Yesterday, Donald Trump laid out a seven-point plan to create fair trade and to bring manufacturing jobs back to the United States.  The speech was given in Pennsylvania, which is shaping up to be the most unpredictable of all the battleground states. At the heart of his speech is an aggressive plan to rewrite or abandon America’s role in the NAFTA.

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The North American Free Trade Agreement has been a source of political friction even before it became law.  It’s a deal that has the fingerprints of both political parties; while it was signed by Bill Clinton, the notion of such a deal was promoted even by Ronald Reagan.  Recent opposition to the bill has come mostly from progressives and it was a key pillar of the Bernie Sanders campaign.

In the general election, this will be Donald Trump’s issue; for the most part, it looks as if this is his best way to win swing states and the election.

History of  the NAFTA Signed 1993 Began Jan 1994 Passed House 234 – 200 (132 GOP 102 Dem) Passed Senate 61 – 38 (34 GOP 27 Dem) Annual Trade Balance with Mexico 1993 US Surplus $1.6 billion Annual Trade Balance with Mexico 2015 US Deficit $60.6 billion

Despite the obvious populist embrace against trade, there are powerful forces out there determined to maintain deals like the NAFTA and even implement new deals like the Trans-Pacific Partnership (TPP). However, major organizations such as the Chamber of Commerce say these deals are great for America; there are still 30 supporters from the original vote in the House that supported the NAFTA, of which 17 are Republicans and 13 are Democrats.

These proponents will say that the plan worked like a charm for years until the most recent Great Recession. In the years immediately after the NAFTA went into effect, the U.S. economy actually boomed. However, wages stagnated and job losses mounted.

In the first seven years after NAFTA, the United States economy grew at an average of 4.04% until the big market crash and subsequent recession in 2001.

Currently most major business organizations say free trade agreements including NAFTA have a net positive impact on the US economy.

Pennsylvania Manufacturing

This is state beaming with pride for its historic role in providing the steel that helped build America.  But times have changed, and there are a number of reasons for this change.

There are estimates of U.S. job losses tied directly to the NAFTA in a range of 700,000 to one million.

In Pennsylvania, there were 876,900 manufacturing jobs in January 1994, which came in at 565,900 last month.

By the same token, there is a lot of evidence job’s lost didn’t go anywhere, but were replaced by productivity and innovation.

Productivity & Innovation

While manufacturing jobs continue to slide in Pennsylvania manufacturing output is climbing with exports being a key driver. 

We think of steel and metals when we think of Pennsylvania, but chemicals and food & beverages are bigger these days.

At Stake in Trade War

According to the Center for Manufacturing, exports support 201,020 Pennsylvania manufacturing jobs or 19% of the total. 

Manufacturing exports $36.0 billion with 52% going to free trade agreement (FTA) partners.

Manufacturing exports increased 15% from 2010 to 2015 with top destinations:

• Canada 29.9%
• Mexico 11.3%
• UK 11.3%
• China 6.5%
• Germany 4.1%

I’m a proponent of trade, and yet, there is no doubt we need to be smarter about trade, especially with protecting intellectual property and making sure that Americans aren’t suckers.

On that note, we must avoid mercantilism and the protectionist instincts percolating in our nation. It was the same knee-jerk reaction to an ugly economic backdrop that actually made a past Great Recession a Great Depression.

The Market

This was a perfect rebound after two very difficult sessions. There wasn’t blind buying; instead, we popped out the gate, but early buyers couldn’t seduce more cautious funds off the sidelines. That was a good sign. The narrative this market has been driven by is blind exuberance and it has been way off the mark.  Individual investors have been sellers of domestic funds and Exchange Traded Funds (ETFs), and rarely has volume exuded wild-eyed optimism.

On that note, once the initial rally faded, there was a chance it could spark more selling.  After just an hour and half into the session, the Dow had given up 100 points, but it found support.

The second leg higher gained strength with each tick higher, and there was a mini-flurry into the close. But there was still cautiousness to the session reflected in market breadth.  152 stocks on the NYSE rallied to new 52-week highs, and 84% of the names on the NYSE were higher.

Market Breadth Milestones	New Highs	New Lows
NYSE	152	27
NASDAQ	33	57

Market Breadth Movers	Advancers	Decliners
NYSE	84%	15%
NASDAQ	77%	20%

Technical Look

The old trading range was blown to smithereens, which mean we have entered a new range.  So, old support points have become resistance points.  For the Dow, that magic number is 17,400, exactly where the index closed. It would be a big buy signal to see the index pierce this number and hold above it tomorrow.

Retail stocks have been under pressure, but one name high on my list is Hanesbrands (HBI).  It was a grand slam for me; I shared this on my show in the past…I am considering re-entering. 

Check out my website for daily commentary and guidance.  www.wstreet.com

Comments

Charles, it is time for us to have fair trade. For countries that limit ownership of their companies to 49% or less,we should do the same to them. Raymond Kotwasinski on 6/29/2016 9:49:59 AM

NAFTA took effect at a time in my life when I was not following the effects of such things closely so I cannot comment on the nationwide effect. Since I live in the Pacific Northwest however, I can say that entire towns that depended on forest products went broke and were abandoned because of NAFTA. I believe in free trade but only if it's fair. American workers and products should not have to compete against foreign products that are made cheaper by government subsidies. We have made ourselves the patsies for far too long. Patricia Hampton on 6/29/2016 9:52:40 AM

Trade is an comprehensive, across-the- board give-and take proposition. Segmental protective tariffs throw this equation out of balance. z on 6/29/2016 10:25:20 AM

NO. I can't think of any time that in history that economic protectionism has worked. Leveling the playing field might work, but thinking you can generate wealth by not competing is just nuts. If we stop importing goods simply because they are produced at less cost, we raise the cost of living in the USA. That means wages go up, and everything we produce becomes less competitive. That is not the desired result. The best way to be more competitive is to lower the average wages in the country without lowering the standard of living. We might be able to do that if government would decrease their bite out of everyone's wallet. Bob G on 6/29/2016 3:32:19 PM

NAFTA may work but for the US workers but two things are against them: 1. High wages as compared with Mexico. 2. High Corporate Taxes. A US corporation taxed at 35% with high salaries to its employees can no longer make a profit in the US. The way out is delocalization to low wages location, meaning Mexico. NAFTA has become a catch 22; the Democrats need the taxes to pay the unemployed US worker entitlements. The US Corporation has to move to low wages to pay less taxes. This means the tax happy Democrats are happy, and the establishment republicans also, they can show more profits and pay good dividends, which the democrats will tax with a 22% capital gain. The winners are the Democrats and the Republican have no clue!!?? Philippe on 7/1/2016 12:00:47 AM

Resend or demand one or two and change the attitude for future negotiations. A little hard ball is what Trump is suggesting; I hope!! They should add Obomas promises to that existing ad showing Hillary and Bills lying statements. Bill. Bill Mays on 7/7/2016 8:52:51 AM

Currency wars prevent fair trade. My solution,eliminate income tax on mfg companies with less than 500 employees. Larger co can sub to small co and expense those costs. Result: money flows back to USA,more jobs, happy people. BURCHE MELSON on 7/8/2016 10:08:02 AM

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