Economist Daniel LaCalle breaks down the USMCA and Trump’s threat of tariffs on Mexico
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President Trump is big on tariffs, and trade has been one of the hallmark issues of his administration. In this episode, Daniel LaCalle, world renowned economist, breaks down trade on the North American continent. From Trump’s threat of tariffs on Mexico to the United States-Mexico-Canada Agreement, the USMCA, we cover it all.
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Trump’s tariff threat to Mexico
Late last month, President Trump threatened Mexico with widespread tariffs if it didn’t crack down on immigration into the United States. His plan included imposing up to 25% tariffs on about $360 billion in Mexican imports by the end of the year, which were set to go into effect on June 10. Mexico is the United States’ third-largest trading partner.
“I would understand why somebody would think that these tariffs would not be implemented. Fundamentally because they do look more like a verbal threat than something like what we have seen with China.” ~ Daniel LaCalle
“But remember: Trump is a negotiator. He tends to threaten but with an open door to say, ‘Well it’s not going to happen if I see something changing substantially to stop illegal immigration.'” ~ Daniel LaCalle
A “Political Tool”
Traditionally tariffs are used as a countermeasures to barriers to trade, whether those be subsidies, low-wages, tariffs, or other barriers. Trump’s threat to Mexico is motivated by political reasons, specifically immigration. His goal is to use the tariffs as a way to change the country’s behavior.
You can learn more about tariffs in my last conversation with LaCalle.
“The main motivation is to try to influence Mexico into taking more radical action in terms of immigration.” ~ Daniel LaCalle
“We have seen these types of measures in the past. We have seen them from the United States. We have seen them from other countries towards the United States. For example, with the automotive industry between the European Union and the United States.” ~ Daniel LaCalle
“When tariffs are used as political tools, they tend to have very, very little positive effect on either side.” ~ Daniel LaCalle
Just two days before the tariffs were set to go into effect, Trump announced they would be “indefinitely suspended” because he had reached a deal with Mexican President Andrés Manuel López Obrador. The deal states that Mexico will deploy up to 6,000 troops throughout the country to cut back on migration through Mexico into the United States.
The Wall Street Journal has an excellent article regarding the US, Mexico deal.
“The centerpiece of the deal is that the Mexican government will deploy 6,000 National Guard troops to try to better secure the flow of immigrants into the United States.” ~ Luke Scorziell with Daniel LaCalle on Bills.
The US-Mexico-Canada Agreement
The United States, Mexico, and Canada have been negotiating the North American Free Trade Agreement (NAFTA) since last year. The new agreement, labelled the USMCA by Trump, has been negotiated, but not ratified.
On June 11, 2019, more than 950 groups representing the US food and agriculture value chain called on Congress to support ratification of the deal, according to Feedstuffs. You can read the letter here.
Impact of the Tariff Threat on the USMCA
“I don’t think it will make a tremendous difference, although I have to say, the media in Mexico is taking it as a direct threat and a completely unacceptable move from the part of President Trump.” ~ Daniel LaCalle on the impact of Trump’s threat of tariffs on USMCA negotiations with Mexico
Important Changes under the USMCA
Although the USMCA isn’t an entirely new agreement, it made some important changes to NAFTA. LaCalle points out some of the ones he thinks are the most important on the podcast.
“I think the biggest on is the country of origin rules.” ~ Daniel LaCalle on what he sees as the most important change in the USMCA
“It requires that about 40% of automobile parts have to be made by workers that made a minimum of $16 an hour.” ~ Daniel LaCalle
USMCA Impact on the Average American
Ultimately, the effects of trade policies are felt by the citizenry of that country. With such large changes to the USMCA, I asked LaCalle how the average American would be impacted.
“To the average American — the USMCA — I don’t think it makes much of a difference. ” ~ Daniel LaCalle
“I think that for industries that were deemed on the process of obsolescence… I think that it’s a good thing for the United States.” ~ Daniel LaCalle
“In general it’s a small, but not negligible improvement for the low-added-value industries.” ~ Daniel LaCalle
Impact on 2020
The USMCA is one of the biggest policies on the table before the 2020 elections. Not only will it reflect on President Trump, but also on Democrats and Republicans in Congress. If it passes, Trump will likely use it to tout his administration’s tough stances on trade.
“I think that from the perspective of his voter base, it can be quite a good tool, even though it’s not a big difference.” ~ Daniel LaCalle
Previous Episodes with Daniel LaCalle
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Bills with Luke Scorziell does not provide investment, tax, or legal advice or recommendations. This material is solely intended for educational purposes based on publicly available information and may change at any time. Additionally, this article’s content is a summary of the Interviewee’s comments and, while rephrased by the Author, are not from the Author himself.
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