Mexico Deal, China Timing, Farmer Payoffs: CEO Daily for August 28, 2018
Good morning.
Global stock markets reached their highest levels, by at least one measure, in five months yesterday after the U.S. and Mexico agreed on revisions to NAFTA. Canada is not a party to the agreement, but both the U.S. and Mexico are urging the Canadians to join. President Trump and his top economic advisor both said Canada will face new auto tariffs if they don’t.
Here’s a look at some of the key provisions:
Autos: 75% of the content in automobiles must be sourced in North America to qualify for tariff-free treatment, up from just 62.5% under the current NAFTA.
Wages: Between 40% and 45% of auto content must be produced by workers earning at least $16 dollars an hour.
Steel and aluminum: Certain key inputs in automobiles, such as steel and aluminum, must be sourced in North America.
Other industries: New rules will also be in place for industries like textiles, chemicals, steel-intensive products and other industrial goods to qualify for tariff-free treatment.
Labor: The deal would require Mexico to take specific steps to recognize collective bargaining rights, according to the U.S. Trade Representative. The details of these provisions haven’t been released yet.
Digital trade: Tariffs will be prohibited for digital products that are distributed electronically, such as e-books, videos, music, software and games.
Intellectual property: Copyright holders will have full copyright protections in markets of all members’ countries. The chapter on intellectual property rights will be held up as a model for agreements with countries, including China.
The trade deal could give a boost to Midwestern Republicans in the midterm elections. And they will surely be a hot topic at the Fortune Global Forum in Toronto on Oct. 15-17. Stay tuned for more info on that one.
News below.
Top News
China Timing
When President Trump announced his Mexico deal, he also said he was rejecting China’s efforts to negotiate on trade. “It’s just not the right time to talk right now, to be honest,” he said. Mid-level talks between the two countries’ negotiators last week failed to produce an agreement, and the Chinese are apparently now talking about suspending talks until after the midterms. South China Morning Post
Farmer Payoffs
The Trump administration said it will pay farmers affected by its trade wars $4.7 billion to compensate for their losses, incurred thanks to retaliatory tariffs against the U.S. In the words of Agriculture Secretary Sonny Perdue, American farmers “cannot pay their bills with simple patriotism.” Wall Street Journal
Nestlé and Starbucks
Nestlé and Starbucks have closed their deal for letting Nestlé market Starbucks’ packaged goods outside the latter’s outlets. As part of the deal, around 500 Starbucks employees in the U.S. and Europe—mostly in Seattle and London—are moving over to Nestlé. Bloomberg
Toyota and Uber
Toyota is investing $500 million in Uber and will work with the U.S. firm on autonomous vehicle development. For Toyota, it’s part of a transition to being a “mobility company”—four of Toyota’s suppliers also announced a partnership on developing self-driving car software. Meanwhile, Uber’s autonomous car efforts will involve retrofitting Toyota Sienna minivans. Real-world testing will start in 2021. Fortune
Around the Water Cooler
Tesla Cash
With its go-private “plan” now behind it, Wall Street is pretty sure Tesla will need to raise cash soon. The company has had one solitary quarter of positive free cash flow since late 2013, and $1.3 billion of its debt will become due in the next year. It only has $1.3 billion in cash lying around, and some reckon it will need to borrow as much as $2 billion by the end of the year. Reuters
Schnatter Letter
Ousted Papa John Schnatter has written a letter to franchisees complaining about his successor as CEO, Steve Ritchie, whom he accuses of “bad financial decisions, insufficient management skills to correct them, a toxic senior management culture, and serious misconduct at the top levels of our leadership.” Papa John’s disagrees. CNBC
Saudi Aramco
Reuters reports that Saudi King Salman was the one to nix the planned IPO of Saudi Aramco, with the primary concern being the full public disclosure of Aramco’s financial details. His decision was apparently final. The kingdom has previously disputed Reuters’ claims that the IPO is dead, insisting that it is merely resting until the right moment, and it continues to do so. Reuters
Eli Lilly
Eli Lilly CEO David A. Ricks writes for Fortune that the U.S. healthcare system must be reformed to produce better value. The system was designed to handle “mostly acute episodes of illness inside brick-and-mortar facilities with lots of people and little technology,” but today the primary challenge is long-term treatment of chronic illnesses, he says: “The result of that mismatch is unsustainable growth in health care spending.” Fortune
This edition of CEO Daily was edited by David Meyer. Find previous editions here, and sign up for other Fortune newsletters here.
