Political Editors / June 21, 2019

Trump’s Art of the Trade Deals With Mexico and China

Mexico passes the USMCA, Canada advocates for it, and another meeting with China is set.

This week has seen big updates on the trade front. The White House reported late yesterday, “A day after Mexico’s 114-4 landslide vote to become the first country to ratify the new U.S.-Mexico-Canada trade deal, Canadian Prime Minister Justin Trudeau visited Washington today. In addition to meeting with President Donald J. Trump at the White House, the Prime Minister encouraged Congress to make USMCA a bipartisan priority.” In other words, memo to House Speaker Nancy Pelosi: Knock it off with the Obstruct Trump™ agenda and do something positive for a change.

While Trump was busy fixing trade with Mexico he was also leveraging our southern neighbor on immigration. Donald Luskin of Trend Macrolytics makes an interesting observation: “Mexico just agreed to expend its resources to stem the flow of migrants from Central America through Mexico into the United States. In essence, Trump just delivered on the biggest, craziest campaign promise in history. He just used tariffs to get Mexico to agree to pay for the wall.” A metaphorical wall, to be sure, but that’s something. And Trump playing hardball by tying tariffs to immigration didn’t derail trade negotiations as some feared.

But Trump wasn’t only working with Mexico and Canada this week. He announced Tuesday that he “had a very good telephone conversation with President Xi [Jinping] of China” and that the two leaders planned to have “an extended meeting next week at the G-20 in Japan.” The potential for an end to the trade war via the possibility of a new trade deal between the world’s two largest economies injected a positive surge in the markets — the Dow Jones Industrial Average gained 1.4% upon the news.

The Wall Street Journal notes, “The G-20 gathering of political leaders from large economies can often be a threat to the health of those economies. But if Mr. Trump can use this meeting to persuade Chinese dictator Xi Jinping to stop mistreating U.S. companies — in return for ending American tariffs — economic health is sure to improve worldwide.” Xi may be motivated to make concessions because Chinese manufacturing is hurting in part due to the tariffs.

As we have regularly noted, there is a third player in this particular trade war — Beijing’s North Korean puppet, Kim Jong-un. Last week, Xi took the unusual step of meeting with Kim in the North Korean capital of Pyongyang. It appears that Xi may be working to leverage the trade talks with the promise of some sort of nuclear concession from Kim. Any deal is still a long way from done, but at least the initial signs are promising. As we’ve said before of China and North Korea, trade and national security are inextricably linked.

Finally, it’s worth reiterating U.S. trade numbers with Mexico and China for perspective. In 2018, the U.S. exported $299 billion to Mexico while importing $372 billion, for a trade deficit of nearly $73 billion. As for China, the U.S. exported just $74 billion while importing $297 billion, leaving the trade deficit at an eye-popping $222 billion. Given that America is essentially funding China’s military with that money, Trump’s more than justified in pointing to that as a big problem, even if Mexico is the bigger trade partner.

(Updated.)

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