TPT November 2017

G LOBA L MARKE T P L AC E

What is being negotiated? Opponents of NAFTA in the US – Mr Trump chief among them – argue that it has allowed Mexico to benefit at the expense of its neighbour to the north. The Trump administration has pointed to the trade deficit, with Americans buying more goods and services from Mexico and Canada than vice versa. (Many economists argue, however, that trade deficits, when viewed in isolation, are not a good measure of a nation’s economic health.) While the signatories to the pact have their individual priorities, three areas of contention have come to the fore: • Rules of origin Right now, a car assembled in Mexico is not subject to an import tax if a certain percentage of the finished product was manufactured in North America. The Trump administration wants to increase that percentage, a move that is supported by the United Automobile Workers (UAW), the biggest automobile union in the US. (US carmakers, however, are wary, saying that such a move could raise their costs.) • Arbitration Under NAFTA, companies in North America can use a system of independent arbitration to compel a country to do away with measures that violate the trade deal. The system has been used mostly by Canadian and Mexican companies against the US, and the White House wants to end it. • Modernisation One area of three-way agreement is the need to modernise NAFTA, which of course predates the Internet. While the US, Canadian and Mexican positions differ, e-commerce and workplace and environmental rules are likely to come up for discussion. What has happened so far? As noted, the first round of NAFTA negotiations was not congenial, with representatives of the Trump administration railing against the pact in public while seeking major concessions from their Canadian and Mexican counterparts in private. A sticking point is the conviction, enunciated by US trade representative Robert E Lighthizer, that the current version of NAFTA is biased against the US. The Canadian and Mexican representatives assert that it is not. What are the next steps? The three countries were to follow up the five days of negotiations in Mexico City with another round in Canada later in September. Several more rounds were expected before the New Year. “There are time pressures,” noted Mr Rao of the Times . Mexico is scheduled to hold presidential elections next July; and, he wrote, “a new deal may be tough to sell to the country’s politicians as they gear up for the campaign.” What does each side want?

Economics Hurricane Harvey was devastating to Texans – but probably not to the local or national economy (In late summer, meteorologists noted the unusual occurrence of three hurricanes forming at once in the Atlantic basin: Harvey, Irma, and Katia (in the Gulf of Mexico). Here, we consider only Harvey – the earliest and the one for which the fullest information was available at press time.) “This is going to be disruptive, but the Houston economy will overcome it very quickly, just like other regions.” Mark Zandi, chief economist at Moody’s Analytics, made this prediction to the New York Times when Harvey – which made landfall on the Gulf Coast of Texas as a Category 4 hurricane – was still pummelling the Houston area; and while the city’s focus in late August was still very much on saving lives and not on damage assessment. Even so, with the brutal storm likely to rank as one of the nation’s costliest natural disasters, rising floodwaters and heroic rescue efforts inevitably shared the news cycle with the tens of billions in lost economic activity and property damage across a region crucial to the energy, chemical and shipping industries of the US. The Houston metropolitan area, the nation’s fifth-largest by population, accounts for about 3 per cent of US gross domestic product (GDP). As noted by economics reporters Conor Dougherty and Nelson D Schwartz of the Times , not only is Texas a centre of oil production: the Houston area and the nearby Gulf Coast is where much of that oil is distilled into gasoline, diesel fuel, heating oil and other refined products. According to Robert Dye, chief economist at Comerica Bank, the Texas Gulf coast is home to about 30 per cent of the nation’s refining capacity. Hurricane Harvey shut down about half of it. Referencing the hurricane that devastated the Gulf Coast in 2005, Governor Greg Abbott of Texas said that Harvey had proven far larger than Katrina, “both geographically and population-wise.” He said he expected the storm’s ultimate cost to exceed the $120bn that the federal government spent after Katrina. He suggested that Texas could need up to $180bn in federal aid. ‘C OMMERCE WILL SHIFT – NOT STOP ’ But Messrs Dougherty and Schwartz of the Times noted that, in fact, when natural disasters do show up in economic data, it is usually as a small growth bump a few months after the storm. They reported that economists say the Houston region is likely to recover quickly and may even experience a bump in growth from rebuilding. (“Hurricane to Cost Tens of Billions, But a Quick Recovery Is Expected,” 28 August) Ellen Zentner, chief US economist at Morgan Stanley, said that – although Hurricane Harvey’s impact on national GDP in the third quarter might be fairly neutral – “the lagged

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NOVEMBER 2017