The Progressive Ensign

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Category: Protectionism

U.S. Has A Trade Surplus with Canada, What is the issue?

(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. Click on the Index Topic Name at the beginning of each post to see more posts on that topic on PC or Laptop.)


The U.S. actually runs a small trade surplus, of $8.4 billion with Canada when services are included.  The GOP Administrations seems to miss this point in the present trade discussions even though 75 % of the U.S. economy is services based.

Source: Washington Post, 6/11/18

Note the U.S. exports about two and one-half more services to Canada than we import.  The American surplus in agriculture products is $2 billion. It seems that just looking at the diary market taken out of the context of the whole trade relationship is a near sighted way to look a trade policy.

Looking at the specifics of dairy imports and exports reveals a trade surplus of $418 million here as well.  In 2017, U.S. exported a total of $637 million of milk, cheese and other dairy products to Canada. Canada to protect its much smaller dairy industry has established a supply management tariff system.

Source: The Wall Street Journal, The Daily Shot – 9/4/18

POTUS has been quite focused on the supply management trade of dairy products declaring a provision for 270 % diary tariffs are outrageous. We examined how the supply management system works in a previous post,

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:

The GOP Administration needs to understand the history of Canada – U.S. trade relationship and work with the Canadian government as partners not with ‘whack-mole” intimidation. By making a deal with Mexico first and leaving Canada out, the President is holding Canada hostage to get to a deal done while pushing on Canada to give the U.S. diary industry an ever bigger share of the Canadian dairy market.  Is this U.S. position fair?

We outlined our ideas on how to proceed in this way:

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.

Unfortunately, since June the trade rhetoric between the two countries has only grown more antagonistic mostly from the U.S. side.  Canadian trade negotiator, Chrystia Freeland in a press conference last week before flying back to Canada, kept very calm, did not try to negotiate in public, would not enter into a tit-for-tat battle with POTUS and showed a high level of professionalism and respect. We can only hope that our representatives will recognize how to treat our long time northern ally from her example.

Turkey Tariffs Hurt EM and U.S. Economies


Last Friday, President Trump’s tweet doubling tariffs on aluminum and steel from Turkey caused a major shock to the Turkey stock market and sent the lira spiraling down by 10 %.  However, the damage was not contained to just Turkey, emerging country currencies around the world took hits, the U.S. SPX took a .71 % dive.  Emerging countries with similar high debt levels like South Africa and Argentina took 2 % or more hits to their currency values.  The correlation of the lira with other emerging market currencies hit a new high today, according to Bloomberg.

Sources: The Daily Shot, The Wall Street Journal – 8/13/18

Sources: The Daily Shot, The Wall Street Journal – 8/13/18

Our President chose to lob an economic bomb at a country already reeling from a 40 % drop in the lira year to date, high inflation at 15.85 %, ten year bond rate of 20 %, and a corporate $210 billion net currency account deficit owed to foreign investors.

Investors are concerned that EU banks holding loans or positions in Turkish banks could be vulnerable to losses. The European Central Bank is concerned with exposure of banks in Spain, Italy and France.

Sources: The Daily Shot, The Wall Street Journal – 8/13/18

U.S. banks do not hold many direct positions in Turkish banks or loans, but they do hold positions in EU banks in the three exposed countries.

The crisis was in the making, when President Erdogan took office in July after 15 years of rule declaring super powers to himself sending the lira into a flash crash.  Over the past month Erdogan insisted on keeping interest rates low, allowing inflation to get out of hand, and used foreign investment to build shopping malls and construction projects rather than invest in industry, productivity or critical infrastructure.  Today, the lira was falling quickly during the day, until its fall was steadied by Turkish central bank interventions, yet stock markets in U.S. were down with SPX losing .40 %, the Dow off by .50 %, and emerging markets down by 1.62 %.  All this financial uncertainty about loans, bank exposure, and foreign capital reserves has caused investors to hit the pause button to wait and see how officials around the world respond to the crisis.  The most critical question: can this financial crisis be contained to Turkey, Argentina and South Africa or will developed country markets be hit?

Next Steps:

We see economic bomb throwing via tariffs to gain supposed political advantage to secure the release of a pastor as a major mistake.  The added tariff on top of present tariffs on Turkey already in financial straits just exposed other emerging markets to investor and official scrutiny causing alarm and uncertainty.  Uncertainty is the big cloud growing stronger as world markets deviate from U.S. markets in the past several months.

Sources: The Daily Shot, The Wall Street Journal – 8/13/18

This divergence won’t continue, either the U.S. market will fall or the emerging markets will rise – with global economies slowing, currency weakness and tariffs it would seem that U.S. markets are likely to fall. Plus, the U.S. dollar strengthening versus emerging country currencies makes U.S. goods more expensive for global customers resulting in a reduction in U.S. sales.

Is this what the President wants; falling emerging markets eventually leading to the U.S. economy going into a recession? One crucial aspect of financial markets is that perception can become reality, just the perception that a country can’t pay its debts, or a bank may fall is enough to cause investors to run for the exitsThe President by making an impulsive tweet into a fragile financial system will only lead to more uncertainty, falling markets and economic disaster.  Economically damaging a NATO partner like Turkey only plays into the hands of Russia in establishing closer economic and strategic ties. America has a military partnership with Turkey at the Incirlik Air Base, where over 5,000 U.S. airmen are stationed used for monitoring Russian military exercises and staging for operations into Syria and Iraq.  Undermining the economy of our NATO partner may create enough civil unrest to force us to leave the base. We need to recognize that our military presence around the world keeps countries safe for us and all companies to conduct business, otherwise markets shrink.  The The White House needs to think in terms of what their tariff and protectionist policies are doing to the economies of countries our companies want to sell products to.  If offshore prospective customers are in falling economies they won’t have the money to buy U.S. products. So, how will the trade deficit be reduced? These poorly thought out short term trade policies need to be ended and sound long term, trade programs focused on building economies need to be implemented.  This Administration needs to follow the trade path of the past 50 years by both Democratic and Republican administrations.

Update: August 14, 2018 – President Erdogan declared the country is in an ‘economic war’ telling citizens to boycott American electronic products, sell dollars and euros to support the lira.  This tit for tat retaliation is exactly what we don’t want to see trade relationships spiral into uncontrollably.  What if China uses nationalism to drive boycotts of U.S. goods?  The deadline for the U.S. imposing new tariffs is August 23rd we will watch the action with great concern. Economic nationalism will cause worldwide recessions and setup conditions for civil unrest. Just in, Bloomberg reports that Turkey has slapped tariffs on U.S. goods including a 50 percent tax on rice, 140 percent tax on spirits, and 120 percent on cars. Tensions continue to escalate out of control.

US Steel and Nucor Use Tariffs To Monopolize Markets



Two major steel companies, US Steel and Nucor, last March lobbied the Trump Administration to post tariffs on imported steel at 25 %. They are now pressuring the Administration to deny any requests for waivers from the tariffs.  Over 1,600 applications have been filed for exclusion from the tariff provisions which blanketed the world including the European Union, Mexico, Canada, Japan and China.  The two steel giants are in fact creating a monopoly for their steel products in the U.S.

In order to protect about 33,000 steel worker jobs, several million jobs in steel using industries are jeopardized by the tariffs:

Sources: U.S. Bureau of Labor Statistics, Bloomberg – 3/2/18

Nucor paid for a film by presidential advisor Peter Navarro, when he was a professor at UC Irvine on the threat of China imported steel being dumped onto U.S. markets.  Certainly, there are issues related to China trade practices but is using 25 % tariffs on all imported steel even from allies going to force China to change their export practices?

Next Steps:

Companies that use steel in their products are reeling from soaring price increases in steel and sourcing issues because U.S. steel producers do not make the products they need.  Elite corporate CEOs are running their companies via the U.S. government to pick winners (themselves) and losers over 1,600 companies being denied exemptions to run their businesses successfully and keep jobs here in the U.S. Now, many firms are planning on moving operations to countries closer to their customers to avoid the tariffs all together – thus moving jobs out of the U.S. It seems already the tariff plan has backfired, moving jobs out of the U.S. and jeopardizing millions of jobs.  We should not be tolerating this state of oligarchy, where two major companies setup tariffs to their exclusive benefit in while damaging thousands of other companies businesses and threatening millions of U.S. jobs.  It is the job of our federal government to not pick winners and losers but to establish fair markets for innovation and entrepreneurship to triumph. The tariffs need to be lifted and an intelligent trade strategy in collaboriation with our allies to end China steel dumping practices be implemented.

Taxpayers Pick Up $12 billion Trump Trade War Cost



The Trump Trade War has cost corn, wheat, and soybean farmers over $13 billion in lost contracts and revenue already. As we have noted in previous posts, as China stocks up on crops from Russia, Brazil and other countries our farmers lose their incumbent status.   U.S. farmers have to go back to their customers now doing business with China and unhook that deal to write more contracts to replace the business they lost.   Our agriculture industry will be challenged by not being the incumbent supplier.

The Administration announced yesterday that the Department of Agriculture will begin offering direct cash subsidies to farmers impacted by the tariffs.  Farmers would be compensated based on the projected size of their harvests, they can begin signing up in September.  The direct payments by the government due to tariffs would be the first time ever by the Agriculture Department.  In addition to direct cash payments, the government will purchase surplus food products and distribute them to food banks, schools and other nutrition programs. The cash and surplus purchase program will cost taxpayers $12 billion.

We believe the cost to taxpayers is just the start. As China and other countries hunker down, as the Administration is buying time for its tariffs, more subsidies will be implemented.  Other industries in other sectors will ask for loss compensation in steel, aluminum industries and consumer products on the Administration’s tariff list.

Next Steps:

POTUS is now compounding a disastrous trade war strategy with no exit plan by subsidizing his errors.  No, ‘trade wars are not easy to win’ as last May 1100 economists sent the President a letter admonishing him not to enter into a trade war.   Sen. Charles E. Grassley, R – Iowa, noted in a statement yesterday, “What farmers in Iowa and throughout rural America need in the long term are markets and opportunity, not government handouts.”

There is an even more ominous aspect to these subsidies is the idea of ‘hunkering down’ for the long term.  With no plan for ending the trade war except vague goals of ‘fair deals’ the Trump Trade War can easily get out of hand. The following analysis by Oxford Economics shows how a full-fledged trade war with China could cost the U.S. billions of dollars to the US economy and shave off 1 % cumulative GDP growth by 2020.  Needless to say, a trade war of this magnitude will trigger a recession which will be deep and difficult to turnaround. By creating angst with our allies and customers, it will be difficult to win back their trust and their business.

Source Oxford Economics, The Wall Street Journal, The Daily Shot – 7/24/18

Stop the trade war now!  Reverse all the ill-advised, poorly throughout and threatening oriented tariffs.  Work through the WTO, which the U.S. helped to create, use other means to get more fair trade deals, work with our allies to focus on specific markets and opportunities without using myopic goals missing important data – like total trade deficit in goods and services not just goods. It is not too late, the armistice announced today with the EU on any new tariffs is a good start. Will the Administration come to an armistice with China? Considering how this Administration works,  we are not holding our breath – just hoping for the best but preparing for the worst.

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.)


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)



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.

1100 Economists Predict Trade War Disaster



The economist group letter to President Trump quotes passages from a 1930 letter that was ignored by government leaders at the time leading to a trade war and the Great Depression, many economists believe.

“Much has changed since 1930 — for example, trade is now significantly more important to our economy — but the fundamental economic principles as explained at the time have not”, the economists declared including last year’s Nobel winner Richard Thaler and former George H.W. Bush economic advisor Gregory Mankiw.   Economists in 1930 advised against the Smoot – Hawley act at the time causing a trade war and a disastrous economic downturn for all Americans.

The trade war with China has already begun as we noted in our April 23rd blog the Chinese have not stood back waiting, they placed at 179 % tariff on sorghum shipped from the US causing China bound ships to reverse course.  Soybean orders have been cut way back by the Chinese as well:

Sources: Bloomberg, The Wall Street Journal, The Daily Shot – 5/7/18

Corn contracts are in jeopardy as well in the Midwest as the Chinese threaten tariffs on those crops as well.  Corn farmers are already facing increased competition from Brazil and other countries undercutting their prices.

The reality is the Trump Trade War is on!  Companies and nations are already acting on the threats and in some cases the implemented tariffs that the present Administration has in a misguided manner put in place.

We do not understand why the White House is ignoring the lessons of history, their own constituents in the Farm Belt and 1100 economists in implementing a catastrophic policy that will hurt every American’s pocketbook and many of our foreign allies.

Next Steps:

Our blog on April 2nd outlined two distinct factors that the Administration policy makers need to take into consideration:

First, we need to understand how corporations, suppliers and customers respond to political uncertainty.  Corporations either buyer or seller are seeking certainty around first of all selling their products and second at the highest price.  Second, when our government starts picking winners and losers in the US economy and linking unconnected segments like sacrificing US agriculture for intellectual property theft by China from US high technology companies – then any economic shot is fair game.  Just the threat of tariffs on certain goods is enough to cause customers, in this case Chinese buyers of US agriculture goods to find other lower cost suppliers.  Once these buyers discover new suppliers with lower prices and similar quality they are likely not to switch back to US suppliers.  Sales for US agriculture companies are likely to drop as a result.”

The solution is in working within the international frameworks of the WTO and our agreements with other nations to peacefully solve these economic issues. Sound economic policy is based on win-win agreements that put in place long term relationships that both sides can build their economic futures on. Plus, these are complex integrated trade issues and cannot be settled by blunt, prejudiced based ideas that history has proven are false.

Trade War Heats Up – China Slaps 179 % Tariff on US Sorghum



Two grain ships filled with sorghum grain reversed course or headed to new destinations as China announced last week that they would require a 179 % deposit on the commodity.

Image: The Ship RB Eden Turning – Bloomberg – 4/20/18

US farmers shipped about $1 billion per year over the past two years of sorghum to China according to the Wall Street Journal. China is specifically targeting Trump states to make the point that a tit for tat trade war will end badly for US producers.

As other countries mount their own tariffs to US goods, and the US slaps tariffs on imported goods prices will go up.  When prices go up, inflation increases causing interest rates to rise, which means that interest rates rise on credit cards to mortgages.  Every consumer has some debt and the inflation wave will crash through the US financial system, ending the 2nd longest economic growth period since WWII – though the economy has helped the top 20 % the most versus the 80 % in the working class.

Next steps:

As we have noted previously, business leaders are already making decisions and calculations like turning ships around.  The Administration’s announcement and follow through on steel aluminum and lumber have distorted markets artificially causing increased prices and supply disruptions. Our leaders need to stop this bullying approach toward our trade partners, use international forums and work within our trade alliances to settle trade issues. Starting a trade war will cause everyone to lose money, jobs and trigger an economic downturn. The working class will be hurt the most, as they have the least amount of money saved and are usually the first to be fired in any falling economy.

China Retaliates in Trump Trade Battle



China announced yesterday they will be placing tariffs on 128 American goods for a total of $3 billion dollars in response to the Trump administration tariffs of 25 % on steel and 10 % on aluminum.  The situation is posed to escalate as the President is expected to announce $60 billion of new tariffs on Chinese imports this week.

The US agriculture industry is reeling from increased competition from overseas countries like Brazil and now the administration is throwing a trade war into the mix.  Farmers are perplexed as to how to navigate these new trade waters.

Source: US Department of Agriculture, The Wall Street Journal – 4/2/18

The US agriculture industry is one of the bright spots in US exports accounting for $140.5 billion in exports for 2017 according to the US Department of Agriculture.  China receives about $22 billion of US exports last year in pork, and meat products.  While the $3 billion in tariffs is not large it maybe just an opening round in the economic shots being fired by the US and China.

While some industry analysts look at just the dollar amounts involved we see a very disturbing trend in the tenor of the conduct of this trade conflict.  This administration has distinguished itself by being bullying, intimidating, impulsive, vengeful and unpredictable – not good traits for a positive trade negotiation outcome.

Next Steps:

First, we need to understand how corporations, suppliers and customers respond to political uncertainty.  Corporations either buyer or seller are seeking certainty around first of all selling their products and second at the highest price.  Second, when our government starts picking winners and losers in the US economy and linking unconnected segments like sacrificing US agriculture for intellectual property theft by China from US high technology companies – then any economic shot is fair game.  Just the threat of tariffs on certain goods is enough to cause customers, in this case Chinese buyers of US agriculture goods to find other lower cost suppliers.  Once these buyers discover new suppliers with lower prices and similar quality they are likely not to switch back to US suppliers.  Sales for US agriculture companies are likely to drop as a result.

We have said in our Insight Byte of March 6th that starting a trade war linking disconnected parts of the economy, not using international bodies like the World Trade Organization will just lead to lose – lose economics for global corporations and consumers.  Lost jobs will result, economic recession or depression will spiral downward and it will take years to recover.  Sound, research based trade policies based on win-win partnerships are the only way to turn this situation around.  This administration has opened an economic Pandora’s box that it will not be able to close.

Fear Policies Will Result in Severe Economic Damage – Let’s Get the Economy On Track

(Editor Note: this is the fourth post in a series examining the policies of the new GOP administration)

The View:

The unconstitutional Muslim and refugee ban institutionalizes fear as a policy.  The use of fear as a governing instrument is evident in other ways as well. POTUS 45 is managing government staffs, tariffs, Mexican trade, picking favorites, and the repeal of Obamacare by manipulating people’s fears. The solution is to end the Muslim ban, and fight back on all these offensives being launched by the White House with initiatives based on building bridges, enabling job development and implementing smart win-win trade programs.

The Story:

On the evening of January 27, 2017 the wife of a Muslim ban detainee shared with an interviewer why she and her husband wanted to come to America:

“We wanted to come to America because we would be welcome, its big, and safe country…now I don’t know anymore.”

We are a country of trust, honesty, respect and equal opportunities for all, regardless of religion, sex, race or national origin.

The unconstitutional Muslim and refugee ban institutionalizes fear as a policy. Making the country safe is the reason offered for the ban.  Yet, no terrorist acts on US soil since 9/11 have been caused by terrorists who immigrated into the country.  The Cato Institute estimates there is a 1 in 3.6 billion chance that a refugee turned terrorist will cause a loss of life. The ban has a huge impact on the lives of immigrant families, friends and business colleagues in the US as well.  The Washington Post analyzed State Department immigration data from 2015, and identified 90,000 people with immigrant or non-immigrant visas from the seven countries the ban covers. If the impact on immigrant relationships in the US are considered, hundreds of thousands are affected.

Already the ban has caused widespread anger, broken families and damage to economic links.  There are 15,000 students, mostly Iranian that are affected by the ban.  Many are graduate students and professors, some working on disease research helping Americans at labs like the Harvard Medical Center diabetes research center where Iranian Prof. Thomas Michel lost his visa last weekend.  Scholars say that overseas colleagues are outraged by the ban, and have concerns about attending a conference in the US.  As a result conferences are being scheduled outside the US.

Responses of some countries around the world are to ban or severely limit the visits of US citizens to their countries while others are threatening boycotts of American goods.  Iran has announced that it was taking ‘reciprocal actions’ to ban US citizens from entering its country.  Silicon Valley companies like Google and Facebook are trying to bring back employees stranded around the world.  Businessmen working on deals in the US are cancelling trips for fear of not being able to return to their native country. Immigrants are the foundation of our growth economy, where 25 % of new firms are started by immigrants yet are only 15 % of the labor force. Most new jobs in our economy are generated by small firms, and foreign born workers are found in 25 % of new companies.  Foreign born workers boost our labor participation rate by 2 times lifting our production of goods and services. Cities like Troy, Michigan and Columbus, Ohio have welcomed Syrian refugees boosting their economies where 11 % of Syrians own their own businesses versus 3 % native born. In Silicon Valley, the CEOs of Apple, Microsoft, Google, Airbnb, Netflix and Tesla have denounced the Muslim ban saying it would ‘wreak havoc’ on their businesses.  Yesterday, 2000 Google employees staged a walkout to protest the ban, adding to the protests at airports nationwide.  Venture capital firms are making more investments in places like Canada that have more accommodating visa policies for workers.  Apple, Facebook, Google and Cisco all have offices in Canada.  Several firms plan to increases hiring offshore because of the ban. To learn more please read our blog Immigrants Live in Fear of Mass Deportations, that provides examples of key immigrant contributions to the US economy.

The ban is rooted in nationalism and its corollary – protectionism. Protectionists say, ‘keep out foreigners who may do us harm or hurt our economy’. The ban combined with the administration’s proposed trade tariff fit this protectionist position. Protectionism has been tried in the past and led to severe economic isolation and depression in the 1930s, and eventually to World World II. From history we know that fear take over in 1930, when protectionism was widespread and other countries were seen as the villain.  The Smoot-Hawley Act was passed in 1930 leveling tariffs on over 20,000 imported goods.  Other countries retaliated including Canada who imposed tariffs on 30 % of the goods imported from the United States.  Exports by US companies dropped 61 % by 1933 at the height of the Great Depression.  Implementing protectionist policies will lead to severe world-wide economic loses and setup a volatile international environment possibly leading to new wars.  Fifty years of alliances, trade pacts and integration of economies has led to relative peace and prosperity for most countries. Let’s learn from the bold post-WWII global economic work of world leaders.

The present administration has launched a protectionist offensive targeting Mexico. In our January 27th blog, Threatening Mexico Will Lead to Loss of American Jobs describes what happened with the recent 13 % drop in the Mexican Peso and 20 % drop in their stock market.  The drop in the peso will make American products will more expensive for Mexicans – a major issue when Mexico receives 50 % of it gasoline from the US.  The use of cyber bombs in the form of tweets by POTUS45 has resulted in economic damage already.  Workers expecting new jobs at car plants that were cancelled see those jobs evaporating, and the price of gasoline has soared by 20 %. A planned meeting of the two countries has been cancelled and extreme uncertainty exists about the trade relationship worth $500 billion a year.

Picking favorites that serve the administration is another fear and control tactic.  When Carrier Industries announced keeping jobs in Indiana, they received state subsidies and federal tax breaks – what about Carrier’s competitors did they receive the same breaks?  No.  This is not an even playing field to build a fair innovative economy.  Sending cyber bombs to other industries is distorting careful management decision making designed to optimize the cash flow and profits of the company.  We are all for keeping jobs in the US, through incentives and taxes but in an equitable way for all companies in a particular industry sector. This approach has another damaging element:  playing favorites centralizes control of the economy in the White House, where they cannot possibly know the optimal approach to run a company or sector. Modern management approaches that have proven effective are to give as much authority as possible to the lower ranks of the corporation closest to the customer with autonomy to respond to local needs.

The administration’s centralized authority management style is being used with government agencies as well. NASA has received an edict from the administration last week that from now on ‘the agency will be run like a business from the White House’.  Really, does the White House know how to run a sophisticated, complex, science based agency?  We don’t think so.  Plus, this dictatorial style of management has proven to be ineffective, resulting in poor quality of products and services. Many employees are leaving the agency causing a great loss of innovative ideas for the country and US businesses. This past weekend, fear has been used by the White House at the State department where over 1000 department employees used a Dissent Channel to protest the Muslim ban.  The administration response was ‘if you don’t like the policy then leave’.  Or the implication otherwise is we will fire you (where the Holman law was recently passed by the House to fire any federal employee at will).  The Dissent Channel was setup as an anonymous way for employees to express their concern to State Department leaders on policies they disagree with.  This communication offered a good way for differing ideas to be offered without fear of retribution.  This intimidation based environment on the international front will mean that companies dealing with US partners will not be sure what to expect from a diplomatic department run by autocrats ensuring their favorites win in business deals.

Denying climate change is founded in fear of job losses.  If climate change is true, and carbon emissions are contributing in a significant way then coal burning and fossil fuel use must be reduced – therefore causing job losses.  Job losses are a legitimate concern. However, the administration using this fear to deny the evidence supported by 97 % of the scientific community is not helpful in formulating a solution.  All people will be severely impacted by a warmer climate that causes significant environment and health problems.  We need to recognize the truth in climate change and work together to ensure that there are jobs for those impacted the most by shifts in carbon based industries.

Fear is evident in the non-disclosure of his businesses by POTUS 45.  All modern day presidents have disclosed their tax returns.  Through disclosure the people will know where there are conflicts of interest that maybe damaging to our interests or put government staff in jeopardy. Our blog Investigate Possible POTUS Violation of the Emolument Clause offers more insights on this issue. The core feeling is fear of the people finding out how he is running and operating his businesses.  Yet, transparency leads to honesty and trust.  Trust is a better way to govern than creating distrust and uncertainty. The president has wide ranging world-wide business interests so we need to know when his government dealings could have a negative impact on competitors.  He has already played favorites, so we need to watch for conflicts of interest or possible economic extortion by governments favoring their businesses.

When POTUS 45 fired the Acting Attorney General, Sally Yates yesterday, the clear message was that fear, policy and loyalty are above constitutional law. When Yates was confirmed in 2015, Sen Jeff Sessions asked her if she should say no to a presidential order if it were unconstitutional. She replied that yes she would say no as an advisor to the president.  Using the word ‘betrayal’ in her firing letter showed a loyalty edge and lack of respect for her expertise and service to the country.   The AG firing sends a message that the law is what he says it is for his own purposes. To those that don’t do what he wants they should fear reprisals.  He does not seem to respect the constitution as a compact between the people and their leaders. The compact basically says that if the president acts within its provisions the people will support him and vice versa. When random interpretations are promoted, the people have no yardstick to evaluate the actions of their leader. Arbitrary interpretation of the law has economic consequences; if the US government can disobey its own laws at anytime, how can a business feel comfortable making agreements with the US government or companies supported by US law?

The GOP administration proposal to repeal Obamacare is rooted in fears of the Elite of losing health care or degraded quality in services.  The thinking goes ‘If we have to share healthcare resources, doctors, hospitals, medicines and expertise with all people, we will have less’.  They view healthcare resource distribution as a zero sum game. That’s why proposals from the GOP are for ‘access to health care’ not ‘providing healthcare’.  In all modern countries except the US, quality healthcare is a right. For developed countries this policy makes sense. Healthier people will be happier, more productive, live longer and will enjoy a better economy.

The use of institutionalized fear via policies must end, now!

Turning now to solutions, from a tweet in response to the Muslim Ban:

“What’s wrong with America, can be fixed by what’s right with America.”

The ‘light on the hill’ that this country represents to the world got a lot dimmer last Friday night, but it is still flickering.  The spontaneous airport protests and volunteer lawyers swooping in to help victimized detainees is a testament to the people’s power. Let’s commit to making the light on the hill burn brighter than ever for all.

The Solution:

  1. End the Muslim Ban immediately, focus on welcoming immigrants, support their contributions to our economy to boost our labor participation rate and GDP
  2. Use modern management-by-objectives techniques to manage the federal government and push authority to the lowest levels in agencies to maximize efficiency and results.
  3. Use scientific evidence to make fact based decisions and solutions
  4. Use win-win smart partnership agreements with our planet neighbors
  5. Ensure that all Americans have good health care
  6. Free public college level education
  7. Fund public infrastructure investments paid by corporation taxes paying their fair share
  8. Deploy national innovative job development zones based on the Silicon Valley model
  9. Develop a jobs policy acknowledging automation and creating complementary jobs in those heavily automated industries

(Editor Note: references for this post are in the Research tab – under Fear Policies)

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