WEBVTT - Nouriel Roubini Talks North American Union Proposal

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Investors confronting an increasingly cloudy outlook for the global economy,

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<v Speaker 2>just as President Trump pushes ahead with a fresh wave

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<v Speaker 2>of tariffs, Nurian Rabini of NYU and had Some Bay

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<v Speaker 2>Capital proposing a solution, writing quote to resolve their current tensions, Canada, Mexico,

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<v Speaker 2>and the United States should start drafting plans for a

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<v Speaker 2>North American economic union. Dorian Rabini join just now for more.

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<v Speaker 2>Welcome to the program sir, Thanks for making time for us.

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<v Speaker 2>That's quite a statement. Just go through the way you're

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<v Speaker 2>thinking about it. How on earth would this work.

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<v Speaker 3>Well? For now, we have only a free trade area

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<v Speaker 3>between US, Canada and Mexico, and there are ready tensions involved.

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<v Speaker 3>There's nothing not only to do with of course drugs,

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<v Speaker 3>fan Danila and migrants, but the US is also concerned

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<v Speaker 3>about the trade imbalance between Mexico, US and Canada. They're

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<v Speaker 3>very large trade services with the United States. So you

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<v Speaker 3>can really negotiate the USMCA in a direction of restricting

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<v Speaker 3>trade and US is now probably asking Mexico and Canada

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<v Speaker 3>to also restrict trade in automobiles. There may be twenty

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<v Speaker 3>twenty five percent tarries on that because there are lots

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<v Speaker 3>of job loss in the US. Or you can do

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<v Speaker 3>something that is more bold, forming a full economic union.

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<v Speaker 3>They would imply free trade not only in goods but

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<v Speaker 3>also in services, in the movement of capital, labor, data, technology,

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<v Speaker 3>and information. That's what the European country have done for

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<v Speaker 3>the last few decades, and from any economic point of view,

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<v Speaker 3>in North America is an optimal trading area that goes

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<v Speaker 3>beyond goods. Now, one step you can take along those

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<v Speaker 3>lines before having a full economic union could be, for example,

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<v Speaker 3>to form a custom union. What's the difference between a

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<v Speaker 3>custom union and a free trade area. In a free

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<v Speaker 3>trade area, there is no common external tariff against other countries. So,

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<v Speaker 3>for example, there are lots of Chinese cars that are

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<v Speaker 3>now entering into Mexico, while US is a one hundred

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<v Speaker 3>percent tariff on against Chinese ev If you form a

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<v Speaker 3>custom unions, the first step for economic union you have

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<v Speaker 3>to have the same tariff impose on Chinese cars whether

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<v Speaker 3>they go to Mexico or US or Canada. And in

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<v Speaker 3>this way you create a full market, for example, for automobiles,

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<v Speaker 3>and you prevent imposition of say twenty twenty five percent

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<v Speaker 3>tariffs on experts for Chinese cars or parts from Mexico

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<v Speaker 3>to the United States. So you can do a reform

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<v Speaker 3>of the trade agreement the direction of shrinking trade, or

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<v Speaker 3>you can do it in the direction of expanding trade.

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<v Speaker 3>And I argue that actually in the economic benefit of

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<v Speaker 3>all three countries to expand trade to first the custom

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<v Speaker 3>union and then a full economic union.

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<v Speaker 2>You offer a different vision then first before we get

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<v Speaker 2>to the much bigger one later, Can we just talk

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<v Speaker 2>about a much bigger one. Freedom of labor, free movement

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<v Speaker 2>of labor between the United States and Mexico just sounds

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<v Speaker 2>like a complete nonstarter. Noriel, do you actually think that

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<v Speaker 2>could be a stepping stone further out down the road

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<v Speaker 2>in the future.

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<v Speaker 3>Well, in the case of the European Union, you had

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<v Speaker 3>the same problem. The country with that were much poorer

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<v Speaker 3>in Central Eastern Europe. They you joined a U, there

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<v Speaker 3>was a transition period of many decades. It's until they

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<v Speaker 3>reached a certain level of per capita income, a certain

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<v Speaker 3>level of governance, a certain level of reform. Of course,

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<v Speaker 3>free trade in labor between US and Canada would not

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<v Speaker 3>be a problem. Same per capita income, same culture, language,

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<v Speaker 3>and actually there'll be probably more people going from US

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<v Speaker 3>to Canada. They around because of global climate change and

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<v Speaker 3>shipland in Canada with Mexico. Of course, at the current

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<v Speaker 3>level of per capita income, you cannot have free trade

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<v Speaker 3>day in labor, but as I said, like in the

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<v Speaker 3>case of Europe, you could have sun criteria. They suggest

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<v Speaker 3>that maybe after ten or twenty years, when Mexican per

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<v Speaker 3>capita income is much higher, there's better governance than you

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<v Speaker 3>free up that type of trade. So the economic union,

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<v Speaker 3>the part that is controversial is only probably migration of labor.

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<v Speaker 3>It will be an interest of the United States who

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<v Speaker 3>have free trade in goods, in services where it has

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<v Speaker 3>comparative advantage, in the movement of capital portfolio FDI, and

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<v Speaker 3>of course that information technology, where the US as a

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<v Speaker 3>major comparative advantage real to Mexico and to Canada. The

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<v Speaker 3>only controversial part, as I said, is labor movement, but

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<v Speaker 3>you can restrict it over time.

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<v Speaker 1>Neil, do you get the sense that anyone in the

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<v Speaker 1>current administration is sympathetic to this type of proposal at

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<v Speaker 1>a time where it seems like people are increasingly going

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<v Speaker 1>for economic isolation rather than reducing the walls entirely.

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<v Speaker 3>I will start conversation within the administration on this matter.

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<v Speaker 3>But I would say that certainly a step towards reforming

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<v Speaker 3>the USMCA in the direction of a custom union makes

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<v Speaker 3>sense because right now, of course, the automakers that are

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<v Speaker 3>the producers, are very worried about the in fact on

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<v Speaker 3>their own production costs and profit margins of restricting and

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<v Speaker 3>imposing a lot of tariffs on say auto trade. The

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<v Speaker 3>unions and the workers are in favor of it, but

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<v Speaker 3>the problem is that you're imposing these twenty five percent

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<v Speaker 3>tariff or a bot acomotive trade, the cost of cars

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<v Speaker 3>in North America is going to increase by ten twenty percent.

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<v Speaker 3>That's going to hurt first of all, consumers, but it's

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<v Speaker 3>going to also hurt the workers. So if you care

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<v Speaker 3>about US auto workers, there are two options. One to

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<v Speaker 3>impose the tariffs and restricting trade in automotive, but that's

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<v Speaker 3>going to be bad for everybody. Another one is instead

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<v Speaker 3>having a castle union, where if you essentially have an

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<v Speaker 3>external tariff that is common against Chinese autos, then Chinese

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<v Speaker 3>autos that are not entering the United States, so they

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<v Speaker 3>will not enter Mexico either, and therefore the market for

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<v Speaker 3>US automaker is going to be much bigger because you

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<v Speaker 3>have one hundred and twenty million Mexican they need auto

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<v Speaker 3>and that by now mostly Chinese cars. So you can

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<v Speaker 3>have a win win solution that makes everybody better off,

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<v Speaker 3>including the auto workers if you go in the direction

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<v Speaker 3>of a custom union and eventually in economic union, so

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<v Speaker 3>you have to go forward rather than going backward. And

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<v Speaker 3>I think that those arguments can be made in Washington,

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<v Speaker 3>in Mexico City, and of course in Canada as well.

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<v Speaker 2>Noreel is this proposal potentially away that the United States

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<v Speaker 2>could have more haft when it comes to driving a

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<v Speaker 2>wedge between Beijing.

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<v Speaker 3>Well, certainly one of the concerns that the United States

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<v Speaker 3>has is not just company that is coming to the

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<v Speaker 3>US via China, but more importantly that the Chinese have

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<v Speaker 3>avoided tariffs by essentially exporting goods to Mexico and from

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<v Speaker 3>Mexico to the United States as if there were Mexican

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<v Speaker 3>goods they were. The Mexican production of many goods as

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<v Speaker 3>a lot of content of parts that is Chinese. And

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<v Speaker 3>there is also a concern about the fact that the

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<v Speaker 3>Chinese are taking over the auto market of Mexico as well.

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<v Speaker 3>Experting chip cars isn't otherwise to Mexico. So if you

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<v Speaker 3>care about the risking the relationship with essentially China, whether

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<v Speaker 3>it's in auto or other critical parts of the economy,

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<v Speaker 3>it makes sense to have initially custom union and then

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<v Speaker 3>having also a full economic union where decisions about how

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<v Speaker 3>much you trade and you investment with China from North

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<v Speaker 3>America are done not by the U s ALON side

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<v Speaker 3>ALON and then Mexico can do whatever they want as

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<v Speaker 3>they do right now, but everything the context of an

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<v Speaker 3>economic union and initially a custom union. So it makes

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<v Speaker 3>sense for the US, it makes sense for North America.

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<v Speaker 2>No real provocative as always, it's going to catch up

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<v Speaker 2>with this, sir, and I should say thanks for making

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<v Speaker 2>sign for us. And I run a bit of a

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<v Speaker 2>world source, so looking forward to catching up with you

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<v Speaker 2>when you're back in New York. Marian Rapinie of NYU

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<v Speaker 2>stand and had some bank capital