Financial media were filled with headlines last week about the new Mexican-U.S. trade deal designed to replace NAFTA. The Canadians began negotiating a similar deal at the last minute.
It’s not clear if Canada can join the U.S. and Mexico in a “new NAFTA” or if the Mexican-U.S. deal will stand alone, but either way it’s a great accomplishment by President Trump and his trade team.
Mexico will retain preferred access to U.S. markets and the U.S. will benefit from huge new agricultural purchases by Mexico. Tariffs will be reduced or eliminated in many categories. This is a classic win-win deal.
But, as this article shows, there is one big loser – China. By finding a new market for U.S. soybeans in Mexico, Trump has removed the Chinese threat to buy fewer soybeans from the U.S.
The Mexican deal also gives Trump a political win ahead of the mid-term elections, which makes a Chinese deal less urgent. If Canada can be brought into the U.S.-Mexican fold, the win will be even bigger and China’s leverage even less.
This dynamic was reflected in the fact that the Trump trade team recently increased their demands on China to include internal structural reform in addition to trade concessions. These reforms are not likely to happen soon, if at all, which shows how a China deal is suddenly less pressing.
The political benefit to Trump of confronting China may now outweigh the detriment of a trade war. By outflanking China in Mexico, Trump once again highlights the art of the deal.
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