The North American Free Trade Agreement is over 20 years old and should be updated. This was clear for years. It was expected that the update would be part of this Trans-Pacific Partnership, which had entered its closing stages of negotiations prior to President Trump pulled the US that it had previously sponsored to Asia as a member of the pivot.


Trump is no fan of NAFTA, and it appeared that he was ready to pull out of it also. But he was convinced, some state by the Prime Minister Trudeau of Canada, not to abandon the arrangement. Tomorrow the new negotiations will begin. Mexico and the US are especially eager for a speedy resolution. Mexico holds elections at the midst of next year, and there's concern that trade could be a problem in the primaries, even though the US election in not before November 2018. Additionally, it's believed that the White House would like a success in what has been shown to be a great deal of thunder with rain.


The US runs a trade deficit with both Canada and Mexico. However, as some suggest, it doesn't appear to be a generalized lack of US competitiveness. Nor does this appear to be a part of some macroeconomic imbalance. The proper degree of investigation is industry specific. The US would conduct a trade surplus if it weren't for auto and auto parts. If it weren't for energy, the US could record a trade surplus with Canada.


The US attempts to address the auto trade deficit with Mexico by adjusting the rules of origin. The US will even attempt to grow its exports in agriculture, telecom transactions. A big discrepancy is in labor relations in Mexico compared with Canada and the US. The initial arrangement included a sidebar but was not integrated. Mexico has a poor environment for a large informal economy and workers. The concessions Mexico may serve according to some media reports, but it's a bar that is minimal. The TPP arrangement was only to enforce national labor laws.


Addressing Canada's bilateral surplus will also prove hard. Canada has been exempt by the ban on US oil exports. A period was earlier this year that China imported more US petroleum. The US Commerce Department has recently escalated simmering disputes over lumber and dairy. It was hoped that the timber dispute could be solved before the NAFTA negotiations, but this hasn't been the case.


The Trump Adminiion's trade plan was part of a wider agenda that included tax reform at home. To the extent that globalization has come to mean offshoring and extensive supply chains, Trump contended that America is hurt by it. To deal with this, he flirted last month before being dropped. Business tax cuts have been advoed to create disincentives to production. Mexico, and to a less degree, Canada are not eager to change the distribution chains. The supply chains, after all, were an significant part the economic development experienced in the last quarter of a century in Asia and Mexico.


The negotiations will begin off quite easily and easily. The initial issues will be largely meetings' agendas, the amount of negotiating groups, and also the process that contributes to the compilation of a new arrangement. Later in the negotiations more difficult issues will be addressed, and of lessons, the most thorny isn't solved if at all until the very end.


The Trump Adminiion would like to add in the new arrangement guidelines on money market manipulation. When it comes to exchange prices the Bank of Canada is currently and traditionally among the laissez faire banks. Mexico is interventionist, but its intervention is mainly to strengthen the money while the money will depreciate over time. This is what happened lately.


Trump's campaign rhetoric helped fuel sharp peso losses, and the central bank responded by altering its intervention tactics into the husband is reserves and raised interest rates to deal with the inflation fed through by currency depreciation. The role of the clause could be more about establishing a precedent, but since it could find that such a clause hampers its levels of freedom later on, the US needs to tread carefully.


One of the most difficult problems with the newest NAFTA negotiations is the Chapter 19 dispute resolution mechanism. Simply put, the rulings often go against the US, and it isn't surprising that the Trump Adminiion would like to squander them. Canada, and to a lesser extent Mexico, find protection against the US, which is of course so much larger than Canada or Mexico. Canada seems to have made a crucial matter. This warns of the risk of protracted negotiations, and brinkmanship tactics. There would be no winners if the NAFTA were to fall, although any of the participants may not love NAFTA.