The Republican Achilles is NAFTA 2

So far the Republicans have accepted the problems that Donald Trump has caused the party because Donald Trump is delivering on the appointment of conservative judges to the federal benches, as well as tax reform. In addition, the Republicans believe that if they can get Trump into his final term, it would bode well for the party, regardless if Donald Trump finishes his second term, or not. But there is a limit to the Republican support for Donald Trump. It is centered around NAFTA – flavors one and two.

Trump announced late last year that the “worst deal,” aka, NAFTA was being replaced with the USMCA, which many have dubbed NAFTA 2.0. The announcement of the USMCA ended Trump’s threat to cancel NAFTA if a better deal was not reached. For the Republicans, the USMCA gave them breathing room.

But now that the Democrats control the House and Andrés Manuel López Obrador (AMLO) took office, the future of the USMCA is in doubt. The Democrats have been against NAFTA from day one. Bill Clinton reluctantly signed the NAFTA agreement because he had no other choice. But the party-base, the labor unions oppose any threat to American labor and thus the Democrats are loath to support NAFTA or the USMCA. The Democrats may come around if labor concessions are made, which are unlikely. AMLO has signal opposition to the USMCA.

The Canadian, Mexican and American legislatures must to adopt the USMCA for it to become law.

The Canadians reluctantly signed up to the USMCA to avoid being left out of the North American economy. The USMCA hurts the Canadians more than México or the U.S. Should opposition to the USMCA intensify politically in México or become too controversial, AMLO may avoid putting political capital to get it through his legislature.

But, for the USMCA to be adopted, it must get past the Democrats at the House and that is unlikely. Not only do the Democrats oppose the labor concessions within the USMCA, they also see its adoption as a concession to Donald Trump.

Until the USMCA becomes law, trade between México, the United States and Canada remains governed by NAFTA. That leaves Donald Trump in a bind.

Trump either gives in to the Democrats’ many demands, beyond the trade deal, or Trump submits America’s notice of withdrawal from NAFTA. Or, Donald Trump could leave NAFTA alone.

This is where the Republicans come into play.

The Republicans need NAFTA, either as version one or two. The Republicans feel the pressure within their constituency as the result of the Chinese Trade War. The Republicans feel they can survive the economic turmoil if the country’s agribusiness continues to be federally subsidized. But the subsidies aren’t enough to sustain the loss of farm business over the long term.

The ongoing trade war with China continues to create havoc in the economy as Wall Street chaotically responds to each escalation. U.S. consumers will soon start to see rising prices in consumables and lower supplies of favorite items.

Further disruption of the economy through a threat that NAFTA will be cancelled will be too much for the Republican leadership. At that point, the Republicans will further fracture with many actively opposing Donald Trump.

As they say, it’s the economy and NAFTA plays a big part in it.

The Republicans cannot afford a long trade war with China and much less another trade war with Canada and México.

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