WEBVTT - Mexico Didn't See Trump Coming 0:00:00.240 --> 0:00:05.520 Worst trade deal ever. We know how Donald Trump views NAFTA, 0:00:05.840 --> 0:00:09.879 the North American Free Trade agreement that links the US, Canada, 0:00:10.000 --> 0:00:14.040 and Mexico. Dissing NAFTA and most things Mexican was a 0:00:14.080 --> 0:00:18.000 staple of his campaign. Attacking free trade was a key 0:00:18.079 --> 0:00:22.320 talking point. But from Mexico's perspective, the country that was 0:00:22.360 --> 0:00:25.720 supposed to be eating America's lunch, it's not really just 0:00:25.840 --> 0:00:30.840 about trade. Mexico's entire economic model and strategic view of 0:00:30.880 --> 0:00:34.240 the world has NAFTA at its center. Worse, it looks 0:00:34.280 --> 0:00:38.080 like Mexico didn't even see this coming. The country has 0:00:38.120 --> 0:00:41.720 its own election next year, and populous candidates are on 0:00:41.760 --> 0:00:45.400 the rise there as well, not just in the United States. 0:00:54.720 --> 0:00:58.720 Welcome to Bloomberg Benchmark, a show about the global economy. 0:00:59.040 --> 0:01:02.240 I'm Daniel Moss, an editor for bloomboag View in New York, 0:01:02.440 --> 0:01:06.039 and I'm Scott Landman and economics editor for Bloomberg in Washington. 0:01:06.319 --> 0:01:09.960 How is Mexico court napping? Joining us as Shannon O'Neil 0:01:10.080 --> 0:01:13.120 from the Council on Foreign Relations, where she's the Nelson 0:01:13.200 --> 0:01:17.880 and David Rockefeller Senior Fellow for Latin American Studies. Shannon, 0:01:17.959 --> 0:01:22.640 Welcome thank you for having me. Was Mexico actually court napping, 0:01:23.120 --> 0:01:26.280 I do think they were. I think both the government 0:01:27.080 --> 0:01:29.560 believe that NAFTA would go on forever. This was a 0:01:29.560 --> 0:01:32.039 stable agreement, and there are reasons to think so. It's 0:01:32.040 --> 0:01:34.839 already been in place for twenty three years. It's become 0:01:34.880 --> 0:01:39.120 a big bolster of their economy and really their legal system, 0:01:39.200 --> 0:01:41.960 particularly when it pertains to contracts to business, to the 0:01:42.000 --> 0:01:45.399 private sector. And you also see the private sector was 0:01:45.480 --> 0:01:48.080 resting on their loyals here too. They had made a 0:01:48.120 --> 0:01:50.919 big push in the early nineties to get NAFTA passed, 0:01:51.280 --> 0:01:53.040 and then they all went back to their businesses. They 0:01:53.040 --> 0:01:55.640 all went back to their day to day ways of 0:01:55.680 --> 0:01:58.040 doing things and thinking about profits and losses and all 0:01:58.080 --> 0:02:01.640 of that, not thinking about the need um, not even 0:02:01.640 --> 0:02:05.280 recognizing the need to defend this agreement that allowed so 0:02:05.360 --> 0:02:08.600 much of that to happen. What would be the economic 0:02:08.639 --> 0:02:13.000 effects on Mexico if NAFTA collapse? What are the common 0:02:13.200 --> 0:02:16.880 estimates for GDP or or how much of its economy 0:02:17.080 --> 0:02:19.919 is just tied to NAFTA at this point. You know, 0:02:19.960 --> 0:02:22.240 I've seen a lot of estimates from different banks come 0:02:22.240 --> 0:02:25.079 out and they range really widely. Some say, it might 0:02:25.120 --> 0:02:27.960 just take off half a percentage of point from GDP. 0:02:28.120 --> 0:02:30.919 Others think it would lead Mexico into recession. So there's 0:02:30.960 --> 0:02:34.880 a lot of uncertainty about what would happen. But one 0:02:34.919 --> 0:02:37.960 thing you've seen in Mexico that's quite interesting. Mexico for 0:02:37.960 --> 0:02:40.720 the last twenty plus years has grown something like two 0:02:40.960 --> 0:02:44.240 two and a half percent a year, so not horrible, 0:02:44.240 --> 0:02:46.560 but not spectacular, right, not not a big growth, not 0:02:46.720 --> 0:02:49.880 classic em it's not classic emerging market. But what's interesting 0:02:49.919 --> 0:02:52.920 is if you get beyond the national numbers and you 0:02:53.000 --> 0:02:56.959 look at the state level, you see a huge divergence. 0:02:57.000 --> 0:03:00.600 And so the northern States, the NAFTA oriented states, they 0:03:00.600 --> 0:03:03.280 have been growing at six, seven, eight, even ten percent 0:03:03.280 --> 0:03:06.160 a year. So these are Asian tiger rates. It's the 0:03:06.200 --> 0:03:08.760 southern states, the ones that are marginalized, that aren't connected 0:03:08.760 --> 0:03:10.680 to the United States, that aren't connected to the global 0:03:10.720 --> 0:03:14.480 economy through NAFTA or other trade agreements, they are stagnating 0:03:14.560 --> 0:03:17.200 or even in decline. So the North South divide. The 0:03:17.240 --> 0:03:20.640 sounds kind of familiar, it does, indeed, but it is 0:03:20.840 --> 0:03:23.320 very did you see the benefits of NAFTA there, right, 0:03:23.360 --> 0:03:27.679 the modernization, the more competitive global industries, and how much 0:03:27.720 --> 0:03:30.800 Mexico can grow in part because of the trade agreement. 0:03:30.840 --> 0:03:32.720 So it is more important than just say that the 0:03:32.760 --> 0:03:37.280 overall national numbers would suggest. Shannon, did Mexico have these 0:03:37.400 --> 0:03:41.200 kinds of supply chains with the United States and Canada 0:03:41.400 --> 0:03:44.880 before NAFTA was formed? I mean, can you give us 0:03:44.920 --> 0:03:47.840 a sense of how much has been built up in 0:03:47.920 --> 0:03:50.800 Mexico and how important it is not just to the 0:03:50.840 --> 0:03:54.840 North American economy but the global economy since NAFTA was 0:03:54.880 --> 0:03:57.840 signed more than twenty years ago. That is really the 0:03:58.000 --> 0:04:02.160 big change in Mexico US and somewhat Canadian trades. So 0:04:02.200 --> 0:04:05.760 we saw we've seen in the twenty plus Yearson's NAFTA 0:04:05.840 --> 0:04:09.600 trade itself quadruple and that's a huge shift. But really 0:04:09.680 --> 0:04:13.440 what's changed is the nature of this trade. So before NAFTA, 0:04:13.560 --> 0:04:15.960 eight percent of Mexico's exports went to the United States. 0:04:16.000 --> 0:04:18.840 Today eight percent of Mexico's exports go to the United States. 0:04:18.880 --> 0:04:22.560 But they're very different exports. Before it was oil, it 0:04:22.640 --> 0:04:26.680 was other commodities. Today it is the pieces and parts 0:04:26.680 --> 0:04:31.720 and components of these supply chains. And telling statistic is 0:04:31.880 --> 0:04:36.120 before NAFTA, about five percent of Mexican trade North was 0:04:36.400 --> 0:04:38.480 sort of these intermediate goods, right, the pieces and parts 0:04:38.480 --> 0:04:41.719 that go together to make something. Today it is roughly 0:04:42.880 --> 0:04:45.760 by some estimates, So we've seen a huge shift in this, 0:04:45.960 --> 0:04:48.960 and it is all sorts of industries. It's the car industry, 0:04:49.200 --> 0:04:53.680 it's aerospace, it's medical equipment, it's electronics, it's food products, 0:04:53.720 --> 0:04:56.960 process food, it's all kinds of industries where you see 0:04:57.000 --> 0:05:00.200 this integration. So that means that the United s dates 0:05:00.279 --> 0:05:02.840 is exporting to Mexico. In fact, it's our second largest 0:05:03.080 --> 0:05:06.760 export destination, just second to Canada. But they're also receiving 0:05:06.800 --> 0:05:09.640 imports from Mexico to the United States, and so that 0:05:09.800 --> 0:05:13.200 tie is very different than twenty plus years ago. So, Shannon, 0:05:13.240 --> 0:05:16.320 you and I both participated in the Mexico Business Summit 0:05:16.480 --> 0:05:19.200 last month, and one line that we heard over and 0:05:19.279 --> 0:05:23.120 over again was, wait, we thought we got married in 0:05:23.200 --> 0:05:26.440 the early nineties and we didn't have to do anything else. 0:05:27.040 --> 0:05:30.320 Now we've got a war room where brainstorming, we're trying 0:05:30.320 --> 0:05:34.839 to influence senators and congressmans, like, how is this blind 0:05:34.920 --> 0:05:38.960 spot able to happen? I think people took the status 0:05:39.040 --> 0:05:42.240 quo as the status quo, that it was unchangeable, or 0:05:42.240 --> 0:05:44.080 that there was no one who would want it to change, 0:05:44.240 --> 0:05:47.440 And from the Mexican point of view, NAFTA has actually 0:05:47.480 --> 0:05:51.080 been fairly politically popular. You look at opinion polls, and 0:05:51.120 --> 0:05:54.760 the majority of Mexicans think it's a good thing. Many Mexicans, 0:05:54.760 --> 0:05:57.320 as we know, have family members others in the United States. 0:05:57.320 --> 0:06:00.200 They see the United States increasingly as a partner, as 0:06:00.200 --> 0:06:03.400 a friend. Those that have relatives living here or friends 0:06:03.400 --> 0:06:05.680 living here feel more warmly to the United States than 0:06:05.720 --> 0:06:08.080 those that don't. So from the Mexican point of view, 0:06:08.080 --> 0:06:09.880 they thought this was all good, this was a benefit. 0:06:09.960 --> 0:06:11.640 They saw it as a win win for the United 0:06:11.640 --> 0:06:14.760 States and Mexico and couldn't imagine that the United States 0:06:14.800 --> 0:06:18.000 would want to tear it up. And all of the 0:06:18.400 --> 0:06:21.520 careful economic studies show that it's a net benefit for 0:06:21.520 --> 0:06:24.600 the United States. Now, of course, we know that net 0:06:24.640 --> 0:06:29.880 benefits hid particular losses for particular people, right concentrated losses 0:06:30.160 --> 0:06:33.680 for more diffuse benefits. But they were focusing on the 0:06:33.760 --> 0:06:36.440 net benefits and not realizing that there may be this 0:06:36.520 --> 0:06:38.920 political movement which we've seen here in the United States. 0:06:39.240 --> 0:06:42.160 For those that have lost, whether from this or from 0:06:42.160 --> 0:06:46.080 other things, NAFTA has often become the focus for the 0:06:46.120 --> 0:06:48.920 bad that's happened to many Americans, So it's a proxy 0:06:49.000 --> 0:06:52.720 for whatever might be bothering exactly. Shannon, can you tell 0:06:52.800 --> 0:06:55.279 us a bit about how the political rhetoric in the 0:06:55.360 --> 0:06:58.800 United States, and I guess the actual policy move to 0:06:58.839 --> 0:07:03.640 start renegotiating have to has affected the political situation in Mexico. 0:07:03.760 --> 0:07:05.720 I mean, how many people in the US know that 0:07:05.800 --> 0:07:09.880 there's an election in Mexico next year and if they don't, 0:07:09.960 --> 0:07:13.200 should they They should know? And I think not enough. No, 0:07:13.520 --> 0:07:16.400 either in the general population or perhaps even people in 0:07:16.400 --> 0:07:18.880 our own government. The United States government aren't really thinking 0:07:18.920 --> 0:07:23.920 about the ramifications from Mexico's election. So next July, Mexicans 0:07:23.960 --> 0:07:26.440 will go to the polls to elect not just the president, 0:07:26.560 --> 0:07:31.160 including their president, but every senator, every representative, hundreds of 0:07:31.240 --> 0:07:35.320 local posts, so over three thousand positions overall, which is 0:07:35.320 --> 0:07:39.320 the biggest election in Mexico's modern history. So we could see, 0:07:39.800 --> 0:07:43.560 depending on how these elections pan out continuity with Mexico, 0:07:43.680 --> 0:07:47.000 a stable democratic Mexico, one that's market friendly, one that's 0:07:47.120 --> 0:07:50.440 US friendly, or we could see a see change in 0:07:50.640 --> 0:07:54.680 Mexico's politics turning to a more protectionist policy. Back to 0:07:54.760 --> 0:07:57.400 some of the policies of the nineteen sixties or seventies, 0:07:57.680 --> 0:08:01.040 and perhaps a set of leaders in position that are 0:08:01.120 --> 0:08:05.160 more anti the United States. And one thing the rhetoric 0:08:05.200 --> 0:08:07.120 coming out of the United States, not just NAFTA, but 0:08:07.200 --> 0:08:11.160 the general talk about building a wall or denigrating Mexicans 0:08:11.160 --> 0:08:14.440 and Mexican immigrants or Mexicans in general, is it has 0:08:14.560 --> 0:08:19.040 led to a resurgence of Mexican nationalism. Um. You know, 0:08:19.080 --> 0:08:22.200 they're upset about their own dignity, about their sovereignty. And 0:08:22.600 --> 0:08:26.960 we've seen the leading candidate, man named Andres Manuel Lopezo Bodor, 0:08:27.040 --> 0:08:29.000 who comes from the left, is more of a populist 0:08:29.040 --> 0:08:32.040 type leader. We've seen him play very well on these 0:08:32.040 --> 0:08:34.920 sort of anti American sentiments and standing up to Trump 0:08:34.960 --> 0:08:37.280 saying he is the one who can stand up while 0:08:37.280 --> 0:08:40.840 others can't. So broadly, he's like the Bernie Sanders of Mexico. 0:08:41.480 --> 0:08:44.040 The Bernie Sanders are perhaps the Donald Trump will see. 0:08:44.760 --> 0:08:47.120 But the general point is, you know, we used to 0:08:47.200 --> 0:08:51.520 worrying about the impact of populist politics in the United 0:08:51.600 --> 0:08:56.920 States and the threat that poses to the international economic system. 0:08:57.080 --> 0:09:03.080 Should we be worried about popular threats from Mexico rather 0:09:03.160 --> 0:09:06.880 than the United States. I think we should worry about 0:09:06.880 --> 0:09:10.120 a shift in Mexico in terms of its politics, particular, 0:09:10.120 --> 0:09:12.880 if it moves in a direction that's much more suspicious 0:09:12.920 --> 0:09:16.239 of the United States, are much less likely to cooperate. 0:09:16.640 --> 0:09:19.400 And this matters first and foremost on the economic side. 0:09:19.400 --> 0:09:22.520 What we've been talking about, we have so many companies, 0:09:22.600 --> 0:09:26.360 so many of their workers who depend on exports to Mexico. 0:09:26.760 --> 0:09:29.440 That is where they're livelihood. And as we were talking about, 0:09:29.440 --> 0:09:32.679 these supply chains that are forming whole industry sectors of 0:09:32.720 --> 0:09:36.840 the U S. Economy are globally competitive today because they 0:09:37.000 --> 0:09:39.440 have parts of their operations in Mexico, parts in the 0:09:39.520 --> 0:09:42.760 United States, and some have also parts in Canada, and 0:09:42.800 --> 0:09:46.760 all of that came about because of NAFTA. But we 0:09:46.800 --> 0:09:49.959 should also worry about working class Trump voters know that, 0:09:50.480 --> 0:09:53.640 I think very few and one of the most one 0:09:53.679 --> 0:09:55.520 of the most important sectors are the ones that will 0:09:55.520 --> 0:09:58.920 be hit most quickly is actually the U. S. Agricultural 0:09:59.000 --> 0:10:02.520 sector and agricult real States were you know, almost uniformly 0:10:02.559 --> 0:10:05.160 went for Trump. But this is one of our biggest 0:10:05.200 --> 0:10:08.599 exports to Mexico. We send eighteen billion dollars a year 0:10:08.800 --> 0:10:11.800 of different products, whether it's pork or beef, or soy 0:10:12.000 --> 0:10:14.959 or potatoes and all sorts of other agricultural products. They 0:10:15.000 --> 0:10:17.640 are some of our biggest consumers and that will be 0:10:17.720 --> 0:10:23.000 hit immediately if we end NAFTA. If NAFTA actually does collapse, 0:10:23.040 --> 0:10:26.600 would Mexico be able to shift more of its exports 0:10:26.600 --> 0:10:29.320 to other countries around the world. Is it competitive enough 0:10:29.720 --> 0:10:33.200 in the export market to do that or is there 0:10:33.240 --> 0:10:36.520 a serious risk that you know, they won't be able 0:10:36.600 --> 0:10:40.640 to refocus their economy or refocus their trade and things 0:10:40.640 --> 0:10:43.040 will get really bad. You know. As much as we 0:10:43.080 --> 0:10:47.960 talk about globalization and global supply chains, geography is still 0:10:48.000 --> 0:10:51.960 incredibly important in the way the world's economies work. And 0:10:52.040 --> 0:10:55.280 so I don't see a future where Mexico is totally 0:10:55.320 --> 0:10:59.880 detached from the United States. But they are starting, perhaps 0:10:59.880 --> 0:11:03.040 the bit belatedly, but they are starting to look past 0:11:03.120 --> 0:11:06.199 the United States and what could they do to diversify 0:11:06.200 --> 0:11:09.400 exports and imports frankly as they go forward. And so 0:11:09.559 --> 0:11:13.320 Mexico is one of the most open economies already. It 0:11:13.400 --> 0:11:16.200 has free trade agreements with over forty different nations, so 0:11:16.320 --> 0:11:19.560 not just the United States, but also the European Union 0:11:19.600 --> 0:11:23.040 and others. Um they are continuing to participate in the 0:11:23.080 --> 0:11:26.640 Trans Pacific Partnership negotiations the t p P. There's only 0:11:26.679 --> 0:11:28.920 eleven now instead of twelve, but they're still there and 0:11:28.960 --> 0:11:32.080 they see that path forward as one where perhaps they 0:11:32.080 --> 0:11:34.960 could find a way to diversify their base. But in 0:11:35.040 --> 0:11:37.360 the end, I mean, as I said before and after 0:11:37.440 --> 0:11:40.760 exports came to the United States from Mexico, they continue 0:11:40.800 --> 0:11:42.680 to be that number. I do think you can move 0:11:42.679 --> 0:11:46.240 that percentage somewhat, but United States and Mexico will always 0:11:46.240 --> 0:11:48.720 be tied economically as well as in a whole host 0:11:48.720 --> 0:11:51.560 of other ways. Question we both heard a lot at 0:11:51.559 --> 0:11:55.280 the Mexico Business Summit was is there a link between 0:11:55.320 --> 0:12:00.480 the success or failure of tax cut legislation and NAFTA. 0:12:00.960 --> 0:12:03.920 You know, it's hard to divine what's going to happen 0:12:03.960 --> 0:12:06.720 with the Trump administration and how it makes its decision 0:12:06.920 --> 0:12:10.560 process from the outside. But I do think as we 0:12:10.600 --> 0:12:13.199 look at the U s electoral process, we head into 0:12:13.240 --> 0:12:17.800 midterm elections coming next November, just a year away, and 0:12:17.920 --> 0:12:21.600 the Republicans, those that want to keep their seats, need something, 0:12:21.720 --> 0:12:24.040 They need something to run on, and so far they 0:12:24.040 --> 0:12:27.920 have been frustrated in their ability to pass almost anything, 0:12:28.080 --> 0:12:31.800 So tax cuts seems to be the most promising of those, 0:12:31.800 --> 0:12:34.320 though it's still a very hard road to home, and 0:12:34.360 --> 0:12:37.199 many have been talking, as you just mentioned, NAFTA might 0:12:37.200 --> 0:12:39.800 be the thing that he could that Trump could do 0:12:40.080 --> 0:12:42.560 to give something to his base, to show that these 0:12:42.600 --> 0:12:45.920 first you know, two years, have they've seen successes. So 0:12:46.000 --> 0:12:49.120 I think that is the real question, and what would 0:12:49.120 --> 0:12:52.520 hold the Trump administration back, in my view, is all 0:12:52.559 --> 0:12:57.720 of these governors, local representatives, mayors and businesses that are 0:12:57.840 --> 0:13:00.880 slowly on. We talked about the Mexican side not really 0:13:00.920 --> 0:13:03.440 being waking up to the challenges or what would happen 0:13:03.440 --> 0:13:05.880 if NAFTA disappeared. I think it's been almost worse here 0:13:05.880 --> 0:13:09.240 on the U S side. There's so many US businesses 0:13:09.400 --> 0:13:12.080 and particularly as I was menting, the agricultural sector, who 0:13:12.160 --> 0:13:14.960 really had no idea that Mexico was their biggest client 0:13:15.080 --> 0:13:18.240 and that the benefits and that free trade back and forth, 0:13:18.440 --> 0:13:20.439 the tariffs that would come up would make them uncompetitive 0:13:20.440 --> 0:13:23.000 those markets. So where you're going to see, we'll see 0:13:23.040 --> 0:13:25.600 tax reform go through maybe first quarter of next year, 0:13:25.679 --> 0:13:28.160 maybe not, we'll find out, but I do think that's 0:13:28.240 --> 0:13:32.840 when you will see a lobby of these business leaders, 0:13:32.880 --> 0:13:34.880 of governors of others that would be hit very hard 0:13:35.280 --> 0:13:38.120 in particular sectors with NAFTAS demise start talking to the 0:13:38.120 --> 0:13:41.400 Trump administration and asking him and others not to end it. 0:13:41.559 --> 0:13:44.920 So that's kind of a reprieve period while they try 0:13:45.000 --> 0:13:48.720 to get tax cuts through and signed, and then the 0:13:48.760 --> 0:13:52.559 focus will again shift to NAFTA. I would expect that 0:13:52.640 --> 0:13:56.160 because the Trump administration, if they want tax cuts, they 0:13:56.200 --> 0:13:59.360 need these Midwest states, right, they need them to go along. 0:13:59.400 --> 0:14:01.720 And so if you're at the same time undermining the 0:14:01.760 --> 0:14:04.880 agricultural sector, undermining the auto industry, undermining some of these 0:14:04.880 --> 0:14:07.719 other businesses that rely on supply chains, it's hard to 0:14:07.800 --> 0:14:10.640 get their vote for your tax reform. So I think 0:14:10.640 --> 0:14:12.439 there's a trade off there. But then you could see 0:14:12.720 --> 0:14:15.839 a revisit, say second quarter of next year, which is 0:14:15.880 --> 0:14:19.120 exactly when Mexico is in full campaign mode for their 0:14:19.200 --> 0:14:23.800 July elections. So Shannon, right now, the NAFTA talks are 0:14:24.120 --> 0:14:26.520 not going that well. To say the least. The US 0:14:26.600 --> 0:14:29.880 has taken a hard line into the talks. Mexico and 0:14:29.960 --> 0:14:33.920 Canada have resisted some of these pretty tough proposals that 0:14:34.000 --> 0:14:36.720 the US has been making. At the same time, the 0:14:36.760 --> 0:14:39.800 talks have not collapsed. They extended them until next year. 0:14:40.280 --> 0:14:44.560 You're talking about how they actually could work out in 0:14:44.600 --> 0:14:47.080 some way. What's your best guests as far as the 0:14:47.200 --> 0:14:49.760 result here? You know, I think it's hard to make 0:14:49.880 --> 0:14:52.720 a real legitimate guest to know what's happening. But I 0:14:52.760 --> 0:14:55.840 would say one scenario, perhaps the most likely scenario but 0:14:55.880 --> 0:14:59.520 not with a huge probability, is that NAFTA sort of 0:14:59.600 --> 0:15:04.280 muddles through. We see these conversations continue. Neither the Mexicans 0:15:04.320 --> 0:15:06.280 or Canadians walk away from the table, but they do 0:15:06.360 --> 0:15:09.600 stand pretty firm on some of these quote unquote poison pills, 0:15:09.640 --> 0:15:11.600 things that the US has put on the table that 0:15:11.640 --> 0:15:16.360 they just can't accept. Then next March April, the Mexicans say, 0:15:16.480 --> 0:15:18.320 you know, we're in full campaign mode. You're going to 0:15:18.400 --> 0:15:21.200 have to negotiate this with our next president. At the 0:15:21.240 --> 0:15:23.480 same time, the US Congress, the last thing they want 0:15:23.520 --> 0:15:25.640 to be doing is negotiating a trade agreement as they're 0:15:25.680 --> 0:15:28.680 out campaigning in their districts for for re election. So 0:15:28.760 --> 0:15:32.720 there's a possibility. Two eighteen. Everybody takes a deep breath, everybody. 0:15:32.760 --> 0:15:35.800 They continue to talk, but it's not intense negotiations and 0:15:36.160 --> 0:15:38.800 it's not really till two thousand nineteen that we get 0:15:38.840 --> 0:15:41.320 back to the table. But that gives everybody a little 0:15:41.320 --> 0:15:43.680 bit of breathing room. Um, and it allows NAFTA in 0:15:43.720 --> 0:15:45.800 the meantime to to continue to be the law of 0:15:45.800 --> 0:15:49.240 the land. That we've talked about agriculture, let's talk about 0:15:49.280 --> 0:15:53.360 autos and NAFTA is as much about autos as anything else. 0:15:53.840 --> 0:15:56.640 But is it possible we're kind of missing the big 0:15:56.680 --> 0:16:00.840 picture here. Isn't China now the largest auto How does 0:16:00.880 --> 0:16:03.920 that fit into this? It is right, this has been 0:16:04.040 --> 0:16:08.960 the iconic US and now North American industry, the auto industry. 0:16:08.960 --> 0:16:10.960 But you think of the big three, you think of 0:16:11.000 --> 0:16:13.920 this is really the leaders in this industry. Um. But 0:16:14.280 --> 0:16:16.920 a funny thing has been happening over the last decade plus. Actually, 0:16:17.280 --> 0:16:20.200 China is the biggest auto industry in the world. And 0:16:20.480 --> 0:16:22.920 when you look at per capita GDP growth, when you 0:16:22.920 --> 0:16:25.520 look at demographics, it will continue to grow while the 0:16:25.600 --> 0:16:28.600 US may not. And so as we think about the 0:16:28.640 --> 0:16:32.080 future of autos and we think about NAFTA, NAFTA has 0:16:32.120 --> 0:16:35.360 allowed with different production in different countries at different you know, 0:16:35.400 --> 0:16:38.520 different skill sets, different wages, and different technologies and like 0:16:38.880 --> 0:16:42.920 has allowed autos to remain a North American industry. If 0:16:43.000 --> 0:16:46.200 it disappears, and particularly in some aspects of the car industry, 0:16:46.240 --> 0:16:48.640 which would have much higher tariffs, we might just see 0:16:48.640 --> 0:16:53.000 a wholesale departure for China, because one, they sell more 0:16:53.040 --> 0:16:55.080 cars there and they will in the future. And too, 0:16:55.080 --> 0:16:57.160 if you're already gonna pay the tariffs coming in, it 0:16:57.240 --> 0:16:59.640 doesn't make a ton of sense at least for particularly 0:16:59.680 --> 0:17:02.920 car smaller cars, not trucks and pickups are like it 0:17:03.000 --> 0:17:06.119 makes much more sense for on an economic basis, for Ford, 0:17:06.160 --> 0:17:09.399 for GM, for others. Make them in China, sell them 0:17:09.400 --> 0:17:11.360 where where your real market is, and then you can 0:17:11.400 --> 0:17:13.640 export some here for the United States for those kind 0:17:13.640 --> 0:17:16.440 of consumers. But what that does is it takes away 0:17:16.480 --> 0:17:19.800 production not just in Mexico, but all of those suppliers 0:17:19.840 --> 0:17:22.320 who are also here and assemblers who are also here 0:17:22.400 --> 0:17:26.000 in the United States. But I thought the Trump administration 0:17:26.280 --> 0:17:30.040 was all about stopping China eating America's lunch as well. 0:17:30.400 --> 0:17:34.200 Might they ultimately have to choose between which is the 0:17:34.280 --> 0:17:39.280 lesser evil, and it's that Chinese argument something that ultimately 0:17:39.320 --> 0:17:43.080 could sway the decision. This is the big question I 0:17:43.119 --> 0:17:45.560 think for people who watch free trade agreements. I do 0:17:45.680 --> 0:17:48.080 think you look at at economists and other reports that 0:17:48.080 --> 0:17:51.080 have been done, and China has in many cases played 0:17:51.160 --> 0:17:55.160 unfairly in the world trading system um to the detriment 0:17:55.200 --> 0:17:58.280 of u S interests. But we're picking on Mexico, We're 0:17:58.280 --> 0:18:01.280 not picking on China. Now we can discuss why that is. 0:18:01.280 --> 0:18:04.320 There's lots of geopolitical reasons there. North Korea feeds in 0:18:04.359 --> 0:18:07.680 as well, but it is an interesting dynamic and one 0:18:07.720 --> 0:18:11.040 that is in my view, quite misplaced. If you really 0:18:11.080 --> 0:18:13.560 want to set free your trade agreements around the United 0:18:13.600 --> 0:18:16.600 States or around the world, we should be addressing China. 0:18:16.640 --> 0:18:19.600 We shouldn't be addressing Mexico. And in fact, NAFTA, even 0:18:19.640 --> 0:18:22.320 though it needs in a modernization and update, is actually 0:18:22.359 --> 0:18:25.080 a model for how the United States would want the 0:18:25.119 --> 0:18:28.560 world to play, rather than one that we should be disparaging. 0:18:28.680 --> 0:18:31.679 Have we just concluded that NAFTA is really about China. 0:18:32.880 --> 0:18:35.160 It's becoming more and more about it China, And if 0:18:35.200 --> 0:18:39.000 we keep NAFTA, I do think it's a bulwork against 0:18:39.440 --> 0:18:43.000 a Chinese manufacturing hub that's there. It gives us in 0:18:43.320 --> 0:18:47.000 the United States a competitive platform to compete with goods 0:18:47.040 --> 0:18:49.160 that are coming out of Asia. If we lose NAFTA, 0:18:49.440 --> 0:18:52.439 then we lose some of that competitiveness. Shannon, thanks for 0:18:52.480 --> 0:18:59.160 sharing a perspective with us. My pleasure, Ben Shamonk will 0:18:59.160 --> 0:19:01.520 be back next can. Until then, you can find us 0:19:01.520 --> 0:19:04.960 on the Bloomberg terminal, Bloomberg dot com, our Bloomberg app, 0:19:05.280 --> 0:19:08.600 as well as Apple Podcasts, pocket Casts, and stitchert While 0:19:08.640 --> 0:19:11.040 you're there, take a minute rate and review the show 0:19:11.480 --> 0:19:13.919 so more listeners can find us and let us know 0:19:13.960 --> 0:19:16.680 what you thought. You can follow me on Twitter at 0:19:16.720 --> 0:19:22.800 Moss Underscore, Eco, Scott at Scott Landman, and Shannon Shannon Ka. 0:19:23.280 --> 0:19:26.440 Benchmark is produced by Sarah Pattison. The head of Bloomberg 0:19:26.480 --> 0:19:30.159 Podcast is Francesca Levie. Thanks for listening. We'll see you 0:19:30.280 --> 0:19:30.720 next time.