Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: Investors confronting an increasingly cloudy outlook for the global economy,
Speaker 2: just as President Trump pushes ahead with a fresh wave
Speaker 2: of tariffs, Nurian Rabini of NYU and had Some Bay
Speaker 2: Capital proposing a solution, writing quote to resolve their current tensions, Canada, Mexico,
Speaker 2: and the United States should start drafting plans for a
Speaker 2: North American economic union. Dorian Rabini join just now for more.
Speaker 2: Welcome to the program sir, Thanks for making time for us.
Speaker 2: That's quite a statement. Just go through the way you're
Speaker 2: thinking about it. How on earth would this work.
Speaker 3: Well? For now, we have only a free trade area
Speaker 3: between US, Canada and Mexico, and there are ready tensions involved.
Speaker 3: There's nothing not only to do with of course drugs,
Speaker 3: fan Danila and migrants, but the US is also concerned
Speaker 3: about the trade imbalance between Mexico, US and Canada. They're
Speaker 3: very large trade services with the United States. So you
Speaker 3: can really negotiate the USMCA in a direction of restricting
Speaker 3: trade and US is now probably asking Mexico and Canada
Speaker 3: to also restrict trade in automobiles. There may be twenty
Speaker 3: twenty five percent tarries on that because there are lots
Speaker 3: of job loss in the US. Or you can do
Speaker 3: something that is more bold, forming a full economic union.
Speaker 3: They would imply free trade not only in goods but
Speaker 3: also in services, in the movement of capital, labor, data, technology,
Speaker 3: and information. That's what the European country have done for
Speaker 3: the last few decades, and from any economic point of view,
Speaker 3: in North America is an optimal trading area that goes
Speaker 3: beyond goods. Now, one step you can take along those
Speaker 3: lines before having a full economic union could be, for example,
Speaker 3: to form a custom union. What's the difference between a
Speaker 3: custom union and a free trade area. In a free
Speaker 3: trade area, there is no common external tariff against other countries. So,
Speaker 3: for example, there are lots of Chinese cars that are
Speaker 3: now entering into Mexico, while US is a one hundred
Speaker 3: percent tariff on against Chinese ev If you form a
Speaker 3: custom unions, the first step for economic union you have
Speaker 3: to have the same tariff impose on Chinese cars whether
Speaker 3: they go to Mexico or US or Canada. And in
Speaker 3: this way you create a full market, for example, for automobiles,
Speaker 3: and you prevent imposition of say twenty twenty five percent
Speaker 3: tariffs on experts for Chinese cars or parts from Mexico
Speaker 3: to the United States. So you can do a reform
Speaker 3: of the trade agreement the direction of shrinking trade, or
Speaker 3: you can do it in the direction of expanding trade.
Speaker 3: And I argue that actually in the economic benefit of
Speaker 3: all three countries to expand trade to first the custom
Speaker 3: union and then a full economic union.
Speaker 2: You offer a different vision then first before we get
Speaker 2: to the much bigger one later, Can we just talk
Speaker 2: about a much bigger one. Freedom of labor, free movement
Speaker 2: of labor between the United States and Mexico just sounds
Speaker 2: like a complete nonstarter. Noriel, do you actually think that
Speaker 2: could be a stepping stone further out down the road
Speaker 2: in the future.
Speaker 3: Well, in the case of the European Union, you had
Speaker 3: the same problem. The country with that were much poorer
Speaker 3: in Central Eastern Europe. They you joined a U, there
Speaker 3: was a transition period of many decades. It's until they
Speaker 3: reached a certain level of per capita income, a certain
Speaker 3: level of governance, a certain level of reform. Of course,
Speaker 3: free trade in labor between US and Canada would not
Speaker 3: be a problem. Same per capita income, same culture, language,
Speaker 3: and actually there'll be probably more people going from US
Speaker 3: to Canada. They around because of global climate change and
Speaker 3: shipland in Canada with Mexico. Of course, at the current
Speaker 3: level of per capita income, you cannot have free trade
Speaker 3: day in labor, but as I said, like in the
Speaker 3: case of Europe, you could have sun criteria. They suggest
Speaker 3: that maybe after ten or twenty years, when Mexican per
Speaker 3: capita income is much higher, there's better governance than you
Speaker 3: free up that type of trade. So the economic union,
Speaker 3: the part that is controversial is only probably migration of labor.
Speaker 3: It will be an interest of the United States who
Speaker 3: have free trade in goods, in services where it has
Speaker 3: comparative advantage, in the movement of capital portfolio FDI, and
Speaker 3: of course that information technology, where the US as a
Speaker 3: major comparative advantage real to Mexico and to Canada. The
Speaker 3: only controversial part, as I said, is labor movement, but
Speaker 3: you can restrict it over time.
Speaker 1: Neil, do you get the sense that anyone in the
Speaker 1: current administration is sympathetic to this type of proposal at
Speaker 1: a time where it seems like people are increasingly going
Speaker 1: for economic isolation rather than reducing the walls entirely.
Speaker 3: I will start conversation within the administration on this matter.
Speaker 3: But I would say that certainly a step towards reforming
Speaker 3: the USMCA in the direction of a custom union makes
Speaker 3: sense because right now, of course, the automakers that are
Speaker 3: the producers, are very worried about the in fact on
Speaker 3: their own production costs and profit margins of restricting and
Speaker 3: imposing a lot of tariffs on say auto trade. The
Speaker 3: unions and the workers are in favor of it, but
Speaker 3: the problem is that you're imposing these twenty five percent
Speaker 3: tariff or a bot acomotive trade, the cost of cars
Speaker 3: in North America is going to increase by ten twenty percent.
Speaker 3: That's going to hurt first of all, consumers, but it's
Speaker 3: going to also hurt the workers. So if you care
Speaker 3: about US auto workers, there are two options. One to
Speaker 3: impose the tariffs and restricting trade in automotive, but that's
Speaker 3: going to be bad for everybody. Another one is instead
Speaker 3: having a castle union, where if you essentially have an
Speaker 3: external tariff that is common against Chinese autos, then Chinese
Speaker 3: autos that are not entering the United States, so they
Speaker 3: will not enter Mexico either, and therefore the market for
Speaker 3: US automaker is going to be much bigger because you
Speaker 3: have one hundred and twenty million Mexican they need auto
Speaker 3: and that by now mostly Chinese cars. So you can
Speaker 3: have a win win solution that makes everybody better off,
Speaker 3: including the auto workers if you go in the direction
Speaker 3: of a custom union and eventually in economic union, so
Speaker 3: you have to go forward rather than going backward. And
Speaker 3: I think that those arguments can be made in Washington,
Speaker 3: in Mexico City, and of course in Canada as well.
Speaker 2: Noreel is this proposal potentially away that the United States
Speaker 2: could have more haft when it comes to driving a
Speaker 2: wedge between Beijing.
Speaker 3: Well, certainly one of the concerns that the United States
Speaker 3: has is not just company that is coming to the
Speaker 3: US via China, but more importantly that the Chinese have
Speaker 3: avoided tariffs by essentially exporting goods to Mexico and from
Speaker 3: Mexico to the United States as if there were Mexican
Speaker 3: goods they were. The Mexican production of many goods as
Speaker 3: a lot of content of parts that is Chinese. And
Speaker 3: there is also a concern about the fact that the
Speaker 3: Chinese are taking over the auto market of Mexico as well.
Speaker 3: Experting chip cars isn't otherwise to Mexico. So if you
Speaker 3: care about the risking the relationship with essentially China, whether
Speaker 3: it's in auto or other critical parts of the economy,
Speaker 3: it makes sense to have initially custom union and then
Speaker 3: having also a full economic union where decisions about how
Speaker 3: much you trade and you investment with China from North
Speaker 3: America are done not by the U s ALON side
Speaker 3: ALON and then Mexico can do whatever they want as
Speaker 3: they do right now, but everything the context of an
Speaker 3: economic union and initially a custom union. So it makes
Speaker 3: sense for the US, it makes sense for North America.
Speaker 2: No real provocative as always, it's going to catch up
Speaker 2: with this, sir, and I should say thanks for making
Speaker 2: sign for us. And I run a bit of a
Speaker 2: world source, so looking forward to catching up with you
Speaker 2: when you're back in New York. Marian Rapinie of NYU
Speaker 2: stand and had some bank capital