The Progressive Ensign

insights and analytics to build an economy that works for all

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Supreme Court Empowers American Express To Gag Merchants

Photo: consumerist.com

Supreme Court Justice, Clarence Thomas, wrote in the majority opinion released yesterday, “two-sided platforms, differ from traditional markets in important ways. Since card companies deal with both merchants and consumers.” He continued “people challenging actions as anticompetitive must take account of the effect on both sets of market participants.”  The majority did not see the restraint in trade by American Express requiring merchants to only offer their card, and not tell customers that Visa and Mastercard had cheaper swipe fees.

The majority was by only one vote 5-4,  with Justice Stephen J. Breyer reading his minority opinion summary, an unusual step, when he said, “I particularly fear the interpretive impact of the majority’s discussion of what it calls ‘two-sided platforms,’ in an era when that term might be thought to apply to many internet-related goods and services that are becoming ever more important.”

The bottom line is this: American Express can gag its merchants legally from telling their customers that American Express fees are higher than other cards and they will have to raise prices as a result.  Plus, the implication is that other cards are not available for customers to pay for their purchases.

American Express has a huge market share in credit card networks:

Source: valuepenguin.com – 2017

Yes, that’s right Amex did .695 trillion dollars in transactions in 2016! While Visa does have a larger share, American Express is essentially gaging its merchants about the costs of transactions and restraining trade.

Next Steps:

We are frustrated and disappointed that SCOTUS has sided with a Corporate Nation State, American Express, to support continuing to build their financial empire at the cost of retailers optimally running their businesses. Think of retailer’s position – caught in an Amazon competitive whirl wind, Internet global access to products and constantly trying to gain the attention of shoppers to come into their store.

The American Express ‘steering clause’ is clearly a restraint of trade, we need court decisions focused on creating a level playing field for all companies to do business.  Congress needs to pass a law making it clear that these ‘two sided’ platforms are just another form of distribution so a product or services provider cannot restrain the distributor from exercising his business rights and doing what is right for their customer.

15 Million Retiring Americans Face A Declining Standard of Living

Photo: pbs.org

The grand plan by financial services companies thirty years ago was to have Baby Boomers invest in 401k matching plans offered by their employer to build a secure retirement nest egg.  The 401k plan funds would be invested in the stock market. Companies would eliminate their defined benefit pension plans thereby reducing their retiree costs and transfer the savings responsibility onto the worker. The reality is that worker saving just never happened.  Since 1970, 90 % of pensions have been replaced by 401k or IRA plans. Unfortunately, many Americans raided these plans to pay for living expenses during the Great Recession

A Wall Street Journal analysis showed that 40 % of all households headed by people aged 59 -70 lack sufficient financial resources to maintain their standard of living during retirement. The situation is due in part to lack of saving in 401k plans and general savings.

Sources: Center for Retirement Research at Boston College, The Wall Street Journal – 6/22/18

Adding to the savings challenge, over the past 10 years incomes have stagnated making it extremely difficult for workers to put away more money into their 401k or savings plans.

Sources: Urban Institute analysis of Census Bureau data, The Wall Street Journal – 6/22/18

Consumer debt has soared for auto and student loans, further squeezing their ability to save. The combination of being left on their own to manage their retirement savings, limited matching from corporations not matching pension income streams and debt means that households are not saving enough to maintain their standard of living.

Sources: Center for Retirement Research at Boston College, The Wall Street Journal – 6/22/18

The situation defaults to retirees relying on government sources completely for retirement income, working longer than they had planned or gaining assistance from children.  While, funding help from children may work for temporary bridge loans, ongoing assistance will hurt their children’s ability to save as well, causing a snowballing effect on future saving.

Next Steps:

 From our previous analysis on the retirement crisis:

 Our politicians have designed a failure prone retirement system allowing corporations off the hook providing full defined benefit pension programs with professional management. Instead, 401k employee and employer match defined contribution programs were created where the individual is responsible for investing retirement funds safely. The present retirement program is a patchwork of 401ks, IRAs, Roth IRAs and SEP programs for small business. “

We continue to see many retirees at or below the poverty level:

“Today, Social Security only provides a $12,000 a year benefit to the average retiree. Yet, Social Security provides 80 % of the benefits that 40 % all retired people depend on.  A Retirement Savings Account would have as a core principle that the combination of Social Security and worker’s savings provide at least a guaranteed income at the poverty level at age 65.”

Social Security income is particularly difficult for women who made less income working. In 2014 women received on average $4,500 less per year than men in retirement.

Our recommendation is for a single Retirement Savings Account:

“Funds deposited by workers into their Retirement Savings Account would be tax deferred up to $40,000 per year until age 65 similar to a traditional 401k today.  Most workers will see a lower tax rate at retirement as this provision allows for lowering the cost of saving for retirement during high salary tax years. Corporations contributing to a workers’ Retirement Savings Account would be allowed up to a 50 % corporate tax deduction on the matching dollar amount to incent companies to contribute.

There would be no cap on total funds added to the Retirement Account by a worker.  Workers would be allowed to obtain a medical or education loan with their retirement account as collateral but only up to 10 % of the value, which if defaulted and not paid back, would be paid back on a pro-rated basis by a Social Security deduction beginning at age 65.

This Retirement Savings Account proposal meets 12 core principle requirements by the Retirement USA, a Washington D.C retirement advocacy group including: universal coverage, secure retirement, adequate income, shared responsibility, required contributions, pooled assets, payouts at retirement, lifetime payouts, portable benefits, voluntary savings, efficient and transparent administration and effective oversight.”

The crisis for our retirees continues to worsen as Congress does nothing to look at the root causes of the income challenge. We need to develop innovative solutions to make the golden years for our senior citizens secure now.

Amazon’s Growing Corporate Power In Washington – Threat to Capitalist Democracy

Source: e-brand.biz

An oligarchy is defined by Wikipedia as, “a form of power structure in which power rests with a small number of people”.  One of the Elite is corporate tycoon Jeff Bezos, Amazon founder, who is thought to be the wealthiest person in the world with net worth estimated at $141 billion.  He wields great corporate power leading an innovative company, pioneering e-retailing when many said it couldn’t be done building a $177 billion empire in e-Commerce, web services, grocery, and just about everything you can buy in a store you can get from Amazon.  Amazon owns 43 % of the e-Commerce market, and has been responsible for a complete transformation of brick-n-mortar retailing causing the loss  of thousands of jobs.  The company name is synonymous with going out of business as some store owners declare they have been ‘Amazoned’.

Amazon has one of the largest lobbying forces in Washington, 94 strong:

Sources: The Center for Responsible Politics, The Wall Street Journal, 6/20/18

Amazon spent $13 million on lobbying and is one of the top spenders on lobbying along with Google, AT & T and Oracle.

The Amazon corporate power juggernaut keeps rolling.  The e-Commerce giant owns 50 % of the book print sales market for publishers, with Barnes and Noble in the teens and independent book sellers about 6 – 8 percent. Ten years ago, independent book stores held a 30 % share of the book print sales market until Amazon drove them out of business, with convenience and not being required to pay sales taxes to states (though the Supreme Court just ruled last week that e-Commerce firms must pay sales taxes). Now, in an ironic twist the firm has 3 brick- n-mortar stores and is opening 5 more in 2017- so Amazon drives the competition out of business, with low cost prices and no taxes then starts opening brick n-mortar-stores.  Is that fair? In audio books Amazon owns Audible the No. 1 provider of audio books where last year listener – readers heard over 2 billion hours of programming.  The Kindle subscription business holds 14 % of the e-reader market and is the fastest growing segment increasing 4 % in 2016

Amazon is humongous compared to its competitors with brick-n-mortar stores:

Source: visualcapitalist.com – 12/30/16

Amazon is larger than the next 8 competitors and it is killing their businesses by amortizing its cut rate prices with profits from its Business to Business cloud enterprise – Amazon Web Services (AWS).

Source: Geekwire – 10/1/16

Without AWS Amazon would not be able to take profit from the B to B side of the business and fund the cut rate prices driving other stores out of business. While it may seem like this is capitalism ‘creative destruction’ at its best, this condition strikes us as unfair competition. Add a tax cut giveaway to corporations like Amazon, and the juggernaut keeps picking up speed at the expense of workers and democracy.

Next steps:

  1. One Lobbyist Limit – The Company is a citizen according to the Supreme Court in Citizens United, then good it has one lobbyist representative to Congress.
  2. Sunshine Contractor Monitoring – Amazon and the top 100 government contractors would have to contribute to a web site noting their business with the Federal Government, revenue from the contracts, agencies working with, number of government staff working with Amazon, Amazon staff size working on projects, where they are located, and all contacts with Congress, Executive branch staff – date, time, attends, discussion top, money involved, follow up. All these details would be available to the public on a web site 24/7.  These disclosure are a ‘annual report’ to the people of the US about what the top 100 contracts are doing for our federal government, and us and how they are contributing to our government and society goals.
  3. Campaign Contribution limits – $2700 per corporation if they are a person, that is all a citizen is allowed to contribute, and the Supreme Court found corporations were citizens, so Amazon has the same limit as a citizen.
  4. Corporate Reform – top 2 corporations in an industry sector must have a minority number of outside board members elected by all the shareholders. Employees can form ‘councils’ along the line of the German worker council models.  Salaries for executives would be limited to 50 times the average worker in the firm (consumer discretionary sector the average for CEOs is 350 times, Bloomberg, Feb 1 2018)., Stock buy backs need to end, or be phased out as they are artificially raising the price of stock on major exchanges by 20 – 15 % experts estimate just to line the pockets of executives and major shareholders, the funds are not going to wage increases, productivity investments or job training.
  5. Anti – trust – Amazon needs to be broken up into a corporate web business – Amazon Web Services, and grocery business (Whole Foods never should have been approved) spun off. The e-Commerce business needs to stand on its own, plus we need to look for other ways to create fair- play markets possibly separating services from distribution,

Mississippi Life Expectancy Same as Libya – Why?

Photo: newsok.com

An insightful analysis in the Journal of the American Medical Association and the World Health Organization shows how far we are behind in Heartland medical care. A comparison of life expectancies in many of our Heartland states are as poor as many war torn or developing countries in pairings like, Mississippi – Libya, Tennessee – Gaza Strip, in a similar range as Libya and Gaza fall Kentucky, West Virginia, Arkansas, Louisiana, and Alabama.

Sources: JAMA, WHO, Signal The Wall Street Journal, The Daily Shot – 6/18/18

Many of these states in the South and Midwest have the highest rates of cancer, diabetes, and opioid use in the U.S. As globalization took many factory jobs away from the Heartland, medical service providers, doctors and other health professionals left for cities or the coasts where they had transferable skills and could make a better income. Plus, the number of rural hospital closures has been accelerating in the past 8 years with 120 going out of business since 2005. Researchers at the University of North Carolina who led the study believe the trend in more closings will continue to accelerate as costs go up, people move out and businesses are financially challenged.  Good health is often found where there are good incomes and healthy businesses.

We noted in our blog of March 25th that:

“Personal Income growth rates in heartland regions continue to lag the coasts by 3.8 to 2.0 % comparing income growth from 2016 to 2017.  The following chart from the US Bureau of Economic Analysis shows how large the gap is:”

Source: US Bureau of Economic Analysis, The Wall Street Journal, The Daily Shot – 3/26/18

“Core issues for the lack of growth are young people moving out, industrial companies leaving for non-union states or moving factories overseas, automation, poor health, slow Internet speeds and fewer education opportunities.  Added to these issues which have trended in these ways over the past 20 years are now tariffs on imports with soybean farmers threatened in the Midwest with a possible loss of $624 million where they already are competing with lower price soybean products from Brazil.”

As the Trump Trade War heats up prices of many Heartland agriculture crops have been falling such as soybeans by 2.20 % and corn by .62 % today alone.  As prices and foreign customers find other suppliers Midwest and South farmers will find their customers have moved onto other countries hurting sales.

Other tariffs in steel and aluminum are squeezing Midwest businesses.

“In the advanced manufacturing sector which is based in the Midwest and South will likely see increases in imported aluminum and steel prices of between 10 – 25 % used in their products they resell. These price increases threaten their ability to compete and may have to lay off workers.”

The situation is in a downward spiral, as federal tariff and trade policies don’t help in turning around the economic, health and educational opportunities for these mostly rural regions.

Next Steps:

Our heartland neighbors continue to feel under siege from many different directions.  We discuss these issues in our blog – The Hallowing Out of America’s Heartland.  We recommend that a major set of investments be made with the federal government providing seed funding for a partnership between non-government organizations, health services providers, universities, corporations and state and local government.  To bring focus to the development process we propose that Heartland Development Centers (HDCs) be located in key regions maybe near a major university – land grant universities are good candidates located in rural communities. Experts from across the country in HDCs would join together with local leaders in customizing solutions to build entrepreneurship centers, high quality health services, high speed Internet services, job and career training and other services necessary to renew the economic vitality of these regions.

Tariffs Drive Price Increase of 17 % for Washers – Dryers As Predicted

 

Photo: wikipedia.org

When the GOP Administration decided to protect the US appliance industry by awarding tariffs of 20 % on imported washers and dryers we predicted that the price of washers and dryers would rise.  These appliances are basic to every household, with price rises hurting workers the most as they have seen their wages stagnant since the last recession. The three-month price increased for washing machines and dryers by 17 %. Ouuucch.

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

From our blog on January 24 of this year:

“with a 20 % penalty on the first 1.2 million machines imported and a 50 % rate for any imports above that level.  A 50 % tariff was awarded on all washing machine parts imported – all penalties are for a three year period.  The administration is protecting Whirlpools’ market share of 43 %.  LG responded by announcing price increases up to $50 per machine or more.”

Since January, Whirlpool responded to LG price increases raising their prices as well. We observed then too:

“These tariff actions will hurt consumers by first raising prices on imported machines then Whirlpool will raise prices by virtue of increased market strength with competitors losing share.”

So, what happened, prices have zoomed up by 17 % on all laundry appliances. The highest prices since 2006, actually durable goods prices have been good news on the inflation front declining over the past 10 years since the recession.

Consumer Reports notes that both LG and Samsung are starting up plants in the US to build washers and dryers, with possible volumes to move shipments below the 1.2 million volume level where the tariff kicks in.  It remains to be seen how Whirlpool and the industry responds to prices on US built machines or will just keep prices high as long as the tariffs are in place.

Next Steps:

The Administration has had its time to perform an economic experiment on the American consumer, maybe it worked forcing Samsung and LG to startup plants in the US.  However, it may just act as a catalyst for all manufacturers to keep prices high while the tariffs are in place.   It’s time to examine in depth, understanding why US manufacturers are concerned about imports to answer the question if Whirlpool has 43 % market share why is it doing poorly?  Economic analysis is required by experts, not shoot from the hip policies to satisfy a minority political segment that will actually get hurt hardest when the layoffs in the Midwest start happening as sales fall.  The basic economic principle is that when prices rise demand falls – eventually.  This administration can’t defy this principle all it tries. Let’s understand what is really happening and develop a win-win plan for consumers, manufacturers and importers.

The Rich View Our Government as A Trusted Rule Keeper, The Common Man Not So Much

Image: Your Little Planet

Thomas Jefferson and James Madison saw the need to frame a government such that ‘forced compromises’ would push political leaders to focus on the Common Good.  The institutions that maintain our common good include the federal government three estates:  The Supreme Court, Congress and The Executive.  In addition, the Fourth Estate, a Free Press is crucial for our citizens to have access to fair and impartial reporting about the activity of government officials and their policies. We have spotlighted the key role Education, as the Fifth estate, plays in educating our people to make critical decisions and understand comprehensively the information they receive from a Free Press.

Trust in our federal government has been falling since the presidency of Lyndon Johnson in 1965.

Source: Pew Research Center – 12/14/17

We noted in our first post on the Common Good that there were two factors contributing to the decline in trust:

We see two major factors for the lack of trust.  One, is that economic inequality has been increasing over the last 60 years to the point where it is at the worst it has ever been since 1929.  Americans expect their government to be the rule keeper of a fair shot at economic opportunity not a bastion for the rich and powerful.  As wealthy donors have taken over control of both major parties, the influence of the average citizen has been reduced to nearly nothing except at the ballot box – but not in legislative policy.”

The second major factor is the change in information access and news viewing habits of our society.

In the 1950s and 1960s families gathered around the television set to watch Walter Cronkite or Huntley and Brinkley bring them the news for the day.  These news anchors had teams of trained journalists in how to gather news, provide airing of opposing views and investigation to reveal the facts of the story. As cable news programs became popular people drifted away from central network journalist supported news programs toward popular ‘viewpoint news’ programs like Fox News or CNN.  Then, from 1995 until today, the Internet was a catalyst for the growth of blogging, and ‘friend news’ on Facebook which had virtually no formally trained journalists and limited understanding of the difference between facts and opinions.  Opinions spread virally through the Internet often with no foundation in formal fact gathering or fact finding investigation techniques. Today, we even have presidential spokespersons talking about ‘alternative facts’ to justify their policies or opinions.

Trust gaps by income level are increasing around the world with many developed countries showing double digit gaps between the top income quartile and the bottom income quartile and the U.S. with the largest gap:

In the U.S. incomes for the lower 80 % have been largely stagnant for the past three decades since the Reagan years, higher education costs rising to levels never seen before with student loan debt at $1.5 trillion dollars. In short, lower and middle income parents expect their children to have fewer opportunities and to make less money over their lifetime. This growing sense of hopelessness is in part triggering the populist movements we see world-wide. The top quartile trust government institutions the most because they are getting the benefits, tax cuts, relaxed environmental policies to allow their businesses to make as much money as they can, and continued stock buy backs to make even more money instead of increasing worker wages.  Workers see their votes not making a difference as Congress is at the beck and call of Corporate Nation States who make multi-million dollar campaign contributions and the Executive Branch now run by billionaires.

Little wonder the Common Good is not embraced by all people, for the rich they are on top of the economic pyramid. The rich get the laws they want and aren’t interested in sharing their wealth or time to build the Common Good.

Here is what will likely happen, in the end the rich will need to see that it is in their interest to build the Common Good, by contributing to our institutions of government and common people or they will lose what they already have and probably a lot more.

Wood Project Gives Ex-Offenders New Lives

(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.)

Photo: USA Today

The US Forest Services has kicked off a new program to reclaim urban lumber from abandoned homes by using workers from non-profits who had criminal records.  The innovative program attacks two major problems in urban centers like Baltimore, where 70 % of criminal offenders are returned to prison within 3 years, and there are over 16,000 abandoned structures in the city.  Quite often the abandoned structures are hives of prostitution, drugs and criminal activity.

Morgan Grove, Urban Wood Project leader, says “It’s about air quality and water quality.  It’s also about reducing crime and helping people move forward”.  She continued by declaring, “At its core, it’s really still maintaining the mission of revitalizing that the Forest Service has had since the agency was started in the early 1900s.”

The following table outlines the linked issues of high crime, abandoned buildings, high prison rates and the health of communities:

Sources: Justice Policy Institute, Prison Policy Initiative – Maryland, USA Today – 6/11/18

It is interesting to note the issues Baltimore city officials face in reclaiming their communities to return them to being healthy places to live, environmentally, and to redeem the people in the community to a productive life. We see many of these same issues in the rural regions of our country, that have been left behind by losing jobs to other offshore sites, reduced education opportunities, poor health, drugs and slow Internet infrastructure.

As a country we are missing the opportunity to rebuild lives, the environment and the economy unless we support innovative programs like the Urban Wood Project.

Workers Struggling Under Credit Card Debt

Photo: finder.com.au

While consumers did pay down their credit card debt by $40 billion during the first quarter of 2018, they still owe a giant $1.021 trillion in revolving debt.  Credit card debt is at the second highest level since 2008, during the Great Recession.  Consumers piled on another $91.6 billion by the end of 2017, at a run rate of 104 % of the average over the past 10 years.

Sources: Marketwatch, WalletHub – 6/13/18

Adding to consumer woes are interest rates that are rising, adding to the servicing costs of credit card, auto loan, and student loan debts. Below the chart shows debt servicing costs as a percentage of disposable income, while mortgage debt servicing is declining consumer servicing costs are rising.

Sources: Federal Reserve, National Bureau of Economic Research, The Wall Street Journal, The Daily Shot – 6/13/18

Finally, non-supervisory worker’s wages are stuck at 2.5% and when inflation is taken into account are largely flat. As consumers continue to try and maintain their standard of living, they are taking on more revolving debt which is costing more for them to pay. This financial squeeze is sustainable as long as jobs are abundant as they seem to be now, but if the economy turns down and layoffs happen it will be hard times for workers.  A survey published today in the Wall Street Journal blog – The Daily Shot showed executives plan layoffs as the first approach to deal with tightened financial conditions and slow sales.

 Next Steps:

 Workers need to receive a living wage that is not stagnant as wages have been for the past 10 years since the recession. Over 14 % of all workers have not received a raise in the last year versus 11% prior to the recession. Stock buy backs need to end and those funds invested in raising worker wages, increasing productivity and providing job training and development.  Corporations stash over 40 % of their profits in overseas tax sheltered accounts – all those funds need to come back to the US with companies paying their fair share of taxes. Corporations are the beneficiaries of job training and education, and should pick up more responsibility in terms of taxes for apprenticeship programs on par with those in Germany to provide US workers with the advanced skills needed to obtain a good paying job and create a dual track besides college. Today, there are more job openings than candidates available to fill those jobs, we need to invest developing worker’s job skills to close the gap.

AT & T Wins Time-Warner – Americans Lose Free Press

 

Photo: Free Press

A federal court judge approved the $85 billion bid by AT &T of Time – Warner, creating a huge vertically integrated media giant.  The judge found no need for the kind of conditions placed on the Comcast acquisition of NBC Universal in 2011, or ensuring a free press.  Though both cases are quite similar in that AT & T and Comcast are both major media companies acquiring content providers and news organizations (NBC, and CNN).  In approving the Comcast – NBC bid, the judge laid out detailed conditions to protect consumers, requiring adherence to net neutrality for Internet supported content providers and assistance for low income users. Since the Comcast – NBC merger Comcast has violated several provisions of the agreement as outlined by former FCC commissioner Mignon Clyburn and Senator Richard Blumenthal including: not adhering to network neutrality in providing channels to consumers, slow implementation of low income Internet assistance programs, not providing smaller cable channels with fair rates to access regional sports networks and discriminated against Bloomberg Television (a competitor of CNBC).   Clyburn and Blumenthal in their op-ed piece pose three key questions to be answered in every major merger (our answer):

  1. How will consumers be affected? Negatively by lack of competition
  2. What will this do to competition in the industry? Reduce competition significantly
  3. What will it mean for small businesses? Small businesses will be squeezed out of the market

For some reason, the court in the AT & T – Time Warner case did not seem interested in answering these questions related to safeguarding consumers, businesses or freedom of the press. Federal regulators found in the Comcast – NBC bid the need for 150 conditions to be placed on the merged corporate organization.

Today, the court saw a need for no conditions?  Why? When we have a deregulation federal government policy wave rolling across the country today it is even more imperative that conditions be in place if these giant mergers are to be approved.

Next steps:

Our position is the merger juggernaut needs to be stopped now, and this merger not approved – later we will have to break it up anyway.  Mergers contribute to lack of jobs as well which hurt wage gains by workers.  Media concentration limits access to information and choices for media coverage. In 1983, 90 % of media, entertainment and distribution markets were controlled by 50 companies, today, there are 6 major players:

By approving the AT &T – Time-Warmer deal the court is giving a green light to deals now under review like the Disney bid (Comcast biding too) for 21st Century media which would create yet another huge conglomerate strangling competition and reducing the number of news sources. Other major Internet players are waiting in the wings like Apple, Google, Amazon and Facebook who are flush with cash and looking to control both the Internet, broadcast and film content and distribution.

We have said that deals like this need to be reviewed in supporting the common good ensured by freedom of the press.  This AT &T deal should not be approved on media concentration and press limitation grounds.  Jefferson and Madison observed correctly that a democracy can not long survive without a well-informed citizenry making decisions based on multiple points of view. Major corporations win in deals like the AT &T – Time Warner merger, the American citizen loses.

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.

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