Wall Street celebrated on Monday as news of the Trump North American Free Trade Agreement deal left an impression that President Trump would back away from his trade wars, perhaps the biggest threat to the long bull market. Yet the emerging details of the agreement paint a much different picture.
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Trump isn't getting out of the way of the economy but attempting to rig it. Even worse, the Trump Nafta deal makes it more likely that the China trade war will escalate.
The Trump Nafta deal with Mexico would create a cap on exports to the U.S. of 2.4 million vehicles and $90 billion worth of auto parts, Reuters reported. Above that, vehicles and parts would face a tariff of 25%.
For U.S. imports from Mexico under the tariff-penalized limit, 75% of auto content would have to come from within the North American Free Trade Agreement bloc or else face a smaller tariff of at least 2.5%, though possibly higher. Similarly, 40%-45% of auto components would have to be produced by workers earning at least $16 an hour.
So what do these Trump trade prescriptions have to do with the U.S.-China trade relationship? Most importantly, China is a prime target of the new auto part restrictions aiming to curb the use of components produced outside North America. The Trump administration has already threatened to impose tariffs on $9 billion worth of Chinese auto parts. The Trump Nafta deal would effectively extend punitive treatment to Mexico.
Trump Nafta Pact Was Made In China
Beyond that, the Trump Nafta deal arguably mimics the Chinese model of state-engineered economic outcomes.
The Trump administration has criticized Beijing's Made in China 2025 plan to close the technological gap, dominate domestic markets and establish global leadership in advanced sectors such as semiconductors, robotics and artificial intelligence. China's official aim is to steadily displace foreign components, achieving 40% self-sufficiency by 2020 and 70% by 2025.
Yet as the Trump administration threatens a China trade war and pressures Beijing to open up more markets to competition, the U.S. is doing the opposite.
Trump has threatened tariffs of 25% on $200 billion worth of Chinese imports, with trade officials set to close the public comment period on Sept. 5. UBS economists expect an announcement to come a week or so later that the U.S. will impose 10% tariffs on the full $200 billion in imports, holding an even harsher trade action in abeyance to pressure China to reach a deal.
The apparent lack of any progress in last week's China trade talks hosted by Trump's Treasury officials undercut hopes for a thawing ahead of the coming tariff decision.
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The post Trump Nafta Deal Makes China Trade War More Likely, Seeks To Rig Economy appeared first on Investor's Business Daily.
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