GUALFIN, ARGENTINA – We pick up where we left off yesterday.

The big winner from the new North American Free Trade Agreement (NAFTA) deal, now called the U.S.-Mexico-Canada Agreement (USMCA), is the Swamp.

Here’s Jeffrey J. Schott of the Peterson Institute for International Economics with the details:

[The deal] adds layer upon layer of costly new regulations that producers must follow to qualify for NAFTA’s low tariffs – layers virtually certain to drive up costs of autos for consumers and very likely reduce U.S. jobs in the auto sector. Very simply, the pact is intentionally designed to mismanage the auto sector, an important driver of production and high-wage manufacturing employment in all three countries.

The best trade deal is no trade deal at all. Get the feds out of the way; let people make whatever deals they want.

This is especially easy and obvious in countries such as the U.S. and Canada, where living standards, wages, language, environmental regulations, and other related rules are very similar.

Canada and the U.S. could trade as freely as New York and Alabama.

Dripping in Swamp Water

But that would cut out the swamp critters. They make their money by interfering in free trade, not by facilitating it.

And now, with the new NAFTA, dripping with greasy swamp water, they have a lot more room to maneuver. The Trump team gave them a crony trade deal where what you get depends largely on how much you pay your lobbyists.

Schott again:

Based on analysis by the Peterson Institute for International Economics (PIIE), the new content rules and minimum wage requirements will likely lead to a less competitive North American auto industry with less investment in U.S. plants and fewer U.S. jobs in the sector – just the opposite of the claims of U.S. officials. The new rules require that 75 percent of a car or truck have content made in North America to qualify for tariff-free imports, up from the current level of 62.5 percent.

In addition, 70 percent of steel and aluminum must be produced in North America, and 40 percent of a car or truck would have to be made by workers earning at least $16 per hour, presumably to discourage companies from moving assembly operations to Mexico. Producers of passenger cars must either comply with the new rules or forgo the regional tariff preference.

This will likely be their choice, since, in that case, they can use components from any country and simply pay the low most favored nation (MFN) tariff of 2.5 percent instead of rejiggering their supply chains. But truck producers don’t have that relatively cheap escape hatch: The U.S. MFN tariff on trucks is 25 percent.

There’s plenty of room for interpretation, in other words. And dangling sinecures, speaking fees, consulting deals, and who knows what else… the anglers are bound to help policymakers see it their way.

That’s the way the Swamp works.

Dry Land

Free trade, meanwhile, takes place on dry land. It needs no lobbyists or insiders.

But bullying, blustering, and bluffing not only adds costs and decreases efficiency, it also leads to major blunders. America’s most important and most loyal trading partner is already looking for other markets and suppliers.

Per Perrin Beatty, president of the Canadian Chamber of Commerce:

Canada must remember the lesson this turbulent period has provided: we must never again allow ourselves to be overly dependent on one trading partner. We must continue to diversify our markets to protect ourselves from capricious and unfair actions in the future.

Who would want to do business with a bully? Who would trust Mr. Trump… or the nation that gave him its highest office?

We don’t know. But it must be the question the Chinese are asking.

And while Mr. Trump is counting on his familiar “mad dog” negotiating strategy – barking and growling, while expecting to back down later and then claim victory – the risks with China are much greater than with Canada or Mexico.

Because the whole edifice of U.S. swag – including the fortunes of Donald Trump, Jeff Bezos, and millions of cronies, hustlers, and speculators – depends on fake money lent at fake rates, and the fake “globalized” world economy it has created.

The fake money – $19 trillion has been added to global monetary footings in the last 30 years through central bank stimulus policies – financed far more malls than Americans need… and far more factories than the Chinese need.

It drove the stock market up 10 times and made Wall Street rich.

And (by turning millions of voters against their own elite) it got Donald Trump elected president.

But now, China’s credit bubble – which is even bigger than America’s and is pumped up on even more absurd fantasies – is ready to pop at any moment.

America’s stock market bubble – with prices even higher, relative to GDP, than in 1929 or 2007 – is set to burst.

The whole crackpot media bubble that keeps people focused on trivia and trash is ready to blow up, too.

And there’s Donald J. Trump… blindfolded by his own silly ideas… with a giant pin in his hand.

Stay tuned…

Regards,

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Bill

Editor’s Note: Bill is off on horseback around Gualfin today. But before heading out, our editor shared another picture from the ranch…

Bill gathers sheeps’ wool in Gualfin, Argentina

MARKET INSIGHT: 10-Year Yields Spike

By Joe Withrow, Head of Research, Bonner & Partners

U.S. Treasury bond yields just saw their largest single-day spike since the day after Donald Trump was elected president…

That’s the story of today’s chart, which maps the 10-year Treasury yield – the global benchmark for interest rates – from the start of 2011 to today.

Chart

Yesterday, the 10-year Treasury yield spiked 10.3 basis points. That’s the largest one-day spike since November 10, 2016.

The 10-year yield now sits at 3.16% – its highest level since July 2011.

Remember, we pay close attention to the 10-year yield. That’s because other rates tend to “feed” off it. As the 10-year yield climbs, so do borrowing costs for mortgages as well as business and consumer loans.

As Bill has written in the past, interest rates have historically moved in long cycles. The recent jump in the 10-year yield is further evidence that interest rates are now trending up, and may continue to do so for decades.

– Joe Withrow

FEATURED READS

The Tyranny of the U.S. Dollar
For decades, the U.S. dollar has been the currency at the heart of the global financial system. As Bill has mentioned before, this has allowed the U.S. to print greenbacks almost without limit. But the dollar’s dominance could be fading… and is poised to be usurped.

And read also…

California’s War on the U.S. Dollar
A new American civil war may be brewing. And the epicenter of the coming crisis could be in California’s Bay Area, where a local government initiative is geared up to undermine the power of the U.S. dollar.

$100 Oil: Just What Electric Vehicles Need
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MAILBAG

In the mailbag, Trump… trade… and the ongoing Brett Kavanaugh saga…

POTUS, whom you call a moron, got another win with Mexico and Canada – proving that his strategy works. When becoming dependent on foreign suppliers for vital goods such as steel, aluminum, or gas, a nation makes itself vulnerable to political blackmail. The Russians have employed that with Ukraine. Now, Germany is falling into that trap.

The U.S. needs to maintain steelmaking capacity for national security. Absolutely. Otherwise, you’d have a win-lose situation, just as buying goods with “fake” dollars would be, if they really were fake. The Chinese have been quite capable of building up their living standard with them.

– Erich K.

It’s interesting that Forbes reports that Donald Trump’s wealth has declined from about $4.5 billion to about $3.1 billion since he ran for the presidency – nearly a 25% loss. No wonder he so often comes across as an angry man, blaming everyone else for America’s, and his, problems. He is so disliked in the big cities, where much of his investments lie, that property owners who paid millions to put his name on buildings are having second thoughts.

Big-name retailers are leaving Trump buildings, along with other tenants. As a Chicago man said, the Trump name, which once represented luxury, has come to represent divisiveness, embarrassment, and questionable morals. I can only wonder if the only reason his term may not come to be known as one of the most corrupt in American history is that he is losing so much personally. The swamp is certainly running wild… at the citizenries’ expense, of course.

– Chuck B.

It is amazing to watch the gullible types yelling about Brett Kavanaugh and yelling at Bill for his reaction to the entire circus. This band of knee-jerkers is ready to hang Kavanaugh in the town square, not because of any bits of corroborated evidence, but simply because their hatred of the current president has destroyed what bits of logic may have been remaining inside their heads. If this type of attack had been directed at any of Barack Obama’s nominees for the Supreme Court, these non-thinking types would have been screaming racism, sexism, and pretty much any other -ism that they could conjure up.

– Al D.

Recently, I heard that 36 years from now, a nominee for the U.S. Supreme Court will be disqualified because of a review of his/her texts from middle school. The FBI will be reviewing texts of sixth- and seventh-grade children. Madness! Also, I heard that the Pope was thinking about decanonizing Saint Augustine. Seems that some bishops are not happy with his hedonistic lifestyle as a young man. Men apparently cannot turn their lives around and lead productive lives, forsaking their pasts.

– Greg M.

Bill, you’re thinking way too small. Trump sees America’s debt on a world scale with a world solution. You don’t make trillions with American tax or budget cuts. You have to make some “good” deals. The best deals involve a winner and a loser, often a very big loser. On a world scale, there are many potential very big losers – trillion-dollar-scale losers.

America is not responsible for there being losers. However, Trump (nor I) will not say this to the world. He simply positions America at the front of the line. You must leave Wall Street thinking behind; they wear equity blinders. This requires world-scale thinking. Relax, and I know it will come to you.

– A. E.

Meanwhile, one Dear Reader is happy to be hearing more from Gualfin…

Bill, it’s interesting to read your stuff, but what’s more interesting is your ranch in Argentina.

– Richard S.

IN CASE YOU MISSED IT…

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