1 00:00:00,240 --> 00:00:05,520 Speaker 1: Worst trade deal ever. We know how Donald Trump views NAFTA, 2 00:00:05,840 --> 00:00:09,879 Speaker 1: the North American Free Trade agreement that links the US, Canada, 3 00:00:10,000 --> 00:00:14,040 Speaker 1: and Mexico. Dissing NAFTA and most things Mexican was a 4 00:00:14,080 --> 00:00:18,000 Speaker 1: staple of his campaign. Attacking free trade was a key 5 00:00:18,079 --> 00:00:22,320 Speaker 1: talking point. But from Mexico's perspective, the country that was 6 00:00:22,360 --> 00:00:25,720 Speaker 1: supposed to be eating America's lunch, it's not really just 7 00:00:25,840 --> 00:00:30,840 Speaker 1: about trade. Mexico's entire economic model and strategic view of 8 00:00:30,880 --> 00:00:34,240 Speaker 1: the world has NAFTA at its center. Worse, it looks 9 00:00:34,280 --> 00:00:38,080 Speaker 1: like Mexico didn't even see this coming. The country has 10 00:00:38,120 --> 00:00:41,720 Speaker 1: its own election next year, and populous candidates are on 11 00:00:41,760 --> 00:00:45,400 Speaker 1: the rise there as well, not just in the United States. 12 00:00:54,720 --> 00:00:58,720 Speaker 1: Welcome to Bloomberg Benchmark, a show about the global economy. 13 00:00:59,040 --> 00:01:02,240 Speaker 1: I'm Daniel Moss, an editor for bloomboag View in New York, 14 00:01:02,440 --> 00:01:06,039 Speaker 1: and I'm Scott Landman and economics editor for Bloomberg in Washington. 15 00:01:06,319 --> 00:01:09,960 Speaker 1: How is Mexico court napping? Joining us as Shannon O'Neil 16 00:01:10,080 --> 00:01:13,120 Speaker 1: from the Council on Foreign Relations, where she's the Nelson 17 00:01:13,200 --> 00:01:17,880 Speaker 1: and David Rockefeller Senior Fellow for Latin American Studies. Shannon, 18 00:01:17,959 --> 00:01:22,640 Speaker 1: Welcome thank you for having me. Was Mexico actually court napping, 19 00:01:23,120 --> 00:01:26,280 Speaker 1: I do think they were. I think both the government 20 00:01:27,080 --> 00:01:29,560 Speaker 1: believe that NAFTA would go on forever. This was a 21 00:01:29,560 --> 00:01:32,039 Speaker 1: stable agreement, and there are reasons to think so. It's 22 00:01:32,040 --> 00:01:34,839 Speaker 1: already been in place for twenty three years. It's become 23 00:01:34,880 --> 00:01:39,120 Speaker 1: a big bolster of their economy and really their legal system, 24 00:01:39,200 --> 00:01:41,960 Speaker 1: particularly when it pertains to contracts to business, to the 25 00:01:42,000 --> 00:01:45,399 Speaker 1: private sector. And you also see the private sector was 26 00:01:45,480 --> 00:01:48,080 Speaker 1: resting on their loyals here too. They had made a 27 00:01:48,120 --> 00:01:50,919 Speaker 1: big push in the early nineties to get NAFTA passed, 28 00:01:51,280 --> 00:01:53,040 Speaker 1: and then they all went back to their businesses. They 29 00:01:53,040 --> 00:01:55,640 Speaker 1: all went back to their day to day ways of 30 00:01:55,680 --> 00:01:58,040 Speaker 1: doing things and thinking about profits and losses and all 31 00:01:58,080 --> 00:02:01,640 Speaker 1: of that, not thinking about the need um, not even 32 00:02:01,640 --> 00:02:05,280 Speaker 1: recognizing the need to defend this agreement that allowed so 33 00:02:05,360 --> 00:02:08,600 Speaker 1: much of that to happen. What would be the economic 34 00:02:08,639 --> 00:02:13,000 Speaker 1: effects on Mexico if NAFTA collapse? What are the common 35 00:02:13,200 --> 00:02:16,880 Speaker 1: estimates for GDP or or how much of its economy 36 00:02:17,080 --> 00:02:19,919 Speaker 1: is just tied to NAFTA at this point. You know, 37 00:02:19,960 --> 00:02:22,240 Speaker 1: I've seen a lot of estimates from different banks come 38 00:02:22,240 --> 00:02:25,079 Speaker 1: out and they range really widely. Some say, it might 39 00:02:25,120 --> 00:02:27,960 Speaker 1: just take off half a percentage of point from GDP. 40 00:02:28,120 --> 00:02:30,919 Speaker 1: Others think it would lead Mexico into recession. So there's 41 00:02:30,960 --> 00:02:34,880 Speaker 1: a lot of uncertainty about what would happen. But one 42 00:02:34,919 --> 00:02:37,960 Speaker 1: thing you've seen in Mexico that's quite interesting. Mexico for 43 00:02:37,960 --> 00:02:40,720 Speaker 1: the last twenty plus years has grown something like two 44 00:02:40,960 --> 00:02:44,240 Speaker 1: two and a half percent a year, so not horrible, 45 00:02:44,240 --> 00:02:46,560 Speaker 1: but not spectacular, right, not not a big growth, not 46 00:02:46,720 --> 00:02:49,880 Speaker 1: classic em it's not classic emerging market. But what's interesting 47 00:02:49,919 --> 00:02:52,920 Speaker 1: is if you get beyond the national numbers and you 48 00:02:53,000 --> 00:02:56,959 Speaker 1: look at the state level, you see a huge divergence. 49 00:02:57,000 --> 00:03:00,600 Speaker 1: And so the northern States, the NAFTA oriented states, they 50 00:03:00,600 --> 00:03:03,280 Speaker 1: have been growing at six, seven, eight, even ten percent 51 00:03:03,280 --> 00:03:06,160 Speaker 1: a year. So these are Asian tiger rates. It's the 52 00:03:06,200 --> 00:03:08,760 Speaker 1: southern states, the ones that are marginalized, that aren't connected 53 00:03:08,760 --> 00:03:10,680 Speaker 1: to the United States, that aren't connected to the global 54 00:03:10,720 --> 00:03:14,480 Speaker 1: economy through NAFTA or other trade agreements, they are stagnating 55 00:03:14,560 --> 00:03:17,200 Speaker 1: or even in decline. So the North South divide. The 56 00:03:17,240 --> 00:03:20,640 Speaker 1: sounds kind of familiar, it does, indeed, but it is 57 00:03:20,840 --> 00:03:23,320 Speaker 1: very did you see the benefits of NAFTA there, right, 58 00:03:23,360 --> 00:03:27,679 Speaker 1: the modernization, the more competitive global industries, and how much 59 00:03:27,720 --> 00:03:30,800 Speaker 1: Mexico can grow in part because of the trade agreement. 60 00:03:30,840 --> 00:03:32,720 Speaker 1: So it is more important than just say that the 61 00:03:32,760 --> 00:03:37,280 Speaker 1: overall national numbers would suggest. Shannon, did Mexico have these 62 00:03:37,400 --> 00:03:41,200 Speaker 1: kinds of supply chains with the United States and Canada 63 00:03:41,400 --> 00:03:44,880 Speaker 1: before NAFTA was formed? I mean, can you give us 64 00:03:44,920 --> 00:03:47,840 Speaker 1: a sense of how much has been built up in 65 00:03:47,920 --> 00:03:50,800 Speaker 1: Mexico and how important it is not just to the 66 00:03:50,840 --> 00:03:54,840 Speaker 1: North American economy but the global economy since NAFTA was 67 00:03:54,880 --> 00:03:57,840 Speaker 1: signed more than twenty years ago. That is really the 68 00:03:58,000 --> 00:04:02,160 Speaker 1: big change in Mexico US and somewhat Canadian trades. So 69 00:04:02,200 --> 00:04:05,760 Speaker 1: we saw we've seen in the twenty plus Yearson's NAFTA 70 00:04:05,840 --> 00:04:09,600 Speaker 1: trade itself quadruple and that's a huge shift. But really 71 00:04:09,680 --> 00:04:13,440 Speaker 1: what's changed is the nature of this trade. So before NAFTA, 72 00:04:13,560 --> 00:04:15,960 Speaker 1: eight percent of Mexico's exports went to the United States. 73 00:04:16,000 --> 00:04:18,840 Speaker 1: Today eight percent of Mexico's exports go to the United States. 74 00:04:18,880 --> 00:04:22,560 Speaker 1: But they're very different exports. Before it was oil, it 75 00:04:22,640 --> 00:04:26,680 Speaker 1: was other commodities. Today it is the pieces and parts 76 00:04:26,680 --> 00:04:31,720 Speaker 1: and components of these supply chains. And telling statistic is 77 00:04:31,880 --> 00:04:36,120 Speaker 1: before NAFTA, about five percent of Mexican trade North was 78 00:04:36,400 --> 00:04:38,480 Speaker 1: sort of these intermediate goods, right, the pieces and parts 79 00:04:38,480 --> 00:04:41,719 Speaker 1: that go together to make something. Today it is roughly 80 00:04:42,880 --> 00:04:45,760 Speaker 1: by some estimates, So we've seen a huge shift in this, 81 00:04:45,960 --> 00:04:48,960 Speaker 1: and it is all sorts of industries. It's the car industry, 82 00:04:49,200 --> 00:04:53,680 Speaker 1: it's aerospace, it's medical equipment, it's electronics, it's food products, 83 00:04:53,720 --> 00:04:56,960 Speaker 1: process food, it's all kinds of industries where you see 84 00:04:57,000 --> 00:05:00,200 Speaker 1: this integration. So that means that the United s dates 85 00:05:00,279 --> 00:05:02,840 Speaker 1: is exporting to Mexico. In fact, it's our second largest 86 00:05:03,080 --> 00:05:06,760 Speaker 1: export destination, just second to Canada. But they're also receiving 87 00:05:06,800 --> 00:05:09,640 Speaker 1: imports from Mexico to the United States, and so that 88 00:05:09,800 --> 00:05:13,200 Speaker 1: tie is very different than twenty plus years ago. So, Shannon, 89 00:05:13,240 --> 00:05:16,320 Speaker 1: you and I both participated in the Mexico Business Summit 90 00:05:16,480 --> 00:05:19,200 Speaker 1: last month, and one line that we heard over and 91 00:05:19,279 --> 00:05:23,120 Speaker 1: over again was, wait, we thought we got married in 92 00:05:23,200 --> 00:05:26,440 Speaker 1: the early nineties and we didn't have to do anything else. 93 00:05:27,040 --> 00:05:30,320 Speaker 1: Now we've got a war room where brainstorming, we're trying 94 00:05:30,320 --> 00:05:34,839 Speaker 1: to influence senators and congressmans, like, how is this blind 95 00:05:34,920 --> 00:05:38,960 Speaker 1: spot able to happen? I think people took the status 96 00:05:39,040 --> 00:05:42,240 Speaker 1: quo as the status quo, that it was unchangeable, or 97 00:05:42,240 --> 00:05:44,080 Speaker 1: that there was no one who would want it to change, 98 00:05:44,240 --> 00:05:47,440 Speaker 1: And from the Mexican point of view, NAFTA has actually 99 00:05:47,480 --> 00:05:51,080 Speaker 1: been fairly politically popular. You look at opinion polls, and 100 00:05:51,120 --> 00:05:54,760 Speaker 1: the majority of Mexicans think it's a good thing. Many Mexicans, 101 00:05:54,760 --> 00:05:57,320 Speaker 1: as we know, have family members others in the United States. 102 00:05:57,320 --> 00:06:00,200 Speaker 1: They see the United States increasingly as a partner, as 103 00:06:00,200 --> 00:06:03,400 Speaker 1: a friend. Those that have relatives living here or friends 104 00:06:03,400 --> 00:06:05,680 Speaker 1: living here feel more warmly to the United States than 105 00:06:05,720 --> 00:06:08,080 Speaker 1: those that don't. So from the Mexican point of view, 106 00:06:08,080 --> 00:06:09,880 Speaker 1: they thought this was all good, this was a benefit. 107 00:06:09,960 --> 00:06:11,640 Speaker 1: They saw it as a win win for the United 108 00:06:11,640 --> 00:06:14,760 Speaker 1: States and Mexico and couldn't imagine that the United States 109 00:06:14,800 --> 00:06:18,000 Speaker 1: would want to tear it up. And all of the 110 00:06:18,400 --> 00:06:21,520 Speaker 1: careful economic studies show that it's a net benefit for 111 00:06:21,520 --> 00:06:24,600 Speaker 1: the United States. Now, of course, we know that net 112 00:06:24,640 --> 00:06:29,880 Speaker 1: benefits hid particular losses for particular people, right concentrated losses 113 00:06:30,160 --> 00:06:33,680 Speaker 1: for more diffuse benefits. But they were focusing on the 114 00:06:33,760 --> 00:06:36,440 Speaker 1: net benefits and not realizing that there may be this 115 00:06:36,520 --> 00:06:38,920 Speaker 1: political movement which we've seen here in the United States. 116 00:06:39,240 --> 00:06:42,160 Speaker 1: For those that have lost, whether from this or from 117 00:06:42,160 --> 00:06:46,080 Speaker 1: other things, NAFTA has often become the focus for the 118 00:06:46,120 --> 00:06:48,920 Speaker 1: bad that's happened to many Americans, So it's a proxy 119 00:06:49,000 --> 00:06:52,720 Speaker 1: for whatever might be bothering exactly. Shannon, can you tell 120 00:06:52,800 --> 00:06:55,279 Speaker 1: us a bit about how the political rhetoric in the 121 00:06:55,360 --> 00:06:58,800 Speaker 1: United States, and I guess the actual policy move to 122 00:06:58,839 --> 00:07:03,640 Speaker 1: start renegotiating have to has affected the political situation in Mexico. 123 00:07:03,760 --> 00:07:05,720 Speaker 1: I mean, how many people in the US know that 124 00:07:05,800 --> 00:07:09,880 Speaker 1: there's an election in Mexico next year and if they don't, 125 00:07:09,960 --> 00:07:13,200 Speaker 1: should they They should know? And I think not enough. No, 126 00:07:13,520 --> 00:07:16,400 Speaker 1: either in the general population or perhaps even people in 127 00:07:16,400 --> 00:07:18,880 Speaker 1: our own government. The United States government aren't really thinking 128 00:07:18,920 --> 00:07:23,920 Speaker 1: about the ramifications from Mexico's election. So next July, Mexicans 129 00:07:23,960 --> 00:07:26,440 Speaker 1: will go to the polls to elect not just the president, 130 00:07:26,560 --> 00:07:31,160 Speaker 1: including their president, but every senator, every representative, hundreds of 131 00:07:31,240 --> 00:07:35,320 Speaker 1: local posts, so over three thousand positions overall, which is 132 00:07:35,320 --> 00:07:39,320 Speaker 1: the biggest election in Mexico's modern history. So we could see, 133 00:07:39,800 --> 00:07:43,560 Speaker 1: depending on how these elections pan out continuity with Mexico, 134 00:07:43,680 --> 00:07:47,000 Speaker 1: a stable democratic Mexico, one that's market friendly, one that's 135 00:07:47,120 --> 00:07:50,440 Speaker 1: US friendly, or we could see a see change in 136 00:07:50,640 --> 00:07:54,680 Speaker 1: Mexico's politics turning to a more protectionist policy. Back to 137 00:07:54,760 --> 00:07:57,400 Speaker 1: some of the policies of the nineteen sixties or seventies, 138 00:07:57,680 --> 00:08:01,040 Speaker 1: and perhaps a set of leaders in position that are 139 00:08:01,120 --> 00:08:05,160 Speaker 1: more anti the United States. And one thing the rhetoric 140 00:08:05,200 --> 00:08:07,120 Speaker 1: coming out of the United States, not just NAFTA, but 141 00:08:07,200 --> 00:08:11,160 Speaker 1: the general talk about building a wall or denigrating Mexicans 142 00:08:11,160 --> 00:08:14,440 Speaker 1: and Mexican immigrants or Mexicans in general, is it has 143 00:08:14,560 --> 00:08:19,040 Speaker 1: led to a resurgence of Mexican nationalism. Um. You know, 144 00:08:19,080 --> 00:08:22,200 Speaker 1: they're upset about their own dignity, about their sovereignty. And 145 00:08:22,600 --> 00:08:26,960 Speaker 1: we've seen the leading candidate, man named Andres Manuel Lopezo Bodor, 146 00:08:27,040 --> 00:08:29,000 Speaker 1: who comes from the left, is more of a populist 147 00:08:29,040 --> 00:08:32,040 Speaker 1: type leader. We've seen him play very well on these 148 00:08:32,040 --> 00:08:34,920 Speaker 1: sort of anti American sentiments and standing up to Trump 149 00:08:34,960 --> 00:08:37,280 Speaker 1: saying he is the one who can stand up while 150 00:08:37,280 --> 00:08:40,840 Speaker 1: others can't. So broadly, he's like the Bernie Sanders of Mexico. 151 00:08:41,480 --> 00:08:44,040 Speaker 1: The Bernie Sanders are perhaps the Donald Trump will see. 152 00:08:44,760 --> 00:08:47,120 Speaker 1: But the general point is, you know, we used to 153 00:08:47,200 --> 00:08:51,520 Speaker 1: worrying about the impact of populist politics in the United 154 00:08:51,600 --> 00:08:56,920 Speaker 1: States and the threat that poses to the international economic system. 155 00:08:57,080 --> 00:09:03,080 Speaker 1: Should we be worried about popular threats from Mexico rather 156 00:09:03,160 --> 00:09:06,880 Speaker 1: than the United States. I think we should worry about 157 00:09:06,880 --> 00:09:10,120 Speaker 1: a shift in Mexico in terms of its politics, particular, 158 00:09:10,120 --> 00:09:12,880 Speaker 1: if it moves in a direction that's much more suspicious 159 00:09:12,920 --> 00:09:16,239 Speaker 1: of the United States, are much less likely to cooperate. 160 00:09:16,640 --> 00:09:19,400 Speaker 1: And this matters first and foremost on the economic side. 161 00:09:19,400 --> 00:09:22,520 Speaker 1: What we've been talking about, we have so many companies, 162 00:09:22,600 --> 00:09:26,360 Speaker 1: so many of their workers who depend on exports to Mexico. 163 00:09:26,760 --> 00:09:29,440 Speaker 1: That is where they're livelihood. And as we were talking about, 164 00:09:29,440 --> 00:09:32,679 Speaker 1: these supply chains that are forming whole industry sectors of 165 00:09:32,720 --> 00:09:36,840 Speaker 1: the U S. Economy are globally competitive today because they 166 00:09:37,000 --> 00:09:39,440 Speaker 1: have parts of their operations in Mexico, parts in the 167 00:09:39,520 --> 00:09:42,760 Speaker 1: United States, and some have also parts in Canada, and 168 00:09:42,800 --> 00:09:46,760 Speaker 1: all of that came about because of NAFTA. But we 169 00:09:46,800 --> 00:09:49,959 Speaker 1: should also worry about working class Trump voters know that, 170 00:09:50,480 --> 00:09:53,640 Speaker 1: I think very few and one of the most one 171 00:09:53,679 --> 00:09:55,520 Speaker 1: of the most important sectors are the ones that will 172 00:09:55,520 --> 00:09:58,920 Speaker 1: be hit most quickly is actually the U. S. Agricultural 173 00:09:59,000 --> 00:10:02,520 Speaker 1: sector and agricult real States were you know, almost uniformly 174 00:10:02,559 --> 00:10:05,160 Speaker 1: went for Trump. But this is one of our biggest 175 00:10:05,200 --> 00:10:08,599 Speaker 1: exports to Mexico. We send eighteen billion dollars a year 176 00:10:08,800 --> 00:10:11,800 Speaker 1: of different products, whether it's pork or beef, or soy 177 00:10:12,000 --> 00:10:14,959 Speaker 1: or potatoes and all sorts of other agricultural products. They 178 00:10:15,000 --> 00:10:17,640 Speaker 1: are some of our biggest consumers and that will be 179 00:10:17,720 --> 00:10:23,000 Speaker 1: hit immediately if we end NAFTA. If NAFTA actually does collapse, 180 00:10:23,040 --> 00:10:26,600 Speaker 1: would Mexico be able to shift more of its exports 181 00:10:26,600 --> 00:10:29,320 Speaker 1: to other countries around the world. Is it competitive enough 182 00:10:29,720 --> 00:10:33,200 Speaker 1: in the export market to do that or is there 183 00:10:33,240 --> 00:10:36,520 Speaker 1: a serious risk that you know, they won't be able 184 00:10:36,600 --> 00:10:40,640 Speaker 1: to refocus their economy or refocus their trade and things 185 00:10:40,640 --> 00:10:43,040 Speaker 1: will get really bad. You know. As much as we 186 00:10:43,080 --> 00:10:47,960 Speaker 1: talk about globalization and global supply chains, geography is still 187 00:10:48,000 --> 00:10:51,960 Speaker 1: incredibly important in the way the world's economies work. And 188 00:10:52,040 --> 00:10:55,280 Speaker 1: so I don't see a future where Mexico is totally 189 00:10:55,320 --> 00:10:59,880 Speaker 1: detached from the United States. But they are starting, perhaps 190 00:10:59,880 --> 00:11:03,040 Speaker 1: the bit belatedly, but they are starting to look past 191 00:11:03,120 --> 00:11:06,199 Speaker 1: the United States and what could they do to diversify 192 00:11:06,200 --> 00:11:09,400 Speaker 1: exports and imports frankly as they go forward. And so 193 00:11:09,559 --> 00:11:13,320 Speaker 1: Mexico is one of the most open economies already. It 194 00:11:13,400 --> 00:11:16,200 Speaker 1: has free trade agreements with over forty different nations, so 195 00:11:16,320 --> 00:11:19,560 Speaker 1: not just the United States, but also the European Union 196 00:11:19,600 --> 00:11:23,040 Speaker 1: and others. Um they are continuing to participate in the 197 00:11:23,080 --> 00:11:26,640 Speaker 1: Trans Pacific Partnership negotiations the t p P. There's only 198 00:11:26,679 --> 00:11:28,920 Speaker 1: eleven now instead of twelve, but they're still there and 199 00:11:28,960 --> 00:11:32,080 Speaker 1: they see that path forward as one where perhaps they 200 00:11:32,080 --> 00:11:34,960 Speaker 1: could find a way to diversify their base. But in 201 00:11:35,040 --> 00:11:37,360 Speaker 1: the end, I mean, as I said before and after 202 00:11:37,440 --> 00:11:40,760 Speaker 1: exports came to the United States from Mexico, they continue 203 00:11:40,800 --> 00:11:42,680 Speaker 1: to be that number. I do think you can move 204 00:11:42,679 --> 00:11:46,240 Speaker 1: that percentage somewhat, but United States and Mexico will always 205 00:11:46,240 --> 00:11:48,720 Speaker 1: be tied economically as well as in a whole host 206 00:11:48,720 --> 00:11:51,560 Speaker 1: of other ways. Question we both heard a lot at 207 00:11:51,559 --> 00:11:55,280 Speaker 1: the Mexico Business Summit was is there a link between 208 00:11:55,320 --> 00:12:00,480 Speaker 1: the success or failure of tax cut legislation and NAFTA. 209 00:12:00,960 --> 00:12:03,920 Speaker 1: You know, it's hard to divine what's going to happen 210 00:12:03,960 --> 00:12:06,720 Speaker 1: with the Trump administration and how it makes its decision 211 00:12:06,920 --> 00:12:10,560 Speaker 1: process from the outside. But I do think as we 212 00:12:10,600 --> 00:12:13,199 Speaker 1: look at the U s electoral process, we head into 213 00:12:13,240 --> 00:12:17,800 Speaker 1: midterm elections coming next November, just a year away, and 214 00:12:17,920 --> 00:12:21,600 Speaker 1: the Republicans, those that want to keep their seats, need something, 215 00:12:21,720 --> 00:12:24,040 Speaker 1: They need something to run on, and so far they 216 00:12:24,040 --> 00:12:27,920 Speaker 1: have been frustrated in their ability to pass almost anything, 217 00:12:28,080 --> 00:12:31,800 Speaker 1: So tax cuts seems to be the most promising of those, 218 00:12:31,800 --> 00:12:34,320 Speaker 1: though it's still a very hard road to home, and 219 00:12:34,360 --> 00:12:37,199 Speaker 1: many have been talking, as you just mentioned, NAFTA might 220 00:12:37,200 --> 00:12:39,800 Speaker 1: be the thing that he could that Trump could do 221 00:12:40,080 --> 00:12:42,560 Speaker 1: to give something to his base, to show that these 222 00:12:42,600 --> 00:12:45,920 Speaker 1: first you know, two years, have they've seen successes. So 223 00:12:46,000 --> 00:12:49,120 Speaker 1: I think that is the real question, and what would 224 00:12:49,120 --> 00:12:52,520 Speaker 1: hold the Trump administration back, in my view, is all 225 00:12:52,559 --> 00:12:57,720 Speaker 1: of these governors, local representatives, mayors and businesses that are 226 00:12:57,840 --> 00:13:00,880 Speaker 1: slowly on. We talked about the Mexican side not really 227 00:13:00,920 --> 00:13:03,440 Speaker 1: being waking up to the challenges or what would happen 228 00:13:03,440 --> 00:13:05,880 Speaker 1: if NAFTA disappeared. I think it's been almost worse here 229 00:13:05,880 --> 00:13:09,240 Speaker 1: on the U S side. There's so many US businesses 230 00:13:09,400 --> 00:13:12,080 Speaker 1: and particularly as I was menting, the agricultural sector, who 231 00:13:12,160 --> 00:13:14,960 Speaker 1: really had no idea that Mexico was their biggest client 232 00:13:15,080 --> 00:13:18,240 Speaker 1: and that the benefits and that free trade back and forth, 233 00:13:18,440 --> 00:13:20,439 Speaker 1: the tariffs that would come up would make them uncompetitive 234 00:13:20,440 --> 00:13:23,000 Speaker 1: those markets. So where you're going to see, we'll see 235 00:13:23,040 --> 00:13:25,600 Speaker 1: tax reform go through maybe first quarter of next year, 236 00:13:25,679 --> 00:13:28,160 Speaker 1: maybe not, we'll find out, but I do think that's 237 00:13:28,240 --> 00:13:32,840 Speaker 1: when you will see a lobby of these business leaders, 238 00:13:32,880 --> 00:13:34,880 Speaker 1: of governors of others that would be hit very hard 239 00:13:35,280 --> 00:13:38,120 Speaker 1: in particular sectors with NAFTAS demise start talking to the 240 00:13:38,120 --> 00:13:41,400 Speaker 1: Trump administration and asking him and others not to end it. 241 00:13:41,559 --> 00:13:44,920 Speaker 1: So that's kind of a reprieve period while they try 242 00:13:45,000 --> 00:13:48,720 Speaker 1: to get tax cuts through and signed, and then the 243 00:13:48,760 --> 00:13:52,559 Speaker 1: focus will again shift to NAFTA. I would expect that 244 00:13:52,640 --> 00:13:56,160 Speaker 1: because the Trump administration, if they want tax cuts, they 245 00:13:56,200 --> 00:13:59,360 Speaker 1: need these Midwest states, right, they need them to go along. 246 00:13:59,400 --> 00:14:01,720 Speaker 1: And so if you're at the same time undermining the 247 00:14:01,760 --> 00:14:04,880 Speaker 1: agricultural sector, undermining the auto industry, undermining some of these 248 00:14:04,880 --> 00:14:07,719 Speaker 1: other businesses that rely on supply chains, it's hard to 249 00:14:07,800 --> 00:14:10,640 Speaker 1: get their vote for your tax reform. So I think 250 00:14:10,640 --> 00:14:12,439 Speaker 1: there's a trade off there. But then you could see 251 00:14:12,720 --> 00:14:15,839 Speaker 1: a revisit, say second quarter of next year, which is 252 00:14:15,880 --> 00:14:19,120 Speaker 1: exactly when Mexico is in full campaign mode for their 253 00:14:19,200 --> 00:14:23,800 Speaker 1: July elections. So Shannon, right now, the NAFTA talks are 254 00:14:24,120 --> 00:14:26,520 Speaker 1: not going that well. To say the least. The US 255 00:14:26,600 --> 00:14:29,880 Speaker 1: has taken a hard line into the talks. Mexico and 256 00:14:29,960 --> 00:14:33,920 Speaker 1: Canada have resisted some of these pretty tough proposals that 257 00:14:34,000 --> 00:14:36,720 Speaker 1: the US has been making. At the same time, the 258 00:14:36,760 --> 00:14:39,800 Speaker 1: talks have not collapsed. They extended them until next year. 259 00:14:40,280 --> 00:14:44,560 Speaker 1: You're talking about how they actually could work out in 260 00:14:44,600 --> 00:14:47,080 Speaker 1: some way. What's your best guests as far as the 261 00:14:47,200 --> 00:14:49,760 Speaker 1: result here? You know, I think it's hard to make 262 00:14:49,880 --> 00:14:52,720 Speaker 1: a real legitimate guest to know what's happening. But I 263 00:14:52,760 --> 00:14:55,840 Speaker 1: would say one scenario, perhaps the most likely scenario but 264 00:14:55,880 --> 00:14:59,520 Speaker 1: not with a huge probability, is that NAFTA sort of 265 00:14:59,600 --> 00:15:04,280 Speaker 1: muddles through. We see these conversations continue. Neither the Mexicans 266 00:15:04,320 --> 00:15:06,280 Speaker 1: or Canadians walk away from the table, but they do 267 00:15:06,360 --> 00:15:09,600 Speaker 1: stand pretty firm on some of these quote unquote poison pills, 268 00:15:09,640 --> 00:15:11,600 Speaker 1: things that the US has put on the table that 269 00:15:11,640 --> 00:15:16,360 Speaker 1: they just can't accept. Then next March April, the Mexicans say, 270 00:15:16,480 --> 00:15:18,320 Speaker 1: you know, we're in full campaign mode. You're going to 271 00:15:18,400 --> 00:15:21,200 Speaker 1: have to negotiate this with our next president. At the 272 00:15:21,240 --> 00:15:23,480 Speaker 1: same time, the US Congress, the last thing they want 273 00:15:23,520 --> 00:15:25,640 Speaker 1: to be doing is negotiating a trade agreement as they're 274 00:15:25,680 --> 00:15:28,680 Speaker 1: out campaigning in their districts for for re election. So 275 00:15:28,760 --> 00:15:32,720 Speaker 1: there's a possibility. Two eighteen. Everybody takes a deep breath, everybody. 276 00:15:32,760 --> 00:15:35,800 Speaker 1: They continue to talk, but it's not intense negotiations and 277 00:15:36,160 --> 00:15:38,800 Speaker 1: it's not really till two thousand nineteen that we get 278 00:15:38,840 --> 00:15:41,320 Speaker 1: back to the table. But that gives everybody a little 279 00:15:41,320 --> 00:15:43,680 Speaker 1: bit of breathing room. Um, and it allows NAFTA in 280 00:15:43,720 --> 00:15:45,800 Speaker 1: the meantime to to continue to be the law of 281 00:15:45,800 --> 00:15:49,240 Speaker 1: the land. That we've talked about agriculture, let's talk about 282 00:15:49,280 --> 00:15:53,360 Speaker 1: autos and NAFTA is as much about autos as anything else. 283 00:15:53,840 --> 00:15:56,640 Speaker 1: But is it possible we're kind of missing the big 284 00:15:56,680 --> 00:16:00,840 Speaker 1: picture here. Isn't China now the largest auto How does 285 00:16:00,880 --> 00:16:03,920 Speaker 1: that fit into this? It is right, this has been 286 00:16:04,040 --> 00:16:08,960 Speaker 1: the iconic US and now North American industry, the auto industry. 287 00:16:08,960 --> 00:16:10,960 Speaker 1: But you think of the big three, you think of 288 00:16:11,000 --> 00:16:13,920 Speaker 1: this is really the leaders in this industry. Um. But 289 00:16:14,280 --> 00:16:16,920 Speaker 1: a funny thing has been happening over the last decade plus. Actually, 290 00:16:17,280 --> 00:16:20,200 Speaker 1: China is the biggest auto industry in the world. And 291 00:16:20,480 --> 00:16:22,920 Speaker 1: when you look at per capita GDP growth, when you 292 00:16:22,920 --> 00:16:25,520 Speaker 1: look at demographics, it will continue to grow while the 293 00:16:25,600 --> 00:16:28,600 Speaker 1: US may not. And so as we think about the 294 00:16:28,640 --> 00:16:32,080 Speaker 1: future of autos and we think about NAFTA, NAFTA has 295 00:16:32,120 --> 00:16:35,360 Speaker 1: allowed with different production in different countries at different you know, 296 00:16:35,400 --> 00:16:38,520 Speaker 1: different skill sets, different wages, and different technologies and like 297 00:16:38,880 --> 00:16:42,920 Speaker 1: has allowed autos to remain a North American industry. If 298 00:16:43,000 --> 00:16:46,200 Speaker 1: it disappears, and particularly in some aspects of the car industry, 299 00:16:46,240 --> 00:16:48,640 Speaker 1: which would have much higher tariffs, we might just see 300 00:16:48,640 --> 00:16:53,000 Speaker 1: a wholesale departure for China, because one, they sell more 301 00:16:53,040 --> 00:16:55,080 Speaker 1: cars there and they will in the future. And too, 302 00:16:55,080 --> 00:16:57,160 Speaker 1: if you're already gonna pay the tariffs coming in, it 303 00:16:57,240 --> 00:16:59,640 Speaker 1: doesn't make a ton of sense at least for particularly 304 00:16:59,680 --> 00:17:02,920 Speaker 1: car smaller cars, not trucks and pickups are like it 305 00:17:03,000 --> 00:17:06,119 Speaker 1: makes much more sense for on an economic basis, for Ford, 306 00:17:06,160 --> 00:17:09,399 Speaker 1: for GM, for others. Make them in China, sell them 307 00:17:09,400 --> 00:17:11,360 Speaker 1: where where your real market is, and then you can 308 00:17:11,400 --> 00:17:13,640 Speaker 1: export some here for the United States for those kind 309 00:17:13,640 --> 00:17:16,440 Speaker 1: of consumers. But what that does is it takes away 310 00:17:16,480 --> 00:17:19,800 Speaker 1: production not just in Mexico, but all of those suppliers 311 00:17:19,840 --> 00:17:22,320 Speaker 1: who are also here and assemblers who are also here 312 00:17:22,400 --> 00:17:26,000 Speaker 1: in the United States. But I thought the Trump administration 313 00:17:26,280 --> 00:17:30,040 Speaker 1: was all about stopping China eating America's lunch as well. 314 00:17:30,400 --> 00:17:34,200 Speaker 1: Might they ultimately have to choose between which is the 315 00:17:34,280 --> 00:17:39,280 Speaker 1: lesser evil, and it's that Chinese argument something that ultimately 316 00:17:39,320 --> 00:17:43,080 Speaker 1: could sway the decision. This is the big question I 317 00:17:43,119 --> 00:17:45,560 Speaker 1: think for people who watch free trade agreements. I do 318 00:17:45,680 --> 00:17:48,080 Speaker 1: think you look at at economists and other reports that 319 00:17:48,080 --> 00:17:51,080 Speaker 1: have been done, and China has in many cases played 320 00:17:51,160 --> 00:17:55,160 Speaker 1: unfairly in the world trading system um to the detriment 321 00:17:55,200 --> 00:17:58,280 Speaker 1: of u S interests. But we're picking on Mexico, We're 322 00:17:58,280 --> 00:18:01,280 Speaker 1: not picking on China. Now we can discuss why that is. 323 00:18:01,280 --> 00:18:04,320 Speaker 1: There's lots of geopolitical reasons there. North Korea feeds in 324 00:18:04,359 --> 00:18:07,680 Speaker 1: as well, but it is an interesting dynamic and one 325 00:18:07,720 --> 00:18:11,040 Speaker 1: that is in my view, quite misplaced. If you really 326 00:18:11,080 --> 00:18:13,560 Speaker 1: want to set free your trade agreements around the United 327 00:18:13,600 --> 00:18:16,600 Speaker 1: States or around the world, we should be addressing China. 328 00:18:16,640 --> 00:18:19,600 Speaker 1: We shouldn't be addressing Mexico. And in fact, NAFTA, even 329 00:18:19,640 --> 00:18:22,320 Speaker 1: though it needs in a modernization and update, is actually 330 00:18:22,359 --> 00:18:25,080 Speaker 1: a model for how the United States would want the 331 00:18:25,119 --> 00:18:28,560 Speaker 1: world to play, rather than one that we should be disparaging. 332 00:18:28,680 --> 00:18:31,679 Speaker 1: Have we just concluded that NAFTA is really about China. 333 00:18:32,880 --> 00:18:35,160 Speaker 1: It's becoming more and more about it China, And if 334 00:18:35,200 --> 00:18:39,000 Speaker 1: we keep NAFTA, I do think it's a bulwork against 335 00:18:39,440 --> 00:18:43,000 Speaker 1: a Chinese manufacturing hub that's there. It gives us in 336 00:18:43,320 --> 00:18:47,000 Speaker 1: the United States a competitive platform to compete with goods 337 00:18:47,040 --> 00:18:49,160 Speaker 1: that are coming out of Asia. If we lose NAFTA, 338 00:18:49,440 --> 00:18:52,439 Speaker 1: then we lose some of that competitiveness. Shannon, thanks for 339 00:18:52,480 --> 00:18:59,160 Speaker 1: sharing a perspective with us. My pleasure, Ben Shamonk will 340 00:18:59,160 --> 00:19:01,520 Speaker 1: be back next can. Until then, you can find us 341 00:19:01,520 --> 00:19:04,960 Speaker 1: on the Bloomberg terminal, Bloomberg dot com, our Bloomberg app, 342 00:19:05,280 --> 00:19:08,600 Speaker 1: as well as Apple Podcasts, pocket Casts, and stitchert While 343 00:19:08,640 --> 00:19:11,040 Speaker 1: you're there, take a minute rate and review the show 344 00:19:11,480 --> 00:19:13,919 Speaker 1: so more listeners can find us and let us know 345 00:19:13,960 --> 00:19:16,680 Speaker 1: what you thought. You can follow me on Twitter at 346 00:19:16,720 --> 00:19:22,800 Speaker 1: Moss Underscore, Eco, Scott at Scott Landman, and Shannon Shannon Ka. 347 00:19:23,280 --> 00:19:26,440 Speaker 1: Benchmark is produced by Sarah Pattison. The head of Bloomberg 348 00:19:26,480 --> 00:19:30,159 Speaker 1: Podcast is Francesca Levie. Thanks for listening. We'll see you 349 00:19:30,280 --> 00:19:30,720 Speaker 1: next time.