Speaker Paul Ryan has set a deadline for this Thursday for NAFTA talks. All year long trade has been a primary suspect of volatility in the market and this week should be no different. Mexican, U.S. and Canadian trade officials spoke all throughout last week. As of last Friday there were still some big differences in their discussions. Thursday’s talks could prove to be a big driver in the markets this week.
It’s important to distinguish between the impacts of tariffs and quotas. Tariffs are similar to a cross-border tax as where there is no limit of what’s going back and forth, but is taxed at the border. Quotas differ in that there are restraints or, in other words, there is a hard limit and a point where the trade has to stop. What you have to watch, in addition to these tariffs, is that the Trump administration has gone after a lot of economies, including South Korea, where they are accepting more hard quotas. The good news of this is that this could possibly restore some manufacturing in the U.S. pretty quickly. The problematic part of it, in the long term, is that it could be more disruptive on the supply chain in which one can’t get more product but needs to sell.
Globalization vs Protectionism
The global world is still fighting against the established powers. In Italy the Five Star Movement and the anti-European far right movement are looking to form a coalition so they can put their person in as Prime Minister. This is interesting because both parties are set on getting out of the European Union. Italy is the third largest economy in the European Union. Talks of this could be very disruptive in markets, similar to Brexit. Over the weekend Iraq held elections. The U.S. friendly Prime Minister lost power and support went to a coalition of Communists and a very populous anti-U.S. cleric. It’s interesting to see that after a victory over ISIS in their country that the power still seems to be shifting to these populous anti-establishment groups.
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