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When NAFTA Becomes Not-NAFTA

When NAFTA Becomes Not-NAFTA

President Donald Trump speaks on the telephone via speakerphone with Mexican President Enrique Pena Nieto in the Oval Office of the White House on August 27, 2018 in Washington, D.C. (Win McNamee/Getty Images)

Tuesday, 28 August 2018 08:19 AM Current | Bio | Archive

NAFTA . . . or not

What’s in a name?

That what we call NAFTA, in the Merriam-Webster dictionary we find the following description: “The North American Free Trade Agreement (NAFTA) is an agreement among the United States, Canada, and Mexico designed to remove tariff barriers between the three countries that was implemented on January 1, 1994, and supersedes the U.S.-Canada Free-Trade Agreement (CFTA) that took effect on January 1, 1989…”

President Trump declared an end to NAFTA and abolished the NAFTA name because it was "unpopular." In fact, an opinion poll organized by the Pew Research Center that was done in November last year concluded that, and I quote: “Americans are generally positive about NAFTA, but most Republicans say it benefits Mexico more than U.S.”

Most Americans (56 percent) said that the pact is good for the United States, while just a third (33 percent) say it is bad. Further interesting and enlightening details can be read in the detailed Pew Research opinion poll report.

What is now being proposed is a Mexican-U.S. preferential trade deal (A preferential trade deal is a trade pact between countries that reduces tariffs for certain products to the countries who sign the agreement. While the tariffs are not necessarily eliminated, they are lower than countries not party to the agreement. It is a form of economic integration.), with Canada not in the mix "at the moment."

The Mexican peso initially liked the news although lost little ground later on.

Canada has until Friday to sign up to the deal on the current political timetable.

Markets are treating this as a sign of progress with the assumption that Canada will join the "Not-NAFTA" deal too.

Investors could do well keeping in mind that here in this specific Not-NAFTA deal, this is not a "zero-risk" process however. By declaring the end to NAFTA and proposing a new deal, President Trump brings in Congress. While the terms of the Not-NAFTA are sketchy, it’s hard to give all the details of a trade deal in a tweet, it is not substantially different from NAFTA with the caveat that NAFTA already exists in law and Not-NAFTA will need Congress to agree with.

If Canada does not join Not-NAFTA, then getting the agreement of Congress will be trickier as "fast-track authorization" probably will not hold.

This does not appear to change the prospects for the Chinese trade negotiations, which haven’t been going terribly well it would seem. 

Speaking to reporters during his announcement Monday of the new Mexico accord, Trump said he is rejecting overtures from China to negotiate as he tries to achieve a less “one-sided” trade policy.

“They want to talk,” Trump said. But “it’s just not the right time to talk right now, to be honest.”

The Not-NAFTA lies somewhere between the European Union (EU) negotiations and the Chinese negotiations. 

Like the EU negotiations, the Not-NAFTA is basically keeping the current situation in place. Like the Chinese negotiations, Not-NAFTA has more political risks.

The process does rather stress the unpredictability of trade when U.S. trade policy is the personal fiefdom of the U.S. President.

It also perhaps highlights personality politics given the rather peculiar exclusion of Canada from the initial deal.

Emerging Markets - Turkey

Turkish markets are back from a week-long public holiday with the Turkish lira sliding for a second day in the absence of signals from policy makers of reforms to address Turkey’s economic woes.

The return of local traders has added to a selloff driven by a worrying economic outlook. At 5:29 am EDT today, the dollar was worth 6.21 TRY (Turkish lira), which is up from 6.01 TRY at Friday’s close.

It’s important to take note that Turkish "locals" have and keep having a long-term negative bias on their own currency.

Also, on Monday last week, President Trump ruled out agreeing to any demands from Turkey to gain the release of the detained American evangelical pastor Andrew Brunson, who was arrested in October 2016 and is on trial on espionage and terrorism charges. Trump also said he was not concerned that his tough stance could end up hurting European and emerging market economies.

Besides that, the Financial Times writes that Turkey’s Finance Minister Berat Albayrak, who is also the son-in-law of President Erdogan, claimed yesterday during an official visit to his French counterpart in Paris that U.S. sanctions against Turkey risk fueling terrorism and exacerbating the refugee crisis.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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President Trump declared an end to NAFTA and abolished the NAFTA name because it was "unpopular." What is now being proposed is a Mexican-U.S. preferential trade deal.
nafta, trade, deal, trump, mexico
Tuesday, 28 August 2018 08:19 AM
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