Trade, Globalization, Strategic Mercantilismm and Globalism itself

[DougMacG]

DDF,  Thanks for your view on that.

My opinion, BOTH imports and exports are good.  It is the uneven playing field that isn't.  We don't have control over their playing field, but we do have considerable influence over it and that is where the tough talk and action by Trump could be very helpful.

To increase exports by making it less punitive to produce here in terms of taxes and regulations is great policy and great for income and wealth creation.  But to have government curtail our right and freedom to buy anything we want from anywhere around the world (with legitimate exceptions like national security interests) is leftist, anti-freedom policy IMHO, and even our own recent leftists didn't do much of that.

A trade deficit is a symptom of things, not a central problem in itself.  Imports and exports are two different phenomena that grow at different rates at different times.  There is no reason they should be exactly the same.  Yet when they are way out of whack, other problems arise like currency rate changes and capital flows.

Besides anti-productive policies at home, the other factor limiting our exports is that the economy sucks nearly everywhere else in the world even worse than here.  We don't have any US-sized, prosperous, high growth countries to sell to.   When Margaret Thatcher and Ronald Reagan turned Britain and the US around, the rest of the world was forced to reform some of their own problems too in order to compete.  Watch for that effect with Trump if our policies really do get turned around and our economy really does start moving again.  We don't want IMHO to bring imports down to the size of lethargic exports; we want to grow business on all fronts for all our people who want to produce.

To put a special incentive or economic penalty on some businesses and not others in similar circumstances is a violation of equal protection under the law.  Reagan did it a couple of times in temporary and emergency situations, but those were the exceptions or violations of his principles, not the engine of the growth he brought. 

If Trump focuses on doubling the growth rate of the whole economy rather than micromanaging the sectors of where and how that happens, we will be far better off.

[DDF]

I agree with your analysis 100%.

There is no way to compete with the 156 dollars a month they make in Vietnam, or the daily wage here in Mexico, without finding a way to stimulate their economies too, because if it comes down to dollars versus dong or pesos in terms of manufacturing, we lose. I've seen it. Key focus is getting other corrupt governments to play ball. I've seen that personally as well.

[Crafty_Dog]

https://www.washingtonpost.com/news/wonk/wp/2017/01/04/the-real-reason-ford-abandoned-its-plant-in-mexico-has-little-to-do-with-trump/?utm_term=.84b58104863a&wpisrc=nl_most&wpmm=1

[Crafty_Dog]

second post

Trade Stays Intact

The North American Free Trade Agreement will remain largely intact in 2017 despite U.S. campaign promises made to the contrary in 2016. The fact of the matter is that the trade ties and supply chains of North America are so tightly bound that a sudden and dramatic reversal to an agreement such as NAFTA would contravene the interests of all its members. The United States will nonetheless renegotiate the deal, albeit gradually, to honor the campaign promises made by president-elect Donald Trump. Those talks will likely extend beyond 2017.

That is not to say the United States is without options for improving the terms of the contract. The Trump administration could increase regional content requirements for products to qualify for tariff-free export to the United States and use non-tariff barriers more selectively. Mexico will have much more at stake in the negotiations, but its imperative is far simpler. It means to leverage its low labor costs and its high number of free trade agreements to maintain as much of the status quo as possible on trade and to maintain foreign direct investment flows into domestic manufacturing. And so Mexico will have a few tools to use against the United States. Mexico could influence the Trump administration by allying with businesses and states that would be hurt by more expensive labor and goods. (As a matter of fact, it has already begun to do so.) It could, moreover, leverage intelligence cooperation on counternarcotics operations to try and shape the dialogue.

Lower investment flows that could result from the uncertainty surrounding the NAFTA negotiations could hurt Mexico in the meantime. But even this will be tempered by Mexico's proximity to the United States and its multitude of free trade agreements. Canada, with its advanced economy and high labor costs, will receive much less scrutiny. The Canadian government has indicated its willingness to take part in the NAFTA talks and will be seeking measures to protect its own manufacturing sector.

Canada could also renegotiate NAFTA's investor-state dispute settlement, which allows an investor to sue a foreign government in international arbitration without going through domestic courts. Having been challenged under the ISDS procedure, Canada will certainly want to revisit its terms, even if a business-friendly Trump Cabinet were to resist measures that undermine foreign corporate protection abroad.

The negotiations will be slow going, no matter how they play out. Many of the points up for discussion would still center on concentrating economic production in North America, where supply chain interdependencies are developing organically.
A Tighter Energy Bloc

The Trump administration will loosen regulations on domestic energy, enabling North America to more easily integrate as an energy bloc. It plans to streamline the process for federal permits on energy projects and to pull back from climate change initiatives, measures that could also provide a relative boost to the coal and nuclear power industries. They could also enable the beleaguered U.S. energy sector to rebound after a prolonged depression in the price of oil. A gradual recovery in North American production will, in turn, allow for a modest increase in global oil prices since it will take time for increased North American oil output to offset coordinated production cuts by the world's oil producers.

Canada and Mexico will meanwhile continue to make measured progress in energy integration with the United States. In Canada's case, this will include increased cross-border pipeline construction and supply integration. In Mexico's case, it will entail implementing broader energy reforms, including further liberalizing domestic energy prices and loosening Pemex's dominance in refining and distribution.
The Pinch of Low Prices

Latin American commodities exporters will continue to feel the pinch of low commodities prices in 2017. The economies of Brazil, Argentina, Chile and Colombia will begin to recover somewhat, but slow demand growth from China, low oil prices and an oversupply of agricultural commodities such as soybeans will otherwise keep exports largely depressed.

Further stunting economic growth and fiscal health is the strength of the U.S. dollar. Colombia, Brazil, and Chile have substantial dollar-denominated debt, which will become harder to repay or rollover. For Venezuela, which is already on the edge of default, heavier debt payments will increase the risk of default. For Brazil, Chile, Mexico and Argentina, more expensive debt payments amid the general commodity downturn will limit the amount governments can spend on domestic priorities.

A modest increase in global oil prices could meanwhile bring temporary relief for oil producing nations in Latin America. Even a temporary hike would be a welcome reprieve for central governments, which would then have a little more leeway in managing public finances. For Venezuela, a country already in an extreme state of economic deterioration, even a slight rise in oil prices could lower the odds that it will default on its foreign debt.

And so, faced as they are with relatively low export growth, certain Latin American countries will seek increased access to markets abroad by advancing trade agreements with nations outside the region. In light of the demise of the Trans-Pacific Partnership and the rise of new if limited NAFTA negotiations, Mexico will tentatively try to enter discussions on trade deals with Asian states, particularly with China. The countries that comprise Mercosur, or the Common Market of the South, will also continue to negotiate with the European Union on a future trade agreement, though political constraints on both sides of that dialogue could drag things out.

[Crafty_Dog]

http://www.aei.org/publication/what-now-for-workers-after-the-china-trade-shock-short-read-version/?utm_source=paramount&utm_medium=email&utm_content=AEITODAY&utm_campaign=011917

[Crafty_Dog]

Not sure that I understand this , , ,
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Trump’s Real Trade Problem Is Money
Protectionism won’t cure the import-export imbalance. The solution lies in monetary policy.
Photo: iStock
By John D. Mueller
Updated Jan. 24, 2017 7:25 p.m. ET
42 COMMENTS

Neither President Trump nor any of his economic advisers appear to have heard of, let alone be worried about, the Triffin Dilemma. But Mr. Trump’s economic and trade policies will fail unless he finds a solution to the dilemma—the inherent incompatibility, in a reserve-currency country, of domestic policy with the international monetary order.

A gold or other precious-metal standard prevents the financing of budget deficits through the monetary system. When America had a gold or silver standard, the federal budget ran an annual surplus averaging 0.4% of gross domestic product; when it hasn’t, the average deficit has been 2.7%. Similarly, from 1979-2015, U.S. state governments—which cannot print money—averaged budget deficits of 0.3% of GDP, while in the same economy the federal deficit averaged 3.3%. There has been no long-term inflation under the gold or silver standard in American history; substantial inflation (or deflation) has occurred only with paper money.

The move away from precious metals began more than a century ago. John Maynard Keynes argued in 1913 that whether a monetary authority holds gold or foreign-exchange reserves “is a matter of comparative indifference.” Colonial India’s “Gold-Exchange Standard,” he wrote, “far from being anomalous, is in the forefront of monetary progress” toward what he called “the ideal currency of the future.” British experts succeeded in promoting foreign-exchange reserves at the 1922 Genoa Conference, to forestall redemption of British World War I debts in gold. That ended the international gold standard born in Genoa in the 1440s, after the Hundred Years War.

The French economist Jacques Rueff explained in 1932 why the gold-sterling-dollar standard had collapsed: With the creation of—for example—dollar reserves, purchasing power “has simply been duplicated, and thus the American market is in a position to buy in Europe, and in the United States, at the same time.” Hence the purchase of dollar reserves causes inflation (and the sale of dollar reserves, deflation) for countries with currencies tied to the reserve currency. Moreover, the credit duplication makes prices rise faster in the reserve-currency country, causing its goods to be uncompetitive and turning it from an international creditor to a debtor.

The post-World War II Bretton Woods gold-dollar-exchange standard broke down in 1968-71, for essentially the same reasons that had caused the interwar gold-sterling-dollar standard to collapse. Since 1971, international payments have been made chiefly in paper dollars.

Thus the Triffin Dilemma, named for Belgian-American economist Robert Triffin. National income (or output) is the sum of private consumption, private investment, government consumption, government investment, and net exports. Many economists wrongly assume that total world net exports must equal zero, but in fact countries participating in the international gold standard had combined net exports equal to the total increase in world gold reserves (which in turn approximated world gold exports). As a result, world monetary policy was countercyclical: When the prices of other goods fell, the profitability of gold mining rose.

Triffin showed that a monetary system based on a reserve currency is unsustainable, since foreign official dollar reserves (for example) are acquired and must be repaid in goods. In other words, the increase in official dollar reserves equals the net exports of the rest of the world, which means it must also equal U.S. international payments deficits—an unsustainable situation.

As the nearby chart shows, the cost of German manufactured goods has roughly tripled since 1955, but the cost of American manufactured goods has more than sextupled. That is why U.S. trade and budget deficits will be impervious to any Trump administration “deals” that focus on trade rather than monetary reform.

There are three main alternative solutions to the Triffin Dilemma:

First, muddle along under the current “dollar standard,” a position supported by resigned foreigners and some nostalgic Americans—among them Bryan Riley and William Wilson at the Heritage Foundation, James Pethokoukis at the American Enterprise Institute and Ramesh Ponnuru at National Review.

Second, turn the International Monetary Fund into a world central bank issuing paper (e.g., special drawing rights) reserves—as proposed in 1943 by Keynes, since the 1960s by Robert A. Mundell, and in 2009 by Zhou Xiaochuan, governor of the People’s Bank of China. Drawbacks: This kind of standard is highly political and the allocation of special drawing rights essentially arbitrary, since the IMF produces no goods.

Third, adopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protégé Lewis E. Lehrman, writing on this page, and then-Rep. Jack Kemp.

The stakes are high. The Great Depression began with the collapse of the interwar monetary system in 1929-32, aggravated by the trade war that America’s Smoot-Hawley tariff triggered. Ironically, if Mr. Trump ignores the Triffin Dilemma, he will perforce promote the cosmopolitan crony capitalism by which the Clinton Foundation stuffed itself with so much cash from America’s client-states.

Mr. Trump’s own nostrum of trade protectionism is an understandable but easily exploded fallacy. The current account (the broadest measure of the trade balance) must equal the excess of national saving over investment. Therefore, while tariffs can curb imports, they cannot increase the trade balance, because they don’t affect the saving-investment balance; instead, they cause the currency to rise and exports to fall.

From 1971 through 2015, U.S. current account deficits totaled 93% of GDP because of the Triffin Dilemma: The increase in dollar reserves must equal the rest of the world’s surplus (and America’s deficits) in net exports. Perhaps it would take a deal-maker in Alexander Hamilton’s league to end the exorbitant burden of the dollar’s reserve-currency role and replace it with the only monetary standard that has worked in American or world history: gold.

Mr. Mueller directs the economics and ethics program at the Ethics and Public Policy Center.

[Crafty_Dog]

second post

"Mueller is right, but this is just one more way of demonstrating that Trump utterly fails to understand how international trade and the balance of accounts work. In our current system is it not only impossible but also foolhardy to attempt to have a balance in our international trade accounts. Trade ignorance is the most glaring of Trump’s deep-seated faults. On almost every other issue he is moving correctly. Too bad he’s not perfect. We can only hope that someone sets him right on this issue before he does something stupid."

[Crafty_Dog]

Not impressed with this article but I post it because it does make an argument of some relevance:

https://www.washingtonpost.com/posteverything/wp/2017/02/16/why-is-president-trump-attacking-foreign-investment-in-the-united-states/?utm_term=.1dbc4a4e02ea

[Crafty_Dog]

https://www.nytimes.com/2017/02/23/us/trump-talk-rattles-aerospace-industry-up-and-down-supply-chain.html?hpw&rref=us&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well

[Crafty_Dog]

https://www.wsj.com/articles/for-more-chinese-firms-it-pays-to-make-it-in-the-u-s-a-1488127931?mod=djemCFO_h

[Crafty_Dog]

Monday Morning Outlook
________________________________________
Trade Is Not Our Enemy To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 2/27/2017

We think it was Art Laffer who said it best. Let's say the US invented a cure for cancer and China a cure for heart attacks. If China decided to ban the cure for cancer, should the US retaliate by banning the cure for heart attacks?

Obviously not! The US is better off trading with China regardless of what China does. And although things like computers and toys are not nearly as serious as a heart attack, the same principal applies. Think about this idea the next time you hear about some other country "killing" the US on trade.

The US has run a merchandise trade deficit every year since 1975. The US has also run persistent trade deficits with many countries around the world, including Canada and Germany for the past 40 years, China for 35 years, and Mexico for the past 20 years. And yet it's the US that remains a magnet for immigrants from around the world. If the US is getting killed economically, wouldn't people be leaving, not trying to get here? People vote with their feet and the votes clearly suggest there is more economic opportunity in America, enough more that people enter illegally.

Some are concerned that global trade flows for the US have peaked, and it is true that overall imports and exports slowed in late 2014, 2015 and 2016. But we attribute this to the large drop in oil prices. We spent less on oil imports and oil exporters (like OPEC) earned fewer dollars to spend back here.

But, "real" (inflation adjusted) US goods exports outside the oil sector rose 5% in 2016 and are up 2.6% per year in the last decade. The real value of non-oil imports increased 4.2% in 2016 and are up 2.5% per year in the past decade. All of these figures are outstripping real economic growth in the US. Trade is an unambiguous positive for growth worldwide.

Although some analysts have spread fear about our trade in services, we see no reason for concern. US service sector exports ended 2016 at an all-time high. Service exports did decline 1.1% in 2015, but if that's supposed to be a leading sign of economic weakness, why didn't we have a recession in 2016? And why are broader measures of the economy still improving? We think the 2015 drop was a result of less dollars flowing through the trade system as oil prices fell.

Some argue that trade deficits must be offset by future trade surpluses. We beg to differ. The US finances its trade deficits with a surplus of capital coming in from the rest of the world. If foreigners were buying US assets that generated a high return on capital, you can make up a story where that could eventually be a problem. We could find ourselves in a situation where we have to both pay for our trade deficits and give foreign investors a healthy return.

But foreign investors are willing to earn a very low rate of return on their US assets – the price they pay for the safety and security of the US. That return is so low, in fact, that despite owning considerably more US assets than the amount of assets Americans own in foreign countries, foreigners earn far less on American assets than US investors earn on foreign assets.

Ultimately, free trade is critical to the prosperity of the US. Policies that seek to protect certain industries or companies are just a way of putting politicians in charge and weakening the inherent resourcefulness of the American people.

[Crafty_Dog]

http://www.businessinsider.com/china-zhenge-he-treasure-fleet-elite-free-trade-2017-2?IR=T

[Crafty_Dog]

Why the White House Worries About Trade Deficits
An imbalance imperils economic growth—and could put U.S. national security in jeopardy.
The then-president-elect speaking at Carrier Corp. in Indianapolis, Dec. 1, 2016.
The then-president-elect speaking at Carrier Corp. in Indianapolis, Dec. 1, 2016. Photo: Bloomberg News
By Peter Navarro
Updated March 5, 2017 6:21 p.m. ET
120 COMMENTS

Do trade deficits matter? The question is important because America’s trade deficit in goods is large and persistent, about $2 billion every day.

The economic argument that trade deficits matter begins with the observation that growth in real GDP depends on only four factors: consumption, government spending, business investment and net exports (the difference between exports and imports). Reducing a trade deficit through tough, smart negotiations is a way to increase net exports—and boost the rate of economic growth.

Suppose America successfully negotiates a bilateral trade deal this year with Mexico in which Mexico agrees to buy more products from the U.S. that it now purchases from the rest of the world. This would show up in government data as an increase in U.S. exports, a lower trade deficit, and an increase in the growth of America’s GDP.

Similarly, if the U.S. uses its leverage as the world’s largest market to persuade India to reduce its notoriously high tariffs and Japan to lower its formidable nontariff barriers, America will surely sell more Washington apples, Florida oranges, California wine, Wisconsin cheese and Harley-Davidson motorcycles. Just as surely, the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee.

Now, what about the investment term in the GDP equation? When U.S. companies offshore their production because of America’s high taxes or burdensome regulations, that shows up in government data as reduced nonresidential fixed investment—and a growth rate lower than it would be otherwise.

That isn’t the end of the story. If such offshored production then generates products for export back into the U.S.—say, an American consumer buys a Ford Focus imported from Mexico rather than assembled in Detroit—the trade deficit rises, further reducing growth.

To better understand these complex adjustments, consider Carrier. Its management had announced the company would close its air-conditioner factory in Indianapolis and move to Mexico—and then sell products back into the U.S. tariff-free. But President-elect Trump and Vice President-elect Pence negotiated a deal to keep Carrier in the U.S. and expand its facilities. How will this show up in government statistics? Fixed nonresidential investment will increase rather than decrease. Imports from Mexico will be lower than they would be otherwise, and U.S. exports will be higher. In today’s parlance, that’s “all good.”

The national-security argument that trade deficits matter begins with this accounting identity: Any deficit in the current account caused by imbalanced trade must be offset by a surplus in the capital account, meaning foreign investment in the U.S.

In the short term, this balance-of-payments equilibrium may be benign, as foreigners return our trade-deficit dollars to American shores by investing in U.S. bonds and stocks and perhaps by building new production facilities. The extra capital keeps mortgage rates lower, the stock market abundantly capitalized, and Americans more fully employed.

But running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore. Warren Buffett refers to this as “conquest by purchase” and warns that foreigners will eventually own so much of the U.S. that Americans will wind up working longer hours just to eat and to service the debt.

Dark though it is, Mr. Buffett’s scenario may still be too rosy. Suppose the purchaser is a rapidly militarizing strategic rival intent on world hegemony. It buys up America’s companies, technologies, farmland, food-supply chain—and ultimately controls much of the U.S. defense-industrial base. How might that alternative version of conquest by purchase end for our sons and daughters? Might we lose a broader cold war for America’s freedom and prosperity, not by shots fired but by cash registers ringing? Might we lose a broader hot war because America has sent its defense-industrial base abroad on the wings of a persistent trade deficit?

Today, after decades of trade deficits and a mass migration of factories offshore, there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles. Meanwhile, America’s steel industry is on the ropes, its aluminum industry is flat on its back, and its shipbuilding industry is gathering barnacles. The U.S. has begun to lose control of its food-supply chain, and foreign firms are eager to purchase large swaths of Silicon Valley’s treasures.

Much of Wall Street and most economists simply don’t care. But to paraphrase Mike Pence on the 2016 campaign trail, the people of Fort Wayne know better. The analysts at the Pentagon know better, too. That’s why, for both economic and national-security reasons, it is important to bring America’s trade back into balance—through free, fair and reciprocal trade.

Mr. Navarro is director of the White House National Trade Council. This article is adapted from his March 6 address in Washington before the National Association of Business Economists.

[Crafty_Dog]

By John Bolton
March 7, 2017 6:59 p.m. ET
78 COMMENTS

President Trump’s trade rhetoric until now has been simple and effective: America is getting ripped off, he says, and things need to change. Simplicity works on the campaign trail, but how does it translate into actual governance?

Earlier this month the administration submitted the annual National Trade Policy Agenda to Congress. The submission takes particular aim at the World Trade Organization’s “Dispute Settlement Understanding,” which provides a quasi-judicial process for resolving international trade disagreements. Although technical, even arcane, the DSU is dear to the hearts of global-governance advocates. The Trump administration is right to criticize its performance.

Agreed to during the Uruguay Round of world trade talks in 1994, the DSU has had some successes. But it is often criticized for failing to deter violations of the WTO’s substantive trade provisions and for too often exceeding its mandate by imposing new obligations on one or more parties, particularly against American interests.
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This alarming trend extends beyond trade. A rising number of international agreements create “judicial” or “legislative” bodies that interpret and expand obligations well beyond what is laid out in underlying treaties, placing them beyond the effective control of domestic democratic institutions. This trend raises legitimate fears among states that they will lose sovereign authority. This fear is particularly acute in America, where the Constitution unmistakably fixes sovereignty in “We the People.”

The U.S. has in the past rejected or renounced international agreements that were not conducive to its interests. In 1986 the Reagan administration withdrew from the compulsory jurisdiction of the International Court of Justice. In 2002 the Bush administration unsigned the Rome Statute, which created the International Criminal Court. The U.S., thankfully, still has not ratified the Law of the Sea Treaty, thereby avoiding the jurisdiction of the tribunal it creates.

Washington has also blocked declarations by periodic “treaty-review conferences,” which have a similar tendency to expand member-state obligations beyond those contained in the original agreements. Likewise, the Trump administration is considering withdrawing from the U.N. Human Rights Council, whose creation the Bush administration voted against in 2006, and which the U.S. did not join until President Obama took office in 2009. The American people are often the last to learn of their new and purportedly legally binding commitments.

That isn’t to say that these international decision-making bodies are established exclusively to evade the burdens of America’s Constitution, only that evasion is their clear consequence. The unspoken objective is to constrain the U.S., and to transfer authority from national governments to international bodies.

The specifics of each case differ, but the common theme is diminished American sovereignty, submitting the United States to authorities that ignore, outvote or frustrate its priorities. Nothing in the Constitution contemplates such submission to international treaties or bodies. While many European Union governments seem predisposed to relinquish sovereignty, there is scant hint of similar enthusiasm in America. Moreover, the United Kingdom just dealt a stunning blow to the notion of Europe’s “ever closer union.” By reasserting their sovereignty, the British are in the process of escaping, among other things, the European Court of Justice and the European Court of Human Rights.

That brings us back to trade. The DSU is not, as some say, analogous to U.S. courts, which preserve the Constitution’s nationwide free-trade area through the “dormant Commerce Clause” doctrine. America is a real civil society where real courts have real enforcement capabilities—a far cry from the “global community” fantasyland. If Americans feel increasingly unable to restrain the exercise of judicial and legislative power at home, why should anyone be surprised to learn that international bodies are even worse?

Limiting an aggrieved country’s ability to resort to the DSU is not a rejection of free trade. To the contrary, it is a rejection of the unaccountable, legalistic morass into which free trade can all but disappear. In reality, ignoring DSU outcomes has always been an option for those prepared to face the consequences.

What is the World Trade Organization’s central objective? Is it to promote actual free trade, or is it merely to reify the DSU? If, in fact, this faltering dispute-resolution mechanism is the WTO’s central pillar, without which global free trade is doomed to collapse, we can legitimately conclude there is something gravely wrong with the direction of the basic enterprise.

Some countries cause more global trade problems than others. China is doing tangible harm to the regime of liberal international trade by striking first, and sometimes repeatedly, in violation of substantive WTO obligations in fields like intellectual property protection. Such countries—not those that retaliate rather than submit to the DSU—deserve the world’s ire.

If the DSU fails to deter repeated acts of trade aggression because of its cumbersome nature and faulty decisions, then the problem is likely the DSU, not its critics. Ironically, many global-governance advocates play down the DSU’s significance since it involves only trade, not existential political questions. Such modesty might seem becoming, but precedents established in one aspect of international affairs inevitably bleed into others.

The burden properly lies with the White House to specify how it will confront the DSU’s failings, many of which seem embedded in its design. Whatever steps President Trump recommends should be understood and measured against the larger dangers of global governance. The shadows cast by other flawed multilateral “authorities” make clear that U.S. sovereignty is at stake.

Mr. Bolton is a senior fellow at the American Enterprise Institute and author of “Surrender Is Not an Option: Defending America at the United Nations and Abroad” (Simon & Schuster, 2007).

[Crafty_Dog]

http://www.cnn.com/2017/03/30/politics/trump-executive-orders-trade-china/index.html

[DougMacG]

Anti-free trade tough talk requires reliance on false facts.
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Trump Advisers Are All Wrong about South Korea Trade Deal
By ALAN REYNOLDS
https://www.cato.org/blog/trump-advisers-are-all-wrong-about-korea-trade-deal-korus

The Wall Street Journal reports: “Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits. ‘In some cases, the rules don’t seem to be working as well as others,’ Robert Lighthizer said. Critics say the deal has led to a flood of South Korean cars, auto parts, memory chips, motors and pumps into the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact… doubled the U.S. trade deficit in goods with South Korea.”

National Trade Council boss Peter Navarro has likewise claimed “We lost 100,000 jobs because of that South Korean deal. Our trade deficit has doubled, and, more importantly, 75 percent of the damage that has been caused by that deal has been to the auto industry itself, which, of course, is based in Michigan.”

Navarro, Lighthizer and the Journal’s unnamed critics are entirely wrong about the March 15, 2012 Korea/U.S. Free Trade Agreement (KORUS). 

KORUS could not possibly have “led to a flood of South Korean… memory chips, motors and pumps into the U.S.” because memory chips were already duty-free before that FTA, and so were motors (HS code 8501) and pumps (8413).

KORUS could not possibly explain the post-recession 2010-2015 rise in U.S. imports from South Korea because most U.S. tariffs were scheduled to be reduced from 2016 to 2021 – not from 2010 to 2015.

KORUS had precisely zero effect on U.S. imports of Hyundai and Kia vehicles before 2016 because the U.S. tariff on Korean cars (HS code 8703) was 2.5% before KORUS and remained at 2.5% through 2015.  Ironically, when U.S. tariffs on autos and other products finally did come down in 2016, total U.S. imports from South Korea fell 2.6% (by $1.9 billion).

 The Korean tariff on imports of U.S. cars was cut from 8% in 2012 to 4% in 2015 and zero in 2016 and a 10% Korean tariff on U.S. trucks was eliminated.  Even before Korea cut its tariff on U.S. cars to zero in 2016, U.S. exports of cars to So. Korea tripled from $418 million in 2011 to $1.3 billion in 2015, according to the USTR.  Incidentally the USTR also notes that “Korea is currently our fifth-largest market for agricultural exports thanks to KORUS,” with farm exports up 208% from 2011 to 2015.

What has been most changed about the auto industry since KORUS is that South Korea exported a sizable share of its auto industry to the United States, displacing previous Korean imports and adding to U.S. auto exports. More than half the Hyundais sold in the U.S. are now assembled in Alabama, and more than 40% of Kias in Georgia (contrary to Peter Navarro,  82.5% of U.S. auto industry jobs are not in Michigan). The Hyundai Santa Fe and Kia Sorento have 67% domestic content. Hyundai has invested $2.8 billion in the U.S. and plans to add $3.1 billion more.

U.S. Korea Trade  (graph at link)

As the Graph shows, U.S. routinely ran sizable trade deficits with South Korea long before the FTA (and the U.S. routinely runs surpluses with other FTA countries, Australia and Singapore).  The U.S. trade deficit with South Korea and other countries came way down in 2009-2011 because deep recessions always slash U.S. imports, particularly industrial imports.

The graph includes services which, like farm products, were an important part of the deal.  The U.S. trade surplus in services with Korea rose from $6.9 billion in 2011 to $10.7 billion in 2016.  With services included, U.S. imports from South Korea did not rise at all from 2014 to 2016 ($81.4 billion in both years), and goods imports fell in 2016.

South Korea’s imports of goods from the U.S. rose from $29.7 billion in 2009 to $46.3 billion by 2014 before falling 8.4%to $42.4 billion in 2016.  Even with services included, South Korea’s imports from the U.S. fell from $66.5 billion to $63.9 billion since 2014.

KORUS could not possibly have had anything to do with the 2014-2016 drop in Korean imports from the U.S. because that agreement lowered rather than raised Korean tariffs.

South Korea’s demand for imports weakened because annual growth of industrial GDP fell to 2.5% from 2012 to 2015 – down sharply from a 6% pace from 2000 to 2011. One reason for Korea’s post-2014 import slump is that China’s imports from South Korea fell from more than $20 billion in October 2014 to $10-12 billion recently. 

The Trump Administration’s top trade advisers are entirely wrong about what happened when with respect to trade between the U.S. and South Korea.  KORUS had no effect at all on U.S. imports of auto, chips, motors or pumps between 2009 and 2015, because the U.S. auto tariff was unchanged until 2016 (when overall U.S. imports fell) and most other industrial products were already tariff-free before KORUS.

The Korea-U.S. trade deficit in goods did not rise from 2011 to 2015 (or fall in 2016) because of U.S. auto tariff cuts in 2016, but because the U.S. economy strengthened after 2010 and the Korean economy weakened after 2014. 
--------------------------------------------------------------------------
Blaming free trade agreements helped elect Trump.  Now what?  Double down on wrong?

[Crafty_Dog]

May 14, 2017 5:11 p.m. ET
26 COMMENTS

Wilbur Ross made some startling claims after Thursday’s announcement of a 10-point agreement with China on trade. The U.S. Commerce Secretary boasted that the “herculean accomplishment” was “more than has been done in the whole history of U.S.-China relations on trade,” putting the relationship on “a new high.”

The hyperbole may be due to the Trump Presidency’s bumpy ride and the need for a policy victory. But overstatements tend to backfire, as this one did once trade experts examined the details. That’s unfortunate because the Administration deserves credit for setting aside its protectionist threats for the hard work of negotiating a trade-expansion agreement.

The deal is modest but potentially significant. Beijing’s two most important pledges are an end to the ban on U.S. beef and to the barriers against payment giants Visa and Mastercard entering the Chinese market. We’ve heard those promises before. Premier Li Keqiang said in September that beef imports would resume “soon,” and China was supposed to end the monopoly of its Unionpay payments network under its 2001 accession to the World Trade Organization. Nevertheless, the July time frame is new and encouragingly close.

In return, the U.S. will allow imports of Chinese cooked chicken and sell natural gas to China. The latter is largely meant as political reassurance to investors in U.S. LNG export terminals. The U.S. also gave reassurance that investment by Chinese entrepreneurs is welcome and recognized the importance of President Xi Jinping’s “Belt and Road” initiative to improve trade infrastructure in Asia.

The deal is positive for both sides and should dial back tension over trade in the short term. But Mr. Ross may have planted a land mine by claiming that China’s market opening will reduce the bilateral trade deficit this year. That seems unlikely. Beef exports are expected to reach a few billion U.S. dollars a year, a modest sum in the overall relationship. Building facilities to export natural gas will take years, and Mastercard and Visa will need about 18 months at least to expand in China.

The trade deal comes at a moment when consistency in U.S. relations with China is imperative. On Sunday North Korea launched what appears to be a new type of ballistic missile, which some experts said could have flown 2,800 miles on a normal trajectory.

No doubt the urgency of dealing with this threat is one reason Mr. Trump in an interview with the Economist magazine last week praised Mr. Xi as “a great guy.” But his seeming willingness last month in Mar-a-Lago to accept the Chinese President’s excuses for failing to rein in North Korea no doubt discomfited allies and friends in Asia, already anxious about Beijing’s maritime aggression. The U.S. is now asking these nations to unite as it works to shape a policy to deal with Pyongyang.

While it’s good that Mr. Trump has pulled back from protectionism, dampening the swings in the way his Administration portrays China relations would bring better results. Mr. Ross’s accomplishment would have found a more appreciative reception if he had simply said that hard negotiating gets results from Beijing but much work remains to be done.

[Crafty_Dog]

http://scottgrannis.blogspot.com/2017/05/durable-goods-deflation-is-wonderful.html?utm_source=feedburner&utm_medium=email&utm_campaign=Feed%3A+blogspot%2FtMBeq+%28Calafia+Beach+Pundit%29

[Crafty_Dog]

Japanese and European Union leaders on Thursday announced an agreement in principle to remove tariffs on 99% of goods as well as other barriers to trade. While it will be phased in over many years and some obstacles remain, the deal overcomes Japan’s reluctance to open its market to food products as well as Europe’s resistance to a free market for Japanese cars. Some have dubbed the deal “cars for cheese,” but its effects will be more far-reaching than bilateral trade.

In particular it contains a message for Donald Trump, who pulled the U.S. out of the Trans-Pacific Partnership deal with Japan and 10 other Pacific nations and has halted negotiations with Europe on the Transatlantic Trade and Investment Partnership. Trade will go on around the world whether or not the U.S. decides to participate. Had the U.S. remained in the Pacific pact, American farmers and other exporters could have enjoyed the increased sales to Japan that are now on offer to Europeans.

Meanwhile, the Trump Administration is considering punitive tariffs on imported steel and other products under an obscure provision of a 1962 law. This could lead to tit-for-tat sanctions against American exporters, tie up the U.S. in cases at the World Trade Organization and make it more difficult to secure the opening of foreign markets to American goods.

If the U.S. continues on this protectionist path while the rest of the world pursues far-reaching trade deals, the effects are predictable. American exporters will have to pay more for their materials and face higher barriers abroad than their competitors. Consumers will pay higher prices. This will cost American jobs and reduce incomes.

The Trump Administration says it still plans to pursue bilateral trade deals, which is in keeping with the President’s transactional view of diplomacy. But this may prove difficult if the U.S. is simultaneously raising tariffs and defending WTO cases brought by trading partners.

The U.S. will pay a steeper price if trade blocs such as TPP proceed without America and forge links with other regions. While other countries’ firms will benefit from new multilateral rules, U.S. companies will have to navigate what Columbia University economist Jagdish Bhagwati calls a “spaghetti bowl” of rules under bilateral agreements.

For instance, a preferential tariff on a particular product may only be available if the exporter can show that a certain percentage of the content was made in that country. The bureaucratic complications mean that many companies don’t even apply to use the benefits offered under bilateral deals, and it may mean U.S. companies with global customers must move plants out of America to stay competitive.

That’s why multilateral agreements are key to the formation of the complex supply chains trading the components that make up most consumer goods. The Japan-EU deal is still bilateral, but it could become the basis for more deals that exclude the U.S. If Washington cedes trade leadership, it risks being left behind as other countries set the rules and expand trade among themselves.

The irony is that the productivity of American manufacturers leads the world, and employment is rebounding. At a moment when U.S. firms could grow their exports, the Trump Administration is burning bridges. The EU-Japan deal is a warning that others will take up trade leadership and capture the prosperity that Americans should enjoy.

[Crafty_Dog]

Trade War Games

By John Mauldin

July 19, 2017


“We’re already in a trade war with China. The problem is we’ve not been fighting back.”

– Peter Navarro

“The battle for Helm’s Deep is over. The battle for Middle Earth is about to begin.”

– Gandalf the White

 
Image: Wikimedia Commons

This letter should find you buckled in for the turbulence I described last week. If not, I hope this one convinces you. The storm is seven days closer now. There are times when normality slips out of reach, and I believe we are approaching such a time.

I have lived through recessions and bear markets; I know what they look like. I wish I could forget what they feel like. They don’t come out of nowhere; there are always warning signs. Many investors choose to ignore those signs; I choose not to. I hope you make the same choice.

The monster can come from different directions. Imagine the horror movie where the doomed victim knows the creature is out there. He hears its growls and desperately looks all around for their source. Then the camera pans left and you see the darned thing sneaking up on him from behind. [Cut, add scream, fade to black.]

Over the next few letters we will consider the various monsters that may set upon us. Any one on its own might be manageable, but we’ll be out of luck when several hit us in rapid succession. We’ll start with this big bad boy: Trade War.

For the last 20 years, the biggest monster in my worry closet has been protectionism and trade wars. Last year both presidential campaigns voiced ideas about protectionism and trade that reflected appalling economic ignorance about the importance of trade to global prosperity, and particularly to the prosperity of the US. As I explained in “The Trouble with Trade,” I hoped then that the talk was all just campaign rhetoric and political pandering. No such luck.

Comparative Advantage

Trade is the global economy’s bloodstream. The more freely it flows, the better for all. As David Ricardo explained 200 years ago, different peoples have unique characteristics that enable them to produce certain goods at lower opportunity costs than other can. Free trade gives consumers access to the best goods and services at the lowest prices.

However, what we now call “free trade” is not what Ricardo had in mind. We have instead managed trade designed to benefit certain favored parties and to disadvantage others. You can’t blame free trade for our problems, because we haven’t got it.

Those who have seen their interests short-changed in the managed-trade game have had enough. That’s one reason Donald Trump is now president and anti-globalization movements are active in so many countries.

Candidate Trump talked about renegotiating trade agreements to help American workers. I support that goal. The problem is that President Trump seems intent on starting a trade war that will hurt those same workers. We are on a very dangerous course. Worse, if a report I saw last week is accurate, that course is already locked in.

Consequential and Contentious

The report comes from Axios, a Washington-based news site recently launched by some Politico veterans who want to disrupt the mainstream media. This is what Axios reported June 30, based on the input of anonymous Trump-administration sources:

With the political world distracted by President Trump’s media wars, one of the most consequential and contentious internal debates of his presidency unfolded during a tense meeting Monday in the Roosevelt Room of the White House, administration sources tell Axios....

With more than 20 top officials present, including Trump and Vice President Pence, the president and a small band of America First advisers made it clear they’re hell-bent on imposing tariffs – potentially in the 20% range – on steel, and likely other imports....

One official estimated the sentiment in the room as 22 against and 3 in favor – but since one of the three is named Donald Trump, it was case closed.

No decision has been made, but the President is leaning towards imposing tariffs, despite opposition from nearly all his Cabinet.

The following Sunday, July 2, the Wall Street Journal’s William Mauldin (no relation to me) filed this:

The Trump administration missed a self-imposed Friday deadline for concluding a major probe of steel imports, a delay officials said was driven by unanticipated complexities in engineering such a big shift in U.S. trade policy.

The administration has faced challenges in implementing its “America First” policy amid resistance from lawmakers and many business groups who worry that new curbs on steel imports could drive up costs for American manufacturers and spark retaliation from trading partners.

That report suggests that the June 26 meeting was less conclusive than Axios opined – but the trade hawks have not given up. The “America First” side is probably headed by presidential advisor Steve Bannon and Peter Navarro, director of Trump’s National Trade Council (a new office created by Trump), along with Trump himself.

Navarro, a former University of California, Irvine economics professor, was already a well-known protectionist when Trump hired him as a campaign advisor last year. Author of a book called Death By China, he is opposed to trade deficits and has accused China and Germany of currency manipulation. Very few academic economists share Navarro’s views. The simple fact is that Navarro embraces fallacious economics ideas. Kevin Williamson in the National Review takes his measure:

Professor Navarro, among other things, makes economics errors that would be obvious to an undergraduate. This has been commented on at some length elsewhere, most prominently after he published a review of the Trump economic plan (a review co-authored with Wilbur Ross, who is not an economist but is now Secretary of Commerce) in which he proffered the schoolboy argument that, because GDP is defined as the sum of consumption, investment, government spending, and net exports, eliminating our trade deficit with China would add substantially to GDP. In economics terms, he has mistaken an accounting identity for real-world causality; in layman’s terms, this is horsepucky, “a mistake that an econ professor like him really shouldn’t be making,” as Noah Smith of Bloomberg put it.

This is an appalling mistake for anyone, but for an economics professor to do this? And one that is actually in a position to influence trade policy?

In his books and writings, Navarro peddles analogies he pulls out of thin air as “facts,” without a shred of evidence to back them. For instance, as Williamson notes,

His sloppiness with sources is general. Navarro cites a Rand Corporation report suggesting that China is behind Iran’s nuclear program without mentioning that the report is a quarter-century old, that it identifies China as a “moderate threat to U.S. interests,” or that subsequent Rand analysis suggests that Chinese involvement with Iranian nuclear ambitions seems to have ended around 1997. He does not even cite any particular Rand report, simply attributing a long quotation to “the Rand Corporation.”

Navarro makes up stories about a future where poorly made Chinese cars are crashing and killing US citizens (even though a few extraordinarily well-made Volvos are the only cars made in China that are driven in the US). He claims that the Chinese keep unemployment high so that wages can remain low, even though their wages have been rising significantly for the last 15 years.

Professor Peter Navarro and the ideas he espouses are dangerous. Certainly, we can be smarter about how we negotiate trade deals in order to get the best terms possible. Peter Navarro is simply not the man to be advising on that.

Most leaders of larger businesses have no interest in truly free trade, either, but they dislike Navarro’s ideas. There is a stand-off within the administration. The battle pits trade advocates and businesspeople vs. Bannon and Navarro. Trump apparently leans Bannon and Navarro’s way but hasn’t made a final decision yet.

The proposed steel tariffs are more significant than they may seem. A Commerce Department study is trying to determine whether imported steel represents a national security threat to the US. If so, a 1962 law gives the president vast powers to impose tariffs and other barriers, without congressional approval.

If Trump wants to start a trade war, Congress and the courts probably can’t stop him unless they can pass new laws by a veto-proof margin. The chances of that happening are near zero.

That meeting in the Roosevelt Room may turn out to be as consequential as Bretton Woods was, if Trump acts to launch major trade sanctions. Trade sanctions will slow down already slow global economic growth and could trigger a much wider systemic crisis.

What Would Steel Tariffs Really Mean?

It makes a difference whether the administration decides to impose quotas on current steel imports or initiate a tariff. Quotas would be harmful, but a tariff would be far worse.

Let’s look at who would actually be damaged. First, for all the talk about trade deficits with China, we don’t import all that much steel from China. In fact, China isn’t even in the top 10 countries that we import steel from, as shown in this chart from the Financial Times:

Secondly, using national security as an excuse to impose tariffs is really fraught with potential problems. The Financial Times report (well worth reading) in which our chart appears notes two:

The first is that in the trade realm, invoking national security to erect barriers is considered a nuclear option. World Trade Organisation rules include a national security exemption designed to be used in times of war. But many experts believe the forthcoming steel move would flout those rules and would thus be challenged by other WTO members. Such a challenge in itself could be dangerous. It would be the first real test of the WTO’s national security exception. Were the WTO to find against the US and the Trump administration to ignore that decision, it would be a huge blow to the WTO’s credibility. Were the WTO to find in the US’s favour experts fear it could give carte blanche to all WTO members to invoke national security more often, leading to a new protectionist free-for-all.

The second is that the US is the world’s largest steel importer and a broad move on steel would probably hit US allies such as Canada, Germany, South Korea and Mexico far more than China, its real intended target. In an unusual move, it has prompted Nato allies to complain and to try to have the Pentagon lobby on their behalf.  It also could provoke a messy trade war with other countries feeling compelled either to impose their own national security restrictions on steel imports or to retaliate against the US in other ways.

The third reason to oppose tariffs is that clamping down on steel imports threatens considerably many more jobs than “protecting” the steel industry from foreign competition can save. As Dan Pearson of the Cato Institute noted recently: “Steel mills employ 140,000 workers. Manufacturers that use steel as an input 6.5 million, 46 times more.” Steel mills’ $36 billion of productivity in 2015 represented just 0.2 percent of US GDP, Pearson explains, while the economic value contributed by US firms that use steel was 29 times larger.

We actually have a recent case study. George W. Bush approved steel import tariffs of 30% in 2002. What happened? Two hundred thousand American workers lost their jobs, as this chart from the Heritage Foundation illustrates.

Scores of different types of steel are used for special manufacturing processes and equipment. The US doesn’t manufacture everything we need or have the capacity to do so. Thus a tariff would increase costs to consumers without doing one thing for steelworkers.

Yes, the number of American steelworkers is down from 500,000 to 147,000 in the last 35 years. As in so many industries, we simply don’t need the number of workers that we used to. Steelworkers, whose wages have tripled, are producing five times the amount of steel per hour worked as they did 35 years ago.

China is already working to curb its steel production capacity, as demand for steel is flat to down. Now I agree that Chinese overproduction is forcing global steel prices down, but do we really have a problem when gasoline prices go down? Do we feel sorry for the oil companies?

No doubt American steelworkers and steel companies would love to see barriers to entry for their product. I bet McDonald’s would like to have Jack-in-the-Box stores banned, too. Ultimately, higher prices offset the theoretical benefits of a steel tariff or quota. You and I are the ones who pay.

Buy American

The federal government has other ways to punish foreign competitors. In April President Trump visited the Wisconsin headquarters of Snap-on Tools, where he signed a “Buy American, Hire American” executive order. The bureaucracy is now working to implement the order.

Laws dating back to the Great Depression require federal agencies to give first preference, in government contracts, to US-made products. Over time, it became routine for acquisition officers to grant waivers to those requirements. President Trump’s order will crack down on those waivers. This will soon be evident at the Pentagon, where two laws apply:

The two laws in question are the 1933 Buy American Act, which requires the Pentagon to purchase domestically produced products for purchases over a $3,500 threshold, and the more-restrictive 1941 Berry Amendment, which applies mainly to clothing and food products purchased by the military.

Together, these laws ostensibly require that the U.S. military’s entire supply chain be sourced from inside the country….

By enforcing these laws, President Trump can redirect billions of dollars in spending from foreign companies to US suppliers – assuming US suppliers exist. They may not, in some cases, and they may cost more if they do. Defense contractors will face some serious headaches.


AP Photo

Other trade actions are popping up, too. Boeing has asked the government to investigate what it considers to be unfair competition by Bombardier, a Canadian aircraft manufacturer. If Boeing succeeds in sidelining Bombadier, other US companies are likely to make similar claims.

But, truth is, dozens of countries manufacture major parts of those Boeing airplanes; Boeing doles out contracts to other countries in order to encourage them to buy the planes. Many of those components are made in Canada. And I will bet you a dollar to 47 doughnuts that significant components of Bombardier planes are made in the United States by US workers. It behooves us to remember that Canada and all our other trade partners have options, too.

Tit for Tat

The trade war, if it happens, will spring from the administration’s failure to appreciate one simple fact: Other countries will respond. The Trump administration’s steel tariff idea, for example, has already provoked European Union officials. EU trade commissioner Cecilia Malmstrom warns, “We want of course to avoid anything dramatic here but if that would have hit our companies we will have to respond, of course.”

The EU and other trade partners will not simply roll over and accept US tariffs. They will retaliate in ways specifically calculated to hurt American businesses and consumers. My fear is that the US will then up the ante with yet more tariffs or other barriers, and the fight will get ugly, causing real pain and losses for both sides.

All this will be completely unnecessary. Can existing trade agreements be improved? Yes, definitely. But trade negotiations are insanely complex in the best of circumstances. Multiplayer game theory applies. Right now we have general trade equilibrium, with minor adjustments all the time. Not everyone has everything they want, but no one is angry enough to stop playing. If one major player changes the rules, however, all the other players in the game have to respond. Those national players have their own businesses and voters that they must pander to. The game can collapse quickly.

Pile that risk on top of our many other economic vulnerabilities, such as the increasing political turmoil in Europe, and we might see major fireworks.

President Trump campaigned on the promise that he would negotiate better deals. Well then, Mr. President, rather than impose tariffs and destroy a few hundred thousand high-paying jobs in US manufacturing, let’s find out how well you can negotiate. And send Professor Navarro, whose supposed expertise is in utilities, of all things, back to California.

Before I close, I want to announce that we’re hosting another webinar with my friend Marc Chaikin of Chaikin Analytics, on July 25, at 4:15 PM EST.

I’ve long been a fan of the Chaikin Analytics Power Gauge, so last year I told my team of analysts to try it out. A few weeks later they came back to me and said, “It’s great, we’re using it for everything!’’

Because we’re so impressed with the Power Gauge system, we’d like to give you the opportunity to access it, too. You can click here for the free webinar “The Ultimate Stock Checklist & Best Small-Cap Stocks to Buy Today.”

Grand Lake Stream, Colorado (?), and Lisbon

Shane and I will be going to Las Vegas next week for Freedom Fest, then we’ll come back home to Dallas for a few weeks before I’m off to Grand Lake Stream, Maine, for the annual economics schmooze and fishing trip known as Camp Kotok. Afterward, I am thinking about going to somewhere in Colorado for a few days to escape the Texas heat. There are a lot of potential trips in September, but the next outing now on the books will be to Lisbon, Portugal.

Over the weekend what was going to be a short family meeting turned out to be much lengthier and much happier than I envisioned. As a result, this letter is coming to you later than usual. (Sometimes life just happens when you’re making plans.) I hope you, too, have an unexpectedly wonderful week.

Your hoping we walk away from protectionism analyst,

John Mauldin

[Crafty_Dog]

Boeing and Bombardier Take Their Dogfight to Court
A new Bombardier C Series aircraft takes flight.
(CLEMENT SABOURIN/Getty Images)


    The U.S. Department of Commerce issued a preliminary determination which, if it is upheld, will place a 219.6 percent tariff on a Canadian-built aircraft.
    The determination has implications not only for Canada, but for the United Kingdom where some parts for the targeted aircraft are produced.
    As Canada and the United States continue NAFTA negotiations, discussions on methods to appeal trade decisions under the agreement will become central.

The aviation sector is one of the few that intersects significantly with geopolitics, and the challenges Canadian plane manufacturer Bombardier faces in the United States will reverberate around the world. On the evening of Sept. 26, the United States Department of Commerce issued a determination on the import of Canadian-built aircraft. The Department of Commerce's preliminary duty determination would place a 219.63 percent tariff on the sale of airliners built by the Canadian-based company Bombardier — including the next generation C Series — once an investigation is complete.

Bombardier has already begun criticizing the investigation, and Canadian Prime Minister Justin Trudeau spoke out against it ahead of the announcement. British Prime Minister Theresa May's office stated that the United Kingdom was bitterly disappointed by the result — which comes as no surprise, given that Bombardier's plant in Belfast builds wings for the company's next generation C Series and its closure could hurt her political position.
The Dispute Takes Wing

The dispute began after Bombardier reached a deal to sell 75 CS100 aircraft to U.S.-based Delta Airlines in April 2016. Boeing has since claimed that Delta is buying the aircraft for $19.6 million each, far below the listed price of $80 million — a point that both Delta and Bombardier dispute. Boeing filed a petition with the Commerce Department in April 2017, asking it to level the playing field by imposing duties of at least 160 percent. Boeing also claimed that the Canadian airplane manufacturer was selling its aircraft to Delta for a price more than 40 percent below production costs. However, Bombardier and others — including several other U.S. airlines like JetBlue — oppose the investigation, and some have argued that production costs often exceed the sale price of an airplane when it is new to production: Delta is, after all, the first purchaser of the new C Series plane. Boeing did not begin selling its own 787 Dreamliner for more than it cost to produce until this year, five years after it first began delivering the plane to customers.

Though Boeing's argument against Bombardier's sales practices is controversial, Boeing and the United States are not the only ones criticizing Canada's financial support for the Quebec-based company. Earlier this year, Brazil asked the World Trade Organization (WTO) to set up a dispute settlement panel for its complaints against Canadian support for the C Series. In its filing, Brazil claimed that the C Series had received $3 billion in support from subsides. Last year, for example, Quebec's provincial government completed a $1 billion investment in the company, acquiring 49.5 percent interest and a limited partnership with Bombardier. The partnership now covers all of the assets, liabilities and obligations related to the C Series, and Canada's federal government approved $372.5 million in interest-free loans to the company in February.

Protectionism — often focused on jobs — has long been rampant in the aviation industry, and political motivation is high. Canadian Prime Minister Justin Trudeau and Foreign Affairs Minister Chrystia Freeland have already linked Boeing's complaint against Bombardier to future purchases of Boeing military aircraft, including the recently approved purchase of 18 F/A-18 fighter jets for $5 billion. Despite this, the U.S. Commerce Department's large determination — the 219.63 percent tariff is more than the 159.91 percent tariff Boeing pushed for — is just the next major protectionist measure the Trump administration has made in its attempts to prioritize trade enforcement.
What Won't Fly

Bombardier's challenges are also important for Brexit policies. As London continues to negotiate its future economic relationship with the European Union, the aviation and defense industries will play an important role. U.S. criticism is not the only challenge that Bombardier is facing. This week's merger between French-based Alstom and German-based Siemens rail unit threatens the company's rail division, and French President Emmanuel Macron's EU-wide protectionism platform presents other challenges. Should Bombardier and its Northern Irish Plant (Bombardier is the largest employer in Northern Ireland's high-tech sector) lose access to Europe's single market, the effects would only be magnified. The possibility has increased pressure on Prime Minister Theresa May for her failure to protect British jobs, which Labour Party leader Jeremy Corbyn has already begun to criticize her for. It's no surprise, then, that May has come out strongly against the deal and London has begun reviewing its defense contracts with Boeing.

In the next step, the United States International Trade Commission (USITC) will make its own determination on whether the C Series sales threaten material injury to Boeing and the U.S. aircraft industry and, by extension, whether duties may be imposed. As an independent, bipartisan federal agency, the USITC is far less open to political manipulation than the Department of Commerce, which is key.

Bombardier contends that Boeing is trying to block sales of the C Series in general, and the CS300 hundred in particular, because it would directly compete with Boeing's next generation 737 MAX 7 aircraft in the high passenger capacity aircraft market.

Meanwhile, Delta has argued that Boeing — the only U.S.-based manufacturer of large civilian aircraft — does not produce an aircraft with a similar seating capacity to those Delta was attempting to buy, nor has it done so since 2006. Bombardier contends that Boeing is trying to block sales of the C Series in general, and the CS300 hundred in particular, because it would directly compete with Boeing's next generation 737 MAX 7 aircraft in the high passenger-capacity aircraft market.

Should the USITC rule in Boeing's favor, Bombardier could still appeal the decision to the United States Court of International Trade and, more importantly, a binational dispute panel under NAFTA's Chapter 19 dispute mechanism. The latter is particularly sensitive now, given the ongoing status of NAFTA negotiations in which the United States has already pushed to remove Chapter 19, or at least heavily modify it. Under Chapter 19, Canada and Bombardier can request a special binational dispute panel to review the USITC's ruling, instead of appealing to domestic courts. Canada was adamant that the mechanism be included in the 1980s and has already outlined it as a key interest in the NAFTA negotiations.

A Chapter 19 dispute panel sits at the heart of the long-standing softwood lumber dispute between Canada and the United States. The United States has previously tried to impose duties on imported Canadian lumber, only to see binational and WTO dispute panels reject U.S. justifications. As the Boeing-Bombardier fight picks up steam, that option is going to become even more closely inspected and debated in future NAFTA negotiations, the third round of which ended on Sept. 27.

[Crafty_Dog]

The Editorial Board
WSJ
Oct. 5, 2017 7:26 p.m. ET

The Trans-Pacific Partnership trade pact is regaining momentum despite the Trump Administration’s January decision to withdraw. Representatives of the remaining 11 TPP members met last month in Japan to push for ratification as early as November in the hope that Washington will rejoin. But even without the U.S., members stand to make significant gains.


A January study by Tokyo’s National Graduate Institute for Policy Studies makes the economic case for the smaller pact. Vietnam, originally expecting a 30% increase in exports under TPP by 2030, would still get a bump in textiles and apparel, as trade in those products is expected to grow $3 billion among the 11 member states. Malaysia would see a 20% increase in GDP due to reductions in nontariff barriers. Brunei would diversify its oil-dependent economy into biotech and agribusiness. New Zealand, Australia and Canada would actually enjoy bigger GDP boosts if the U.S. stays on the TPP sidelines. Their beef producers would secure preferential access to Japan’s market and take market share from American ranchers.

That shows how the Trump Administration has set back U.S. exporters by withdrawing from TPP. The U.S. is now seeking to renegotiate the North American Free Trade Agreement to obtain market-opening provisions that are part of the TPP. But Mexico and Canada don’t want to make concessions that were given in return for the broader benefits of TPP.

Keeping TPP alive hasn’t been easy. The lack of a U.S. market carrot led members to backtrack on some commitments. Vietnam, the only nonmarket economy in the pact, wants to freeze provisions on labor standards and intellectual property. But one positive surprise has been Japan’s leadership in the new negotiations. Tokyo is pushing members to reduce the number of provisions they want suspended to single digits by November.

Leaders seem to recognize that TPP is even more important in the Trump era. The common goal of the 11 nations is to convince the U.S. that TPP is essential to its influence in Asia. While Mr. Trump is unlikely to have a free-trade epiphany, the deal offers benefits to American exporters that the U.S. will struggle to secure on a bilateral basis. If the 11 remaining members hold out for a U.S. return, it’s possible that rational American self-interest will prevail over protectionist bluster.

Appeared in the October 6, 2017, print edition.

[DougMacG]

That's right.  The US should be the leader of the Trans-Pacific Partnership trade pact talks and every clause in it should be about free trade, not giving up sovereignty.  Now it will be negotiated badly and we'll still be pressured to join.

[Crafty_Dog]

y Jacob M. Schlesinger
Updated Oct. 6, 2017 12:48 p.m. ET
28 COMMENTS

WASHINGTON—The U.S. Chamber of Commerce on Friday outlined a long list of objections to the Trump administration’s proposals for rewriting the North American Free Trade Agreement and said it was launching an effort to try to keep the ideas from advancing in talks with Mexico and Canada.

“We see these proposals as highly dangerous,” John Murphy, the top trade official at the U.S. Chamber of Commerce, told reporters Friday morning at a press briefing.

“We’re at a crossroads here,” Mr. Murphy added. “It’s very worrying.”

Mr. Murphy cited as objectionable a number of proposals that the administration has either already submitted or told business groups and members of Congress that it plans to submit during the continuing talks. These include proposals to impose new requirements for U.S. content in all cars qualifying for Nafta’s special treatment; weaken or scrap provisions for arbitrating disputes among governments and companies in the three countries; create new limits on Canadian and Mexican access to U.S. government procurement; create a new “sunset” clause in the pact that would make it expire unless the countries regularly agree to renew it.

What Impact Could a Remade Nafta Have On You?

Representatives of the U.S., Canada and Mexico are kicking off talks to renegotiate the North American free trade agreement on Wednesday. The WSJ’s Shelby Holiday looks at how that could change the prices of the cars, tacos and clothes you buy. Photo: Evan Engel

“Even one of them could be sufficient to move the business and agriculture communities to oppose an agreement that included them,” Mr. Murphy said.

The chamber’s senior vice president for international policy said that the business lobby would ramp up coordination with other trade groups in the coming days to amplify their concerns to administration officials, lawmakers, and the general public, particularly in states that Donald Trump carried in the 2016 election and depend heavily on exports to Nafta countries. He didn’t elaborate.


A spokeswoman for U.S. Trade Representative Robert Lighthizer, who is leading the negotiations for the Trump administration and has crafted many of the proposals, said the president’s objectives in the Nafta talks are aimed at creating jobs and reducing the trade deficit.

“The president has been clear that Nafta has been a disaster for many Americans, and achieving his objectives requires substantial change,” said USTR spokeswoman Emily Davis. “These changes, of course, will be opposed by entrenched Washington lobbyists and trade associations. We have always understood that draining the swamp would be controversial in Washington.”

The chamber and other groups have worked closely with the administration on policies like deregulation and the effort to implement big tax cuts. And, as Mr. Trump regularly notes in speeches and on Twitter, business confidence gauges, and stock market indexes, have hit new highs during his administration.

However, there have been tensions in other areas. Prominent executives have tangled with Mr. Trump on a number of fronts. Business leaders in August disbanded two CEO councils created by the White House, protesting what they said was the president’s failure to sufficiently condemn racism after the violent Charlottesville, Va., protests.

The chamber openly attacked Mr. Trump over his pledges during the campaign to rip up Nafta and other trade agreements. Mr. Trump threatened to withdraw from Nafta in April but the tensions eased after the administration agreed instead to renegotiate, and, in the early rounds, put forth modest proposals that business supported.

Mr. Trump has long said he disagreed with the trade policies fixed over the past half-century, in cooperation with big business, and was prepared to listen more to ideas embraced by labor unions and other free-trade critics.

Mr. Murphy said that the chamber and other business groups have repeatedly voiced their objections to emerging Trump Nafta proposals and “the expert analysis and the views of industry have too often been brushed aside.”

The chamber and others are “urging the administration to recalibrate its approach,” he said. “They should stop and listen to the business community.”

[Crafty_Dog]

By The Editorial Board
Oct. 15, 2017 6:15 p.m. ET
235 COMMENTS

Donald Trump is threatening again to terminate the North American Free Trade Agreement if Canada and Mexico don’t agree to his ultimatums. If this is a negotiating tactic of making extreme demands only to settle for much less and claim victory, maybe it will work. Otherwise Mr. Trump is playing a game of chicken he can’t win.

Mr. Trump’s obsession with undoing Nafta threatens the economy he has so far managed rather well. The roaring stock market, rising GDP and tight job market are signs that deregulation and the promise of tax reform are restoring business and consumer confidence. Blowing up Nafta would blow up all that too. It could be the worst economic mistake by a U.S. President since Richard Nixon trashed Bretton-Woods and imposed wage and price controls.

U.S. demands in the Nafta renegotiations—which returned to Washington last week—are growing more bizarre. U.S. Trade Representative Robert Lighthizer now wants to add a sunset clause, which would automatically kill it in five years unless all three governments agree to keep it. In other words, the U.S. proposes to increase economic uncertainty and raise the incentive for businesses to deploy capital to more reliable investment climates.

The U.S. also wants to change Nafta’s “rules of origin” for autos. Cars now made in North America can cross all three borders duty-free if 62.5% of their content is Nafta-made. Mr. Lighthizer wants to raise that to 85% and add a subclause requiring 50% be made in the U.S.

Mr. Lighthizer needs to get out more. Nafta’s current rules-of-origin for autos are already the highest of any trade agreement in the world, says John Murphy of the U.S. Chamber of Commerce. Raising them would give car makers an incentive to source components from Asia and pay America’s low 2.5% most-favored-nation tariff. A higher-content rule would hurt Mexico, but it won’t bring jobs to the U.S.

Adding a domestic content requirement also would violate World Trade Organization rules, so neither Mexico nor Canada are likely to agree. And if they did, it would harm U.S. workers. Auto companies that now make cars for export in the U.S., using Nafta-made components, would simply move abroad more of their manufacturing.

It’s hard to overstate the damage that ending Nafta would inflict on the U.S. auto industry. Under Nafta, companies tap the comparative advantages of all three markets and have created an intricate web of supply chains to maximize returns. As Charles Uthus at the American Automotive Policy Council said last week, Nafta “brings scale, it brings competitiveness, it brings efficiencies [and] synergies between all three countries, and it brings duty-free trade.” Its demise would be “basically a $10 billion tax on the auto industry in America.”

Last week the Boston Consulting Group also released a study sponsored by the Motor & Equipment Manufacturers Association that found ending Nafta could mean the loss of 50,000 American jobs in the auto-parts industry as Mexico and Canada revert to pre-Nafta tariffs.

Mexico has elections next year and no party that bows to unreasonable demands by Mr. Trump can win. The Mexican political class appears willing to call his bluff, which is making American business very nervous. More than 300 state and local chambers of commerce signed an Oct. 10 letter to Mr. Trump imploring him to “first ‘do no harm’ in the Nafta negotiations.”

It noted that 14 million American jobs rely on North American daily trade of more than $3.3 billion. “The U.S. last year recorded a trade surplus of $11.9 billion with its NAFTA partners when manufactured goods and services are combined,” the letter said. “Among the biggest beneficiaries of this commerce are America’s small and medium-sized businesses, 125,000 of which sell their goods and services to Mexico and Canada.”

Ending Nafta would be even more painful for U.S. agriculture, whose exports to Canada and Mexico have quadrupled under Nafta to $38 billion in 2016. Reverting to Mexico’s pre-Nafta tariff schedule, duties would rise to 75% on American chicken and high-fructose corn syrup; 45% on turkey, potatoes and various dairy products; and 15% on wheat. Mexico doesn’t have to buy American, and last week it made its first wheat purchase from Argentina—30,000 tons for December delivery.

Canada and Mexico know that ending Nafta will hurt them, but reverting to pre-Nafta tariff levels could hurt the U.S. more. Mr. Trump can hurt our neighbors if he wants, but the biggest victims will be Mr. Trump’s voters.

Appeared in the October 16, 2017, print edition.

[DougMacG]

https://www.youtube.com/watch?time_continue=247&v=Tp1T7kPEdDY

The video above of President Reagan’s radio address towards the end of his second term on November 26, 1988, was just released today by the Reagan Library. Although Reagan’s comments on trade were made almost 30 years ago, they are still fresh and relevant today, maybe even more so in the new era of rising protectionism. And Trump, “the first authentic protectionist to win the White House since the 1920s,” should pay especially close attention to Reagan’s remarks, which expose many of Trump’s faulty ideas on trade. For example:

Part of the difficulty in accepting the good news about trade is in our words. We too often talk about trade while using the vocabulary of war. In war, for one side to win, the other must lose. But commerce is not warfare. Trade is an economic alliance that benefits both countries. There are no losers, only winners; and trade helps strengthen the free world. Yet today protectionism is being used by some politicians as a cheap form of nationalism.
… Our peaceful trading partners are not our enemies. They are our allies. We should beware of the demagogues who are ready to declare a trade war against our friends, weakening our economy, our national security and the entire free world. All while cynically waving the American flag. The expansion of the international economy is not a foreign invasion. It is an American triumph.

(President Trump, listen up!)
http://www.aei.org/publication/for-president-trump-president-reagans-radio-address-on-free-trade-from-november-26-1988/

[Crafty_Dog]

Nice find.

[Crafty_Dog]

The Trade Deficit in Goods and Services Came in at $48.7 Billion in October To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
Date: 12/5/2017

The trade deficit in goods and services came in at $48.7 billion in October, larger than the consensus expected $47.5 billion.

Exports were unchanged in October. Imports rose $3.8 billion, led by crude oil and other goods.

In the last year, exports are up 5.6% while imports are up 7.0%.

Compared to a year ago, the monthly trade deficit is $5.7 billion larger; after adjusting for inflation, the "real" trade deficit in goods is $4.1 billion larger. The "real" change is the trade indicator most important for measuring real GDP.

Implications: The trade deficit expanded in October, coming in at $48.7 billion, a larger trade deficit than the consensus expected. Exports were unchanged, remaining at their highest level since December 2014. Imports rose $3.8 billion, hitting a new record high, with all major categories growing except for capital goods. Both exports and imports are up from a year ago: exports by 5.6%, imports by 7.0%. We see expanded trade with the rest of the world as positive for the global economy, and total trade (imports plus exports), which is what really matters, is up 6.3% in the past year, a great sign. Look for more of that in the year to come as economic growth accelerates in Europe and Japan. Better growth in Europe will increase global trade and US exports as well. In fact, exports to the EU are up 11.8% in the past year. Although rising imports are a positive sign for the underlying strength of the American economy, for GDP accounting purposes they mean growth in production is temporarily lagging behind the growth in spending. Because of this, international trade is on track to be a significant drag on real GDP growth in Q4, subtracting 0.5 to 1.0 percentage points from the real GDP growth rate for the quarter. In turn, this suggests real GDP is growing at the low end of our prior range of 3.0 – 4.0% for Q4. Trade is one of our four pillars to prosperity; freer trade leads to improved economic growth over time. And while we have our qualms with some of the talk coming out of Washington related to paring back free trade, there has been significantly more hot air than substance. We will continue to watch trade policy as it develops, but still don't see any reason yet to be sounding alarm bells.

[DougMacG]

It will be interesting to watch how exports are affected by business tax reform.

Wesbury admits both exports and imports are good for the economy but still reports the difference between the two as a "deficit".  Maybe we can get back to a "surplus" like we had in the depths of the Great Depression. *  I would add them together and track total trade or just report exports and imports separately.

* http://cafehayek.com/2006/12/if_trade_surplu.html

[Crafty_Dog]

Jan 13, 2018 | 15:03 GMT
4 mins read
The Future of U.S. Foreign Policy? Trade

Board of Contributors
U.S. President Donald Trump speaks during a retreat with Republican lawmakers. On Jan. 30, Trump will give his first State of the Union address, in which he will outline foreign and domestic policies that may be more interrelated than usual.


In the rhythm of U.S. foreign policymaking, the first few weeks of every year are a dramatic pause. Experts in the field make preparations in early January as they await the president's State of the Union address, slated this year for Jan. 30, somewhat later than usual. After a spate of "year-in-review" articles, followed by "what-to-expect" pieces, the experts turn their attention to the annual speech to see what course of action the White House plans to take.

The current president, however, is different from his predecessors. The leading publications and established institutions specializing in international affairs may be less useful sources for gleaning the direction of U.S. foreign policy this year than they have been in the past. Rather, the primacy of domestic policy will dictate the course of new foreign policy initiatives. Now that Congress has passed a new, far-reaching tax bill — leaving few easy domestic legislative projects ahead — the best way for President Donald Trump to demonstrate that he is keeping his promises to his constituency is to seize on a domestic issue that translates into foreign policy: trade.

This is the year in which Trump must move forward with his trade agenda; there simply is no alternative. He can no longer just talk about his opposition to the North American Free Trade Agreement (NAFTA) and the Trans-Pacific Partnership, to multilateral trade agreements, or, indeed, to what he considers unfair bilateral trade agreements, such as the U.S.-Korea Free Trade Agreement. If he wants to keep his word — and it's clear that he means what he says — the president will have to take steps to correct what he sees as a negative environment for trade.

In a recent article in The Wall Street Journal, former World Bank President Robert Zoellick wrote that it may be easy for Trump to disavow previous agreements, but it will be awfully hard to negotiate new ones. The reason, Zoellick maintains, is that the president doesn't really want to create new mechanisms to promote free trade but rather new structures that will promote managed trade. Zoellick believes Trump is focused on eliminating or at least reducing trade deficits. Instead of following the pattern of previous administrations, which worked to eliminate barriers to U.S. exports to enable the United States to exercise its strength on a level playing field abroad, the current administration wants to prevent what it sees as unfair practices by foreigners accessing the U.S. market. Levying tariffs on imported steel is one such area of focus. 

It's likely, then, that the State of the Union address, in which the president will try to reach out to his supporters while demonstrating the strength of American resolve in seeking fair agreements, may emphasize messages that aim domestically but land abroad. Though he may calculate that other countries need the United States more than the United States needs them, this imbalance isn't his primary point. The president is underscoring that the promises he made during his 2016 campaign are promises to Americans, not foreigners.

The same is true for U.S. trade partners near and far. The Canadian and Mexican governments, for example, agree on the need to update NAFTA, but at some point they will need to demonstrate to their domestic constituencies that there are mutual benefits to such a project. But all eyes will be on trade relations with China.

If the president blocks Chinese imports with new tariffs designed to combat China's allegedly unfair trade practices, he may indeed be keeping his promise to American industries. There's little doubt, though, that such a move would, in turn, have an effect on U.S.-Chinese relations. Trump enjoyed a warm reception when he visited Beijing in November; nevertheless, the Chinese government understands the implications of "America First" and is prepared for the policies that will follow. China's leaders may wonder about U.S. trade policy and find that, in fact, their country is merely the collateral damage of a domestic debate about the future of American industry. Other countries in Asia, by contrast, are simply holding their breath as they wait to see what the new U.S. trade regime looks like.

Trade will be one of the most important and most contentious elements of the State of the Union address. Viewers can expect a new vision for trade and new stance toward China, the ramifications of which could reach far and wide. More broadly, pundits may question whether the president is challenging the traditional rules-based trading system. Not really. His does not seem to be a systematic world, but rather one in which action — and winning — is the bottom line.

[Crafty_Dog]

Growing Economies Should Bring Little Cheer
Jan 29, 2018
By George Friedman

For the first time since 2008, all the world’s major economies are growing. A decade after the financial crash, the impediments to growth have mostly faded away. It goes without saying that economic growth is preferable to stagnation or decline, but not all the marks of the 2008 crash have been wiped away. What happened ceased to be a primarily economic problem years ago, and the effects of 2008 on the global political and social systems are to a great extent beyond the ability of economic growth to repair.

Socially, 2008 widened the existing division between the elite and the middle and lower classes. But the problem isn’t simply inequality; it’s that the decline in living standards has hit the lower and middle classes disproportionately hard and has done significant damage to those near the median income. This has particularly been true in the U.S. and Europe, which together make up about half the global economy. In a continuation of a process that was underway before 2008, industries that employed many people continued to deteriorate or shift production overseas. Renewed growth will likely increase the incomes of those above the median income line but will do nothing to end the hollowing out of incomes below the line.

This process has had a major political effect. Across European and American society, economic classes that were traditionally linked to left or center parties have shifted their allegiance. One major reason has been that the parties they have traditionally supported were advocates of free trade. The theory of free trade is that it benefits nations in the long run. The reality is that the benefits don’t necessarily get distributed to everyone. As important, the negatives of free trade are borne by the classes that can least bear it. Increased imports lower prices for those who can afford the goods, but for those who are unemployed or underemployed as a result of free trade, this is little consolation. In the long run it may all work out, but for a 50-year-old worker laid off from his job and now struggling at much lower pay in a more menial job, the long run is a meaningless concept.

The employment problems generated by free trade inevitably express themselves as hostility toward immigration. In both the United States and Europe, hostility toward immigrants has soared, and immigration has gone from a peripheral issue to a central one. Citizens of these countries worry about threats to their culture as well as to their safety and security. Above all else, though, is the fear of job loss. When a class is hit by uncontrollable economic forces, the fear of unemployment or surplus labor is powerful. People with their backs against the wall respond sharply to any additional pressure.

All this generated a powerful political response in the U.S. and Europe. The lower class, badly hurt by 2008 and untouched by the return of economic growth, turned on free trade and immigration. A political movement took shape, and it was made stronger by the fact that those who supported free trade and immigration were above the median income line. The two groups have rarely been so far apart. In the United Kingdom, for example, many people who opposed Brexit said they didn’t know anyone who supported it, and vice versa. Similar things were said in the U.S. after Donald Trump defeated Hillary Clinton in the presidential election, and in Germany after the nationalist Alternative for Germany party surged to become the country’s third-largest party, in the process badly damaging the party of longtime Chancellor Angela Merkel.

The fixation on economic recoveries misses the point. The consequences of 2008 have taken root, and achieving higher economic growth without also solving these problems only increases tensions between those who benefit from the growth and those who don’t. And it isn’t only the poor resenting the wealthy; the wealthy regard the rise of nationalist political parties as somehow illegitimate. Just as the weaker classes fear for their futures, the wealthier classes dread seeing the poor rally around a cause that threatens the interests of the wealthy. In Brexit, Trump and many other elections, the well-to-do tend to feel that the outcome was in some way illegitimate. As some said of the Brexit vote, the people who voted “leave” were fooled by lies and simply couldn’t understand what they were doing. That is of course possibly true, but it’s hardly likely to heal social divisions.

2008 cemented into place a social division, which turned into a powerful political movement, unbounded by borders or oceans, challenging the legitimacy of old mainstream parties and, with them, the social legitimacy of those above the median income line. Two ideologies have emerged. One is the older liberal theory. The other is the newer nationalist theory. The older parties and those benefiting from the economic recovery are waiting for these movements to go away. They become excited at reports of economic growth. But these movements are not going away, and this ceased to be a matter of economics years ago.

[Crafty_Dog]

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Feb 10, 2018 | 15:25 GMT
3 mins read
Tit for Tat? The Shape of U.S. Restrictions on Chinese FDI
An investor in China examines a map showing investment opportunities in real estate, including in the United States.
(MARK RALSTON/AFP/Getty Images)
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    In hopes of forcing China to open further, the United States is considering investment restrictions that would mirror those imposed by China.
    China’s investment goals are to cement its position in the stable, developed U.S. economy and fuel growth in sectors key to its economic transition.
    As such, China has two concerns: Sectors where its own restrictions will mean harsh U.S. measures and those sectors of high priority to Beijing.

In its ongoing pushback against Chinese trade and investment, the White House is reportedly mulling restrictions on Chinese investment that mirror the restrictions imposed by Beijing on U.S. investment in China. Since 2005, the United States has attracted approximately 10 percent of all outbound Chinese foreign direct investment, or FDI. The amount of Chinese FDI heading to the United States has grown tremendously since 2010 in parallel with more Chinese investment in developed markets generally, particularly in those that Beijing has sought to beef up domestically. Because of China’s tight investment policies, the possible move by U.S. President Donald Trump's administration could have a major impact on the billions of dollars Beijing pours into U.S. industries, especially in sectors that China has prioritized for growth, such as technology, consumer goods and services. It bears noting that Washington is contemplating such measures only against China, but the nature of Chinese investment in the United States provides an indication of the course U.S. authorities may pursue.

[Crafty_Dog]

Trump's Trade Challenges

U.S. President Donald Trump has a chance to pursue protectionist trade measures that could be his most significant trade restrictions yet. After an investigation launched in April 2017, the Commerce Department has found that steel and aluminum imports threaten to impair U.S. national security. To counter that threat, it has recommended a wide range of remedies, including a global tariff on steel imports of at least 24 percent and quotas restricting imports to just 63 percent of their 2017 volume. Trump and his administration now have until April 11 and 19 to decide what measures to take on steel and aluminum imports, respectively.

If implemented, the restrictions could be the start of a series of trade measures advancing the White House's protectionist agenda. Though the implications of these measures would be significant, legal challenges and domestic division could prevent them from being effective. Stratfor will be watching for the following in the lead-up to Trump's decision and immediately after.

Divisions Within the West Wing

The Trump administration has been long-divided between a protectionist wing that backs more aggressive measures to increase trade enforcement and protect U.S industries, and a globalist wing that has pushed back against trade restrictions. While Trump has regularly called for trade deals that benefit the United States more strongly, other voices from within the White House have argued, for example, that several of the United States' largest trading partners in steel are close U.S. allies with important defense treaties. The division has played out significantly in trade investigations, with the globalist wing — led by Treasury Secretary Steven Mnuchin, Secretary of State Rex Tillerson and a chief economic adviser, Gary Cohn — often butting heads with the protectionist camp — led by U.S. Trade Representative Robert Lighthizer, Commerce Secretary Wilbur Ross and the director of the National Trade Council, Peter Navarro.

Although Trump requested the Section 232 investigation that brought about the newly recommended measures in June 2017, this break between the protectionist and globalist wings caused a delay until the legally mandated deadline in January 2018. And this division has also played out between businesses. The steel industry and its unions have called for Trump to follow through on his campaign promises by enacting the measures, but other industries, particularly those reliant on steel, will doubtless push back. And this debate could temper whatever action — if any — that Trump takes.

Whatever the result, the recommendation will provide important information on the balance of power between the two camps in the administration. Moreover, it will test the extent to which Trump is willing to go against certain business interests.

Legal Loopholes

The Commerce Department's investigation has already come under criticism from trade experts who claim it uses national security as a pretext for clear-cut protectionism. While it's difficult for Trump to unilaterally change U.S. trade policy in other areas, such as NAFTA, a Section 232 trade investigation provides a potential avenue toward Trump's trade goals. However, domestic opposition and legal precedents mean that court challenges are likely. Challengers could claim, for example, that the United States is throwing out decades of standard practices in similar investigations and casting aside previous definitions of what constitutes a threat to U.S. national security.
This is not the first time the steel and iron ore sector has been the subject of such an investigation. In 2001, an investigation into imports of iron ore and semifinished steel determined there was no evidence that such imports threatened U.S. national security. And if it can be successfully argued that protectionist measures were the Trump administration's goal all along, the United States could face a legal argument that Section 232 is not being put to its intended use.

Anger Abroad

Challenges to any new U.S. trade measures will also come from abroad. U.S. trade partners could respond with direct retaliation, and China and the European Union have already begun considering responses. China has launched its own investigation into trade dumping of U.S. sorghum, and it has floated the possibility of targeting U.S. soybean exports or the U.S. agricultural sector as a whole. The European Union, meanwhile, has reportedly launched investigations into its own trade measures on Wisconsin dairy products and on Kentucky bourbon.

In addition, U.S. tariffs could be challenged through the World Trade Organization (WTO). South Korea's trade ministry said Feb. 19 that it would consider filing a WTO complaint if the United States follows through on the suggested tariffs or quotas. Though there is technically an exemption for national security under WTO rules, it has never been through a full WTO litigation. Creating a legal precedent by allowing the United States to claim national security could open the floodgates for other countries to use the same argument in situations where it is even less applicable. But litigating the national security exemption would be a lengthy process, and the United States would continue implementing the tariffs in the short term.

For now, the most important outcome of the ongoing U.S. trade investigations hints at what is to come. The investigation into China's intellectual property rules and technology transfers will be completed later this year, and there are signs that the White House seems to have internal divisions over how aggressively to go after China. Should Trump accept the Commerce Department's recommendations and put significant trade measures into place, that could be a harbinger for even more significant action against China later this year.

[DougMacG]

Maybe he can undo with trade protectionism all the good he has done with deregulation and tax cuts, and give tax cuts a bad name so that we never try shrinking the burden of government ever again.  (

[Crafty_Dog]

Market VERY unhappy with Trump's steel and aluminum tariff announcement today , , ,

[DougMacG]

Market VERY unhappy with Trump's steel and aluminum tariff announcement today , , ,

Very bad move.  One of the reasons I opposed him.  Building an economy as a two-legged stool, sure to give tax cuts and deregulation the blame if it tips over.

[Crafty_Dog]

One of his trade aides was on Tucker Carlson last night.  The argument was that without these tariffs our steel and aluminum industries would fail and that having steel capacity was a matter of national security, that China was selling steel for less here than at home i.e. dumping so as to break our steel industry.  Intrusion from reality:  China is not among our top steel suppliers, who actually include major allies such as Canada and Britain.

Apparently this move was supposed to be announced next week and, how rare, President Trump jumped the gun.  Hopefully as the back filling is done, our allies will not be included.

[Crafty_Dog]

Trump to Impose Steep Aluminum and Steel Tariffs
President plans next week to approve 25% duties on steel imports and 10% on aluminum over the objection of allies and some advisers
‘When it comes to a time when our country can’t make aluminum and steel, you almost don’t have much of a country,’ Mr. Trump told steel and aluminum executives at the White House on Thursday.
‘When it comes to a time when our country can’t make aluminum and steel, you almost don’t have much of a country,’ Mr. Trump told steel and aluminum executives at the White House on Thursday. Photo: Evan Vucci/Associated Press
By Jacob M. Schlesinger,
P
eter Nicholas and
L
ouise Radnofsky
Updated March 1, 2018 9:48 p.m. ET
1558 COMMENTS

WASHINGTON—President Donald Trump’s pledge Thursday to impose stiff tariffs on steel and aluminum imports sparked worries of a looming global trade war, sending stocks tumbling, drawing protests from a broad swath of American industries dependent on the metals, and prompting threats of retaliation across Asia, Europe, and North America.

The move fulfills a Trump campaign promise that helped fuel his surprise 2016 campaign victory in the industrial Midwest, and he told a White House meeting of industry executives that his coming measures—25% tariffs on steel imports, 10% on aluminum—would revive domestic manufacturing. “You’re going to see a lot of good things happen. You’re going to see expansion of the companies,” the president said.

But the impact on companies that use steel was swift and sharp. The Dow Jones Industrial Average tumbled more than 500 points, or 2%, after the announcement, as shares of big steel users, including auto makers Ford Motor Co. and General Motors Co., dropped even further.
Heard on the Street

A cascade of industry trade groups moved quickly to denounce the moves, including beer and boat makers worried about costlier aluminum, and manufacturers of chemicals, air conditioners, and oil pipelines all concerned about pricier steel inputs.

“It’s going to be expensive,” said Ed Bolas, chief financial officer at DyCast Specialties Corp., a Minnesota maker of parts for products including cutting tools and engines. “All of it will impact the consumer.”

Mr. Trump’s announcement marks his biggest move to date to carry out his “America First” trade policy aimed at upending decades of U.S. leadership fostering globalization. The swift backlash underscores the dramatic ways that system may now be changing.

The decision was controversial inside his own administration, coming over the objections of some top advisers, and surprising many in the White House who first learned of the plans from news reports Wednesday night. Mr. Trump’s Defense Department had weighed in against the move, with a memo cautioning against harm to “our key allies” like Canada and Japan.

“These U.S. measures will have a negative impact on trans-Atlantic relations and on global markets,” warned Europe’s trade commissioner, Cecilia Malmstrom.
Will Trump's Import Tariffs Cause Trade Wars?
President Trump signed an executive order in late January that imposed tariffs on washing machines and solar panels. WSJ's Gerald F. Seib examined whether these moves could ignite a trade war with South Korea and China. Photo: AP (Originally published Jan. 24, 2018)

Mr. Trump portrays those markets fostered by his predecessors in alliance with Europe and other nations as having destroyed American industry, telling the steel and aluminum representatives that they had “been horribly treated by other countries.”

The president justified the tariffs by invoking a little-used Cold War era law that gives presidents broad discretion to curb imports deemed a threat to “national security.” The announcement was based on studies conducted by the Commerce Department, made public last month, which concluded metals imports had eroded the country’s ability to make its own weapons, tanks, and aircraft.

As a sign of how eager the president was to take big action, he chose the toughest of the three options presented to him by Commerce, which had also outlined a more targeted approach aimed only at certain countries.

Mr. Trump also felt such urgency to announce the decision that he did so providing no further details beyond the broad numbers, saying the concrete policies wouldn’t be announced until next week.

The new tariffs underscore Mr. Trump’s pivot in his second year in office to reorient decades of American policies aimed at expanding free trade and globalization. Thursday’s move comes about a month after the White House unveiled similar tariffs and quotas on solar panels and washing machines, invoking a different little-used 1974 trade law allowing U.S. industries to seek sweeping protection if they can show significant injury from a sudden surge in foreign competition.

Trump aides are also weighing a broad package of trade and investment penalties against China, as they complete a detailed study accusing Beijing of widespread theft and expropriation of American intellectual property. Thursday’s decision is aimed in particular at China, whose steel overcapacity has fueled a global glut hampering American producers.

Mr. Trump’s announcement appeared to be a diplomatic jab at Chinese President Xi Jinping, coming the same day his top economic adviser was meeting at the White House with the Trump economic team to try to ease trade tensions.

The new tariffs seem to reflect rising power inside the Trump administration of his economic nationalist aides, who have tangled over the past year with his more globalist free-trade oriented advisers. The infighting was evident Wednesday night, with some officials insisting a decision was imminent and others saying it was still being deliberated.

Peter Navarro, an economist who crafted much of Mr. Trump’s protectionist 2016 campaign platform, is slated for a promotion that would give him a greater voice in internal debates, after staff secretary Rob Porter, a free-trade Republican aide tasked with overseeing coordination of trade policy, was forced out in a spousal abuse scandal.

Mr. Trump has repeatedly said that his campaign pledge for greater steel protection won him the presidency, and his U.S. trade representative, Robert Lighthizer, talks of tougher trade policies creating a “new coalition” in support of trade, by winning over Democrats who have grown increasingly hostile to globalization over the past quarter-century. Mr. Trump is hoping to solidify his political base in advance of midterm congressional elections this year, and the announcement comes ahead of a March 13 special House contest in Pennsylvania steel country.

Indeed, many congressional Democrats and labor unions joined the metals executives in cheering new policy, which they had long advocated.

“This welcome action is long overdue for closed steel plants across Ohio,” said Ohio Democratic Sen. Sherrod Brown, who has been working closely with Mr. Trump and his trade team to craft such new policies. AFL-CIO President Richard Trumka issued rare praise for Mr. Trump, calling the move “a great first step” and pledging to “continue to work with the administration on rewriting trade rules to benefit working people.”

Knotty Ties

As the U.S. weighs how to curb rising steel imports, including Chinese product that comes through third nations...

...it faces a challenge: Other top exporters are U.S. allies like Canada and Japan.

U.S. steel imports as a share of domestic market*

Share of U.S. steel imports by country, 2017†

30%

16.1%

Canada

13.0

Brazil

25

10.2

South Korea

9.0

Mexico

2017†

27.5%

20

Russia

8.7

6.3

Turkey

15

Japan

5.0

10

Germany

3.8

Taiwan

3.5

5

India

2.4

China

2.2

0

19.8

Others

’05

’15

’10

2000

*Finished steel products (excludes semi-finished)   †Through October 2017

Source: U.S. Department of Commerce

But the decision also is likely to open a rift between the White House and traditional free-trade Republicans in Congress, who have become increasingly vocal in recent weeks urging Mr. Trump to avoid taking such action.

Even Sen. Pat Toomey, a Republican representing Pennsylvania, blasted the move, saying that “invoking national security as a means of imposing new, huge tariffs on all kinds of imported steel is a big mistake that will increase costs on American consumers, cost our country jobs, and invite retaliation from other countries.”

The move also drew complaints from allies and trading partners, who have repeatedly warned that such action could prompt them to retaliate.

“We will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk,” said Jean-Claude Juncker, president of the European Commission, vowing “countermeasures against the U.S. to balance the situation.”

Canadian Foreign Minister Chrystia Freeland said that “should restrictions be imposed on Canadian steel and aluminum products, Canada will take responsive measures to defend its trade interests and workers.”

A Chinese foreign ministry spokeswoman said “The U.S. has overused trade remedies” adding that “China will take proper measures to safeguard its interests.”

Opponents warn that the moves could undermine the global free-trading system, as the U.S. imposes broad trade restrictions unilaterally without first going through the World Trade Organization. U.S. presidents have generally avoided such actions since the WTO’s 1995 creation as a way of encouraging other nations to take their trade disputes to the Geneva-based arbiter.

Free-traders worry also about the Trump administration invoking “security” as a justification for a new trade policy. Global commercial rules do little to regulate such moves out of deference to national sovereignty, and many trade lawyers consider it a loophole that, if used widely, could undermine the force of the international system. That fear has for years discouraged most countries from using “national security” trade protections.

But Mr. Trump and his aides have been openly skeptical about the effectiveness and fairness of the WTO, and have regularly signaled a willingness to challenge its authority.

As the president told the executives Thursday: “The WTO has been a disaster for this country.”

—Bob Tita, William Mauldin and Andrew Tangel contributed to this article.

[Crafty_Dog]

third post

Trump's Trade Challenges, Revisited

Highlights
•   President Donald Trump's announcement that large tariffs are coming next week on steel and aluminum imports is just the start of a bigger trade push, ostensibly targeting China.
•   Over the next week, other countries and certain U.S. steel and aluminum consumers will lobby for country- and product-specific exemptions to the tariffs, but Trump is likely to minimize the number of exceptions he gives.
•   In launching the tariffs under the guise of national security, the United States will face international backlash, both in retaliatory trade measures, but also at the World Trade Organization.
________________________________________
A chaotic series of events unfolded at the White House after news broke late on Feb. 28 that President Donald Trump would announce his decision on import tariffs on steel and aluminum the next day. But reportedly, many senior administration officials had been caught off guard by the news of a planned announcement, and no decision on tariffs had been made. And then during a March 1 meeting with executives from the steel and aluminum industries, Trump said he will formally announce a 25 percent tariff on steel imports and a 10 percent tariff on aluminum next week. The details clearly remain unresolved as legal teams continue to pore over the final text, but action also clearly looms.

Nearly two weeks ago when the U.S. Commerce Department released its report on whether steel and aluminum imports threaten to impair U.S. national security, Stratfor wrote a guidance outlining what we would be watching for as Trump's final decision neared. With the president's decision now apparently on its way next week, we offer an updated guidance addressing the critical questions surrounding the issue.

The Big Picture

________________________________________

In Stratfor's 2018 Annual Forecast, we said that the United States would face a decision in the next few months over whether to restrict imports of steel and aluminum after investigations into the effect of those imports on U.S. national security concluded. With reports detailing the results of those inquiries sitting on President Donald Trump's desk, we are now seeing concrete steps being taken toward significant action.
________________________________________

2018 Annual ForecastAmericas
Divisions Within the West Wing

The White House remains deeply divided on trade issues and the degree of protectionism to pursue, but now that it looks as if large tariffs are coming, it is clear — or at least it seems to be clear for now — that the administration's protectionist faction is making headway. The steel and aluminum tariffs Trump mentioned March 1 are both slightly higher than the tariff levels the U.S. Commerce Department recommended last month. What remains to be seen is whether the administration's globalist wing and the national security establishment can blunt Trump's decision by pushing for exemptions for U.S. allies or for certain products.

There are other signs pointing to the elevation of the protectionist wing in the White House. Rumors emerged on Feb. 23 that Peter Navarro, a trade hawk, was being promoted to special adviser to the president, giving him a direct line to Trump for the first time since he fell out of favor in September. The strength of the protectionist wing also comes ahead of major decisions on the Section 301 investigation into Chinese technology-transfer rights, an investigation that must be completed by mid-August. Navarro, as well as U.S. Trade Representative Robert Lighthizer, are both vocal anti-China trade hawks. If their position is gaining momentum, then an even more significant action against China may be pending than the already large action that is anticipated.

It's also clear that most U.S. industries are not happy with Trump's steel and aluminum tariff plans. While steel and aluminum producers and their workers' unions support tariffs, the vast majority of U.S. industries are steel and aluminum consumers and soon will have to face higher prices for some of their critical materials. This distinction between consumer and producer was apparent in Wall Street's reaction to Trump's remarks. The stock of U.S. Steel, for example, rose more than 6 percent in just a few hours after Trump spoke, while Ford Motor Co. and Boeing Co., major consumers of steel and aluminum, saw their stocks fall by more than 3 percent.

Legal Loopholes

Trump's team is poring over the legality of a blanket tariff on steel and aluminum imports, seeking to minimize any legal challenges that could emerge. Not all of the legal challenges can be addressed, of course. No matter what the United States does, cases objecting to the moves will be filed at the World Trade Organization (WTO) and elsewhere. In general, a blanket tariff is the simplest and most efficient way to institute protectionism. Establishing a quota system or singling out specific countries for tariffs would bring additional challenges, since the United States, through the WTO's most-favored nation principle, has promised to treat all WTO members the same when it comes to imports and tariffs.

Anger Abroad

Major U.S. steel and aluminum trading partners have lobbied for exemptions and lesser action. Brazil and Mexico have sent delegations to the United States, with Brazil in particular considering retaliatory tariffs against U.S. coal imports — a threat that remains on the table. The European Union, Canada and other major exporters have issued similar threats: retaliatory action and WTO challenges.

Trump's planned tariffs are also ostensibly directed against China implicitly, though Chinese steel has been largely priced out of the U.S. market because of heavy tariffs already in place through anti-dumping and countervailing duty investigations. (Many of the tariffs in place dwarf the 25 percent figure Trump mentioned March 1.) Still, China will be affected. The foreign supplies kept out of the U.S. steel and aluminum market by tariffs will head elsewhere, where they will eat into the market share of Chinese steel in particular and could result in some consuming countries instituting their own safeguards against a glut of steel and aluminum being diverted from the Chinese markets.

Trump's remarks coincided with a five-day visit to the United States by Liu He, China's top economic policymaker, who is in Washington to try to defuse U.S. trade pressure. Beijing has been trying to work various backchannels to the White House to gauge U.S. options and to revive their suspended economic dialogue to see where its concessions could fit. China has been holding out on promises to increase U.S. imports and expand market access to U.S. investors in the agricultural, energy and financial industries, and also has signaled it could ease up on forced tech transfers on foreign companies. But Beijing will equally respond to U.S. trade policies through proportional tit-for-tat measures. Already, China has launched one-year investigations on U.S. sorghum and has also weighed its options on other key U.S. agricultural exports, such as soybeans and corn. U.S. chemical products, aviation and firms operating inside China could also face retaliatory pressures.

[Crafty_Dog]

Trump's ‘Smart’ Tariffs Don't Make Economic Sense

The president says they'll protect American jobs and bolster national security. They'll likely do neither.

 


President Donald Trump’s long-anticipated tariffs are finally here: 25 percent on imported steel and 10 percent on imported aluminum, with a formal announcement on the measures to be made next week.

The White House has argued that the tariffs would punish China for unfair trade practices and help American blue-collar workers afflicted by decades of manufacturing job losses and wage stagnation. “We must not let our country, companies and workers be taken advantage of any longer. We want free, fair and SMART TRADE!,” President Trump wrote on Twitter on Thursday. But business leaders and economists from across the ideological spectrum question how much good Trump’s tariffs would do—and whether they might even backfire, raising costs for American consumers, hurting American exporters, straining American economic relationships around the world, and ultimately slowing down growth.

That is not to say that the tariffs do not have a constituency among certain manufacturers, or that they are not meant to address real and painful changes in the American economy. Steel production has fallen to 82 million metric tons a year from nearly 100 million a decade ago, with three out of four domestic aluminum smelters shuttering over the past few decades. That has meant thousands and thousands of job losses. At the same time, foreign producers have ramped up production, pushing down prices and leading to increased American imports.


The issue, the Trump administration has argued, is not just one of jobs, wages, imports, and exports. It is also one of defense strategy: The U.S.’s reliance on imports leaves critical industries vulnerable to potential embargoes and trade actions by its enemies.

But trade experts see a number of problems with the White House’s argument for instituting tariffs on security grounds. Trump himself has repeatedly mentioned China’s trade practices as justification for the tariffs, for one. And the vast majority of  the U.S.’s imports come from strong allies: Canada, South Korea, Mexico, Germany, Japan, and Brazil all export more steel to the United States than China does. “There is no question that steel and aluminum, materials used in the production of weapons and military systems, are vital for America’s military superiority,” a group of conservative think-tank scholars argued in response to then-potential tariffs in late February. “But it is not realistic to expect that foreign producers would withhold supplies in the case of a national security emergency.”

The flimsiness of Trump’s justification raises the risk of retaliation by the United States’ trading partners, many of whom have lobbied against the tariffs since the earliest days of the Trump presidency and are expressing their frustration with the tariffs now. Trade experts expect tit-for-tat actions, meaning lower sales for American businesses abroad. “If the United States goes down this path for steel and aluminum, there is little to prevent other countries from arguing that they too are justified to use similar exceptions to halt U.S. exports of completely different products,” argues Chad P. Bown of the Peterson Institute for International Economics, a Washington-based think tank broadly supportive of free trade. “Because this leads to a downward spiral and erodes meaningful obligations under international trade rules, justifying import restrictions based on national security is really the ‘nuclear option.’”


To that end, China has indicated that is ready to take action. “China urges the U.S. to use trade protection tools with restraint and comply with multilateral trade rules so as to make positive contribution to the international economic and trade order,” its Ministry of Commerce warned last month, adding, “China will definitely take necessary measures to safeguard its legitimate rights.”

The specter of a trade war undercuts Trump’s economic argument. The president has promised that steel and aluminum tariffs will bolster domestic industries and boost American payrolls, with some labor leaders and business executives in agreement. “U.S. steel and aluminum industries have been heavily injured by massive growth of excess capacity and overproduction in China and other countries,” argues Robert E. Scott of the Economic Policy Institute, a left-of-center think tank. “More than 13,000 U.S. jobs have been lost in aluminum since 2000—and 14,000 steel jobs disappeared in [the] last two years alone.” But America’s steel and aluminum industries simply do not employ that many workers. Restoring all those jobs would be but a blip in a monthly payroll report.

More broadly, the tariffs will raise costs for a vast sweep of businesses, given that steel and aluminum are major inputs in auto manufacturing, oil and gas extraction, and construction, as well as in the production of everything from beer cans to golf clubs. Manufacturers “will be paying higher prices for our stainless steel going forward, ironically making us less competitive against foreign-finished goods,” said Greg Owens, the president of the flatware maker Sherrill Manufacturing, in a press release. He wants the White House to take measures to ensure that foreign goods would not be cheaper as a result of the tariffs, “a critical next step that if left unaddressed will turn this first positive step into a catastrophe for American manufacturing.”

Plus, the tariffs will invite retaliatory actions that could hit a huge number of American exporters. “Every time you do this, you get a retaliation, and agriculture is the number one target. I think this is terribly counterproductive,” Senator Pat Roberts, a Kansas Republican, told reporters on Thursday. There are numbers to back this economic case up: A study of a similar trade actions taken by the George W. Bush administration found that they cost the economy an estimated 200,000 jobs, including roughly 11,000 in Ohio, 10,000 in Michigan, 10,000 in Illinois, and 8,000 in Pennsylvania.

Trump’s “smart” trade action, then, might spark a trade war, hurt the auto industry, bleed jobs from the Rust Belt, and anger American allies around the world. A small number of companies and workers stand to benefit, but a far larger number are now at risk.

[Crafty_Dog]

second post

The reciprocity argument is not without considerable power, but glibness about winning trade wars has considerable risk , ,,

http://thehill.com/homenews/administration/376400-trump-defends-new-tariffs-trade-wars-are-good-and-easy-to-win?userid=188403

[Crafty_Dog]

third post

After months spent laying the legal groundwork, the United States has begun making moves against its top strategic competitor, China. On March 1, the U.S. Senate passed the Taiwan Travel Act without opposition. Once signed into law, the bill, which the House of Representatives passed in early January, will permit high-level official visits between the United States and Taiwan. Shortly afterward the Senate vote, U.S. President Donald Trump announced that the United States would impose import tariffs of 25 percent on steel and 10 percent on aluminum. The administration justified the trade duties after a national security review and Section 232 investigation. But the real message for China may be that the United States is only beginning to increase pressure.

Though the tariffs are aimed at China, they might actually hit other countries the hardest. China's steel exports accounted for slightly more than 2 percent of U.S. demand in 2017, and that figure has declined significantly since 2014 because of previous U.S. trade actions. Other top steel exporters to the United States — Canada, Brazil and South Korea — are likely to feel the effects of the decision more, and some of them are strategic U.S. allies. Still, China will strongly feel secondary effects. Without access to the United States, steel exporters will have to sell their steel in other markets, leading to additional competition. As a consequence, Chinese steel, which accounts for half of global production, could run into safeguards put up by the European Union, Japan and others, when this competition heats up.

For China, the steel tariff is just the tip of the iceberg. It is an indicator that Washington is becoming more serious about forcing it to reshape its trade practices, from market restrictions and industrial subsidies to technology transfers and protections for state-owned enterprises. And the disputes are part of a bigger picture. China is transitioning from being an inward-looking nation to an outward-acting one. As a consequence, its interests are expanding elsewhere, and it is challenging the global status quo. Its size and influence, accompanied by more aggressive actions, make it an easy target and put it on an inevitable course that directly challenges core U.S. strategic interests.   

The recent U.S. actions, in turn, are an uncoordinated reaction to this expansion. Congress, historically proactive on Taiwan, is reaching out to the island to guard against a more assertive China in the South China Sea, and it wants to shore up Taiwan's security and independence. In targeting tariffs, the administration is also moving to realize a set of domestic political priorities, particularly the promises to get tough with China and to support domestic heavy industry.

Currently, many in Congress do not favor the tariffs. And a lack of consensus within the branches of the U.S. government may give China a way to manage, if not counter, these U.S. initiatives. But this bilateral friction could show up in other areas, leaving many bystander countries scrambling to adjust as two great powers struggle.

[DougMacG]

This is not small, not narrow, not insignificant and not wise.

Wesbury was right, you add imports to exports to calculate total trade, all good mutually beneficial transactions.  You don't subtract one from the other and meaningfully call it a deficit.  Who do we lose what to?  Financial flows are valuable too, not just goods.  How does it help our manufacturers to raise their material costs compared to what their competitors around the world pay?  When you pay more for the same goods, the consumer price index goes up and our standard of living goes down.

I understand that Trump threatens stuff like this in negotiations.  Keep them off guard, but don't do it.  We buy 2.2% of our steel from China and buy more from Canada than any other 'foreign' country.  Buying raw materials from Canada threatens our national security?  Good grief.

Dumb. Dumb. Dumb.  MHO.
-------------------------------------
https://nypost.com/2018/03/01/trumps-trade-war-could-erase-all-the-tax-cut-gainst/
Trump’s trade war could erase all the tax-cut gains
By John Podhoretz March 1, 2018
-------------------------------------

A test of the President and the success of his administration will be measured by how quickly he reverses this wrong-headed policy.  If he backs off of this before it goes into effect next week, America will be off to the economic races.  That way he has made his point but minimized the damage.

[Crafty_Dog]

Trump has been on this Trade kick for decades now.

If he had framed this, as he often does, as a matter of requiring reciprocity, he would have had a very good and politically effective point but instead , , , this.  NOT GOOD.

[Crafty_Dog]

http://www.aei.org/publication/the-destructive-path-of-protectionism/?mkt_tok=eyJpIjoiWmpJNE9HRXpNakU0TmpjeSIsInQiOiJUZlFCQVwvUXRsNGp2cDNlWlJwc0FoVE5aZUpoK1NJTmJPQXN5WUUrVVNZS3NKM3lqNEdMTk9BcW1rMzJmSG5ReXI5MnVYSWloYklLR3JXSnhPRmdjSkxzclptcTVkNmRCUWZhS1VXODNsTUJPWnJcL01EQ0V2Rnc2XC9HR0tudktFZCJ9

[Crafty_Dog]

Some of us may remember that I suggested seriously considering trade war with China as a way to defend the South China Sea , , ,

=================================================

Trade War and the Correlation of Forces
Mar 5, 2018
By George Friedman

During the 1970s, the Soviets developed a model for analyzing military conflict through measuring the correlation of forces. This measured the military force each side would bring to bear in an engagement, from nuclear war to small unit combat. It did not address the question of whether the battle or war was wise, whether victory was worth the price, or the long-term consequences. It focused on a single, partial, yet indispensable question: Who would win? This is a question that should be applied to the current debate over steel and aluminum tariffs: Who would win a trade war? It would not answer the question of the wisdom of the war, or the cost. It would simply measure the likely winner, however damaged that party might be by the war.

The first question to be asked is simple, as all first questions should be: How important is trade, particularly exports, to the major players? According to 2016 World Bank figures, global exports make up 29 percent of global gross domestic product. For high-income countries, exports make up 30 percent of GDP. Exports account for roughly 20 percent of China’s GDP, 26 percent of Russia’s, 42 percent of South Korea’s, 31 percent of Canada’s and 38 percent of Mexico’s.

By comparison, exports make up 12 percent of U.S. GDP. This means that the decline in exports has less impact on the United States than on most other countries. Put another way, the United States’ economy maintains higher domestic demand than other countries relative to production, and therefore is less dependent on exports. This is connected to the sheer size of the American economy. It dwarfs others, including China.

The United States is also the largest importing country in the world. (The European Union as a whole is larger, but the EU is not a country. It is a treaty organization, and a dysfunctional one at that when it comes to economic issues.) China’s exports to the U.S. in 2016 were worth $386 billion, while it’s imports from the U.S. were worth only $135 billion. In a trade war, this trade surplus would become a Chinese weakness. China derives about 3 percent of its GDP from exports to the United States; the United States derives around 0.5 percent of its GDP from exports to China. Similar or greater imbalances can be found in other countries mentioned.

What Happens in a Trade War?

The United States currently runs a large trade deficit. That actually makes the U.S. the stronger party in a potential trade war. The U.S. is less dependent on exports than the countries that export to the U.S. market. As a result, the “correlation of forces” is such that the cost of a trade war is greater to U.S. trading partners than to the U.S. If the U.S. does institute the steel and aluminum tariffs (and it appears that it will), U.S. consumers will have to worry about an increase in the price of goods, and U.S. companies that are disproportionately exposed to exports will face significant problems. But the countries that depend on the U.S. to buy their goods have a much bigger problem. There is simply no other market in the world that compares to the U.S. in size and demand. The U.S. would not emerge from a trade war unscathed – but it would fare better than U.S. trade partners who depend on access to the U.S. market. This puts it in a powerful position against smaller economies that are efficient exporters and therefore much more vulnerable in a trade war.

It follows that the risks from an escalating trade war would be substantially greater on China, South Korea or Canada than they would be on the United States. Each countermove costs the United States less than it does its counterpart. So even if other countries hurt the United States in a countermove to President Donald Trump’s threatened tariffs, the reaction from the United States can hurt them far more. The percentage of GDP at risk in a trade war for U.S. counterparts is much greater than for the United States, which means, on the surface, that the United States will win such a war. More to the point, it makes it unlikely that opponents will risk a trade war.
I want to emphasize that this is a simplistic analysis, as it is meant to be. Evaluating the correlation of forces necessarily excludes evaluation of other key elements to the battle – in this case, elements like supply chain disruption, the threat to ruling political coalitions and so on. War is a complex thing, and the correlation of forces tells you only about the exchange of fire. But talking about trade wars without starting with the simplistic is dangerous. The core reality of a war is, after all, the exchange of fire and a summation of the net consequence of that exchange. Leaping to more sophisticated models that exclude the correlation of forces risks putting the cart before the horse.

What the simplistic model says is that U.S. partners can bluff a trade war, but not wage that war, because with each move, the damage to them will be greater than the damage they can inflict. Efficiency in exports creates pyramiding vulnerabilities in a trade war. But of course, this does not take into account sectoral damage, strategic relationships outside of trade or unequal domestic consequences. Having stated the obvious, these are the questions we will turn to next.

[DougMacG]

From Kevin McCullough at Townhall.  Each of these reasons is quite weak IMHO.  It might not set off a trade war?  The aluminum cost is a small part of a beer.  We are going to protect industries for national security - in case Canada turns against us?

https://townhall.com/columnists/kevinmccullough/2018/03/04/six-simple-reasons-they-are-wrong-on-tariffs-n2457025

[DougMacG]

Not to say there was one cause, but trade protectionism punched us in the gut way above its weight class.  The Great Depression was a Trump defined win: imports fell more than exports!  Both were affected far more than GDP demonstrating truth in the alleged multiplier effect.  And GDP fell by more than a quarter...

(From our other trade thread)
Smoot Hawley Tariff Act:  raised tariffs on 20,000 items by 6.3% to 19.8%.
Effective‎: ‎March 13, 1930   
Imports: fell 66%
Exports: fell 61% 
GDP: fell over 25%
The "trade deficit" "improved"!
We are FAR more reliant on both imports and exports today.
http://dogbrothers.com/phpBB2/index.php?topic=2240.msg100985#msg100985
-----------------------------------------

"I could have swore we had a thread about this already, but I can't find it , , , "

http://dogbrothers.com/phpBB2/index.php?topic=2240.0

[G M]

From Kevin McCullough at Townhall.  Each of these reasons is quite weak IMHO.  It might not set off a trade war?  The aluminum cost is a small part of a beer.  We are going to protect industries for national security - in case Canada turns against us?

https://townhall.com/columnists/kevinmccullough/2018/03/04/six-simple-reasons-they-are-wrong-on-tariffs-n2457025

I see this more as the economic phase of the US China war.

[Crafty_Dog]

I've asked our webmaster to merge the threads.