“It’s been very, very bad for our companies and for our workers, and we’re going to make some very big changes or we are going to get rid of NAFTA once and for all,” President Donald Trump said in a speech last week.
Today, White House readies order on withdrawing from NAFTA.
The Trump administration is considering an executive order on withdrawing the U.S. from NAFTA, according to two White House officials.
A draft order has been submitted for the final stages of review and could be unveiled late this week or early next week, the officials said. The effort, which still could change in the coming days as more officials weigh in, would indicate the administration’s intent to withdraw from the sweeping pact by triggering the timeline set forth in the deal.
Peter Navarro, the head of Trump’s National Trade Council, drafted the executive order in close cooperation with White House chief strategist Steve Bannon. The executive order was submitted this week to the staff secretary for the final stages of review, according to one of the White House officials.
The draft executive order could be a hardball negotiating tactic designed to bring Mexico and Canada to the table to renegotiate NAFTA. But once Trump sets the withdrawal process in motion, the prospects for the U.S. pulling out of one of the largest trade deals on the globe become very real.
Some internally see the drafting of the executive order as a win for the “nationalist” faction within the White House led by Bannon, who has been sidelined in recent weeks since he was removed from the National Security Council.
NAFTA Running Out of Time
CNNMoney reports Trump’s NAFTA is Already Running Out of Time
President Trump wants a new trade deal with Mexico and Canada soon. But he’s running out of time.
Trump has said he wants a deal that benefits US workers, but hasn’t said exactly what he wants in a new deal.
If Trump decides to stay in and renegotiate, time isn’t on his side.His trade team, led by Commerce Secretary Wilbur Ross, must trigger a 90-day consultation period before trade talks can begin. At the earliest, talks could start in August.
Edward Alden, a senior fellow at the Council on Foreign Relations, said “it’s completely unrealistic” to get a deal done this year.
“The notion that you’re going to have a negotiation that’s both fast and productive is just an illusion,” Alden added.
It’s also worth noting that the original NAFTA agreement, which became law in 1994, took years to put together.Mexican leaders want negotiations done by early 2018 because Mexico has presidential elections in July of next year. There’s no telling whether the next Mexican president will cooperate with Trump on NAFTA.
Very Bad Idea
Killing NAFTA is a terrible idea. I have talked about this before but here are some pictures of the allegedly “terrible trade deal”
Manufacturing Employment
Trump and Navarro moan about NAFTA causing a loss of US manufacturing jobs. If anything, NAFTA stabilized or increased US manufacturing jobs for six or seven years thanks to an increase in bilateral trade.
The demise of US manufacturing jobs started in June of 1979, long before anyone could blame either Mexico or China.
US Balance of Trade in Goods with Mexico
Goods Trade with Mexico
It’s impossible to make a realistic case that NAFTA hurt the US.
Explaining Balance of Trade
The seeds of trade imbalances were sewn in 1971 when Nixon closed the gold window. The trade deficit rose, then skyrocketed.
Total Credit Market Debt Owed
Following Nixon closing the gold window on August 15, 1971, credit soared out of sight to the benefit of the banks, CEOs, the already wealthy, and the politically connected.
Scapegoating
- Trump blames Mexico and China.
- Larry Summers blames “Secular Stagnation”.
- Ben Bernanke blames a “Savings Glut”.
Scapegoating Mexico and China helped get Trump elected. Scapegoating also allows the Fed and central banks to blame anything and everything but lack of a gold standard.
“Our Currency but Your Problem”
The source of global trading imbalances, soaring debt, declining real wages, and the massive rise of the 1% at the expense of the bottom 90% is Nixon closing the gold window.
At that time, Nixon’s treasury secretary John Connally famously told a group of European finance ministers worried about the export of American inflation that the “dollar is our currency, but your problem.”
Balance of trade issues, soaring debt, declining real wages, and the demise of the US middle class are now our problem.
Before doing something stupid, Trump should take a look at this chart.
Ready, Willing, Able
So far, Trump has backed away, reversed positions, or failed in nearly everything he has tried to do or stood for in the election: Russia policy, Syria, getting Mexico to pay for a wall, and labeling China a currency manipulator are key examples.
Perhaps this is another negotiation ploy, but Trump fired a warning shot yesterday that he is ready, willing, and able to do something majorly stupid.
For details, please see Lumber Trade Idiocy: Trump Hits Canada with Proposed 20% Tariff on Lumber.
Mike “Mish” Shedlock
I’m not a globalist. I believe that those we elect to office should do what is best of OUR CITIZENS, and not prioritize the welfare of other nations over our own.
So I wholeheartedly AGREE with Trump on eliminating NAFTA – which has PROVEN to be an albatross tied around the neck of the US economy.
Even those who helped create NAFTA has concurred it has done damage to our own economy, while promoting economies of other nations (ie. Mexico).
We need to bring back PATRIOTISM to America. We have those in charge who are working to damage our best interests as opposed to promoting them.
Good for you, Donald Trump. But words mean nothing. WE WANT ACTION!! And until I SEE ACTION you stay in the damn doghouse!!!!
Agreed!
He he he….No NAFTA is a Good NAFTA! LOL
NAFTA is Flawed.
http://www.ronpaullibertyreport.com/archives/donald-trump-and-getting-out-of-nafta
Trump is flawed.
Trump is consistent. He is consistently an ignoramus.
He is going to use executive privilege to pull out of a treaty ratified by congress without any attempt at bilateral consultation with US trading partners.
This will be destructive for all parties involved. The idea that it will be replaced by a libertarian “free trade” rule one sentence long is delusional.
Countries set standard for labelling, compliance, and certification. Without agreements these act as import barriers. Brushing them aside would be tantamount to waiving national sovereignty.
I don’t think that withdrawing from NAFTA is stupid.
When a factory moves out in Mexico and pay less their worker the profit margin is captured by the “elite” and consumers dont see any price cut.
If price of a product goes down it is because the quality is also going down.
http://www.oftwominds.com/photos2017/wealth-distribution1-17.jpg
Well said!
A nice graph, but it undercuts your argument. The trend in income distributions was well underway almost two decades before NAFTA became operative. Thus, trade policies could not be determinative. More likely the causes are as Mish states, the closing of the gold window in 1971 and unlimited debt (fiat currency), after which the income distribution inequalities trend seen today emerges. If NAFTA is not the cause of income inequality, killing it cannot be a remedy. Trump would do well to put forth a list of treaty changes that he wants from Mexico and Canada.
It is as Mish say. During Volcker’s reign at the Fed, he did at least to some extent contain the excesses built into a complete lack of any limit on wanton wealth redistribution for the benefit of those closest to the central bank.
But aside from that littleinterlude, it has, predictably once the foxes are left in charge of the henhouse, been nothing at all beyond confiscation of the productive classes’ wealth, for the benefit of the those profiteering from asset pumping and debt growth.
Not sure how walking away from a Canadian free trade deal does the US any good. Mexico I can see, as their labor costs are so low the US can’t compete. But talk about throwing the baby out with the bath water.
Canada was already looking across the Pacific for markets to send its resources. Sending stuff south is convenient because it is so close but a 20% tariff and now a bunch more red tape with NAFTA gone is a game changer and who wants a highly unpredictable trading partner?
Trump makes China look good.
Next reduce taxes on the wealthy?
I guess the rich will need more money to buy their toys because if everything needs to be produced in the US that gets sold in the US, costs are going up especially when all the low cost domestic labour gets exported back to their own countries.
The remaining labor force in the US are for most part untrained and highly unproductive, oh and expensive. However they are very good at flipping burgers for minimum wage. You need a better trained workforce if you suddenly want to bring all of these manufacturing jobs back.. The people that used to know how to do this work have retired.
This guy is a complete failure so far. I wonder what else he can screw up?
Perhaps better not to ask. He never ceases to amaze.
If he tries, it too will fail in the courts. He needs congress to pass a law authorized withdrawal I would think.
A country’s fiscal deficit leads to a current account deficit. It is Econ 101.
Genuine Free Trade Agreement
A genuine free trade agreement would consist of a single statement: “Effective immediately, all tariffs and subsidies, on all goods and services, are removed.”
Unilateral free trade
“Mind Your Own Business and Set a Good Example.”
https://www.lewrockwell.com/2015/10/no_author/no-more-free-trade-treaties/
https://mises.org/blog/case-unilateral-free-trade
https://mises.org/blog/free-trade-versus-free-trade-agreements
https://mises.org/blog/two-common-objections-unilateral-free-trade
“It’s impossible to make a realistic case that NAFTA hurt the US.”
…
Not a fan of you using total current account balance to make your point.
With NAFTA you are talking about Mexico and Canada.
Trade deficit with Mexico
1994 … $1.35 billion
2016 … $63.19 billion
https://www.census.gov/foreign-trade/balance/c2010.html
Trade deficit with Canada
1994 … $13.9 billion
2016 … $11.2 billion
https://www.census.gov/foreign-trade/balance/c1220.html
BUT … .loonie started to gain strength mid 2000s (deficit in $70 billion range pre recession) so deficit started to pare back. Recently loonie has been weakening … deficit worsen?
Trade deficit with Mexico has steadily worsened due (in part) to ongoing peso weakness.
Do you reckon Americans would be shipping $60+ billion/year worth of gold to Mexico indefinitely, just because of NAFTA?
And, as Mish’ graph pointed out, prior to Nixon going full retard, the US didn’t run a net trade deficit with the world, period. Simply because running one is not sustainable absent free access to counterfeited money to make up for the shortfalls.
So, even if the US did manage to run a $65billion annual deficit with Mexico, it would have to be be made up for by a surplus with other trading partners, who would then run a surplus with Mexico. Such that it, in the end, evened out.
Hence, NAFTA has exactly zero to do with it. And complete detachment from any hard money, has exactly 100% to do with it.
100%, eh?
Tariffs played a key role here (at least attempt) to level the playing field.
NAFTA eliminated them.
Without the ability to print money, trade balances are forced to sum to zero over any kind of time. At the limit case, simply because there is no gold left in the deficit country to purchase anything with.
So, once proper money is adopted, what possible difference could tariffs make to the trade balance? You could put a trillion percent tariff on anything from Mexico, and all you end up doing, is having Mexican goods transshipped via Panama. With the trade balance changing all the way from from zero to zero.
Once you no longer have proper money, this self regulating mechanism no longer works, so yes, then tariffs may change things up.
Or, if you really want to be formal about it, even that is not strictly true: As long as you include dollars, and other “assets,” as goods, trade balances still sums to zero. The Mexicans produce cars we buy with dollars; “we” “produce” dollars they buy with cars.
And while that may be a somewhat unusual way of looking at it, it does nicely illustrate where the real problem lies: To produce a car, “Mexico” has to pay lots and lots of people a decent wage to incentivize them to do the required work. But to produce a dollar, American banksters don’t have to pay almost anyone anything. So they’re cutting non bankster Americans out of the loop, and just keeping the dollars themselves.
And that’s why non bankster Americans have been getting poorer and more marginalized since the 70s. Not because the government isn’t doing a good enough job meddling, to ensure the stuff people need to buy in stores, is more expensive.
“Without the ability to print money”
…
I have zero problem with currency exchange rate being set on the open market.
Not sure of your infatuation with the gold standard. When Nixon took the country off the gold standard it was $35 to the ounce. He could have just as easily kept country on the gold standard but set it at, say, $500 to the ounce or a $1000. Picking an arbitrary number out of the hat … just as $35 was picked. A (much) higher number would allow printing press to work 24-7, as well.
Personally, I think Nixon tying the $US to oil (petrodollar) was a stroke of genius (for that time period).
When Nixon took the country off the gold standard it was $35 to the ounce. He could have just as easily kept the country on the gold standard but set it at, say, $500 to the ounce or a $1000. Picking an arbitrary number out of the hat … just as $35 was picked. A (much) higher number would allow printing press to work 24-7, as well.
There should be no number period.
A dollar should represent a certain quantity of gold.
“Being set by the open market”, like anything involving an “open market”, requires freedom of both demand AND supply. Let anyone who can print $20 bills for less that $20 do so, and you’ll have an open market in paper money.
While banning anyone aside from a state owned outfit of “we are special”‘s from producing anything, whether cars or money, is specifically NOT an “open market.”
If we did have an “open market” for currencies, the currency that people would end up using and saving in, would have the property that it’s production is expensive enough that it’s supply is fairly predictable, and do es not favor any one party. Which is why God created gold. And Nakamoto Bitcoin. Anyone can mine either, and the price is set by the resulting supply and demand. Just as any good for which there is an “open market.”
good now slap an 80 no 90 no 100% tariff on all Chinese and Mexican crap,collapse their economy overnite lol
what possible difference could that make? they’re simply taking our worthless paper in exchange for all that cheap junk,muricans really getting that crap for free
I was in the apparel industry as a senior exec. It took the entire period of the Bill Clinton administration to sell the country on “comparative advantage” and Bill Clinton did a good job of it and the rapid decline of manufacturing jobs after his regime is evidence of it as the chart shows. But I have proof.
Our CEO contributed a hundred thousand to Clinton directly and indirectly to get a audience with him. Towards the end at a fund raiser, while Clinton never ever spoke to him, Al Gore came up to him and said, “Look Jerry, I know you really want us to entertain creating enterprise zones in cities for apparel manufacturers, but we are going to let that industry go like was done with fabric manufacturers. The future for America is in the creative industries.” By that he meant the internet. By the way, China once mocked the US for whining about losing industry to China because of our reliance on “creative industries”, which didn’t work out as planned. Sorry, I can’t site the source but I remember it well.
This isn’t comparative advantage. Moving our factories to other countries to sell the products back to the US is not comparative advantage. Comparative advantage is when you open up trade selling your more desired goods to a country that in turns gets to sell back its most desired goods.
This was a deliberate effort to increase corporate profits. When we caved in and went to Mexico our profits increase. When we abandoned Mexico for China our profit margin skyrocketed and we laughed all the way to the bank when we were not crying for all the people we laid. off.
I may lean libertarian but this was state corporatism and I am against it.
“This isn’t comparative advantage. Moving our factories to other countries to sell the products back to the US is not comparative advantage. Comparative advantage is when you open up trade selling your more desired goods to a country that in turns gets to sell back its most desired goods.”
Wrong. Imagine the world’s best lawyer is also the world’s fastest typist. He types his own briefs and bills his time at $500/hr for client work. Comparative advantage means he hires an average typist at $15/hr for 40 hours a week. Sure she takes 40 hours to type what used to take him 3 hours….but since he can bill $500/hr he now has 3 hours he can do billable client work which he gets $1500 for while spending only $600 on the typist. The lawyer, though, has essentially done exactly what you said. He gave his ‘typing factory’ (i.e. the typewriter) to the typist to do the work that he buys back from her.
No, you describe division of labor.
NAFTA is “majorly stupid”, period!!!!!
Of course it is. It’s just that what the new Dimbulb in Chief want to replace it with; which is even more arbitrary restrictions than even NAFTA, is even majorlier stupider.
It’s not just wages but all the BS the federal government puts business through in order to have employees. They need to remove some of the wage and benefit protections that are forced on businesses so that they can stay and be more competitive. Penalizing a business because they can’t afford insane regulations won’t help anyone. Let’s start in DC and see what they can do to fix their side of the mess. States need to also reduce regulations in order to attract and keep businesses. Look at the states that businesses are running from like Illinois and California and going to states like Texas. You have to be brain dead not to consider it. One issue that would really help business if somehow we could bring back common law. Put everyone on equal footing in a civil suit and this would attract business from all over the world. Today, anyone can file a suit against anyone else without recourse. This needs to stop if we want to bring companies back to this country. I am an active importer and the companies I deal with force me to buy liability coverage for their manufactured products because our system is so F’ed up. This money could be used for expansion or more inventory, but is pissed away because our legal system is a mess.
I don’t like your logic. Everything was booming from 1993 to 2001. Nafta was eating away at America then but the boom times masked this fact. Then when the recession hit, the drain became evident.
Here’s my concern-the peso’s value bounces all over the place and this is nothing new. I lived in Mexico as a teen and again in the ’80s on business. The peso devalued daily. Just how does Mexico plan on paying for stuff-in pesos? If the tourist business and remittances cut back (as I hope they tax the remittances to pay for the wall) just where is the DF going to find dollars to pay? I am not an economist but this seems like common sense.
I cannot recall where I saw this, but subsidized corn imports from USA, post NAFTA, undercut the local industry to such an extent, 8 million left to cross the border and look for work. It’s the subsidies that raise trade issues. I’ve no idea why that was missed. Deliberate> Incompetence? If NAFTA [and the others] want to survive they need drastic revisision of the treaties .
In the second 1992 Presidential Debate, Ross Perot argued:
We have got to stop sending jobs overseas. It’s pretty simple: If you’re paying $12, $13, $14 an hour for factory workers and you can move your factory South of the border, pay a dollar an hour for labor,…have no health care—that’s the most expensive single element in making a car— have no environmental controls, no pollution controls and no retirement, and you don’t care about anything but making money, there will be a giant sucking sound going south.
…when [Mexico’s] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it’s leveled again. But in the meantime, you’ve wrecked the country with these kinds of deals.[1]
Perot ultimately lost the election, and the winner, Bill Clinton, supported NAFTA, which went into effect on January 1, 1994. Wikipedia
Free trade along with a gold standard would improve the people’s situation. CPI deflation is a blessing for shoppers.
Without a gold standard, only bankers gain from trade. There is CPI inflation regardless of how many widgets are imported. Bankers use trade as another excuse to confiscate stuff by printing. No wonder voters respond favorably to promises about protectionism. The claims economists make of better prices from trade just seem like lies.
Trade only improves CPI prices when there is a gold standard to protect shoppers from bankers. Our ancestors used a gold standard to protect themselves.
+1
Gold standard to protect oneself from the banksters. The Bible to protect oneself against the pagan god of progressivism. The 2nd amendment to protect oneself from aspiring taxmen and rent seekers, as well as anyone else attempting to tamper with the first two.
Sounds like a recipe for a trailer park.
…to (at least some of) those without much in the way of an understanding of the world….
From Merriam Webster – majorly: adv. ma·jor·ly \ˈmā-jər-lē\; : in a major way
a : primarily 1 was majorly a poet
b : extremely 1 was majorly annoyed
Synonyms
achingly, almighty, archly, awful, awfully, badly, beastly, blisteringly, bone, colossally, corking, cracking, damn, damned, dang, deadly, desperately, eminently, enormously, especially, ever, exceedingly (also exceeding), extra, extremely, fabulously, fantastically, far, fiercely, filthy, frightfully, full, greatly, heavily, highly, hugely, immensely, incredibly, intensely, jolly, very, mightily, mighty, monstrous [chiefly dialect], mortally, most, much, particularly, passing, rattling, real, really, right, roaring, roaringly, seriously, severely, so, sore, sorely, spanking, specially, stinking, such, super, supremely, surpassingly, terribly, that, thumping, too, unco, uncommonly, vastly, vitally, way, whacking, wicked, wildly
It’s a real word, used correctly. Get over it.
You may not like his tactics but the methods used to negotiate us into these trade imbalances need changing. The way to get attention from a Jackass? Use a 2-by-4. Trump is aware that trade is important but he is trying to get the world’s attention. It has been effective. Next he must negotiate away the trade imbalances as best he can. I know you need something to write but please stop with the whining until you see the results.
Does it occur to anyone that his ‘bluff’ is what got the Canucks and the Mexicans to agree to ‘redo’ the Treaty? Either agree to redo it – or POOF! it’s gone. Apparently, they agreed to ‘quickly’ redo it …..so what’s wrong wit dat?
exactly nothing