One of the nuances on trade that I told you to be on the look-out for occurred, just as I said it would. Negotiators announced that they had reached a new agreement on KORUS. There is geopolitics involved but the deal as described is nowhere near the change that Trump promised. All they did was limit steel imports to the US and increase market access for US autos in Korea. That is not gonna come close to rectifying the trade surplus that they run with us. Ag Secretary Sonny Perdue promised that Trump would protect the Ag sector and win further concessions for the Ag trade. The Ag sector was left completely unchanged in KORUS 2.0 so they did not even bother to go there. We would have gotten a much better deal from TTP which Trump pulled us from.
The nuance that I said would occur is that while trade negotiators finish and announce an agreement, it is worthless unless Trump himself declares it completed and it is signed and sealed. Trump announced last weekend that he, “May hold the deal up (KORUS) until after a deal is made with North Korea.” What does North Korea have to do with KORUS you might ask? Believe me, the South Koreans were taken a-back by it.
The real crux here is that North and South Korean negotiators are going to meet and Trump is not invited to this meeting. Trump doesn’t trust South Korea and thinks that he can use KORUS as leverage to keep a hand on their shoulder so they do not agree to something with Kim Jung-un that Trump doesn’t favor. US and South Korean strategic interests are not aligned. South Korea fears that Trump would go to war with the North without asking them for approval (which is a wise assumption). When the US talks about de-nuclearization they are talking about Kim Jung-un giving up his nukes. What Little Rocket man sees as denuclearization is for the US to leave altogether militarily from the region. . .a pullout of all U.S. military forces from South Korea.
Trump has mixed emotions. He doesn’t like U.S. military forces being there. He thinks that South Korea should fend for themselves militarily and bear the financial cost. He believes that the U.S. does too much for them. What he also fears is what it would look like if we leave the Korean theater of operations. Appearances are more important than anything to Trump. He would like to go. I think that South Korea would like us to go too. They would be the most vulnerable should the U.S. opt for military action and cannot control what we do any more than they can control Kim, seeing both as strategic risks. Kim may put his nuclear missile program on the table to get relief from sanctions and our exit from the region. Kim’s problem will be getting anyone to believe that he just won’t hide it real good and tell everyone it is gone. Trump wants to be at that table, even if not physically present, willing to hold up KORUS to keep that leverage. I believe that both Koreas will eventually become China’s problem to guarantee security in the region and beyond.
What trade negotiators world-wide are going to find out is that just because they make a deal with U.S. trade negotiators they do not have a deal. Trump can still ride in and shoot it dead. The negotiations are not real until Trump accepts them and it is hard to tell precisely when that is. He could blow them up at the signing ceremony. Our trade negotiators think that they are dealing in good faith but they do not represent the President who is the trade negotiator-in-chief. No one really represents the President. I had predicted this and he came through exactly as I had foreseen it.
It will be the same or worse with NAFTA. The USTR had good things to say about progress on NAFTA and then Trump pipes in interjecting demands for Mexico to do more for border security or of course “pay for the wall” which is where he will always be angling toward. I believe that there will always be more demands coming from Trump to complete NAFTA. There is no way in heck that he is negotiating in good faith. He has Sonny Perdue out telling us that he will get us a better deal in NAFTA 2.0. . .yeah, just like he got us a better deal in KORUS 2.0.
Mexico’s new president will be elected this coming summer based upon the Mexican people’s attitude that Trump has demeaned and denigrated them. The leftist/populist most anti-U.S. candidate now leads by double-digits in their polls. They think that the current Mexican government has been way too nice as it is to Trump. Stung, with their candidate in third place in polls, the ruling party is now conducting a review of all cooperation with the U.S. Loss of NAFTA will produce a severe Mexican recession with a surge in unemployment and new motivation to find their economic opportunity on our side of the border again. The reason that border crossings of Hispanics has reached near parity in both directions is the economic opportunity that exist for jobs in Mexico. Loss of NAFTA would blow that up.
Heightened tension at the border could have us treating each other as enemies, which is stupid. Trump will have to steal his wall-money from Mexico like a common bully. He says that he is up for that, threatening to take their “cash cow” away from them. What he doesn’t get is when he takes their cash cow away, he kills ours in the Ag sector. He doesn’t appear to care much about our cow.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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