There are three areas that I suspect that many investors are vulnerable to disappointment. NAFTA, trade talks with China, and Powell speech at Jackson Hole on Friday.
With problems elsewhere, the Trump Administration has been playing up the likelihood of an agreement as early as today with Mexico, which would be used, apparently to deliver a fait accompli to Canada. It is not clear what a “handshake agreement” really entails, but the optics suggest someone in a hurry to claim a victory.Several critical issues reportedly have not been addressed, including the sunset clause, which could alone be a deal-buster, government procurement, and a conflict resolution mechanism.
The press an agreement comes from both Mexico and the US. Mexico’s new president (AMLO) takes office on December 1 and would seem to prefer an agreement is struck by the outgoing government. Part of the challenge here is that the new Congress is seated September 1.
The procedural requirement in the US is protracted. The President is required to give a 90-day notice to Congress of his intention to sign the new agreement. Pressure comes from the November midterm election. Historically the party that does not control the White House picks up seats in the midterm elections, and polls confirm the likelihood that this historical pattern remains intact this year.
It seems unlikely that an agreement can be struck by all three parties, even with the threat of auto tariffs hanging over the talks like the Sword of Damocles, in sufficient time to beat AMLO into office and under the existing US Congress.
Press reports suggest there is some optimism that the first US-China trade talks in nearly two-months are actually substantive and could result in a de-escalation of trade tensions. This optimism is misplaced. In fact, within hours of the low-level meetings that take place in Washington today and tomorrow, which an Under-Secretary of the Treasury leads the US team, who has not trade authority, the US will implement the previously announced 25% tariff on $16 bln of Chinese goods.
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