Trade: A Wild, Weird Week in Washington
February 06, 2017 7:54 PM
It has been a challenging week for anyone involved in cross border trade.
First was the executive order removing the U.S. from the TPP. It left the remaining countries talking among themselves about doing the deal anyway, without the U.S. They may invite Indonesia and China, making this the biggest of all trade agreements that the U.S. has self- excluded itself from.
The U.S. is expected to pursue bilateral trade agreements, and the U.K. is a likely suitor. Trouble is the economic value can be small compared with TPP, and negotiations can't commence until post Brexit, a minimum of two years from now.
Japan could be another bilateral agreement partner, but it was hard enough for Japan to forge internal consensus on TPP, especially with its entrenched agricultural lobby. Part of the attraction of TPP was access to all of the partner markets on terms painstakingly negotiated over years. Japan is also wary of the new American administration's mixed messages on preserving security alliances in the Asia Pacific region. Any move to alter these arrangements, for example by insisting Japan pay more for the American military presence, may negatively affect Japan's appetite for a trade deal.
In North America, Mexico continues to be a reluctant piñata, threatened with paying for a wall that it doesn't want and facing punitive tariffs on its exports if it refuses to come up with the money. As it is, every threat from the White House causes the peso to fall more. The prospect of a trade war is truly frightening, not only for Mexicans who have become major consumers of U.S. natural gas, refined petroleum products, and high value auto parts, but for U.S. businesses of all sizes who have become important cogs in a complex supply chain that is mutually beneficial.
For example, economists estimate that every dollar of goods imported to the U.S. from Mexico contains 40 cents worth of U.S.-made components. Likewise, Mexico re-exports many goods with U.S. components to the 40 countries it has free trade agreements, generating sales to places that the U.S. suppliers would never have on their own.
NAFTA may not be perfect. As one of the oldest agreements the U.S. has some aspects need a refresh, and both Mexico and Canada have signaled a willingness to negotiate improvements. This would enable President Trump to fulfill a campaign promise to get a better deal. If he goes further, the damage could be extreme.
No wonder the Mexican President Porfirio Diaz said back in the last century: "Poor Mexico. So far from God, so close to the United States."
The U.S. is in the early stages of a national self-examination of its decades-long dedication to the free movement of goods and people. It is one of those historical clarifying moments that no one saw coming. Will the outcome be, as Lincoln said, part of the perpetual "rebirth of freedom"?
Or will it be something that the founders never anticipated?
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