada. China and Merica are their main suppliers for Canadian component parts. A limited industrial base impedes Justine from agreeing to any rules of origin (a.ka.a. NAFTA loophole - backdoor approach) that could indispensably limit their economy.

In order for Trudeau to structure a fair, reciprocal and transparent trade connection with Merica with similar groundwork of manufacturing priorities Mex-US accord applications, Canada will have to fundamentally overturn decades over decades of trade and internal regulatory as well economic policies. Or, if Trudeau does not prefer this path, Canada would have impose some type of limitations to their Asian purchases and instead us the Mex and/or Merica as their component parts origination supplier. Hopefully Trudeau/Freeland understand this because this is elementary industrial economics 101.

Another perspective to look at if you take away the Mex-US accord equation away from any reassessment of a potential Can-US agreement, what I can clearly see in a bilateral negotiation of trade between Canada and Merica is that Trudeau and his government already eats two-thirds of the pie in current NAFTA terms. Any move to make the pie (trade engagement) more proportionate in a bilateral compromise (50/50) implies that Trudeau will have to relinquish some of that pie. This is a big dilemma for the Freeland/Trudeau team because they currently don't have means of internal economic policy to renounce.

In the last few months, Chrystia and Justine saying (to save face) all the deals they are trying to take on is for protecting their nation's value and to protect also the Canadian workers. But I don't buy this BS, I can see through Trudeau's political needs viewpoint instead of an economic perspective. What they are really stating is Canadian gov wants to protect their telecom and banking sectors from outside competition by retaining all the protectionist barriers. Of course, they also want to retain their aeronautics as well as lumber industry subsidies and additionally protectionist dairy as well. Last but not the least is to keep the NAFTA loophole going by keeping Canada's present manufacturing and assembly mechanism of durable goods without the nettlesome environmental/industrial objections from constructing the components of those products.

Pres. Trump's economic objective angle sees the challenge this way... it's much easier by far to acknowledge the Trudeau's position and make independent move the will cut a quarter slice of the pie. Meaning Trump's strategy will just place a 20 percent to 25% tariff on Canada's automobile manufacturing sector which forces these automobile corps to relocate back to Merica. To close the NAFTA backdoor approach in order to shutdown the 3rd party exploitation loophole, Trump and his economic team will institute a duty on any imported durable good that go beyond an established percentage of North American content.

This is why most pundits about Trump's auto-tariff strategy are totally misunderstood. It's not POTUS ulterior motive to banish the auto-manufacturing per se, but rather that Trump has long recognized Trudeau/Freeland dynamic duo's priorities are as they exist. Lighthizer, Trumps negotiator, understands the issues well at its general and root cause. This is the most simple but very logical solution to approach in Trump's economic perspective.

To put it simply, bottom line is 1/4 slice of the pie will transpose back to Merica by putting 25% tariffs on all Canadian autos.

Done.

This way Trudeau can keep his priorities intact and he can manipulatively go tell their constituents tha he is preserving the values of Canada's citizens.

See how this works?

1 ( +1 / -0 )

Justin had better get with the program soon and hammer out a deal with the U.S. like the Mexicans did.

-1 ( +0 / -1 )

Login to leave a comment

Facebook users

Use your Facebook account to login or register with JapanToday. By doing so, you will also receive an email inviting you to receive our news alerts.

Facebook Connect

Login with your JapanToday account

User registration

Articles, Offers & Useful Resources

A mix of what's trending on our other sites