What Does Trump’s Mexican Victory mean for China and Canada?
Author: Greg Valliere
June 10, 2019
A WIN IS A WIN: As we suspected, Donald Trump was eager for a truce in the U.S.-Mexico spat. Even though there weren’t a lot of new provisions, especially on immigrant asylum, the deal allows Trump to proclaim a victory, and despite misgivings in the Mexican legislature, this has boosted President Lopez Obrador’s popularity.
MOST SIGNIFICANTLY, THE DEAL allows Trump to keep Mexico on a short leash that he can yank if immigration doesn’t subside; it also avoided a meltdown between him and Congressional Republicans; and it may have stopped the stock market sell-off. And as a bonus, there’s a strong likelihood of a Fed rate cut this summer, in part to alleviate the impact of a tariff crisis that Trump himself created.
SO — WHAT DOES THIS MEAN FOR CHINA AND CANADA?
CHINA: The G-20 summit late this month will be crucial; we think Presidents Trump and Xi need a deal and will have a constructive meeting that will result in efforts to get trade negotiations back on track. Unfortunately, the acrimony between both countries has escalated, and there are so many unresolved issues that it could take months before a final deal is hammered out. But the markets want to see some sings of progress, and we think there will be.
CANADA: The USMCA trade deal, replacing NAFTA, still faces an uphill fight in Congress. Nancy Pelosi and most Democrats want to re-open the pact, adding labor and environmental provisions, but relations between Pelosi and Trump are so radioactive that any type of deal would have to be negotiated by surrogates. Encouragingly, Vice President Pence apparently has developed a constructive relationship with Canadian Prime Minister Justin Trudeau.
AMID ALL THE MOVING PARTS ON TRADE, HERE ARE OUR ODDS:
- Chances that the Mexican deal will stick, with a breakthrough on asylum: 65%.
- Chances that U.S. trade talks with China get back on track: 70%.
- Chances that a final U.S.-China trade deal can win approval by year-end: 55%.
- Chances that the USMCA will win approval by year-end: 45%.
- Chances of new tariffs on Europe, leading to major EC reprisals: 60%.
BASED ON THOSE ODDS, the trade outlook obviously will remain unclear; Trump is a “tariff man” who has no reservations about using this blunt weapon, so there’s bruised feelings and apprehension among virtually all U.S. trading partners. Thus the global economic anxiety will persist, giving Trump what he really wants: even lower interest rates, with the Fed moving in late July and probably again in December.
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