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00:00OFF, AND SO ARE WE, BECAUSE PRICES AND COSTS ARE GOING UP TO MAKE A CAR IN THE UNITED STATES, AND TO JUSTIFY THAT WE'RE GOING TO SEE MORE IMPORT RESTRICTIONS FOR CARS COMING IN FROM EUROPE AND JAPAN. > > ON THE ONE HAND, YOU SEE MARKETS READING THIS AS A STEP BACK FROM THE GLOBAL TRADE WAR. ON THE OTHER HAND, THIS ONLY WORKS IF INCREASED TARIFFS TAKE PLACE FOR THE LIKES OF EUROPE AND JAPAN, RIGHT? > > RIGHT. SO IT'S GOOD NEWS FOR MEXICO AND IT'S A BIG WARNING FLAG FOR JAPAN AND THE EUROPEAN UNION. AND REPRESENTATIVES FROM BOTH THOSE REGIONS CAME TO WASHINGTON LAST WEEK TO TRY TO AVOID NEW PROTECTION, NEW TARIFFS ON AUTOMOBILES, AND THIS WEEK'S ANNOUNCEMENT IS GOING TO, YOU KNOW, TELL THEM THAT THOSE TALKS LAST WEEK WERE TO NO AVAIL. > > JEFF, YOU LOOK AT THE EXUBERANCE MARKET REACTION OVERNIGHT. IS THERE A DANGER THAT INVESTORS AND MARKETS ARE EXTRAPOLATING FROM THIS, REALLY, WINDING BACK OF THE GLOBAL TRADE WAR OR IS IT TOO TENUOUS TO CONNECT THIS DEAL WITH A RESOLUTION WITH EUROPE, THE REST OF ASIA, AND CHINA? > > I THINK MARKETS HAVE IT BACKWARDS. THIS IS A DEAL THAT'S GOING TO ADD NEW RESTRICTIONS, AND NEW COSTS, AND GOING TO HURT OVERALL PRODUCTION AND GROWTH IN NORTH AMERICA, AND IT'S GOING TO BASICALLY MAKE IT MORE LIKELY THAT WE'RE GOING TO HAVE MORE TRADE FRICTION WITH EUROPE AND JAPAN. ON TOP OF WHAT WE'RE ALREADY DOING WITH CHINA. SO THE MARKET'S REACTION, I THINK, IS -- IRRATIONAL EXUBERANCE IS WHAT WE USED TO SAY 15 YEARS AGO. > > WHAT'S THE NEXT STEP HERE ON NEGOTIATING THIS DEAL? AGAIN, FELIPE WAS JUST NOTING THE U.S. DID GIVE SOME GROUND ON WHAT THEY ULTIMATELY WERE ASKING FOR. MEXICO HAS AGREED. WHAT DOES CANADA -- WHAT DO YOU EXPECT CANADA -- TO BRING TO THE TABLE? > > THEY WILL HAVE A REPRESENTATIVE COMING TO WASHINGTON TOMORROW AND THERE ARE A NUMBER OF AREAS WHERE MEXICO WAS WILLING TO COMPROMISE ON SOME ISSUES THAT ARE MUCH MORE IMPORTANT TO CANADA AND THE CANADIANS WILL FIND WHAT THE MEXICANS WERE WILLING TO SWALLOW WILL BE MUCH MORE DIFFICULT TO GET SUPPORT FOR POLITICALLY IN CANADA. AND WHETHER THE CANADIANS CAN ACCEPT THE COMPROMISES IS GOING TO BE DIFFICULT. I THINK ON ONE OF THE MORE SENSITIVE ISSUES, ON THE SUNSET PROVISION, THE WAY IT'S BEEN CHANGED, I THINK THAT TYPE OF COMPROMISE PROBABLY IS SELLABLE TO THE CANADIANS. BUT OTHER PROVISIONS ON DISPUTE, SETTLEMENT, ON GOVERNMENT PROCUREMENT, THAT'S GOING TO BE HARDER FOR THE CANADIAN NEGOTIATORS TO DEAL WITH. > > JEFF, WE'RE JUST GETTING SOMETHING SAYING, WE HAVE TO CHANGE THE WAY WE WORK WITH CHINA. WE HEARD FROM THE PRESIDENT SAYING NOW IS JUST NOT THE RIGHT TIME TO TALK TO BEIJING GIVEN THE FAILURE OF THE LOWER LEVEL TRADE TALKS THAT WE HAD LAST WEEK. IS THERE AN INCENTIVE FOR THE ADMINISTRATION TO FIND A RESOLUTION, THE WAY IT WAS ABLE TO GET A DEAL WITH MEXICO, POTENTIALLY WITH CANADA? > > IT'S A DIFFERENT TYPE OF PROBLEM. TO GET WHAT THE ADMINISTRATION WANTS FROM CHINA IS NOT SOMETHING THAT CAN BE DONE OVERNIGHT. CHANGING THE TRADE BALANCE REQUIRES MAJOR STRUCTURAL CHANGES IN POLICY IN CHINA AND IN THE UNITED STATES. AND IT'S UNLIKELY TO OCCUR IN THE UNITED STATES, AND VERY UNLIKELY TO OCCUR IN CHINA. SO YOU HAVE ALMOST A DEAD END ON THE U.S. CHINA TALKS. IF YOU'RE FOCUSING ON THESE MAJOR, MAJOR CHANGES FROM THE

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U.S.-Mexico Trade Pact Is 'Big Warning Flag' for Japan, EU, PIIE's Schott Says

Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, talks about the relations between the U.S. and its trading partners. President Donald Trump said the U.S. is pursuing a new trade accord with Mexico to replace the North American Free Trade Agreement. Schott speaks with Kathleen Hays and Haidi Stroud-Watts on "Bloomberg Daybreak: Australia." (Source: Bloomberg)

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