Hot off The Presses. Round One of scheduled NAFTA renegotiations has concluded today and a trilateral statement has just been released. [My thoughts follow press release]:

Washington, DC – On August 16, 2017, United States Trade Representative Robert Lighthizer, Canadian Foreign Affairs Minister Chrystia Freeland and Mexican Secretary of the Economy Ildefonso Guajardo launched the renegotiation and modernization of the North American Free Trade Agreement (NAFTA) in Washington, DC.

This began five full days of meetings by a team of subject matter experts covering more than two dozen different negotiation topics. Detailed conceptual presentations were made by the United States, Mexico and Canada across the scope of the agreement, and negotiating groups began work to advance text and agreed to provide additional text, comments or alternate proposals during the next two weeks.

The scope and volume of proposals during the first round of the negotiation reflects a commitment from all three countries to an ambitious outcome and reaffirms the importance of updating the rules governing the world’s largest free trade area.

In addition to the negotiations, officials from all three countries continued to engage a wide range of stakeholders, including representatives of the private sector; industry associations; civil society, including labor groups; legislative representatives; and state/provincial officials.

Negotiators from each country will continue domestic consultations and work to advance negotiating text through the end of August, and will reconvene in Mexico for a second round of talks from September 1-5.

Negotiations will continue at this rapid pace, moving to Canada in late September and returning to the United States in October, with additional rounds being planned for the remainder of the year.

While a great deal of effort and negotiation will be required in the coming months, Canada, Mexico and the United States are committed to an accelerated and comprehensive negotiation process that will upgrade our agreement and establish 21st century standards to the benefit of our citizens. (link)

First, as to the probability for a joint agreement, the outlook still remains at a level “3” on a scale of 1 to 10. The bottom line for optimism isn’t really optimism; it is more drawn from a simple reality: neither Canada nor Mexico have any alternative.

Other than bang their virtue-signaling and threatening drums loudly, there’s no actual substantive economic leverage held by the CanaMex twin parasites; who are trying to negotiate an enhanced sustainability through discussions with their economic host. The reality is the three nations Canada, Mexico and the U.S. are not equal. Canada and Mexico stand to lose the most from ‘no deal’. They just don’t have any leverage beyond politics.

All of CanaMex’s talking points are political in nature. Unfortunately for them, the Trump administration is looking at the trade deal purely through the prism of economics, not politics. Trump ain’t trying to win virtuous points with Vildegaray (Mex) or Freeland (Can), period.

From the perspective of Trump/Ross/Lighthizer it’s about math, jobs and GDP economics. Nothing more. This cold economic reality crushes the heavily-nuanced feelings contained within the Canadian and Mexican positions. Virtue signaling (Canada’s approach) and threats of social anxiety (Mexico’s approach) ring hollow against the sheer scope of economic leverage carried by team U.S.A.

If all participants were equally carrying leverage the likelihood for an agreement would be Zero because the economic combatants are generally loggerheads across all sectors. However, this is not an agreement amid equals. Access to the U.S. market is vital for the continuance of Canada and Mexico’s sustainability. Therefore one must temper the desire for a zero-sum outcome amid the reality that CanaMex cannot afford to walk-out.

So long as CanaMex cannot exit, and team U.S.A. drive the economic standard, there will be an agreement. CanaMex won’t like the agreement, but when the elephant is not afraid of the opinion of the mice, and the elephant holds the key to the cheese vault – what’s the two mice gonna do?

The countries head to Mexico City for the second round, from Sept. 1st to 5th. A third round is schedule in Canada in late September, and then back to U.S, in October.

As previously stated the first round was heavy on on introductions and schedule-setting, while also featuring substantive discussions on matters of key divergence including auto-parts rules, cutting edge pharmaceuticals and labor wage rates.