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NAFTA Deal done with Canada and Mexico


shalab
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Donald Trump has showed that despite his temper that he is pragmatic and rational: he didn't let his emotion on Trudeau or Freeland ruin a business deal.

 

And Trudeau finally did something right in the 3rd year of his term. Canada needs the U.S. more than they need us but, we both benefit enormously by continuing to trade freely.

 

I am also very happy that throughout this dealing that millions of Canadians have learned something that they ignored or that they are paying a very high price (double) for milk, dairy, chicken and eggs. Personally, it makes little to no difference to my well being but, it does impact in a big way poor consumers. Where are supposedly caring Liberals to poor childrens and families?

 

Of course, I expect the anti-Trump crowd of this website to say that this is all political drama and the like  ::)

 

Cardboard

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Looks like some very modest changes to the NAFTA, with the biggest being the change in name.

 

Yeah, doesn't look like in practice much will change. Cars will be a bit more expensive, cheese won't really get cheaper up North because of a low-single digit change in quotas. At a glance, looks like there are more restrictions on trade overall, not fewer.

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The de minimus is only going up that high for duty, sales tax only goes to $40.

 

The issue for online shopping doesn't tend to actually be duty, it tends to be huge brokerage fees charged to collect a couple of bucks of GST.

 

My impression as a Canadian consumer is that Trump got a "win" but online shopping and cheese are both unlikely to get any cheaper. Sales tax means I still pay brokerage fees, and the quota is small enough that it'll go to US producers as producer surplus without really lowering domestic prices...

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https://www.cnbc.com/2018/10/02/trumps-dairy-fight-with-canada-gets-only-70-million-more-than-tpp.html

 

Bank of America Merrill Lynch tells its clients some of the concessions in the new trade deal with Canada are "mainly symbolic."

"The deal includes a small reduction in protectionism for Canada's dairy farmers,” the firm's global economist Ethan Harris says. "Under the new USMCA, American dairy producers will have access to 3.59% of Canada's dairy market — slightly higher than the 3.25% they would have gotten had the US signed the Trans Pacific Partnership [TPP]."

 

Harris estimates the change will increase U.S. dairy exports to Canada by $70 million, or 0.0003 percent of GDP, compared to what they would have been under the TPP, from which the U.S. withdrew last year.

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I am also very happy that throughout this dealing that millions of Canadians have learned something that they ignored or that they are paying a very high price (double) for milk, dairy, chicken and eggs. Personally, it makes little to no difference to my well being but, it does impact in a big way poor consumers. Where are supposedly caring Liberals to poor childrens and families?

At Wal-Mart in New Jersey: Great Value 2% milk 1 gal: $3.62. CAD equivalent price for 4L $4.91

 

At Toronto Area Wal-Mart: Neilsen 2% milk 4L: $4.47

 

Again in at Wal-Mart in NJ: Laughing Cow Cheese 8 wedges: $2.87. CAD equivalent $3.68

 

At Toronto Area Wal-Mart: Laughing Cow Cheese 8 wedges: $3.47

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For what it's worth:

 

https://www.statista.com/statistics/236854/retail-price-of-milk-in-the-united-states/

 

But this article suggests that particular cross-border comparisons lead to great price differences:

 

http://fieldagentcanada.com/2018-milk-price-report-how-much-are-canadians-paying-for-milk/

 

I can vouch for the fact that milk costs a fortune on the east coast of Canada!

 

 

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I chose suburban location of major city compared to suburban location of major city. Location matters in retail. You can't compare Toronto to East Asscrack, Somewhere where you pay employees $7.25 and the price of real estate is "don't worry about it". I also used Wal-Mart for consistency of retailer despite the fact (to my surprise) that apparently Wal-Mart at $4.47 charges more for milk. The US product was also store brand (great value) as opposed to Neilsen which is a name brand. As Augustabound pointed out the usual price is $4. Costco is a bit cheaper at $3.90.

 

Doc, I don't know why milk is so expensive in Atlantic Canada. I know that milk is really expensive in Quebec because the government there imposed minimum retail prices for milk.  It may be something similar in the Atlantic provinces. But the fact is that Ontario, Quebec, and the Atlantic provinces are under the same supply management system. So if milk can be sold at a decent price in a high priced area like Toronto then I would suggest that maybe there something other than supply management is the cause of high prices as is the case in Quebec.

 

Cardboard, I did play around and what I've found is that the price for a gallon in Chicago is $2.53 not $1.78 as you claim. I also looked up prices in other major US cities: Seattle $2.68, Houston $2.66, Miami $3.16, Boston $2.91. The CAD equivalent for 4L for these respective cities is: $3.43, $3.64, $3.61, $4.29, $3.95. It averages out to slightly cheaper than what you would get in Toronto but you're nowhere anywhere near to half price as you claim.

 

Edit: then there's this report which claims that milk isn't actually that expensive compared to US rBST free milk.

 

https://www.exportactionglobal.com/wp-content/uploads/2018/04/Dairy-Systems-Around-The-World_Export-Action-Global_April-2018.pdf

 

Summary here:

https://www.realagriculture.com/2018/04/dairy-price-study-finds-canadians-dont-pay-more-for-milk/

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https://www.nytimes.com/2018/10/01/business/trump-nafta-usmca-differences.html

 

Memorable changes (to me at least)

-Increased production of automobiles in US

-Side-deals to exempt Mexico/Canada-produced automobiles from tariffs

-Slight increase of access for US dairy and financial firms in Canada

-US pharma IP protected in Canada

 

I didn't really notice anything game-changing but I have not read the full text of the agreement.

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I don't claim anything.

 

I typed Chicago, Illinois on the Walmart website.

 

First store that appeared was 2844 N Broadway Street. Clicked on that and price for a gallon of 2% milk is $1.78. Maybe that there is big sale going on?

 

Nonetheless, I am correct in stating that your New Jersey price does not represent U.S. average per your own findings.

 

Second, I may have exaggerated about double the price on milk but, it is close to that in some provinces. I still don't see how it can be denied that people pay more up here.

 

Cardboard

 

 

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If you have to pay something like 10 cents per liter more up here without subsidizing the hell out of producers with taxpayers money and the producers are doing well as well I don't see that as a major problem. Where do you think the money for the massive subsidies in the US is coming from?

 

Furthermore where milk is expensive - like Quebec - because the government there wants people to pay a lot for milk, the price of milk doesn't have anything to do with supply management. It's more to do with the people and their local government. If they're ok with it then so be it.

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https://www.nytimes.com/2018/10/01/business/trump-nafta-usmca-differences.html

 

Memorable changes (to me at least)

-Increased production of automobiles in US

-Side-deals to exempt Mexico/Canada-produced automobiles from tariffs

-Slight increase of access for US dairy and financial firms in Canada

-US pharma IP protected in Canada

 

I didn't really notice anything game-changing but I have not read the full text of the agreement.

I did read the full text and that's about the gist of it. A couple of things about your list thought. There's nothing in there about increased production of automobiles in the US. Another major thing is the elimination of NAFTA chapter 11 - Investor dispute resolution system. Reasonable minds may disagree here but I think that it was boneheaded to begin with and personally I'm glad it's gone. I'm quite surprised that the Trump Administration wanted that one gone. I can't imagine it was hard for us to agree.

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https://www.nytimes.com/2018/10/01/business/trump-nafta-usmca-differences.html

 

Memorable changes (to me at least)

-Increased production of automobiles in US

-Side-deals to exempt Mexico/Canada-produced automobiles from tariffs

-Slight increase of access for US dairy and financial firms in Canada

-US pharma IP protected in Canada

 

I didn't really notice anything game-changing but I have not read the full text of the agreement.

I did read the full text and that's about the gist of it. A couple of things about your list thought. There's nothing in there about increased production of automobiles in the US. Another major thing is the elimination of NAFTA chapter 11 - Investor dispute resolution system. Reasonable minds may disagree here but I think that it was boneheaded to begin with and personally I'm glad it's gone. I'm quite surprised that the Trump Administration wanted that one gone. I can't imagine it was hard for us to agree.

 

I think the idea is that the "high wage" content excludes Mexican factories (at least for now) so that will push content in Mexican vehicles back to the US.

 

I agree that Trump shot the US in the foot getting rid of chapter 11. Canada loses those all the time, and I don't think Canadians have ever won one in the US.

 

Canada has paid out over $200 MM in claims, I believe all of that money has gone to US corporations. https://www.policyalternatives.ca/nafta2018

 

While the US has never lost one. https://www.cbc.ca/news/politics/nafta-isds-weekend-1.4814141

 

Doesn't seem like something that hurts Canada to have removed to me...

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Complementary information.

 

Hard to get a clear picture on prices but the following is a reasonable source of information and methodology is interesting but conclusions are incomplete (more on that at the end of the post):

http://fieldagentcanada.com/wp-content/uploads/2018/06/Canadian-Fluid-Milk-Report-2018.pdf

 

Take-home messages:

1-milk prices vary ++ between regions in Canada

2-milk prices vary ++ even within regions in Canada

3-Canadian milk prices appear to be higher than US prices but the methodology on the US side is different and based on a smaller sample

 

On 1-, I would say that the net return to the producer is quite stable across the country given the principles behind supply management which is basically a national policy. In Atlantic Canada, higher prices at the consumer level can be explained by higher input costs and lower economies of scale at the farm level and higher transportation costs compared to farms in Ontario and Quebec. I know less about dairy farms in Alberta and BC.

 

On 1-, the difference in price between Quebec and Ontario does not lie at the producer level but has to do, as rb explains, with a different philosophy. Milk prices are set similarly to gas prices with a minimum and a maximum. In Quebec, the range is relatively small. In Ontario, the range is larger, especially down, because retailers have historically and typically used milk as a "loss leader", so consumers who save on milk will tend to pay more for other products because, in the main, the net margin for groceries is similar between Quebec and Ontario.

 

On 3-, If you look at historical evolution of prices, often US prices for milk have been lower and, for some periods, by a lot. However, one needs to compare apples to apples. The difference in subsidies directly to the producer can explain some of the differences. Also, if you look for the price of milk that is free of growth hormone, which is banned in Canada, the price differential tends to disappear. And, if you look at some work that's been done, in the US, it's been shown that a significant portion of workers on dairy farms are immigrants, frequently undocumented (up to 50% of workers in some reports) which seems to also explain a significant part of the price differential. So, overall, there doesn't seem to be much left for true productivity enhancing economies of scale in terms of a price advantage for the consumer.

 

One of the problems is that both the US and the CDN dairy systems are relatively broken (seems to be a pattern, doesn't it?) and the tendency, on both sides, has not been to fundamentally reconsider the policies put in place a long time ago but has been to try adding adjustments on top of it all resulting in a relatively inefficient patchwork.

 

I just realized that I wrote this post eating ice cream with milk products (diafiltered milk) probably imported from the US. Am I a traitor?

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Bizaro, what I've meant is that it doesn't specifically help the US. I'm actually optimistic about Canada's benefit from that.

 

At first read you'd think that $16 an hour content is too big for the Mexico, and production will shift to the US which is a higher wage jurisdiction. That is until you realize that huge swaths of auto parts production in the US pays labor below $16 an hour. Ooops! But virtually the whole Canadian auto parts production pays workers $16 an hour. So you may have to import more parts from Canada to meet your content rules.

 

Now this doesn't hurt production in the US. If you make a Hyundai in Alabama to sell in Texas and you don't meet content rules, that is ok because it's made in the US. But then try to export that vehicle to Canada (and they do) then they'll get a tariff. So the Canadian bound vehicles will need to have more Canadian parts.

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Retail milk prices across Canada are pretty much impossible to compare. Some regions had government actually set retail prices (not sure if they still do in Atlantic). In most other regions milk is used by retailers as a loss leader (sell at or even below cost to match a large competitor). I am not sure if milk is used as a loss leader in most US markets. If you want to really compare prices in Canada and the US you need to look at the price FOB the retailer (to understand impact of supply management).

 

Canadians clearly pay much more for a basket of dairy products than US consumers. Look not just at 4L milk. Look at a variety of products: 2L milk, 250ml milk, sour cream, cottage cheese, butter and cheddar cheese. Dairy is sold to both foodserice and retail customers. I would prefer to see a system in Canada where there is more competition and better prices. To stop the smaller farms from disappearing then we can cut them a cheque for ? to earn an adequate return each year.

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