New President, New NAFTA

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The Trump Administration will seek modest changes to the North American Free Trade Agreement renegotiation process. According to a draft of a letter sent to Congress last week, the Administration is seeking a more conventional approach to trade negotiation.

NAFTA, which was established in 1994 between Canada, the U.S., and Mexico, aims to reduce trading costs, increase multilateral investment, while helping North America become more competitive.However, during the 2016 presidential campaign, President Trump made the debate over free trade one of the central topics of his campaign.

What is the plan for the renegotiation?

The persistent U.S. deficit in goods trade with Canada and Mexico demands that the administration take quick action to revise the relationship and adapt to the new global environment. In 2016, the U.S. deficit in goods with Canada is $42.848 billion (Data from Census.gov.foreign-trade/balance), which is only 2% of the total Canadian trade of $545 billion.

The trade deficit in goods with Mexico is $63.191 billion. Exports are $231 billion, made up primarily of auto parts and petroleum products, while imports are $294 billion, with cars, trucks, and auto parts being the largest components.

In addition, this administration believes that Mexico has taken millions of manufacturing jobs from the U.S. Should the U.S. or Mexico just leave NAFTA?

My short answer is NO. According to the data provided by Mexican government, more than 80% of Mexican goods exports are tax free to the United States, and since the signing of the trade agreement, all kinds of US companies in Mexico have grown with large number of jobs.

In the United States, some U.S. manufacturers get hurt because of NAFTA, while most American farmers profit from the agreement. Withdrawing from NAFTA will aggravate the U.S. goods trade deficit and tensions will continue to escalate, and eventually this will lead to the rupture of NAFTA.

Mexican cars will be more competitive in the United States due to depreciation of the peso, and the trade deficit will expand. On the other hand, Mexico is the third largest agricultural export market for the United States and U.S. exports of agricultural products will be more expensive for Mexican consumers.

As President Trump moves to revisit the North American Free Trade Agreement with Mexico and Canada, some are concerned these negotiations would actually limit the aggregate benefits the United States can gain. Some even claim that the United States may be handing a leadership role to China, a country that has repeatedly ignored intellectual property laws and manipulates its own currency.

Handing this role to a country who’s bad practices are at the helm of whats wrong with global economy could make for a trying situation, and one that President Trump should think about before passing the torch to China.

New World New Policy: What Art Tells Us About the Global Economy

dafen-oil-painting-villageProfessor Michael R. Czinkota

The modern world of art offers fascinating insights into the forces currently shaping world trade and the global economic system. For decades, China has experienced breakneck economic growth and has become a world leader in both the consumption and production of art, which illustrates some intriguing changes in the global economy.

The global market for high-end, rare art pieces is a good example. In recent years, as China grew more prosperous, there has been a sharp uptick in luxury art purchases by Chinese customers. In 2016, according to insider information, Oprah Winfrey sold a 54”x54” painting to a Chinese collector for $150 million. This example indicates how China has grown in its appreciation of originals. This shift perhaps presages an eventual reduction in counterfeit products for which China is still infamous. Chinese auction houses have also risen to prominence. Of the world’s top ten art auction houses, six are Chinese, and many of the largest art houses are state-owned enterprises.

In the art world, China has not only become a dramatic consumer of art, but also a prodigious producer. The southern Chinese city of Dafen, nearby to megacity Shenzhen which borders Hong Kong, has become the center of knock off art masterpieces. Beginning in the 1980’s reform era, Dafen became a hub for starving artists from around the country to work and train, pumping out high-quality knock-offs of famous European and American painters ranging from van Gogh’s Sunflowers to portraits of Western icon John Wayne. Artists produce these works on the cheap and can offer custom alterations, such as changes to the color or size to fit the purchaser’s own décor. Since the works are not signed, they do not count as fakes.

The producers of export knock-off masterpieces will face pressure to adapt, focusing more on creativity and original works. When Chinese artists copy the great masters, they hone their skills and imagination, which over time will allow them to eventually emerge as new artists in their own rights

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From Rome to Geneva: On the Significance of Trade

romeWhat gave Rome it’s preeminent power in the ancient world? No doubt its legionnaires were feared from Iberia to Galcantray. To fund military might the descendants of Romulus engaged in prolific international trade. Today, as globalization and international trade spark heated debates in capitals around the world, it is important to remember the long history of trade. From the Chinese to the Phoenicians, the Spaniards and the Dutch, the mighty British empire and the American industrial powerhouse, trade has been at the center of every great power in history. Great powers can either take that which they need by force, or buy it away. To most, trade is clearly preferable.

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The Impact of Iran-Saudi tensions on global oil prices

The recent executions in Saudi Arabia has sparked strong reactions in Iran and has the region in turmoil. Here are my thoughts regarding the impact of the Iran – Saudi Arabia tensions on global oil prices in an interview by CCTV America.

Watch the video here:

 

 

 

Fact or Myth: Foreign law is a threat to the economy

There has been an ongoing debate about the use of foreign law to interpret the American constitution. In 2010 Oklahoma enacted a broad ban on the use of foreign law. A federal court later lifted this ban. There remains however a lot of opposition to the use of international law. Justice Scalia stated, “we must never forget that it is a Constitution for the United States of America that we are expounding. Where there is not first a settled consensus among our own people, the views of other nations, however enlightened the justices of this court may think them to be, cannot be imposed upon Americans through the Constitution.”

Scalia is not alone in his views. The court’s conservatives – including Chief Justice John Roberts Jr., Justices Clarence Thomas and Samuel Alito Jr. – argue that foreign decisions can be relevant in some of the court’s cases that deal specifically with international issues but never in interpreting the Constitution.

On the other hand, Justice Stephen Breyer in his new book, “The Court and the World: American Law and the New Global Realities,” cites the importance of using foreign law in deciding tough cases. Breyer says, “15 to 20 percent of the cases we review require the judges to know something about what happens abroad. Sometimes facts, sometimes laws, sometimes decisions.” Justices Anthony Kennedy and Ruth Ginsburg agree that examining such information from abroad is no different from reviewing the many studies or briefs that seek to influence court deliberations.

While we shouldn’t embrace every attempt to introduce foreign law into the American legal system, neither should we reject it altogether. There will be times when American law should seek reference to foreign law and times when it should not. It is up to the judges then and those who interpret the Constitution.

With 16.5% of the United States GDP attributed to foreign direct investment, the U.S. must look at foreign laws. The constitutional limitations along with restrictions on tax laws, antitrust laws, and immigration laws all affect foreign investment. While the United States should remain true to its roots, if it does not adapt to the new global realities, it may very well be left behind.

According to the Organization for International Investment: Worldwide, cumulative foreign inward investment rose to $25.5 trillion through 2013. The U.S. share dropped to less than one-fifth in 2014 from more than a third in 2000. This is because competition for foreign investment dollars has increased, and multinational companies have expanded their investments in faster growing developing markets. For the fourth consecutive year, more than half of all foreign direct investment in 2013 flowed to developing and transition economies; in fact, developed countries now account for only 39% of global FDI inflows. So foreign allies seem to matter after all.

Sources: Breyer, S. (2015). The court and the world: American law and the new global realities.