Canada, Mexico and China Rob the US Economy Through NAFTA Loophole


The NAFTA agreement negotiations are cordial and conciliatory in tone- but that doesn't stop the Donald from playing a little hardball.

Mr. Trump has set a fire under the feet of his Nafta partners, who had been hoping for an exemption from the planned tariffs on steel and aluminum, by tying that to a deal.

“We have large trade deficits with Mexico and Canada. NAFTA, which is under renegotiation right now, has been a bad deal for the USA. Massive relocation of companies & jobs. Tariffs on Steel and Aluminum will only come off if new & fair NAFTA agreement is signed,” he tweeted on Monday. He also said Canada needed to “treat our farmers much better” and that “highly restrictive Mexico must do much more on stopping drugs from pouring into the US”.

What Trump is not saying here is that NAFTA is fundamentally flawed in its terms and this has allowed Canada and Mexico to drive such lopsided bargains with the United States in the past. How does this occur, that the 10th and 16th largest economies in the world can push bad deals on the country in the number one spot?


You have no doubt deduced that China is not in NAFTA, and on paper that is true; but China is indeed a critical part of any NAFTA agreement because China trades heavily with Mexico and Canada and, by virtue of self-interest, Mexico and Canada pass on huge costs to the USA.

Because of the porous legislation included in NAFTA's genesis, any country that trades with Mexico or Canada is effectively in NAFTA. If a country has vast quantities of certain resources such as steel and aluminum, there is a huge incentive for them to circumvent US Tariffs by trading with other NAFTA members as an intermediary to the US market.

“México shouldn’t be included in steel & aluminum tariffs. It’s the wrong way to incentivize the creation of a new & modern #NAFTA,” ~ Ildefonso Guajardo, Mexico’s economy minister.

Mr. Guajardo is guaranteed to hold this position until forced to change as his country benefits hugely- not because of the tariff directly, but because his country is provided with a trade toll by other countries to access the NAFTA privileged terms. For example, in the NAFTA negotiations, Mexico and Canada are pushing for the smallest amount of North American parts in NAFTA automobile production. This means that Mexico and Canada can import the difference from China, Asia or Europe, finish the product with some basic assembly and then pass off the product to the American market- saving big money on tariffs for the original producing country in the process.

Canada, Mexico and China Rob the US Economy Through NAFTA Loophole

The Trump administration knows this, as Reuters reported in November.

"The Trump administration last month stunned its NAFTA partners by unveiling demands that half of the value content of all North American-built autos be produced in the United States and that the regional vehicle content requirement is sharply increased to 85 percent from the current 62.5 percent."

What this means by "regional vehicle content" is that currently 37.5% of vehicles produced under the NAFTA agreement can be made with non-NAFTA auto parts. That includes the total content of the vehicle- including steel, metals, plastics, and electronics. Mr. Trump wants to reduce this proportion to 15%, which is a protectionist and anti-Globalist move by any measure- forcing closed the gap in the legislation that has bankrolled the economies of Canada and Mexico for a generation.

By adopting this policy, the USA would prevent Canada and Mexico buying in Chinese auto parts to be assembled and shipped into the US market free of duties and tariffs. It makes great economic sense for Canada and Mexico to do this- the ports are busy, they have factories providing jobs doing the finishing assembly and so on. The Canadian and Mexican economies are thriving on this NAFTA loophole, at the expense of the United States.

This example of the NAFTA loophole extends to all products covered by the deal- even down to the food you eat. If NAFTA was a great deal for all parties, then Canada and Mexico would not be pushing for higher percentage points of foreign goods allowed in products produced under NAFTA. It just wouldn't make sense for them to do so if NAFTA protected the interests of primary producers in North America. If you are making applesauce and you can get apples shipped from Asia for 20% less than you can buy them from Francois in Quebec, what is a capitalist to do? Your hands are tied by the loophole that allows your competitors the same access to cheap foreign goods that you have- if you don't exploit the loophole, your applesauce may be too expensive in comparison. Even with the proven long-term flaws in globalized economies evident, you are unable to resist the cheaper raw materials available overseas.

"According to a 2010 Federal Reserve Bank of San Francisco report, approximately 35.6% of all clothing and shoes sold in the United States were actually manufactured in China, compared to just 3.4% made domestically." -Justin Kuepper, The Balance.

Under the current NAFTA agreement, Canada and Mexico are the gatekeepers for foreign goods to enter the United States through the back door. In this way, almost any trade in the US market is passing percentage points of profit to nations across the borders. That doesn't sound like a particularly free -or fair- trade agreement to me.

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This is a companion discussion topic for the original entry at


Canada and Mexico have been taking advantage of NAFTA since day one and the repercussions have been disastrous for the US. The only way out of this mess is to eliminate NAFTA or completely gut NAFTA and restructure it. The President has the right to do this and doesn’t need to go through Congress or the Courts for anything.


Again Trump plays 3D chess while the Dems play checkers. He’s standing up for the people in the States that elected him, meanwhile supporting farmers and other domestic business interests.

Isn’t it refreshing to have someone other than a political hack or military adventurist running things.


Isn’t it strange how the dems are whining about the price of things going up due to tariffs BUT never mentioned the price of goods and services going up due to RAISING the minimum wage . What a bunch of double talking hypocrites !! AMERICA FIRST !!! :star_struck:


Funny thing, most economists are stupid! THey say the trade deficit and national debt are not related. That is totally FALSE!

If we begin to balance trade we will begin to balance the budget.


An interesting concept however until we spend less than the government takes in taxes, they will never balance the budget.

And the growth? Entitlements.


AHHHH! but that is what I am talking about!

I have explained this thousands of times and even wrote a long lost paper on it.

Domestic production vs import!

One it creates a revenue stream from raw material extraction to manufacturing. We do not have that with imports.

That is at least 3 steps and each one has employees that pay taxes as well as the company paying. Those employees spend and it is taxed! Not only sales taxes but revenues for the retailer…

If we have more jobs there is less expenditure. Less welfare, lower EIC payments…

I can expand if you like but the fact is, if we make it here, revenues rise and expenditures should (we know the DC crowd will find a way to screw it up) fall.


Your assumption which is incorrect is that spending would remain the same or decreases while tax revenue increases.

Government spending has never remained fixed and has a long term record of increasing. Have more spend more in the quest for buying votes.

Perfect example is the ACA has increased spending forever and it’s now like SS the law of the land



Not wrong, I said it: I can expand if you like but the fact is, if we make it here, revenues rise and expenditures should (we know the DC crowd will find a way to screw it up) fall.


A little protectionism goes a long way and it’s not something that every other country doesn’t engage in. I laugh when I hear people start complaining about this all being about protectionism. I want them to tell me what country, besides the US, doesn’t put policies in place to protect their own economic interests.


Brings back the US rice imports to Japan were highly tariffed to protect Japanese tic producers.

They finally capitulated and now the government buys the required allotted US ricen imports. They use the rice for animal feed or hand it out for welfare.


But it’s mean when the US does it.



And they did not baby sit the citizens of this country


We have a long way to go.


Making things here is fine as long as it’s done safely, which of course is more expensively, but necessary.


Some things would be more expensive but if we actually did some of the things that China does we could manufacture cheaper.


And what things would that be?


Products here would be cheaper if we lived and worked like galley slaves as the Chinese do.


Are you an economic analyst? Or a professor of economics? Do you really understand the dynamics of trade, fair trade, free trade and trade wars. Do you realize that Cohn told Trump to fuck off and Canada and the EU are pissed at Trump among others. Everybody that uses steel and aluminum in manufacturing is going to feel the pain of this. Is supporting anything that Trump says or does really that important to you???