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DAVID KRUSE

President thinks NAFTA is a joke

February 2, 2018
Farm News

Completing trade deals is going to be a very tough exercise...tough enough to make the recent combat over immigration and the budget look, well, tame by comparison. I think that there will be many similarities in how the White House participates. They provide the broad strokes while letting others work on details. Not even Senate Majority leader Mitch McConnel claimed to know what Trump wants in an immigration bill. He was reportedly offered everything that he said that he wanted on the wall and turned it down. The goal posts reportedly moved every couple hours all the while they claimed they were steadfast on their stance.

White House advisor, Stephen Miller, was reportedly behind motivating the president to back away when a couple deals got close in the mindset that they were giving too much away. I have heard Stephen Miller rant on immigration and his rant is just as hard or harder on trade. He is young, a firebrand and a hardliner and the fact that he is one of the remaining initial advisors still employed there says that the president wants him around.

The President leads from behind in these negotiations. He tells subordinates to go off and negotiate something while he touts broad generalities that sound reasonable and good to much of the public. He did this on health care and he did it on the tax bill. He is one for two. He is doing it on immigration and he is allowing a similar process to work through for trade.

Concessions brought by Mexico or Canada to NAFTA negotiations will mean what? His people could bring him a draft of a completed deal and only when he is involved does it become real. He has made his position on trade agreements quite clear -he hates them -thinks NAFTA is a joke, yet many seem to think that negotiators can bring him something that will generate a stroke of epiphany over any support. He has never promised to finish NAFTA - in fact, the only thing that he has promised anyone is that he would get rid of it.

Stephen Miller says that they are going to rebalance trade in the U.S. economy. As these FTAs are already balanced in the favor of the ag sector, rebalancing them likely tilts them away. Donald says he will boost ag trade but doesn't say how. In fact, there is a very large lack of any specifics as was the case with immigration as to what he might accept in trade. He fixates on trade deficits seeing them as theft. Mexico is a country of 30 mln people selling into a market of 330 million. Given the disproportionate size of our economy, Mexico would have to be lazy or stupid not to run a trade surplus with the U.S. They are selling into a market 11 times the size of theirs per capita with a larger per capita income than Mexicans earn. The only way that there would not be a Mexican trade surplus is if we enacted some strong protectionist trade barriers to reduce their competitiveness.

I believe that is what Donald intends to do. If Mexico doesn't like it he will be at them to pay for the wall anyway. I didn't see any moderation in the White House on any stance on immigration. They are not giving away presents to anyone. Miller is just as hard or harder on their trade policy stance as on immigration and frankly, could care less about the impact on the ag sector.

George Bush's chief strategist warned the administration in an op-ed about the political risk to farmers in blowing up NAFTA. Donald hates Carl Rove, who is Republican establishment, so the op-ed may have the opposite effect on what the president does. They are playing to a different higher level of policy making and cannot let feelings or concern for the ag sector stop their agenda. Blowing up NAFTA would appeal to most of Trump's base...in fact, it was what they were promised.

Mexico and Canada reportedly met without the U.S. to discuss strategy. Like that is going to work. U.S. negotiators have to get something done on NAFTA that they feel that they can even offer to the President. Then until he (and Miller) are into the last phase to close the deal there is no deal. It can blow up at any time, just like the immigration deals, and Donald is likely to threaten to do so again to get one more swat at them if close. He will press them for all that they will take and more. When there is a deal, it will be Donald and no one else that gets (takes) the credit.

It is not just NAFTA but KORUS and Japan and China that the White House intends to rebalance trade with. They have larger trade deficits than we have with Mexico. If they give Mexico and Canada a good deal, letting them off easy so to speak, what message does that send China? The odds are that there will be a significant trade confrontation with major trading partners that will begin as soon as they can get this budget stuff behind them.

The administration is setting up for a major trade offensive that will be congenial to allies or foes. Foreign policy typically has moderated or was integrated into trade policy. I think not this time. This is going to be just about trade with a net sum game. We in the ag sector are just going to be bystanders along for the ride with the risk of suffering some collateral damage.

David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.

 
 

 

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