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Why 5 years sunset clause is a show stopper?


alertmeipp
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Tearing NAFTA apart comes with a heavy political cost because you are harming a bunch of people. Sunset clause reduces that cost. It's easier politically to sit back, do nothing and let NAFTA expire than to explicitly tear it apart.

 

Second order effect: sunset clause creates a perpetual uncertainty around NAFTA. With potential sunset hanging over their heads, companies are less likely to choose Canada or Mexico for long-term investments. Sunset clause is a round-about way to gain advantage over your trade partners.

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Sunset clause means inertia will kill it. Some president won't bother renewing, or won't get trade authority, or whatever. Cancelling is a change you have to actively make, which is politically harder because you have to defend it at the time.

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The reason why it's a show stopper is because it's highly disruptive to business. Businesses like continuity and stability of the environment they operate in. If For example, if I'm looking to build a factory that will also service the US I'm planning to have that factory for more than 5 years. If I don't know whether Canada will have free trade with the US in 5 years, will I make that investment? I'm not so sure. NAFTA doesn't even need to get rescinded, it could just be tweaked a little just enough to screw my business.

 

That's not a good business environment to operate in. Yes NAFTA could be rescinded at any time. But the assumption is that it won't because it would be quite damaging to the party that pulls out. That's why countries sign treaties as opposed to making deals with individual administrations that can change with political whims.

 

Agreeing to a sunset clause basically guarantees that we go through the current shit show every 5 years. And nobody trusts US politicians to do the right thing. The US debt ceiling was put in place to make it easier for the US Treasury to borrow. Instead is now used as a weapon with politicians threatening to put the United States in default. Why would we import that insanity and instability into our business climate?

 

This is why a sunset clause is a show stopper. You're better off with no treaty than one with a sunset clause. Agreeing to a sunset clause would be a trade malpractice and a colossally stupid thing to do.

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Canada is certainly in a difficult position. It has integrated/hitched its economy to the US for decades; worked well for both countries for many years. Trump is turning everything on its head. And Trump has already won. Who in their right mind is building a new plant in Canada to service the US market? Can you imagine the discussions in the various board rooms right now on this topic? Trump wanting a 5 year sunset clause is another step; the threat alone will ensure most businesses take a pass on investing in Canada. Hard to see how this does not get much worse, absent Trump being removed from office. Fall elections in the US become even more significant; if Dems can’t take back control of the House of Reps then Trump will continue down his merry path.

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Hard to see how this does not get much worse, absent Trump being removed from office. Fall elections in the US become even more significant; if Dems can’t take back control of the House of Reps then Trump will continue down his merry path.

 

Yeah, it's unclear to me why anyone would bother seriously negotiating with Trump. He's capricious--even if Canada concedes on one point in return for USA conceding on another point, I'd be worried that the next day Trump would un-concede the USA side while demanding Canada's concession remain.  There's no reason to hold serious discussions when that's the person on the other side of the table.

 

So, I think the optimal strategy is to compliment Trump a lot, discuss all the talking points in depth and adjourn the meetings as much as possible, but not actually try to negotiate a deal. Essentially, just do what you can to keep the current agreement in place, but for actual negotiations, wait for the next guy since the next guy might want to negotiate in good faith.

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NAFTA has a 10 year reversible termination transition.

Even if the plug is pulled tomorrow, NAFTA will continue through the next 2 1/2 electoral cycles - and the chump can do absolutely nothing about it. Nobody would negotiate a shorter term, and nobody would enter into one-sided bi-lateral trade with such a dominant partner. Yet the chump is f***** if he can't get a 5-year sunset clause?

 

Is the chump likely to still be president in 10 years?

Are successor administrations likely to be as disruptive as this one?

If the answer is 'no' - the responsible thing is to continually make the case that restricting free trade hurts everyone, and not negotiate. That hypothetical new foreign plant isn't going to get built in the US either, as who would want to deal with an administration that tore up a free trade deal that worked - for a long time, and very well? That hypthetical new domestic plant ain't going to be exporting either, so it can only be a smaller plant employing fewer people (smaller market + robots replacing people). Real smart.

 

The players might change, but the show will go on.

 

SD

 

 

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Canada is certainly in a difficult position. It has integrated/hitched its economy to the US for decades; worked well for both countries for many years. Trump is turning everything on its head. And Trump has already won. Who in their right mind is building a new plant in Canada to service the US market? Can you imagine the discussions in the various board rooms right now on this topic? Trump wanting a 5 year sunset clause is another step; the threat alone will ensure most businesses take a pass on investing in Canada. Hard to see how this does not get much worse, absent Trump being removed from office. Fall elections in the US become even more significant; if Dems can’t take back control of the House of Reps then Trump will continue down his merry path.

I wouldn't be so quick to declare a victory because the converse is also true. If you are looking to produce an export good why in your right mind would invest in production in the US. If you produce a mixed good that you sell domestically and abroad why would you invest to expand production when you could be hit with retaliatory tariffs at any moment?

 

Also even with tariffs why would a company invest in US production in an area where it's at a comparative disadvantage when a few years from now this lunacy can go away? For example why would a company invest in aluminium capacity when in the near future it's at risk of competing with Quebec aluminium who's cost it has no hope of matching?

 

Furthermore, don't you put American exports at risk when you tax their materials? Aren't Airbus planes gonna be cheaper than Boeing if Boeing has to pay 10% more for aluminium? What about autos? Those things use A LOT of aluminium these days. If demand goes down for these products won't there be layoffs? What about the industries that are targeted by retaliatory tariffs? Harley is already doing layoffs. Won't those get worse when Europe slaps tariff on its products?

 

Is this what victory looks like? So much winning...

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... Yeah, it's unclear to me why anyone would bother seriously negotiating with Trump. He's capricious--even if Canada concedes on one point in return for USA conceding on another point, I'd be worried that the next day Trump would un-concede the USA side while demanding Canada's concession remain.  There's no reason to hold serious discussions when that's the person on the other side of the table. ...

 

He's not only capricious, Richard. He has - at least to me - demonstrated as a fact by now, within the last day and night, or so, that he is also impulsive, and to some extent bordering to being choleric. A highroller & gambler, who's capricious, impulsive and bordering choleric, using a lot of leverage. The leverage of the office [the office, which he does not in any way own], combined with the skin in the game of all others.

 

It feels unpleasant.

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Canada is certainly in a difficult position. It has integrated/hitched its economy to the US for decades; worked well for both countries for many years. Trump is turning everything on its head. And Trump has already won. Who in their right mind is building a new plant in Canada to service the US market? Can you imagine the discussions in the various board rooms right now on this topic? Trump wanting a 5 year sunset clause is another step; the threat alone will ensure most businesses take a pass on investing in Canada. Hard to see how this does not get much worse, absent Trump being removed from office. Fall elections in the US become even more significant; if Dems can’t take back control of the House of Reps then Trump will continue down his merry path.

I wouldn't be so quick to declare a victory because the converse is also true. If you are looking to produce an export good why in your right mind would invest in production in the US. If you produce a mixed good that you sell domestically and abroad why would you invest to expand production when you could be hit with retaliatory tariffs at any moment?

 

Also even with tariffs why would a company invest in US production in an area where it's at a comparative disadvantage when a few years from now this lunacy can go away? For example why would a company invest in aluminium capacity when in the near future it's at risk of competing with Quebec aluminium who's cost it has no hope of matching?

 

Furthermore, don't you put American exports at risk when you tax their materials? Aren't Airbus planes gonna be cheaper than Boeing if Boeing has to pay 10% more for aluminium? What about autos? Those things use A LOT of aluminium these days. If demand goes down for these products won't there be layoffs? What about the industries that are targeted by retaliatory tariffs? Harley is already doing layoffs. Won't those get worse when Europe slaps tariff on its products?

 

Is this what victory looks like? So much winning...

 

Why would a company today want to build a plant in the US today? Lower taxes, lower regulation, cheap energy to name a few.... Part of our challenge in Canada is Federally/provincially we are moving in the opposite direction: higher government spending, higher taxes, more regulation, higher energy costs (can’t approve a pipeline to get oil to market)... I am normally pretty agnostic/optimistic but I do see clouds on the horizon.

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understood the uncertainty introduced by the sunset clause.. but isn't the uncertainty there anyways? why not get it done, wait five years and hope Trump will be gone by then.

 

I agree to some, even without the sunset clause, if I have large US customer base, I will open a factory in US just to be safe.

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Once Canada agrees to a sunset clause why would a future US administration take it out. Even if it's a reasonable and competent administration, especially if it's a reasonable and competent administration. A US administration represents and works for the people of the US a sunset obviously benefits them and once we agree to that it won't come put for free. We'll have to make further concessions to the US. That's the way it works in these negotiations, you don't give anything away unless you get something in return. So no, Canada won't agree to a sunset clause.

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Once Canada agrees to a sunset clause why would a future US administration take it out. Even if it's a reasonable and competent administration, especially if it's a reasonable and competent administration. A US administration represents and works for the people of the US a sunset obviously benefits them and once we agree to that it won't come put for free. We'll have to make further concessions to the US. That's the way it works in these negotiations, you don't give anything away unless you get something in return. So no, Canada won't agree to a sunset clause.

 

I think it does not make sense to negotiate with Trump at all, about anything. He changes his opinion by the spur of the moment, and most of what he does is irrational. I think most have figured out that it’s best just to let this blow over and isolate and ignore him, as hard as it might be, since he does preside over the US right now. It is highly likely that Trump either self destructs, or does not get re-elected.

 

It will be interesting so see how that meeting with Kim Jong Un turns out. Kim himself is a bit like a Trump in a sense that he is unpredictable and tends react emotionally with apparent anger an management issues. Maybe these two will cozy up, which will look even more awkward.

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Spekulatius, I respectfully disagree.

 

In a normal business setting like company to company talks what you say is true. But now Trump may be a douche bag but he is still the president of the united states. Canada as a country has deep and intertwined interests with the US. Both economic - NAFTA - and security - NORAD, NATO. We can't act like a petulant child and just talk only to the administrations we like and ignore the ones we don't. There's too much at stake. But just because we talk and negotiate doesn't mean we have to sign anything. We don't have to give our country away. We must be reasonable and stay firm on the parts that are unreasonable.

 

Another thing to note is that when while Trump likes to do his real estate developer/Apprentice thing when you talk to Canada, you don't actually talk to some guy from Brooklyn flying by the seat of his pants. We have a deep bench of seasoned professionals, professional negotiators, and a fully staffed Foreign Affairs department. A lot of these guys have long standing relationships with their US contacts due to our deep relationship. And these aren't the types of people that get their panties in a twist because Trump tweeted something.

 

Canada hasn't just been negotiating with Commerce or the Trade Representative. Canada has been running a full court press. Talking to Governors, Senators, Congressmen, covering all the angles. Negotiating in good faith, sticking to the facts, and grinding it out. Frankly, this is what I expect of a professional government doing the work for its people.

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^ RB, you are correct. My writing was inconsistent. Of course thr US needs to negotiate with the US, but I think they need to avoid negotiating with Trump himself, but rather with the folks that run the machinery. I think over time, most leaders in the world will find out they negotiating with Trump himself is a waste of time.

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