Who Will Trust America After This?
Who Will Trust America After This? by Bill Bonner – Bonner and Partners
GUALFIN, ARGENTINA – We pick up where we left off yesterday.
The big winner from the new North American Free Trade Agreement (NAFTA) deal, now called the U.S.-Mexico-Canada Agreement (USMCA), is the Swamp.
Here’s Jeffrey J. Schott of the Peterson Institute for International Economics with the details:
[The deal] adds layer upon layer of costly new regulations that producers must follow to qualify for NAFTA’s low tariffs – layers virtually certain to drive up costs of autos for consumers and very likely reduce U.S. jobs in the auto sector. Very simply, the pact is intentionally designed to mismanage the auto sector, an important driver of production and high-wage manufacturing employment in all three countries.
The best trade deal is no trade deal at all. Get the feds out of the way; let people make whatever deals they want.
This is especially easy and obvious in countries such as the U.S. and Canada, where living standards, wages, language, environmental regulations, and other related rules are very similar.
Canada and the U.S. could trade as freely as New York and Alabama.
Dripping in Swamp Water
But that would cut out the swamp critters. They make their money by interfering in free trade, not by facilitating it.
And now, with the new NAFTA, dripping with greasy swamp water, they have a lot more room to maneuver. The Trump team gave them a crony trade deal where what you get depends largely on how much you pay your lobbyists.
Based on analysis by the Peterson Institute for International Economics (PIIE), the new content rules and minimum wage requirements will likely lead to a less competitive North American auto industry with less investment in U.S. plants and fewer U.S. jobs in the sector – just the opposite of the claims of U.S. officials. The new rules require that 75 percent of a car or truck have content made in North America to qualify for tariff-free imports, up from the current level of 62.5 percent.
In addition, 70 percent of steel and aluminum must be produced in North America, and 40 percent of a car or truck would have to be made by workers earning at least $16 per hour, presumably to discourage companies from moving assembly operations to Mexico. Producers of passenger cars must either comply with the new rules or forgo the regional tariff preference.
This will likely be their choice, since, in that case, they can use components from any country and simply pay the low most favored nation (MFN) tariff of 2.5 percent instead of rejiggering their supply chains. But truck producers don’t have that relatively cheap escape hatch: The U.S. MFN tariff on trucks is 25 percent.
There’s plenty of room for interpretation, in other words. And dangling sinecures, speaking fees, consulting deals, and who knows what else… the anglers are bound to help policymakers see it their way.
That’s the way the Swamp works.