Bill Owens: What's Going On With Trade?

Jun 30, 2017

On the Canadian front, on May 18, the Trump administration gave formal notice that it was proceeding toward a renegotiation of NAFTA.  There have been some general hints at the direction the administration will take, including the issues that might be negotiated. Some believe that this will be simply a tweak; others believe it will be a potentially massive rewrite of NAFTA.  Many groups are urging the Trump administration to focus on tweaks rather than dramatic changes. 

In the administration’s first letter to Congress addressing NAFTA renegotiations earlier this year, it laid out 15 to 20 areas that they intended to explore; some of those have since been repeated, while others have been added or subtracted.  The reality is, we will not know the precise focus of the Trump administration until they give the 30-day notice prior to the actual commencement of negotiations, which will provide a clear insight to the subject matter and the scope of the renegotiation.

On the world front, we have withdrawn from T-TIP and TPP, and Mr. Trump has declared China is not a currency manipulator and appears to be attempting to make deals with the Chinese.  Nothing has come to fruition as yet. 

On the Russian front, the United States Senate recently passed a bill authorizing more sanctions against Russia, and making it more difficult for the president to act unilaterally to reduce sanctions. With a 97 to 2 vote, there is ample room for an override, at least in the Senate.  It will be interesting to see if the House passes it.  There has been no indication from the White House as to whether or not the bill will be signed, if delivered to Mr. Trump’s desk.   

The Chinese offer a seemingly extraordinary twist to the story, as has been recently reported.  They are looking to invest in the United States, and not just in real estate and large conglomerates, but rather looking at acquiring manufacturing businesses.  Let’s not believe for a moment that this is going to bring back the manufacturing of low-cost products to the US, because those still remain tied to primarily wage costs, which likely will always be lower in China or in other locations.  What it may well reveal is that the Chinese have several goals they would like to achieve, and believe that can only happen in the United States.  This becomes important for high-tech manufacturers.  The Chinese have discovered that there is a cost advantage to manufacturing in the United States.  This is derived from the cost of land, electricity and cotton (obviously, this points to clothing and other household products).  In some cases it may cost 25 percent less in the US than in China to produce certain products.  Chinese wages have increased about 30 percent each year for the last decade. 

Also one of the interesting areas to look at, of course, is the currency exchange rate.  The Chinese currency remains weak against the US dollar, but so does the Canadian dollar.  The Chinese, however, are willing to invest in the United States, while Canadians of recent date have been reluctant.  One of the significant factors impacting the Chinese, of course, is that the US offers a better environment, including better air, safer food, relatively straightforward access to funding, and a government that doesn’t intervene.  The latter may come as a shock, but one has to always remember the Chinese economy is government-controlled.  Due to the straightforward access to funding, the door to capital-intensive industries opens quite easily, while as I noted above, labor-intensive industries are much less likely to seek out the United States. The lack of skilled workers, which has been addressed in many articles and news reports, also affects Chinese investors. 

Obviously, China is a source of economic development for virtually every state in the United States, but without a serious investment in skills training, that door is less likely to be walked through.  We hope that the Trump administration and both parties understand the potential and, along with making investments in infrastructure, that they make a serious investment in skills training.

Mr. Owens is a former member of Congress representing the New York 21st and a Senior Advisor to Dentons.

The views expressed by commentators are solely those of the authors. They do not necessarily reflect the views of this station or its management.

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