The Progressive Ensign

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Category: Trump Trade War

The President Thinks Insulting Canada Will Help – The Facts On US – Canada Trade

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Image: Feedstuffs.com

Last weekend, POTUS has shifted tactics from ‘whack a mole’ to ‘whack a friend’ on trade when he declared in a tweet after the G-6 + 1 summit that Canadian Premier Justin Trudeau had betrayed the US:

“Based on Justin’s false statements at his news conference, and the fact that Canada is charging massive Tariffs to our U.S. farmers, workers and companies, I have instructed our U.S. Reps not to endorse the Communique as we look at Tariffs on automobiles flooding the U.S. Market!”  He continued in another tweet one minute later said of Trudeau’s comment, “US Tariffs were kind of insulting” and he “will not be pushed around.” Very dishonest & weak. Our Tariffs are in response to his of 270% on dairy!”

So, why is the President going after Canada anyway?  Canada, our long time neighbor to the north, ally during WWII, and trade partner that we actually have a trade surplus.  Yes, our trade with Canada is at a surplus of $8.4 billion in 2017, according to the New York Times, when services are added as shown below:

Sources: US Census Bureau, IFF, The Wall Street Journal, The Daily Shot – 6/12/18

Canada and the US have over $693 billion of commerce between the two countries and nine million American jobs depend on trade with Canada.

In the past year, the President has picked on Canada slapping tariffs on softwood lumber causing lumber prices in the US to soar, because the US imports 96 % of the lumber it needs mostly in residential housing from Canada.  POTUS has taken aim at Canada recently to include the country in the tariffs of 25 % on steel and 10 % on aluminum. Over the weekend he focused on dairy in as his tweet noted above about Canadian “270 % tariffs on dairy”.

So, let’s look at that 270 % tariff figure, the US actually has a 2:1 surplus in diary products trade with Canada:

Sources: Bloomberg, Statistics Canada – 6/11/18

The reason there is a 270 % tariff on dairy powder is a system of supply management that was agreed upon by the US and Canada.  For most dairy products sold within the quota of US imports into Canada a tariff of 7.5 % is applied by the Canadian government.  When imports exceed the supply management quotas, super charges go into effect on products like dairy powder or over quota milk at 241 %.  Canada has established a supply management system with the US on dairy products, as most countries including the US subsidize their dairy industry.

Next Steps:

First, our President needs to treat our long-time ally to the north as an ally and friend to the American people with respect, dignity and cordial public discourse.  Privately, he may have disagreements, and negotiations should proceed to overcome trade imbalances where appropriate and to protect American jobs.

Second, the facts need to be used, not falsehoods as POTUS admitted in his first meeting with Trudeau, that he made up the idea there was an imbalance or equality or he didn’t know.  It is time to do the homework, research the facts in our relationship, preserve the on-going huge amount of commerce we already do, and figure out how to work more closely together as partners not adversaries.

Protectionist Policies Are Damaging the Mexican Economy and US Businesses Today!

(Editor Note: Insight Bytes focus on key economic issues and solutions for all of us, on Thursdays we spotlight in more depth Solutions to issues we have identified. Fridays we focus on how to build the Common Good. Please right click on images to see them larger in a separate tab.)

Image: hurd.us.gov

Last Friday, POTUS announced that he was considering just dropping the NAFTA agreement.  His announcement sent the Mexican Stock Market racing down with the fall continuing today:

Source: Patrick Hill, The Progressive Ensign – 6/5/2018

When President Trump was elected in November of 2016, the Mexican market tumbled, then regained when it seemed the Administration would negotiate in good faith.  Then, late 2017 threats and bullying started with the latest swoon when POTUS wanted to just pull out of the agreement.

The administration continues to use a ‘whack a mole’ policy approach, even with Vice President Pence suggesting last week that the NAFTA agreement should be renegotiated every 5 years.  Trade agreements are complex, legal documents which business leaders, consumers and government policy makers depend upon in making economic, infrastructure and industry plans for 10 to 20 years into the future.  Corporations when they plan for building a manufacturing plan, are looking at government trade policies and trends over the next 10 years to determine whether a plant will be profitable or not.  Policy makers can’t be changing the rules of the economic game constantly.

We are concerned that the anti-Mexico trade policies of the administration will continue to cause uncertainty, chaos and severe trade constraints driving the Mexican economy into a recession or worse.  Mexico is the second largest trading partner for the US.  States like California and Texas depend on exports to Mexico and will be hurt if the Mexican economy continues to slide:

Sources: US Census Bureau, Reuters, The Wall Street Journal, The Daily Shot – 5/4/18

Mexico just announced today their first shot across the economic bow of the US.  Slapping tariffs totaling $3 billion on whiskey, cheese, pork and other products. A spokesman for the trade group Farmers for Free Trade commented on ongoing trade war economic missiles being hurled at each other, declaring that the new tariffs would have disastrous consequences for farmers, “Hog, apple, potato and dairy farmers are among those suddenly facing a 10 or 20 percent tax hike on the exports they depend of for their livelihoods. Farmers need certainty and open markets to make ends meet. Right now they are getting chaos and protectionism.” Larry Kudlow, the President’s chief economic advisor shared the latest negotiating strategy for NAFTA on Fox and Friends, taking a strong protectionist stand against a three nation agreement, ‘preference now, and he asked me to convey this, is to actually negotiate with Mexico and Canada separately.”

Next Steps:

We know from research that when the Mexican economy does better, immigration from our south of the border neighbor goes down.

Sources: Five Thirty Eight, PEW Research, The World Bank – 2/28/17

The GOP administrations needs to start treating Mexico with dignity, respect and partnership – which they have earned as our southern neighbor and ally. When the Mexican people are prospering, they don’t seek jobs in the US.  So, instead of withdrawing support for NAFTA which our farmers and other businesses throughout the US are profiting by, focus on the main issue which is the imbalance in autos, trucks, automotive parts and manufacturing as the chart below describes:

Sources: US Census Bureau, The Wall Street Journal – 6/2018

Let’s start using evidence, facts and real insights in negotiating our agreements with our allies instead of bullying, prejudice and smear tactics. We recommended over a year ago, that the Administration, focus on the automative industry imbalance, and protect worker jobs and US businesses:

  1. Tax companies that move jobs to other countries. For example, a company moves a $1 billion plant with a 1000 workers offshore, they pay a 10 % plant offshore tax or $100M, and $20k per worker or $20M penalty to be used for training and apprenticeship programs in the US. (Tax the action we don’t want.)
  1. Establish worker councils in corporations to make decisions jointly, ensuring apprentice and new job training programs are in place.
  1. Offer incentives to keep plants here including fed, state, and local tax reductions, and training programs implemented in local universities and colleges.
  2. Train US workers on advanced assembly and use of robotics in manufacturing to build increased productivity capability and reduce costs.

POTUS Employs ‘Whack a Mole” Trade Tactics Launching the Trump Trade War (TTW)

 

Image: danbyink.bangordailynews.com

After declaring two weeks ago a trade truce with China, POTUS declared last week that 25 % tariffs would be imposed on $50 billion of Chinese of Chinese goods if they don’t commitment to purchases of US energy and agriculture products.  Commerce Secretary, Wilbur Ross left China on Sunday with no real progress except to make the Chinese angry, confused and upset.

The bullying, intimidation, zero sum negotiating tactics may work in the rough and tumble of New York real estate but not international trade where over 70 years of careful negotiations by all the major trading partners have put into place a trading platform with rules and fairness wherever possible.  Now it is true that some nations take advantage of the slow, ponderous and confusing decision making of the World Trade Organization.  But blowing up the present trade agreements by saying things like Vice President Pence said last week to Canada and Mexico that the NAFTA agreement should be revisited every five years is insulting, duplicitous and lacking in good faith.  So last Friday, to heap more chaos on the NAFTA negotiations POTUS says he is thinking of just pulling out of NAFTA completely.  Welcome to a POTUS caused trade war, we call The Trump Trade War (TTW), as history books will likely record.

Prime Minister Trudeau of Canada has condemned the way the US administration has been treating a valued partner calling the actions “frankly insulting”, and in return he receives more trumped (pun intended) up national threats.  He continued in an NBC interview:

“The idea that the Canadian steel that’s in military, military vehicles in the United States, the Canadian aluminum that makes your, your fighter jets is somehow now a threat?” Trudeau declared. “Our soldiers who had fought and died together on the beaches of World War II… and the mountains of Afghanistan, and have stood shoulder to shoulder in some of the most difficult places in the world, that are always there for each other, somehow — this is insulting to them.”  Maybe our POTUS doesn’t understand that dying for a common cause is a higher value than provoking, bullying and intimidation to make an extra short term buck.

EU ministers are confused and upset at being grouped in with China in steel and aluminum tariffs.  The United Kingdom, France, Germany, Mexico, Canada, Turkey and Japan have either announced or launched retaliatory tariffs on US goods and are reviving trading alliances that the US has abandoned like the TTP (Trans Pacific Partnership).

Sources: The Wall Street Journal, The Daily Shot – 6/4/18

The TPP non – US nations are in a dialog with China who is excited about filling the role the US once occupied. Experts note the long term effects and loss in business for the U.S., Adam Posen, president of the Peterson Institute for International Economics observed, “It will be hard to establish trust in the U.S. again, and all the uncertainty will drive down investment and productivity.”

US businesses are busy trying to minimize the damage to their export revenue streams,. Farmers in the midwest have already found that China has cancelled some sorghum shipments causing ships to be turned back, as the Chinese are making deals with Russia for agricultural goods.  American businesses are being cut out of customer contracts now, resulting in lost business that will be extremely difficult to get back once new suppliers are in place. Still incredibly, the White House trade team blows up the present world-wide trade framework replacing it with nothing, which results in uncontrolled reprisals and chaos. Seems like economic missiles have been launched and attacked nations are sending economic missiles back (sounds like a trade war to us, the TTW (Trump Trade War).

Next Steps:

To begin, our political leaders need to stop being invisible as the world trade fabric unravels. Next Congressional leaders need to bring all key trade factions, business and trade representatives and develop an alternative to the destructive protectionist policy now being implemented.  Sound trade policy based on win – win negotiations, fair agreements, protections for labor, working within the WTO, and legal order will win over allies and concessions from adversaries.  The GOP administration needs to stop going it alone, and work with our allies, build consensus, and make improvements in the present painstakingly developed agreements over the past 70 years. Over 1100 economists, the US Chamber of Commerce and world leaders have condemned the declared TTW which needs to end now.

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