TRUMP’S NEW WORLD ORDER.

Many scoff at the United States-Mexico-Canada Agreement (USMCA) as NAFTA 2.0, merely a tweak of the existing NAFTA agreement. Some tweak. USMCA is the first step in U.S. President Donald Trump’s plan to promote a new World Economic Order favouring America’s market-oriented allies and disfavouring bad actors, chief among them China.

Trump’s NAFTA negotiations were always about China, his ultimate target, and never about harming trade with America’s democratic neighbours. Once USMCA is ratified, Canada, Mexico and especially the U.S. will all be regaining their market share in manufacturing by producing more automobiles and other goods, thanks to rules of origin that promote manufacturing within North America.

As evidence of U.S. thinking under the new rules of the game, Canada will be free to export tariff-free almost a million additional cars and almost triple the value of auto parts to the U.S., an invitation that effectively places no limit at all during USMCA’s 16-year term. Overwhelmingly, the growth in the entire North American manufacturing sector will come at the expense of China, whose market share for its goods will plummet. If China ever had any doubt that the NAFTA negotiations were targeting it, that doubt has been erased with an explicit clause in USMCA that would allow the U.S. to collapse USMCA if either Canada or Mexico tries to negotiate a trade deal with China or another “non-market economy.”

USMCA is only Step One in Trump’s China strategy. As U.S. Trade Representative Robert Lighthizer explains, “the new agreement will also serve as a template for our trade agreements under the Trump administration in the future,” explaining features such as currency manipulation and theft of intellectual property. As if on cue, last week the EU and Japan, both of which are now in trade negotiations with the U.S., endorsed the template by joining the U.S. in a statement condemning

China’s theft of intellectual property and pledging to

“address non market-oriented policies and practices of third countries.”

Once the U.S. has concluded deals with the EU and Japan — and with the

U.K., India and other democracies eager to share in the benefits of the most bilateral-trade-focused government in U.S. history — the democracies will have ring-fenced China and other bad actors, forcing their economies to reform or languish.

Trump’s thinking can also be seen in his insistence on abandoning Chapter 11, giving companies access to government compensation through a trade tribunal — a globalizing protection in the old NAFTA deal that encouraged U.S. firms to invest in Canada and Mexico. An example of the workings of this protection occurred in 2009, when the province of Newfoundland and Labrador expropriated the rights and assets of U.S.-owned AbitibiBowater. Because Chapter 11 provided for compensation against expropriation, Canada’s federal government compensated AbitibiBowater to the tune of $130 million. The lesson for multinationals: You can make investments under trade deals covered by Chapter 11-type protections without assuming the risk of dealing in foreign jurisdictions with weak laws.

The new lesson for U.S. multinationals once the U.S. ratifies USMCA and like deals around the world: If you want to invest in a dodgy jurisdiction that doesn’t play by the rules, whether a China or a Libya or a Congo or a Newfoundland, you do so at your own risk, or if you want to mitigate the risk, do so at your own expense by buying political risk-type insurance on the free market.

If you want to avoid that risk, or the cost of the insurance for taking on that risk, invest at home, or in a jurisdiction that has laws you can live with.

Today, companies doing business in China often rely on government-subsidized insurance and guarantees provided by bodies such as Export Development Canada (which subsidizes 60 per cent of Canadian companies doing business in China), Overseas Private Investment Corporation in the U.S. or multilateral agencies such as the World Bank. Look for Trump to curb their use — government-backed insurance is a spur to the artificial globalization he abhors — so that investments in countries that don’t respect the rule of law reflect their true, free-market risk. Look for bad actors like China to languish rather than reform, because tyrannies can’t easily reform, not without losing their tyrants. China’s economy is entirely dominated by state-controlled and state-owned corporations, all desirous of protecting their own turf and all needed by China’s Communist Party to maintain the economic controls that keep President Xi and his comrades in power.

Trump’s end game is to see China’s economy ever weaker, ever struggling to maintain its leaders’ militaristic ambitions. He said this week that “frankly, it’s too early to talk” to China about trade reform — that it isn’t yet ready. When China becomes ready, it won’t like the terms of trade on offer.

Trump’s new World Economic Order plans to bifurcate the world, with the democracies thriving and the tyrannies struggling, until one way or the other they come over from the dark side.

NAFTA NEGOTIATIONS WERE ALWAYS ABOUT CHINA, HIS ULTIMATE TARGET.