1 00:00:02,520 --> 00:00:07,400 Speaker 1: Bloomberg Audio Studios, podcasts, radio news. 2 00:00:07,840 --> 00:00:11,800 Speaker 2: Investors confronting an increasingly cloudy outlook for the global economy, 3 00:00:12,119 --> 00:00:14,239 Speaker 2: just as President Trump pushes ahead with a fresh wave 4 00:00:14,280 --> 00:00:17,040 Speaker 2: of tariffs, Nurian Rabini of NYU and had Some Bay 5 00:00:17,079 --> 00:00:21,920 Speaker 2: Capital proposing a solution, writing quote to resolve their current tensions, Canada, Mexico, 6 00:00:22,040 --> 00:00:25,320 Speaker 2: and the United States should start drafting plans for a 7 00:00:25,360 --> 00:00:30,000 Speaker 2: North American economic union. Dorian Rabini join just now for more. 8 00:00:30,440 --> 00:00:32,559 Speaker 2: Welcome to the program sir, Thanks for making time for us. 9 00:00:32,560 --> 00:00:34,839 Speaker 2: That's quite a statement. Just go through the way you're 10 00:00:34,840 --> 00:00:37,040 Speaker 2: thinking about it. How on earth would this work. 11 00:00:38,640 --> 00:00:40,800 Speaker 3: Well? For now, we have only a free trade area 12 00:00:40,960 --> 00:00:46,720 Speaker 3: between US, Canada and Mexico, and there are ready tensions involved. 13 00:00:46,720 --> 00:00:50,199 Speaker 3: There's nothing not only to do with of course drugs, 14 00:00:50,200 --> 00:00:54,000 Speaker 3: fan Danila and migrants, but the US is also concerned 15 00:00:54,000 --> 00:00:59,440 Speaker 3: about the trade imbalance between Mexico, US and Canada. They're 16 00:00:59,480 --> 00:01:03,040 Speaker 3: very large trade services with the United States. So you 17 00:01:03,080 --> 00:01:07,039 Speaker 3: can really negotiate the USMCA in a direction of restricting 18 00:01:07,640 --> 00:01:11,640 Speaker 3: trade and US is now probably asking Mexico and Canada 19 00:01:12,040 --> 00:01:15,440 Speaker 3: to also restrict trade in automobiles. There may be twenty 20 00:01:15,520 --> 00:01:18,280 Speaker 3: twenty five percent tarries on that because there are lots 21 00:01:18,280 --> 00:01:20,160 Speaker 3: of job loss in the US. Or you can do 22 00:01:20,240 --> 00:01:23,759 Speaker 3: something that is more bold, forming a full economic union. 23 00:01:24,040 --> 00:01:26,360 Speaker 3: They would imply free trade not only in goods but 24 00:01:26,440 --> 00:01:31,360 Speaker 3: also in services, in the movement of capital, labor, data, technology, 25 00:01:31,800 --> 00:01:34,520 Speaker 3: and information. That's what the European country have done for 26 00:01:34,560 --> 00:01:38,080 Speaker 3: the last few decades, and from any economic point of view, 27 00:01:38,080 --> 00:01:42,360 Speaker 3: in North America is an optimal trading area that goes 28 00:01:42,400 --> 00:01:46,039 Speaker 3: beyond goods. Now, one step you can take along those 29 00:01:46,080 --> 00:01:50,040 Speaker 3: lines before having a full economic union could be, for example, 30 00:01:50,160 --> 00:01:53,120 Speaker 3: to form a custom union. What's the difference between a 31 00:01:53,160 --> 00:01:56,200 Speaker 3: custom union and a free trade area. In a free 32 00:01:56,200 --> 00:02:00,840 Speaker 3: trade area, there is no common external tariff against other countries. So, 33 00:02:00,880 --> 00:02:03,320 Speaker 3: for example, there are lots of Chinese cars that are 34 00:02:03,320 --> 00:02:06,480 Speaker 3: now entering into Mexico, while US is a one hundred 35 00:02:06,520 --> 00:02:10,400 Speaker 3: percent tariff on against Chinese ev If you form a 36 00:02:10,480 --> 00:02:13,520 Speaker 3: custom unions, the first step for economic union you have 37 00:02:13,600 --> 00:02:17,720 Speaker 3: to have the same tariff impose on Chinese cars whether 38 00:02:18,080 --> 00:02:21,440 Speaker 3: they go to Mexico or US or Canada. And in 39 00:02:21,480 --> 00:02:25,440 Speaker 3: this way you create a full market, for example, for automobiles, 40 00:02:25,720 --> 00:02:29,080 Speaker 3: and you prevent imposition of say twenty twenty five percent 41 00:02:29,120 --> 00:02:33,760 Speaker 3: tariffs on experts for Chinese cars or parts from Mexico 42 00:02:33,800 --> 00:02:36,480 Speaker 3: to the United States. So you can do a reform 43 00:02:36,800 --> 00:02:40,000 Speaker 3: of the trade agreement the direction of shrinking trade, or 44 00:02:40,040 --> 00:02:42,560 Speaker 3: you can do it in the direction of expanding trade. 45 00:02:42,639 --> 00:02:45,040 Speaker 3: And I argue that actually in the economic benefit of 46 00:02:45,080 --> 00:02:48,160 Speaker 3: all three countries to expand trade to first the custom 47 00:02:48,320 --> 00:02:50,360 Speaker 3: union and then a full economic union. 48 00:02:50,480 --> 00:02:52,919 Speaker 2: You offer a different vision then first before we get 49 00:02:52,960 --> 00:02:55,120 Speaker 2: to the much bigger one later, Can we just talk 50 00:02:55,120 --> 00:02:58,280 Speaker 2: about a much bigger one. Freedom of labor, free movement 51 00:02:58,280 --> 00:03:00,880 Speaker 2: of labor between the United States and Mexico just sounds 52 00:03:00,919 --> 00:03:03,560 Speaker 2: like a complete nonstarter. Noriel, do you actually think that 53 00:03:03,600 --> 00:03:06,079 Speaker 2: could be a stepping stone further out down the road 54 00:03:06,200 --> 00:03:06,840 Speaker 2: in the future. 55 00:03:08,560 --> 00:03:10,560 Speaker 3: Well, in the case of the European Union, you had 56 00:03:10,600 --> 00:03:13,079 Speaker 3: the same problem. The country with that were much poorer 57 00:03:13,440 --> 00:03:16,520 Speaker 3: in Central Eastern Europe. They you joined a U, there 58 00:03:16,560 --> 00:03:20,320 Speaker 3: was a transition period of many decades. It's until they 59 00:03:20,320 --> 00:03:23,000 Speaker 3: reached a certain level of per capita income, a certain 60 00:03:23,080 --> 00:03:26,440 Speaker 3: level of governance, a certain level of reform. Of course, 61 00:03:26,480 --> 00:03:29,440 Speaker 3: free trade in labor between US and Canada would not 62 00:03:29,520 --> 00:03:33,120 Speaker 3: be a problem. Same per capita income, same culture, language, 63 00:03:33,360 --> 00:03:36,320 Speaker 3: and actually there'll be probably more people going from US 64 00:03:36,360 --> 00:03:39,800 Speaker 3: to Canada. They around because of global climate change and 65 00:03:39,880 --> 00:03:43,320 Speaker 3: shipland in Canada with Mexico. Of course, at the current 66 00:03:43,400 --> 00:03:45,760 Speaker 3: level of per capita income, you cannot have free trade 67 00:03:45,800 --> 00:03:48,800 Speaker 3: day in labor, but as I said, like in the 68 00:03:48,800 --> 00:03:52,160 Speaker 3: case of Europe, you could have sun criteria. They suggest 69 00:03:52,240 --> 00:03:55,000 Speaker 3: that maybe after ten or twenty years, when Mexican per 70 00:03:55,040 --> 00:03:57,960 Speaker 3: capita income is much higher, there's better governance than you 71 00:03:58,000 --> 00:04:01,240 Speaker 3: free up that type of trade. So the economic union, 72 00:04:01,600 --> 00:04:05,480 Speaker 3: the part that is controversial is only probably migration of labor. 73 00:04:05,640 --> 00:04:07,560 Speaker 3: It will be an interest of the United States who 74 00:04:07,600 --> 00:04:11,320 Speaker 3: have free trade in goods, in services where it has 75 00:04:11,360 --> 00:04:15,720 Speaker 3: comparative advantage, in the movement of capital portfolio FDI, and 76 00:04:15,800 --> 00:04:18,800 Speaker 3: of course that information technology, where the US as a 77 00:04:18,880 --> 00:04:23,080 Speaker 3: major comparative advantage real to Mexico and to Canada. The 78 00:04:23,120 --> 00:04:26,520 Speaker 3: only controversial part, as I said, is labor movement, but 79 00:04:26,600 --> 00:04:27,960 Speaker 3: you can restrict it over time. 80 00:04:28,760 --> 00:04:30,640 Speaker 1: Neil, do you get the sense that anyone in the 81 00:04:30,640 --> 00:04:34,400 Speaker 1: current administration is sympathetic to this type of proposal at 82 00:04:34,400 --> 00:04:36,720 Speaker 1: a time where it seems like people are increasingly going 83 00:04:36,760 --> 00:04:40,560 Speaker 1: for economic isolation rather than reducing the walls entirely. 84 00:04:42,720 --> 00:04:45,839 Speaker 3: I will start conversation within the administration on this matter. 85 00:04:46,400 --> 00:04:50,440 Speaker 3: But I would say that certainly a step towards reforming 86 00:04:50,520 --> 00:04:54,000 Speaker 3: the USMCA in the direction of a custom union makes 87 00:04:54,000 --> 00:04:57,560 Speaker 3: sense because right now, of course, the automakers that are 88 00:04:57,600 --> 00:05:00,839 Speaker 3: the producers, are very worried about the in fact on 89 00:05:00,920 --> 00:05:04,320 Speaker 3: their own production costs and profit margins of restricting and 90 00:05:04,360 --> 00:05:07,800 Speaker 3: imposing a lot of tariffs on say auto trade. The 91 00:05:08,080 --> 00:05:11,120 Speaker 3: unions and the workers are in favor of it, but 92 00:05:11,240 --> 00:05:13,760 Speaker 3: the problem is that you're imposing these twenty five percent 93 00:05:13,839 --> 00:05:17,480 Speaker 3: tariff or a bot acomotive trade, the cost of cars 94 00:05:17,480 --> 00:05:20,480 Speaker 3: in North America is going to increase by ten twenty percent. 95 00:05:20,920 --> 00:05:24,160 Speaker 3: That's going to hurt first of all, consumers, but it's 96 00:05:24,160 --> 00:05:27,120 Speaker 3: going to also hurt the workers. So if you care 97 00:05:27,160 --> 00:05:30,960 Speaker 3: about US auto workers, there are two options. One to 98 00:05:31,000 --> 00:05:34,800 Speaker 3: impose the tariffs and restricting trade in automotive, but that's 99 00:05:34,800 --> 00:05:37,480 Speaker 3: going to be bad for everybody. Another one is instead 100 00:05:37,520 --> 00:05:40,400 Speaker 3: having a castle union, where if you essentially have an 101 00:05:40,400 --> 00:05:45,240 Speaker 3: external tariff that is common against Chinese autos, then Chinese 102 00:05:45,279 --> 00:05:48,160 Speaker 3: autos that are not entering the United States, so they 103 00:05:48,200 --> 00:05:51,440 Speaker 3: will not enter Mexico either, and therefore the market for 104 00:05:51,640 --> 00:05:54,120 Speaker 3: US automaker is going to be much bigger because you 105 00:05:54,120 --> 00:05:57,039 Speaker 3: have one hundred and twenty million Mexican they need auto 106 00:05:57,080 --> 00:05:59,760 Speaker 3: and that by now mostly Chinese cars. So you can 107 00:05:59,800 --> 00:06:02,880 Speaker 3: have a win win solution that makes everybody better off, 108 00:06:02,920 --> 00:06:05,560 Speaker 3: including the auto workers if you go in the direction 109 00:06:05,640 --> 00:06:08,720 Speaker 3: of a custom union and eventually in economic union, so 110 00:06:08,760 --> 00:06:11,080 Speaker 3: you have to go forward rather than going backward. And 111 00:06:11,120 --> 00:06:14,200 Speaker 3: I think that those arguments can be made in Washington, 112 00:06:14,360 --> 00:06:17,400 Speaker 3: in Mexico City, and of course in Canada as well. 113 00:06:18,080 --> 00:06:22,200 Speaker 2: Noreel is this proposal potentially away that the United States 114 00:06:22,279 --> 00:06:24,279 Speaker 2: could have more haft when it comes to driving a 115 00:06:24,320 --> 00:06:25,719 Speaker 2: wedge between Beijing. 116 00:06:28,440 --> 00:06:31,719 Speaker 3: Well, certainly one of the concerns that the United States 117 00:06:31,760 --> 00:06:34,800 Speaker 3: has is not just company that is coming to the 118 00:06:34,960 --> 00:06:39,880 Speaker 3: US via China, but more importantly that the Chinese have 119 00:06:39,960 --> 00:06:45,080 Speaker 3: avoided tariffs by essentially exporting goods to Mexico and from 120 00:06:45,120 --> 00:06:48,160 Speaker 3: Mexico to the United States as if there were Mexican 121 00:06:48,200 --> 00:06:52,640 Speaker 3: goods they were. The Mexican production of many goods as 122 00:06:52,640 --> 00:06:56,200 Speaker 3: a lot of content of parts that is Chinese. And 123 00:06:56,279 --> 00:06:59,039 Speaker 3: there is also a concern about the fact that the 124 00:06:59,120 --> 00:07:02,719 Speaker 3: Chinese are taking over the auto market of Mexico as well. 125 00:07:03,080 --> 00:07:07,719 Speaker 3: Experting chip cars isn't otherwise to Mexico. So if you 126 00:07:07,800 --> 00:07:12,760 Speaker 3: care about the risking the relationship with essentially China, whether 127 00:07:12,800 --> 00:07:15,680 Speaker 3: it's in auto or other critical parts of the economy, 128 00:07:15,920 --> 00:07:19,480 Speaker 3: it makes sense to have initially custom union and then 129 00:07:19,560 --> 00:07:23,120 Speaker 3: having also a full economic union where decisions about how 130 00:07:23,200 --> 00:07:27,000 Speaker 3: much you trade and you investment with China from North 131 00:07:27,040 --> 00:07:30,280 Speaker 3: America are done not by the U s ALON side 132 00:07:30,320 --> 00:07:33,040 Speaker 3: ALON and then Mexico can do whatever they want as 133 00:07:33,040 --> 00:07:35,600 Speaker 3: they do right now, but everything the context of an 134 00:07:35,600 --> 00:07:39,240 Speaker 3: economic union and initially a custom union. So it makes 135 00:07:39,240 --> 00:07:41,680 Speaker 3: sense for the US, it makes sense for North America. 136 00:07:41,840 --> 00:07:43,960 Speaker 2: No real provocative as always, it's going to catch up 137 00:07:43,960 --> 00:07:45,400 Speaker 2: with this, sir, and I should say thanks for making 138 00:07:45,440 --> 00:07:46,880 Speaker 2: sign for us. And I run a bit of a 139 00:07:46,920 --> 00:07:48,480 Speaker 2: world source, so looking forward to catching up with you 140 00:07:48,520 --> 00:07:50,920 Speaker 2: when you're back in New York. Marian Rapinie of NYU 141 00:07:51,000 --> 00:07:52,240 Speaker 2: stand and had some bank capital