Peter Navarro is again making headlines, and moving markets, when moments ago Trump's top trade advisor was quoted by Bloomberg as saying he wants the US, Canada and Mexico to form a trade "powerhouse", supposedly one which is quite different from the existing "NAFTA" trade arrangement.
Navarro is said to be "quietly working to forge an alliance with Mexico, even as U.S. plans to build a border wall and threats to withdraw from Nafta continue to inflame tensions with its third-largest trading partner."
Navarro, who as head of the White house National Trade Council will play a leading role in the effort to re-negotiate the North American Free Trade Agreement, said in an interview the U.S. wants Mexico and Canada to unite in a regional manufacturing “powerhouse” that will keep out parts from other countries.
The Trump administration is re-examining a critical component of the free trade pact: the rules of origin, which dictate what percentage of a product must be manufactured in the U.S. for it to carry a Made in America label, Navarro said.
“We have a tremendous opportunity, with Mexico in particular, to use higher rules of origin to develop a mutually beneficial regional powerhouse where workers and manufacturers on both sides of the border will benefit enormously,” said Navarro. “It’s just as much in their interests as it is in our interests to increase the rules of origin.”
For example, under the current agreement, 62.5 percent of the total value of cars sold in North America must originate in the U.S., Canada or Mexico to avoid import tariffs. The U.S. wants to raise that threshold, making it harder for parts from other countries to enter the supply chain.
As Bloomberg also adds, Navarro’s comments hint at the strategy the U.S. may use to negotiate a successor to the 23-year-old NAFTA agreemenet. Commerce Secretary Wilbur Ross has said serious talks with Mexico and Canada should begin in the “latter part” of this year.
Since the comment appears less combative than some more aggressive trade-related statements out of the administration, the market has taken it in stride and has sent both the Canadian Loonie and the Mexican Peso to session highs.
It is unclear if the statement was provoked by the recently disclosed "civil war" taking palce at the White House between Navarro and Trump's ex-Goldman advisors who are seeking to push the "isolationist" as far from Trump's circle of influence as possible.