Category Archives: Trade

Trump Getting Ready to Pull US Out of NAFTA

Reports have emerged that the Trump administration is taking concrete steps to pull the United States out of the North American Free Trade Agreement, also known as NAFTA.

According to Politico, two White House officials stated that a draft order to withdraw from NAFTA has already been submitted for the last stages of review, and could be released by the end of this week, or early next week.

The order was written by Trump’s head of the National Trade Council, Peter Navarro, in corroboration with the White House chief strategist Steve Bannon. It is still unclear what the order states, but the effect on trade can be predicted by an examination of the top 20 exports arriving from Mexico to the US.

In January Capital Economics’ chief emerging markets economist Neil Shearing published a chart in a memo to clients graphing the top 20 exports from Mexico according to their 2015 US dollar value.

About 25 percent of Mexico’s total exports to the US, by far the largest slice, came from the auto sector, valued at about $80 billion. The next three items are electrical components, food, and computers, together valued at about $55 billion.

“The upshot, then, is that targeted measures imposed on the vehicle, electronics, and food and beverage sectors would hit Mexico’s economy especially hard,” wrote Shearing. “Similarly, in the event of a blanket tariff across all sectors, producers in these areas would be among the hardest hit.”

In wake of the reports that Trump is on the verge of pulling out of NAFTA the peso is crashing, down over 2.2 percent at 19.2704 as of 12:53pm Wednesday afternoon.

G20 Avoiding Commitment to Strong Free Trade Endorsements

Steven Mnuchin’s Official Portrait as the 77th U.S. Secretary of the Treasury.

US finance officials attending the G20 summit in Baden-Baden, Germany, refrained from signing a document committing the US to free trade as a policy. The refusal is a 180-degree departure from a decade-old policy of supporting free trade. The non-move stymied the chance of any deal from being forged. US intervention also led to any cooperative actions from taking place to stem the tide of climate change.

The talks between the world’s 20 most important world powers, known as the G20, ended with no joint position statement that would have definitively renewed the country’s long-standing promise to develop and nurture free trade among the nations.

US Treasury Secretary Steve Mnuchin led the US delegation and its push-back against free trade. As a result, the G20 finance ministers’ statement reneged on past commitments made by the body, including an unequivocal rejection of protectionism and a strident backing of free trade.

The statement the ministers did issue was a mildly worded, non-committal statement that said that the G20 countries “are working to strengthen the contribution of trade to their economies.”
Also conspicuously missing were the usual commitments to multilateral trade systems, like the World Trade Organization (WTO).

The summit and the G20 are both an informal forum and a non-binding body of nations. Statements do not obligate any of the countries to any particular policy or practice. However, the discussions between the G20 nations and the statements they publish do have and impact on economic and financial policy in the year to come.

Intellectual Property Theft Costing US $600 Billion Each Year

NKIE & McDnoald’s [sic] sandals in China. Photo by Stephen Woolverton.
According to private watchdog group, the Commission on the Theft of American Intellectual Property, annual losses of intellectual property range from around $225 billion to as much as $600 billion. The breakdown is as follows:

  • Theft of Trade Secrets: between $180 billion and $540 billion.
  • Counterfeit Goods: between $29 billion and $41 billion.
  • Pirated Software: $18 billion.

China, including Hong Kong, is the biggest culprit, says the commission, accounting for about 87 percent of the counterfeit goods which are confiscated at the border. The report issued by the commission states that Chinese authorities actually encourage the theft of intellectual property.

The commission is headed by former governor of Utah and Republican presidential candidate Jon Huntsman, who was also a US ambassador to China; and a former director of US national intelligence, Admiral Dennis Blair.

“The vast, illicit transfer of American innovation is one of the most significant economic issues impacting U.S. competitiveness that the nation has not fully addressed,” Huntsman said. “It looks to be, must be, a top priority of the new administration.”

Seven Billion Dollar Deal Could Bring 50,000 Jobs to US

The top and side of an iPhone 5S, externally identical to the iPhone 5. Photo courtesy of Calerusnak

Two high tech giants, Foxconn and Apple, are considering a deal to build a panel factory in the United States at a cost of about $7 billion and could create between 30,000 and 50,000 jobs. Chairman Terry Gou of Foxconn said that an investment by Foxconn’s Sharp division will depend on the terms negotiated for the deal at the state and federal levels.

The announcement of the deal comes close on the heels of President Donald Trump’s inaugural address in which the new president promised to make “America First” as the backbone of his policies leading the nation. Trump stated in his speech: “We will follow two simple rules: buy American and hire American.”

One of Trump’s campaign promises was to try and persuade Apple to bring the manufacture of iPhones to US shores. Trump said that he was optimistic that Tim Cook, CEO of Apple, had his “eyes open” to the possibility. Foxconn is the biggest producer of iPhones.

Gou said that Trump-style protectionism was inevitable, but he is unsure how Americans will feel about spending hundreds of dollars more for a phone that does not work any better than a less expensive model that was made overseas.

Gou vowed to increase his investments in China. Apple is also dependent on China, not just for production, but also for sales. Last year China made up 22 percent of Apple’s total revenue, some $46.4 billion.

Mexico Moving Into First Place as Top Exporter of Cars

Hondas on the assembly line in Mexico
Hondas on the assembly line in Mexico

Over the past twenty years, and especially the last ten, Mexico has been making major progress as a major exporter of cars and trucks to the United States. Although Japan and Canada still control the market share, Mexico has been making inroads that point to them surpassing and overtaking these wealthy first world countries as a major automobile supplier.

A new Honda plant is due to open later this week in Celaya, Mexico, in the central state of Guanajuato. At a cost of about $800 million, the factory will produce about 200,000 Fit hatchbacks per year. That will bring the total number of cars exported to the US from Mexico up to 1.7 million in 2014. That is about 200,000 more cars than the US will buy from Japan in 2014. And when another new plant begins production a week later, Mexico will take over Canada’s number spot as the largest seller of cars to the US in the world by 2015.

“It’s a safe bet,” said Eduardo Solis, president of the Mexican Automotive Industry Association. “Mexico is now one of the major global players in car manufacturing.”

The progress Mexico has been making can be traced back to the passage of the North American Trade Agreement, (NAFTA) which went into force on January 1, 1994.  Back then Mexico made only 6 percent of all the cars manufactured in all of North America. Today they produce 19 percent. Since 2007 total Mexican car production rose 39 percent, to almost 3 million cars a year. The value of those exports to the US has soared from $40 billion per year in 2007 to $70.6 billion today.

The Mexican car industry is now the country’s major source of foreign currency, passing oil exports and cash Mexican migrants to the US send back home.