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.

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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Trade Tensions Felt in Florida

[Original Story from Jerry Haar of Miami Herald] – What are the costs of picking a fight with our neighbors to the north? The answer may surprise you.

The US recently announced it would levy anti-dumping penalties against Canada. These actions specifically target softwood timber, dairy, and steel. While the full effects are yet to be fully assessed, and opposition has been raised by an unexpected source: Florida.

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New world, New policy: Overcoming the Burden of Foreignness

burden of foreignnessWhy should we worry about misaligned participations in trade? According to the U.S. Department of Commerce, less than 1 percent of U.S. firms export. Tens of thousands of small-business manufacturers and service sector firms could export their goods and services, but do not. These companies often fear the challenges of going overseas. But all firms entering new markets face shortcomings and disadvantages when compared to local competitors. Due to a lack of local knowledge, unfamiliarity with market conditions, insufficient insights into consumer behavior, and newness to political decision making, all new entrants encounter a “burden of foreignness.” Policymakers need to help prospective exporters overcome this burden and successfully access new opportunities overseas.

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New World, New Policy

The changing composition of U.S. trade 
international_trade_2We have often heated discussions on trade policy shifts. To make reasonable arguments, we must consider that the fundamental composition of trade has been changing. For example, from the 1960s to 1990s, the trade role of primary commodities has declined precipitously while in parallel, the importance of manufactured goods has increased. This has meant that those countries and workers who had specialized in commodities such as rubber or mining typically fell behind those that had embarked on strengthening their manufacturing sector. With sharply declining world market prices for commodities and rising prices for manufactured goods, commodity producers were increasingly unable to keep pace. Some commodity-dependent countries realized temporary windfalls as prices of oil, wheat, and corn rose dramatically, only to watch them evaporate as prices dropped in 2009.

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