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Morning Commentary

Dialing Down Sucking Sound

By Charles Payne, CEO & Principal Analyst
8/16/2017 7:24 AM
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We have got to stop sending jobs overseas. It's pretty simple: If you're paying $12, $13, $14 an hour for factory workers and you can move your factory South of the border, pay a dollar an hour for labor...have no health care—that's the most expensive single element in making a car— have no environmental controls, no pollution controls and no retirement, and you don't care about anything but making money, there will be a giant sucking sound going south.

When [Mexico's] jobs come up from a dollar an hour to six dollars an hour, and ours go down to six dollars an hour, and then it's leveled again. But in the meantime, you've wrecked the country with these kinds of deals

-Ross Perot
Second Presidential Debate, 1992

Back in 1992, the media was more concerned with Ross Perot’s ears and accent than the dire warning about entering into a trade deal that would be suicidal. His rationale wasn’t the stuff of rocket science but common sense. Mexico’s light vehicle production was 60,000 in 1985, and a little over one million in 1994, and now it’s approaching 3.0 million. 

Meanwhile, North America Light Vehicle Market Share has declined in the United States and Canada while it’s surging for Mexico. 

North American Light Vehicle Market Share

1990

2007

2014

United States

78%

70%

67%

Canada

16%

17%

13%

Mexico

6%

13%

20%

 

It is true Mexico’s market has opened for American goods, along with the great state of Texas that enjoyed a $9.3 billion trade surplus in 2016.  However, for the most part, this has been a one-sided deal, but untangling it will be more difficult than anyone could imagine – farmers, automakers, and retailers will all push back.

Sucking Sound Then Avalanche of Red Numbers

Today, the United States sits down with representatives from Mexico and Canada to begin the five-day process of renegotiating the North American Free Trade Agreement (NAFTA).   

The genesis of this agreement goes back to the bilateral deal America crafted with Canada in 1989.  In 1994, Mexico was added into the mix. It was the last year the United States enjoyed a trade surplus with its neighbor on the southern border; since then, the trade balance has been an unmitigated bloodbath.

I’m not sure if the Trump administration will settle for incremental changes or push for major reversals, which could be more difficult to get through Congress. It’s a dilemma to be sure, but the problem is glaring and must be addressed.

Confidence Reading

Yesterday, we saw the Empire State Federal Reserve report on manufacturing come in significantly above consensus, driven by a spike in future confidence about the economy. Greater confidence also drove homebuilder confidence, which had begun to lose steam with GOP failures to push through legislative wins. 

The overall sentiment read of 68 was an improvement of 4 points month-to-month and nine points from a year earlier. Only the customer traffic was stuck in contraction (readings above 50 signal expansions).

Many are upset that Congress is off too frequently for vacation without any economic accomplishments. In fact, without the cascading shadow of disappointing news coming out of Washington, D.C., grassroots confidence seems to grow faster and stronger.


Comments
I was always against NAFTA. It was very obvious it would harm the American workers,which it did. Might have helped the consumer to buy more stuff but households did suffer. We build nothing anymore. I see President Trump as a savvy patriot who wants a good living for all Americans.

Maureen Waite on 8/16/2017 11:43:38 AM
 

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