Dripping in Swamp Water

Swamp monsters win new Nafta deal…

The BIG WINNER from the new North American Free Trade Agreement (Nafta) deal, now called the US-Mexico-Canada Agreement (USMCA), is the Swamp, writes Bill Bonner in his Diary of a Rogue Economist.

Here's Jeffrey J.Schott of the Peterson Institute for International Economics with the details:

"[The deal] adds layer upon layer of costly new regulations that producers must follow to qualify for Nafta's low tariffs – layers virtually certain to drive up costs of autos for consumers and very likely reduce US jobs in the auto sector. Very simply, the pact is intentionally designed to mismanage the auto sector, an important driver of production and high-wage manufacturing employment in all three countries."

The best trade deal is no trade deal at all. Get the feds out of the way; let people make whatever deals they want.

This is especially easy and obvious in countries such as the US and Canada, where living standards, wages, language, environmental regulations, and other related rules are very similar.

Canada and the US could trade as freely as New York and Alabama.

But that would cut out the swamp critters. They make their money by interfering in free trade, not by facilitating it.

And now, with the new Nafta, dripping with greasy swamp water, they have a lot more room to maneuver. The Trump team gave them a crony trade deal where what you get depends largely on how much you pay your lobbyists.

Schott again:

"Based on analysis by the Peterson Institute for International Economics (PIIE), the new content rules and minimum wage requirements will likely lead to a less competitive North American auto industry with less investment in US plants and fewer US jobs in the sector – just the opposite of the claims of US officials. The new rules require that 75% of a car or truck have content made in North America to qualify for tariff-free imports, up from the current level of 62.5%.

"In addition, 70% of steel and aluminum must be produced in North America, and 40% of a car or truck would have to be made by workers earning at least $16 per hour, presumably to discourage companies from moving assembly operations to Mexico. Producers of passenger cars must either comply with the new rules or forgo the regional tariff preference.

"This will likely be their choice, since, in that case, they can use components from any country and simply pay the low most favored nation (MFN) tariff of 2.5% instead of rejiggering their supply chains. But truck producers don't have that relatively cheap escape hatch: The US MFN tariff on trucks is 25%."

There's plenty of room for interpretation, in other words. And dangling sinecures, speaking fees, consulting deals, and who knows what else...the anglers are bound to help policymakers see it their way.

That's the way the Swamp works.

Free trade, meanwhile, takes place on dry land. It needs no lobbyists or insiders.

But bullying, blustering, and bluffing not only adds costs and decreases efficiency, it also leads to major blunders. America's most important and most loyal trading partner is already looking for other markets and suppliers.

Per Perrin Beatty, president of the Canadian Chamber of Commerce:

"Canada must remember the lesson this turbulent period has provided: we must never again allow ourselves to be overly dependent on one trading partner. We must continue to diversify our markets to protect ourselves from capricious and unfair actions in the future."

Who would want to do business with a bully? Who would trust Mr.Trump...or the nation that gave him its highest office?

We don't know. But it must be the question the Chinese are asking.

And while Mr.Trump is counting on his familiar "mad dog" negotiating strategy – barking and growling, while expecting to back down later and then claim victory – the risks with China are much greater than with Canada or Mexico.

Because the whole edifice of US swag – including the fortunes of Donald Trump, Jeff Bezos, and millions of cronies, hustlers, and speculators – depends on fake money lent at fake rates, and the fake "globalized" world economy it has created.

The fake money – $19 trillion has been added to global monetary footings in the last 30 years through central bank stimulus policies – financed far more malls than Americans need...and far more factories than the Chinese need.

It drove the stock market up 10 times and made Wall Street rich.

And (by turning millions of voters against their own elite) it got Donald Trump elected president.

But now, China's credit bubble – which is even bigger than America's and is pumped up on even more absurd fantasies – is ready to pop at any moment.

America's stock market bubble – with prices even higher, relative to GDP, than in 1929 or 2007 – is set to burst.

The whole crackpot media bubble that keeps people focused on trivia and trash is ready to blow up, too.

And there's Donald J.Trump...blindfolded by his own silly ideas...with a giant pin in his hand.