Bullish on Exports to Mexico
I may be wrong, but 90 percent of President Trump’s trade rhetoric may just be pre-negotiating posturing. Keep in mind that developers are master negotiators. For example, if building a 700,000 square foot project, they may ask approval for one million square feet knowing that the other side feels like they scored a “win” by chiseling the project down to 700,000 feet. But if the developer started out asking for 700,000 feet, they may only end up getting permitted for 500,000. Could that be what’s on President Trump’s mind when he declares NAFTA is going to need major rewrites?
I’d like to think so. We import $59 billion more in goods from Mexico than they import from us. More importantly, Mexico imports $143 billion more in aggregate from other nations than they import from the US. Assuming they can source these same goods from the US, this means that there is $84 billion in wiggle room for Mexico to increase their imports from the US. Now, if you are President Trump, what are “best practices” for negotiating an increase in that delta? Answer: You first have to get them to think you are serious about cutting off their exports, otherwise they have very little incentive to play ball.
Interesting to note is that for this strategy to work, people have to work themselves up into nothing short of a “trade hysteria,” which they have. And the irony of ironies is that the media has played right into the President’s hand. By running around with their hair on fire, the media has set the stage Trump may have hoped they would, namely that Mexico (and some in the trade industry) actually believe he will go through with it, which may be the scenario he needs to successfully negotiate. We have never had a president who is as skilled in business – or the art of the deal – as President Trump. As they say in China, this is his rice bowl. Now if President Obama had said these things I would be worried because he had zero business experience and did not believe in American exceptionalism. My prediction? US exports to Mexico will grow by $20 billion over the next several years.
AMERICANS LOVE TO “BUY AMERICAN”