BULLY IN THE CHINA SHOP

NAFTA:   I will have a short discussion about the much maligned NAFTA.  Initiated by former President George H.W. Bush and signed into law by former President Bill Clinton in 1994, NAFTA has helped boost U.S. exports to Canada and Mexico, the nation's largest and 3rd largest trading partners. not including the Europe Union as a whole. (https://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement).

"Goods exports totaled $236 billion; goods imports totaled $295 billion. The U.S. goods trade deficit with Mexico was $58 billion in 2015. "

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"The top import categories (2-digit HS) in 2015 were: vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion)"*

President Trump has succeeded in raising the hackles of the Mexicans by trying to bully them into directly paying for the Great Wall of Trump.  Not surprisingly Mexico confronted the bully and said hell No.   If the U.S.had problems with Mexico before, now they seem to be a disaster.

There is a proposal to put a border tax of 20% on Mexican exports to the U.S.  Please note that the only government owned operation in the above list  of  imports is the mineral fuels so all the border tax would be paid by private industry, often U.S. companies.  So with a border tax, it will be the U.S. consumer who pays the tax because of increased pricing, everything else considered equal.  However, everything else is not equal and the value of the dollar index is expected to rise.  If the dollar index were to rise by 20% (which might happen if the border tax applies to all countries), then I think (but do not know) that the whole thing is a wash.

Institution of the border tax would, of course, scrap NAFTA.  the proposal is to use that money gained from the border tax to pay for the Great Wall of Trump.  At any rate, I am sure that it is the U.S. consumer that pays the tax thus the Great Wall of Trump.

Under consideration by the Republicans is to make the border tax universal, e.g. apply to all countries.  I hope the Republicans think this whole thing through, something they are not known to do. ** In addition to the complexity of the dollar index, Mexico is almost certain to institute a border tax of their own.  It was NAFTA that got Mexico to do away with their import taxes and exports from the U.S. to Mexico rose greatly as a result.  So our border tax plus Mexico's new border tax probably ends up costing U.S. jobs.

U.S. goods exports to Mexico in 2015 were $236 billion, down 1.6% ($3.9 billion) from 2014 but up 97% from 2005. U.S. exports to Mexico are up 468% from 1993 (pre-NAFTA). U.S. exports to Mexico account for 15.7% of overall U.S. exports in 2015.**

I hope present day politics doesn't screw NAFTA up.

There is some modification of NAFTA in the TPP (Trans-Pacific Partnership) (a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,Singapore, the United States and Vietnam.) (https://en.wikipedia.org/wiki/Trans-Pacific_Partnership); however, we are going to trash that before it begins and cede Asia to China.

It is hard for me to see how all this ends well.

* https://ustr.gov/countries-regions/americas/mexico 

** For example, Republicans were all for the President having a line item veto, apparently never thinking that there might be a Democratic President; however President Clinton was elected.  When he used the line item veto, Republicans howled and took it to the Supreme Court that said it was unconstitutional.   Some Republicans still want the line item veto.