Of all the things that Donald Trump should be good at, negotiation of trade agreements is at the top of the list. This is clearly an Executive Branch function, as the world's largest market the United States posesses immense leverage, and he has lots of experience dealing with unsavory commercial partners.
The Issue:
The United States has a growing unsustainable trade deficit - $810 billion in goods partially offset by a surplus of $244 billion in services in 2017. The big three problems are with China (a net deficit of $375 billion),Mexico (a net deficit of $71 billion, Japan (a net deficit of $69 billion), and Germany (a net deficit of $65 billion.) Over time we lose control of our economy if we import three to four per cent more of our Gross Domestic Product than we export. The question is not really "free trade" or "fair trade", it is "balanced trade". Apologists claim that "comparative advantage" principles make bilateral balances irrelevant, but our decisions as a country are less under our control when foreign governments, companies, and individuals own our real estate and companies, and hold our debt. We cannot significantly diminish the overall problem without addressing the largest national deficits.
The MAGA Trade Advocates:
- The industries such as consumer electronics and apparell which have gone are no longer able to advocate for themselves. A few industries, like dairy which faces closed Canadian markets, steel which has long faced unequal foreign barriers, and energy companies are openly supportive, but most do not want to be vocal, lest they offend their potential customers and draw the attention of the #Resisters.
- Blue collar workers are advocates for strong trade policies, but not the company owners who are looking for the lowest cost option, nor the State Department consular officials who are often more interested in helping foreign companies establish exports to the United States.
- The Trump team makes the case domestically and internationally, led by Commerce Secretary Wilbur Ross, who made a fortune restructuring bankrupt manufacturng companies, Trade Representative and Washington lawyer Robert Lighthizer, and Director of the White House Trade Council Peter Navarro, an academic outlier from the University of California, Irvine, and ardent critic of China, Germany, and NAFTA trade policies. Some ivory tower; some Washington insider; some street fighter.
The MAGA Trade Opponents:
- The Wall Street Journal editors reflect the interests of capital rather than workers or any broader national good. Ditto the rest of the financial press.
- Walmart, which began as Sam Walton's heartland America retailer, brought scale to Asian manufacturers and became the largest champion of cheap stuff for American consumers at the expense of American workers. Ditto all of the other peddlers of cheap stuff.
- Export industries do not want to offend their customers - Information Technology; aircraft; vehicle components; soybeans.
- The #Resisters and Never Trumpers from both sides of the aisle see an avenue to attack what is otherwise a successful economic performance.
The status:
- The imbalance spiked in January, and has since returned to the 2017 level of about $45 billion per month.
- Ironically, the first major breakthrough will apparently be with Mexico where the incoming leftist president Andres Lopez Manuel Obrador, wants to take NAFTA off of the table so that he can focus on his agenda of fighting corruption and improving internal security after an election in which over 130 politicians were murdered. Four weeks of bilateral negotiations have reached agreement on automotive wage rates in Mexico and the portion of products that must originate within North America. Canada will object to being brought in late in the discussions, but will not be asked for major concessions. Trump will be able to declare victory (even if partial) before the November 6 election - while demonstrating that he can work with leaders even when there are significant disagreements.
- In late July, European Commission President Jean-Claude Juncker and President Trump agreed to withhold US tariff increases on steel, aluminum, and automobiles while the EU would lower tariffs for U.S. industrial goods, provide outlets for U.S. gas and soybeans, and potentially back the US in trade rows with China.The shared goal is trade without any tariffs. A European delegation is working on details in Washington this week. The European politics have to be worked out, but it would seem that German interest in protecting the export of Mercedeses, BMWs, and Volkswagons has overcome the historic French opposition to agricultural imports. Trump also catches a break as Junker would like to avoid a trade war with the United States as he tries to negotiate Brexit terms with Theresa May.
- China will be more difficult - and important. Talks between dovish Treasury Secretary Steve Mnuchin and Chinese Vice Premier Liu He broke down in May, followed by mutual 25% tariffs on $50 billion of goods. With the Trump administeration examining 10 to 25% tariffs on another $200 billion, lower lever talks have resumed this week in Washington. (The US side is led by an Undersecretary of the Treasury rather than Lighthizer, Ross, or Navarro, a clear signal that Trump is not ready to deal.) With a greater dependence on exports, a slowing domestic economy, and a stock market down 20% on the year, Xi Jinping is under greater pressure than Trump, but he has a firm grasp on broad political power, while Trump may appear to be on the ropes. Little real progress is likely before November.
The trade deficit with China is a bit like North Korea's nuclear program - an unacceptable problem which has been growing for more than a decade without being confronted by American presidents - Democratic or Republican. Both problems call for bipartisan support - a commodity which is has just moved from rare to virtually impossible before the November elections.
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This week's bonus video is an expert legal opinion by Harmeet Dhillon, Republican National Committeewoman from California (and former chair of the San Francisco GOP), explaining that it is not a crime for a candidate to use his own resources to pay hush money, regardless of whether Mueller's team got Michael Cohen to plead guilty to that offense in exchange for leniency on other unrelated charges.
bill bowen - 8/24/18
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