Tags: nafta | usmca | trade | deal | trump

New USMCA Resembles Old NAFTA: No Need to Change Economic Assumptions

Canada, Mexico and US Flags over north america map in blue

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Tuesday, 02 October 2018 10:03 AM Current | Bio | Archive

Under the new U.S.-Mexico-Canada Agreement, or USMCA, which to some degree rewrites the 1994 North America Free Trade Agreement (NAFTA), the United States, Canada and Mexico are going to keep trading with one another, and that’s of course a good thing.

Now that details of the USMCA deal have been given out, a legitimate question is what the ‘big’ economic implications will be of the new USMCA, the answer is that basically the USMCA is not going to change very much.

Anyway, the new USMCA looks so much like the old NAFTA that there is no need to change any economic assumptions anywhere.

What the USMCA does do is removing the risk scenario of a no deal at all coming through.

That removal of uncertainty matters to financial markets. Equities are far more exposed to trade than are economies. The risk of an end to NAFTA would have been very disruptive for equities and removing that risk is therefore to be welcomed and is of course a political victory for President Donald Trump.

There is no need to revise economic forecasts and things can be largely kept as they always have been.

In the new USMCA agreement, there is a detail that could be of interest to investors as it comes with a provision that that requires any of the three partners to notify the others when they start or finish trade agreement talks with a "nonmarket economy," like China, and gives the other partners a say in the text of that deal, which in fact could effectively bar any of the three members from negotiating a trade deal with for example China.

The USMCA also contains tougher intellectual property protections for pharmaceuticals and longer patents the U.S. always seeks in trade accords. U.S. dairy farmers will now also be allowed to sell more duty-free milk to Canada than they currently do.

Fed Speak 

Federal reserve Chair Jerome Powell will speak about "the outlook for employment and inflation" in Boston at 12:45 p.m. Fed Vice Chairman for Supervision Randal Quarles and Dallas Fed President Robert Kaplan will also speak.

For investors, these speeches could be of interest. Rotating voting rights among regional Fed presidents mean interest-rate projections for next year could range between two hikes and four, depending on which dots belong to which member.

The IMF to Cut its Forecast for Global Growth – Risks to Emerging Markets

IMF Chief Christine Lagarde, in a speech ahead of the IMF and World Bank’s annual meetings next week, said growth was at its highest level since 2011, but had plateaued, with fewer countries participating in the expansion.

Lagarde said, without providing new figures: “In July, we projected 3.9 percent global growth for 2018 and 2019. The outlook has since become less bright … key issue is that rhetoric is morphing into a new reality of actual trade barriers. This is hurting not only trade itself, but also investment and manufacturing as uncertainty continues to rise.

Emerging Asia continues to grow at higher rates than other regions, but we see indicators of moderation in China, which will be exacerbated by the trade disputes.

Meanwhile, challenges have been mounting in a number of other emerging market and low-income countries — including in Latin America, the Middle East, and Sub-Saharan Africa.

Many of these economies are facing pressures from a stronger U.S. dollar and a tightening of financial market conditions. Some of them are now facing capital outflows.

If the current trade disputes were to escalate further, they could deliver a shock to a broader range of emerging and developing economies.”

Brexit

Meanwhile, the interminable tedious process of separating the UK from the European Union (EU) continuous with rumors and denials that the United Kingdom might stay in the customs union with the European Union (EU) to prevent the customs’ borders splitting the United Kingdom between Great Britain on the one side and Northern Ireland on the other.

Under the (rumored) plan the U.K. would back down on opposition to new checks on goods moving between the British mainland and Northern Ireland. In exchange, the EU would need to compromise and allow the whole of the U.K., including Northern Ireland, to stay in the bloc’s customs regime.

The British pound eased somewhat to the $1.2960 range.

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

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There is no need to revise economic forecasts and things can be largely kept as they always have been.
nafta, usmca, trade, deal, trump
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2018-03-02
Tuesday, 02 October 2018 10:03 AM
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