The US-Mexico-Canada Trade Deal, China, and North Korea Denuclearization

THE AMERICAN TRADE AREA BREATHES WITH NEW LIFE. Monday in the White House Rose Garden, President Trump and his trade team announced that Canada has joined Mexico and the United States in a new regional trade deal. It wasn't as if Canada had any other logical choice. • • • THE USMCA. The United States, Canada, and Mexico have agreed to sign a new trade deal to “terminate and replace” the 24-year-old North American Free Trade Agreement (NAFTA). President Donald Trump says the new agreement will transform North America into a “manufacturing powerhouse.” The new trilateral trade pact will be named the US–Mexico–Canada Agreement, or USMCA. Trump called the deal “historic news for our nation and indeed for the world. I have long contended that NAFTA was perhaps the worst trade deal ever made. Once approved by Congress, this new deal will be the most modern, up-to-date, and balanced trade agreement in the history of our country, with the most advanced protection for workers ever developed." • The Epoch Times outlined the USMCA : "The partners have agreed to stronger rules of origin for autos and automobile parts that exceed those of both the original NAFTA and the Trans-Pacific Partnership. Under the new deal, 75% of auto content must come from North America, up from the original threshold of 62.5%. The higher threshold will keep more parts from other regions out, while boosting production and jobs in the region. Changes to the rules of origin on automobiles will bring billions of dollars of production to the United States and throughout the region, according to the White House. The rules incentivize the use of high-wage manufacturing labor in the auto sector, which will help provide a level playing field for American producers and workers. The deal also includes enforceable labor provisions that require countries to comply with International Labor Organization labor-rights standards, which will drive Mexican wages higher. US dairy farmers who have long complained about Canada’s high market barriers also received some benefit from the deal. In addition to the current exports of dairy products, Canada will provide 'new tariff rate quotas' exclusively for the United States. The agreement provides market access gains for American dairy products, including cheese, milk, butter, yogurt, and ice cream. According to trade experts, Canada had to make dairy concessions to save NAFTA’s Chapter 19, a dispute resolution mechanism for anti-dumping matters. The Trump administration pushed hard to eliminate this chapter, which will remain in place in the new agreement. Chapter 19 allows countries to challenge each others’ anti-dumping decisions in front of an expert panel. The dispute panel has heavily favored Canada, especially in its fights against US duties on softwood lumber, paper, and other products. The new deal has a 16-year lifespan, with a review period after six years, providing more certainty for business investments. According to the White House, the review period gives the United States significant leverage in pushing partners to comply with their obligations." • The steel and aluminum tariffs that the US imposed on Canada and Mexico will be dealt with separately in what the President said were ongoing negotiations : “Hopefully, we’ll be able to work that out. We are in communication with them. [We need to] really take care of the needs of our steel companies." • The three trading partners now have 60 days to finalize the legal text and sign the agreement. But, President Trump also expressed concerns about its fate in Congress : “I plan to sign the agreement by the end of November. I then will submit it for approval to Congress where, in theory, there should be no trouble -- but anything you submit to Congress is trouble, no matter what." • The US stock markets continued to rally on Monday, obviously approving of the USMCA that reduced the uncertainty that has sometimes weighed on the market over the past few months. The Dow Jones Industrial Average jumped more than 200 points, rising 0.8M, and the S&P 500 gained 0.5M in early trading, and oil futures also rose, reaching the highest levels in the last four years. Epoch Times quoted Phil Flynn, a senior analyst at Price Futures Group in Chicago, who said that the new deal would boost oil prices as “the consummation of trade should start creating jobs, growth, and in turn more oil demand.” USMCA makes “significant changes to the rulebook that has governed continental commerce since 1994,” Flynn wrote in an email. Goldman Sachs analysts said in a report that the deal helps reduce but doesn’t eliminate NAFTA uncertainty as the US midterm election poses some risk : “A Democratic majority is likely to make USMCA approval more difficult, but we expect that the agreement would ultimately win the simple majorities needed in both chambers under the TPA process.” Trade Promotion Authority gives President Trump the ability to send a deal to Congress for a simple majority vote. Without that protection, the Senate would require a 60-vote threshold for approval. • The USMCA can give Republicans another victory to point to, especially in the heartland and industrial Midwest, according to Ford O’Connell, a political analyst and Republican strategist : “It certainly is important in the overall calculus for Republicans in their quest to hold the Senate and the House in 2018. But in terms of his political impact with voters, it will be a far more valuable for President Trump in his 2020 re-election bid with voters than it will be for Republicans in 2018.” According to Politico : "The new pact...is a major step toward completing one of Trump's signature campaign promises and gives the President a concrete policy win to tout on the campaign trail this fall. It also sets the stage for what is sure to be a high-stakes fight to get the agreement passed by Congress before it can become law." CLEARLY, it is another triumph for President Trump, who sought to revamp the 1994 trade agreement in the name of making it fairer for the US. • Fox Business reported that Canadian Prime Minister Justin Trudeau said following a cabinet meeting, "It's a good day for Canada." Negotiators from both sides spent two days talking by phone as they tried to settle a range of difficult issues such as access to Canada's dairy market and US tariffs. And, finally, Canada agreed to offer increased access to its highly protected dairy market, as it did in separate pacts with the European Union and Pacific nations. American Thinker's Monica Showalter wrote : "Without a minute to spare, Canada's prime minister, Justin Trudeau, jumped on the new NAFTA or US-Mexico-Canada agreement to ensure that Canada is not left at the station....This, for Justin Trudeau, has got to sting, given his animosity with the US President. The shout-fest back in June at the G-7 summit in Quebec pretty well set the tone, and most recently, there was an argument about whether President Trump had refused to meet with the Canadian prime minister or asked for the meeting in the first place. The two don't get along. But the problems went well beyond that. Canada had a lot of tariffs still within the NAFTA treaty that didn't sit well with the US, such as its tariffs on milk products, which constrained US farmers and shut them out of any benefit from the trade pact. Canada, which has a European-style system and sensibility, tended to be recalcitrant about changing anything, protecting as it could its cottage industries. Trade negotiators have always told me it's the developed countries that have the toughest time changing." • Showalter noted the Trump victory : "The US forged ahead with a new pact with Mexico, believed to be more favorable to US manufacturing interests. With Mexico's presidency set to go to a leftist, the deadline was September 30, so President Enrique Peña-Nieto could sign off before his successor could take over. Mexico was all raring to go, and so should have been Canada. But, Canada didn't quite take the Trump desire to alter the pact as seriously as Mexico did. Mexico knows that its economy is within a hair's breadth of going south. Canada, not so much -- well, until the shadow of the Trump train dawned on the Canadians and started to pull out. Now Trudeau has jumped onboard despite everything, recognizing just how important US trade without tariffs is to his country's ultra-integrated economy. Canada would have otherwise been left in the dust. Of course, he's calling it a victory, but we all know what happened. Score another one for the Trump train. This one's another victory for the US." • • • QUO VADIS, CHINA-US TRADE TALKS? China seems to be trying to meet US tariff demands without appearing to do so. Epoch Times reported on Tuesday that China has announced it would reduce tariffs on textile products and metals, including steel, as it runs low on ammunition in its tariff war with the United States. In addition, tariffs on textile and metals will be lowered to 8.4% from 11.5%, starting November 1, China’s Finance Ministry stated on Sunday. Epoch Times said : "The announcement came six days after Trump imposed a 10% tariff on $200 billion of Chinese goods on top of tariffs already imposed on $50 billion of goods that were implemented in August. China responded by imposing tariffs on $110 billion of American goods. However, China only imported about $130 billion of American goods last year, which reduces the room for any further tariff threats. The United States, on the other hand, imported more than $505 billion worth of goods from China in 2017....Trump resorted to tariffs in response to China’s unfair trade practices, including theft, the forced transfer of intellectual property, dumping, and other violations of World Trade Organization rules." President Trump tweeted on april 4 : "We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the US. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!” • Trump has repeatedly said he doesn’t want a trade war, but that he needs to apply pressure to achieve a level playing field for American businesses. The President has been making a fundamental overhaul of US trade policies, seeking more balanced relationships with many major foreign trading partners. Epoch Times stated that the newly announced reductions in China tariffs for incoming goods represent : "...cracks in the initially tough stance the communist regime had taken in its rhetoric against Trump’s pressure. The regime had already reduced import tariffs in July on some consumer items including apparel, cosmetics, home appliances, and fitness products. Also slashed were import tariffs on wood and paper products, minerals, and gemstones -- to 5.4% from 6.6%....Average import tariffs on over 1,500 products will fall to 7.8% from 10.5%, the ministry said, adding : 'Reducing tariffs is conducive to promoting the balanced development of foreign trade and promoting a higher level of opening up to the outside world.' " • Why is China quietly reducing its import tariffs. Epoch Times says : "Chinese export hubs have been hit hard by Trump’s tariffs. The Chinese regime has ramped up its efforts on everything short of open armed conflict to fight the tariffs, according to cybersecurity expert Casey Fleming, who is chief executive of Black Ops Partners. Meanwhile, Trump has accused China of election meddling for targeting voters in Iowa with propaganda ahead of the November 6 midterm elections. 'They do not want me, or us, to win because I am the first President ever to challenge China on trade,' Trump said during his address at the UN Security Council meeting September 26. And we are winning on trade. We are winning at every level. We don’t want them to meddle or interfere in our upcoming election.' " • What was President Trump talking about when he accused China of meddling in the US mid-term election? Epoch Times gave details of hina's acts : "Iowa’s top newspaper recently published a four-page editorial insert by China Daily. The insert was filled with critiques of Trump’s tariffs, an apparent attempt to influence a state that exports large amounts of soy and pork to China. The insert didn’t mention that China Daily is run by the Chinese regime. The newspaper’s executive editor, Carol Hunter, said the insert met the Register’s standard criteria for advertising. China has been placing similar inserts in other newspapers such as the New York Times, the Washington Post, and the Wall Street Journal. China Daily spends millions a year pushing Beijing propaganda in the United States." • China, said Epoch Times, tried to punish American farmers with a 25% import tariff on soy, which is a threat to Iowa, the second-largest soy producer in the US. But, despite the tariff, China will likely be forced to buy American soy because its own harvest was hit by an early frost and Argentine production fell by 40% since last year due to a drought. In 2017, China consumed more than 110 million tons of soybeans, of which it imported 95.53 million tons, or 87% of its total consumption. • American Thinker's editor Thomas Lifson wrote on Monday : "No doubt, Trump-haters will portray this move by China as minor and meaningless, for they cannot admit any success on the part of the 45th President of the United States. And so far, details are lacking, but a bulletin from Reuters reports that a "wide range of products" are to benefit from Chinese tariff cuts....To be sure, China's high tariffs on manufactured automobiles and many other products remain in place. But these are not merely symbolic. China is pushing this for PR reasons, but the overall impact is represented by this figure : The overall tariff level will be reduced to 7.5% in 2018 from 9.8% in 2017 as a result, the cabinet has said. That cut is a 23.5% cut in the average tariff level." • The South China Morning Post of Hong Kong wrote on Tuesday : "There’s the potential inelasticity of US demand for Chinese goods. If those goods cannot be easily substituted, either from within the United States or from an alternative overseas source not covered by Trump’s trade tariffs, the US consumer will either have to forego those purchases or pay up for them. In the latter case, at least to some extent, the Trump tariffs could become a tax on the US consumer. At the same time, China might well consider that it has allowed itself to become both overly dependent on certain agricultural imports from the US and that the success of its export sector in selling to US consumers has left China somewhat vulnerable to the kind of tariffs imposed by the Trump administration." South China Morning Post mentioned another dimension in the trade battle : "Additionally, recent US sanctions on the Equipment Development Department of China’s Ministry of Defence, after Beijing bought Russian Su-35 combat aircraft and S-400 surface-to-air missile equipment, was understandably not well received in China. India is also said to be set to buy the S-400 system. Beijing’s unease will only increase if Washington then fails to sanction India over such a Russian arms purchase." • South China Morning Post concludes : "In reality, neither Beijing nor Washington may think a return to the trade relationship of the recent past is possible or desirable. 'China’s leaders have been forced into a fundamental reassessment of the country’s development strategy,' Larry Brainard, chief emerging markets economist at investment research firm TS Lombard, wrote last month. China is 'facing tariffs on the bulk of their exports to the US for the indefinite future, binding constraints on acquiring US cutting-edge technology and domestic economic dislocation as [Chinese] firms adjust to the tariffs,' he added. In such circumstances, TS Lombard feels that despite the China-US trade war, 'the economic forces that led to globalization are alive and well' and that 'market forces will now reassemble trade in ways that achieve low costs of production but not primarily by bringing manufacturing production to the US' and 'will create a new Asian trading bloc with China at its center.' " BUT, another South China Morning Post article by Neal Kimberley disagrees : "Of course, that begs the question of how closely other countries in Asia might wish to tie themselves to China. China has previously showed itself prepared to exercise economic clout in pursuit of other objectives, as reported in the Post online on Saturday. In 2012, Manila complained that Beijing had stopped buying bananas from the Philippines, following the maritime dispute over the Scarborough Shoal in the South China Sea, while last year, South Korea’s decision to install the US Terminal High Altitude Area Defence (THAAD) anti-missile system also elicited an economic response from China. But TS Lombard’s notion that the continuing US-China trade dispute will 're-globalize China’s trade' is an intriguing concept, especially if, as HSBC feels, China 'looks set to be the world’s largest economy by 2030.' For all Washington argues that its current resort to tariffs is an attempt to reset the China-US economic relationship to achieve 'fair' trade, an assertion Trump reiterated in West Virginia on Saturday, it’s hard not to conclude that the US now sees China as a strategic competitor and is reacting accordingly." • • • A CLEAR STATEMENT OF THE TRUMP CHINA POLICY. In yet another Inkstone and South China Morning Post article, Keegan Elmer notes : "If there’s one thing that the United States and China can agree on, it is that whatever happens between them is one of the most important -- if not the most important, as President Obama said -- relationships of the 21st century. On Saturday, a senior Trump aide spelled out the nature of this relationship : competition. US-China relations have taken a turn for the worse since a trade war broke out earlier this year between the two countries : a conflict that has already disrupted global commerce. But the message delivered by Matt Pottinger, one of President Donald Trump’s top Asia policymakers, was unusually direct. And it was all the more remarkable because it was delivered at an event [at the Chinese Embassy in Washington] celebrating the 69th anniversary of the founding of the People’s Republic of China." • Keegan Elmer was talking about Matthew Pottinger, a former journalist and US Marine Corps officer who is currently serving in the US National Security Council of President Trump. Pottinger graduated from the University of Massachusetts with an undergraduate degree in Chinese studies. He is fluent in Mandarin. Before he joined the US Marine Corps, Pottinger worked as a journalist for Reuters between 1998 and 2001. Then he moved to the Wall Street Journal until his retirement from journalism in 2005. His stories won awards from the Society of Publishers in Asia and were nominated for the Pulitzer Prize. He spent seven years reporting in China. While interviewing Chinese workers in Beijing about their claims of government corruption, Pottinger was attacked by a government thug. • Here are Matthew Pottinger's remarks at the Chinese Embassy last Saturday : "Good evening everyone. Distinguished ambassadors, representative Pittenger, ladies, gentlemen, colleagues and friends. It's a great pleasure to be with you all tonight to help celebrate China's National Day. I'm honored by Ambassador Cui’s invitation to say a few words on this festive occasion. And I also want to thank you for that excellent toast, Mr. Ambassador. The Chinese people really have much to celebrate. When I was a newspaper reporter in China, in the early days of this millennium, there wasn't a day that passed that I wasn't filled with wonder at the velocity of change taking place in your country, or a day when I wasn't impressed by the dynamism and ingenuity and resilience of the Chinese people. Nobody who spent any significant period of time in China walking its streets and touring its historic places, sitting around the table with Chinese friends over Sichuan food and many rounds of baijiu, can fail to be captivated by China. The changes in China and in China's relationship with the world has sped up in the years since I was there. The Trump administration's approach is grounded first in a clear-eyed assessment of US interests and loyalty, of course, to enduring American values. But second, it's also grounded in a deep respect for the Chinese people, for the long path they have walked and for many of the accomplishments that Ambassador Cui just referred to in his good remarks. And of course to their vast potential. We in the Trump administration have updated our China policy to bring the concept of competition to the forefront. It's right there at the top of the President's national security strategy and this has been cause for much discussion in Washington and, from what I hear, also in China. But to us this was really an example of what Confucius called 'rectification of names.' In the Analects, Confucius said that “名不正，则言不顺;言不顺，则事不成” -- 'if names cannot be correct, then language is not in accordance with the truth of things; and if language is not in accordance with the truth of things, affairs cannot be carried on to success.' And of course I think it's evident to everyone that the United States and China are engaging at some level in competition. To avoid acknowledgment of this fact would be to court misunderstanding and to invite miscalculation. So we've in some sense rectified the framing of our policy to reflect the reality of an evolution in our relationship. But I think that’s OK. For us, in the United States, competition is not a four-letter word. The notion of free and fair competition sits at the core of American democracy and of our market economy. And it is also not incompatible with notions of social harmony. And social harmony among people can't exist without acknowledgment of our competitive instincts. So this is the relationship that we would like to pursue with China. It is one of respectful competitors. We're adapting our game to China’s style of play, just as China has done since the historic opening and restoration of relations between our two countries also four decades ago, right about at the same time that the incredible reform and opening period began. President Trump's concept of a constructive, results-oriented relationship with China also permits incredible opportunities for cooperation between our countries. Based upon our own history and the principles that our forefathers established for what is the world's oldest democracy, the United States is confident that we have the adaptive power to continue competing in championship form. Likewise, we deeply respect that China and the Chinese people have the sense of history and destiny to compete in center court, just as the name of your country really implies. So with warm respect for all of your accomplishments and all that is possible in the future, our warmest congratulations on your national day. “国庆节快乐” [Happy National Day] Thank you." • President Trump has often described Chinese President Xi Jinping as a friend. But the friendship might have vanished due to tensions over trade and accusations of Chinese meddling in the midterm elections. “He may not be a friend of mine anymore," Trump said last week, accusing Beijing of meddling in the upcoming US midterm elections. The President later tweeted photos of the four-page supplement published in Iowa newspaper the Des Moines Register criticizing the trade war, which had been paid for by state-run newspaper China Daily. Keegan Elmer reported that : "On Sunday, US ambassador to China Terry Branstad defended Trump’s accusations, describing the China Daily advertisement as 'propaganda' and accusing Beijing of taking advantage of the US’ freedom of the press." Neal Kimberley ended his article with this warning : "China will lose the trade war, then things will get really nasty." • • • THE US-NORTH KOREA-SOUTH KOREA TRIANGLE. But, in his Rose Garden remarks on Monday, President Trump was crystal clear about what he wants for the US-China relationship. He said it is too soon to begin trade talks with China. That may in part be Trump's Art of the Deal way of applying a little pressure to a China obviously trying to squirm out from under Trump's tariffs without admitting that it is losing the tariff arm-wrestle. BUT, President Trump then added that he wants China to help more with North Korea. THERE is the Trump hook. Help denuclearize North Korea and the US will come to the trade talks table. • President Trump may have lost Xi Jinping as a friend, but he seems to have a new friend in Kim Jong-un of North Korea. In mid-September, President Trump thanked North Korean leader Kim Jong-un for dropping nuclear missiles out of a massive military parade in Pyongyang : “This is a big and very positive statement from North Korea. Thank you To Chairman Kim. We will both prove everyone wrong!” • Then, Kim sent President Trump a letter that White House press secretary Sarah Sanders described : "The President has received the letter from Kim Jong-un. It was a very warm, very positive letter.” Sanders added that the White House does not plan to release the full letter unless Kim agrees. And, there are rumors of a second Trump-Kim meeting in the works. • And, on Monday, American Thinker's Thomas Lifson wrote : "President Trump's historic initiative on Korea continues to confound critics and succeed in easing tensions and working toward de-nuclearization, and ultimately open relations and re-unification. Hours ago, both North and South Korean military units began removing mines from the Demilitarized Zone, usually reckoned to be the largest concentration of land mines in the world. The land mine deployment was the first line of defense for both Koreas against invasion. This means that removal constitutes an actual, meaningful measure of trust. It demonstrates that the extensive talks between the two Koreas have produced results, for this move was agreed to earlier. Hyun-Jin Kim of the Associated Press reports : 'The agreement to clear mines, the first such effort since the early 2000s, was among a package of tension-easing deals struck by the Koreas' defense chiefs on the sidelines of a leaders' summit last month in Pyongyang. Aiming to reduce conventional military threats, they also agreed to remove 11 front-line guard posts by December and set up buffer zones along their land and sea boundaries and a no-fly zone above the border to prevent accidental clashes.' Lifson was quick to add : "Nobody is saying that Kim Jong-un is a fully trustworthy actor, and vigilance is still required on matters of destruction of North Korea's nuclear arsenal. But this does mean that North Korea apparently is meeting its commitments and that further de-escalation moves may well be forthcoming. Never forget that President Obama threw his hands up and did nothing to meet the growing threat of North Korea's nuclear program. He reportedly told incoming President Trump in the limousine ride to the Capitol for inauguration that North Korea was the biggest national security hot potato he was handing off to Trump. Trump, the deal-maker, has made a deal that promises an entirely new era. President Reagan taught us to 'trust, but verify.' President Trump and South Korea President Moon appear to be following that policy, and it appears to be working magnificently." • • • DEAR READERS, a trusted friend and advisor told me last week that "dealing with the North has always been a game no one could seemingly win." My friend sees the NK agenda this way -- 1. Eventually one Korea. 2. Cleaning up SK politics and corruption. 3. Eliminating the starving in the North. 4. Modernization of the North. 5. A foot hold in SE Asia for “democracies.” 6. Accountability of the North. My friend added that we need a unified Korea, to the same extent we need a South Korea. And the Philippines, Japan, Taiwan, Formosa certainly need a non-nuclear North Korea. • So, there we have the makings of the Trump-Kim-Moon denuclearization agenda. China could help, and if it wants a trade deal with the US, it better get on board the NK-SK train, just as Canada has boarded the US-Mexico train.