Tag: Trade and investment
Stevenson’s army, September 9
Several threads run through all the major stories on the Afghan peace talks: the president wanted a US troop withdrawal and a Camp David meeting where he could appear the dealmaker; Bolton favored only a partial withdrawal; Pompeo wanted the agreement and agreed to the meeting. The actual position of the Taliban and the Afghan government is disputed. NYT has the best tick-tock. WaPo has a good analysis of the internal dissent.
FT reports analysis by European economists that over one third of all foreign direct investment [FDI] is phantom transactions for tax avoidance.
SAIS grad John Gans notes how Henry Kissinger got back in Nixon’s good graces after a Bolton-like exclusion.
Defense News outlines the NDAA issues in conference.
Lawfare has an ingenious — and, in my view, too clever by half — proposal to allow the House unilaterally to cut off funds for unauthorized military operations.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I plan to republish here. If you want to get it directly, To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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The mercantile solution
Maybe trade talks with China are back on, or so says Donald Trump. The Chinese want to talk, he claims. More likely he is the one that needs to find an out: the slowing world and American economies and sharp drops in the stock market are flashing alerts: by November 2020 we could be in recession. His re-election prospects would be dealt a big blow if that materializes. No doubt he got an earful about all this from his G7 colleagues over the weekend.
An early solution to the trade war appears unlikely. The American position in the talks advocates fundamental changes in the way the Chinese manage their economy and treat foreign investors. The American negotiators want no technology transfer requirements, a free-floating Chinese currency, and an end to state subsidies. These are so-called “structural” changes that are difficult for the Chinese to concede. China needs more than 6% growth to accommodate its population’s expectations.
President Trump couldn’t care less about all that. He is interested mainly in the bilateral trade balance. A mercantilist, he regards imports as bad and exports as good. What he wants is not complicated structural change–which takes time and attention to detail–but rather simple Chinese commitments to import more from the US. The Chinese have understood this and are likely willing to give him what he wants: they should not care less whether they get soybeans from the US or from Brazil.
Negotiating with the US is therefore a two-level game. The Chinese have understood this: they will do their best to satisfy Trump on reducing the giant bilateral trade deficit while stiffing his negotiators on the structural changes. They will hope this approach will bend the President towards lifting the tariffs he has imposed while Beijing avoids fundamental reforms.
It may work, but it may not. If Trump is a true mercantilist, he will want to make the tariffs permanent, or at least of indefinite duration. Only then could he hope for American companies to do what he “ordered” last week: return to the US, where he would need to protect them from foreign competition with tariffs. If this is Trump’s real ambition, you can expect any renewed trade talks to fail.
You can also expect a permanent decline in US competitiveness as other countries meet competitive challenges while the US is protected from them. Americans will be less well off, productivity will suffer, foreign investment will shrink, the economy will grow more slowly, and the stock market–hesitant now–will fall to new lows. The mercantile solution is a bad one, but hard to rule out with a President who is a mercantilist.
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Stevenson’s army, August 21
– An article in Washingtonian says “geofencing” is the new tool — putting digital ads in the zipcode where the president is on a given day.
– China plans sanctions in response to US jet sales to Taiwan.
– Lawfare shows Daniel Webster’s changing views on war powers. [BLUF: where you stand depends on where you sit]
– CRS has several interesting recent papers,; check out the ones on national emergency powers, CFIUS, etc.
My SAIS colleague Charlie Stevenson distributes this almost daily news digest of foreign/defense/national security policy to “Stevenson’s army” via Googlegroups. I plan to republish here. If you want to get it directly, To get Stevenson’s army by email, send a blank email (no subject or text in the body) to stevensons-army+subscribe@googlegroups.com. You’ll get an email confirming your join request. Click “Join This Group” and follow the instructions to join. Once you have joined, you can adjust your email delivery preferences (if you want every email or a digest of the emails).
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More flim flam
President Trump is vaunting his agreement yesterday with the EU. It is, thankfully, a step back from the brink, but mainly due to American concessions. Trump got nothing from the Europeans, only a statement of best intentions that reiterates things that were already happening or supposed to be happening. And they got something from him, especially on reviving the Trans-Atlantic Trade and Investment Partnership negotiations and on the World Trade Organization (WTO):
This is why we agreed today, first of all, to work together toward zero tariffs, zero non-tariff barriers, and zero subsidies on non-auto industrial goods. We will also work to reduce barriers and increase trade in services, chemicals, pharmaceuticals, medical products, as well as soybeans….
Secondly, we agreed today to strengthen our strategic cooperation with respect to energy. The European Union wants to import more liquefied natural gas (LNG) from the United States to diversify its energy supply.
Thirdly, we agreed today to launch a close dialogue on standards in order to ease trade, reduce bureaucratic obstacles, and slash costs.
Fourthly, we agreed today to join forces to protect American and European companies better from unfair global trade practices. We will therefore work closely together with like-minded partners to reform the WTO and to address unfair trading practices, including intellectual property theft, forced technology transfer, industrial subsidies, distortions created by state owned enterprises, and overcapacity.
The first and third points come directly from the Trans-Atlantic Trade and Investment Partnership (T-TIP) launched by President Obama. Trump had stalled it and has now agreed to let it proceed. Note that the reference to soybeans is nothing but one in a list of intentions to increase trade. It will happen, mainly because the Chinese are getting them elsewhere. The second point is carefully phrased: the EU wants to import LNG from the US, which was already true before the meeting, but there is no commitment to do it. The fourth point is a concession by Trump to reform the WTO, rather than wreck it (which is what his Administration has been trying to do).
As always, the key to fully understanding statements of this sort is what they omit. No mention here of the steel and aluminum tariffs or the EU retaliation for them. They agreed to disagree on those issues.
I have to hand it to Trump: he is a master used car salesman. The ability to move the stock market with this warmed-over thin gruel has to be admired. Unfortunately that is a one-day flash in the pan. The flim flam man is still far from delivering anything of real value on trade, even as he raises prices to American consumers and embarks on $12 billion in new agricultural subsidies. Yes, it is good that T-TIP has risen from the grave, but it was Trump who unwisely put it there. Credit is due only for correcting his own grave error.
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Rebooting globalization
The American Enterprise Institute yesterday hosted a panel discussion entitled “Rethinking Globalization: How do we Rebuild Support?” to kickstart a joint project by AEI and Brookings about “Reconceptualizing Globalization.” The panelists were Jared Bernstein (Center on Budget and Policy Priorities), Daniel Drezner (Tufts University), Stephen Hadley (RiceHadleyGates), and Merit Janow (Columbia University). Neena Shenai (AEI) and Joshua Meltzer (Brookings) moderated the discussion.
Shenai highlighted the timeliness of the initiative and stressed the critical importance of understanding globalization’s flaws, which have led to the populist discontent that precipitated the rise of Trump and other leaders whose rhetoric and trade policies threaten the institutional foundations of the post- World War II international order. Shenai asked each of the panelists to identify key factors that have led to the current hostility towards globalization and to propose possible solutions to the issue.
Bernstein began by pointing out that the benefits of comparative advantage-based trade are such that the winners can compensate the losers and still come out ahead. But political realities in the US mean that this does not occur. Instead, the benefits of trade accrue to corporate leaders, who use their political capital to negotiate trade agreements that are advantageous to them, and not necessarily their workers. Thus, the benefits of globalization, a positive sum game, have remained with elites, causing widespread dissatisfaction among the working class, many of whom lose their livelihoods due to trade-associated job destruction.
Further, Bernstein pointed out that wages increased with productivity from the 1940’s until the 1980’s. Since then, wages have stagnated, even as productivity continued to increase. The globalization backlash arises from workers not being fairly compensated for the gains from trade. Globalization needs to be reset in favor of the worker. US workers should be better represented in trade negotiations, and US policymakers should give domestic manufacturers tax cuts. On a monetary policy level, the US should also take aim at currency manipulators.
Hadley traced the origins of current discontent with Western international institutions to the elites’ decision to ignore their deficiencies following the 2008 financial crisis. This refusal resulted in the Tea Party’s political success in 2010, as well as the rise of Trump in 2016. Internationally, US dominance of the Bretton Woods system led new economic powers, like China, to create their own banks, institutions, and trade alliances. The legitimacy of Bretton Woods is thus threatened by domestic pressures within countries in the US bloc, as well as by international pressures.
The solution to the problem, however, does not lie in the destruction that Trump has wrought on global institutions and US alliances since his election. Hadley believes that the US would be better served by reforming Bretton Woods to appease populist discontent, and adjusting these institutions’ leadership structure to better reflect the current, multipolar global political and economic landscape.
Janow agreed that international institutions are a major part of the globalization problem, using her time at the WTO as an example. She argued that the WTO is weak and ineffective. The international trade body should generate its own work program to address its deficiencies instead of relying on the activity of member nations to solve its shortcomings.
In spite of these, Janow emphasized that policymakers should place more weight on what gave birth to multilateralism in the first place as they evaluate its benefits and drawbacks. Global institutions have contributed immensely to world peace and security by significantly raising the cost of war and conflict between trading partners. Further, globalization has reduced the negative externalities associated with individual countries not thinking beyond bilateralism in their approach to international economics. The global system is doomed if people do not believe these basic points.
Drezner questioned whether a globalization backlash was even occurring. The narrative that the 2008 financial crisis inspired a populist groundswell against elite-promulgated globalism is not supported by public opinion polls. In fact, 70% of Americans have supported globalization over the past 10 years, while 75% of Americans favor preserving US alliances over getting better terms on a trade deal. Further, even if there is a backlash, Drezner believes that the domestic economic damage Trump’s aggressive trade policies will cause will provide a strong incentive to not vote anti-globalists into office in the future.
The Bottom Line: Globalization is flawed. Significant portions of the US population have been left behind by current US trade policies. But the bellicose approach president Trump is taking provides no cure. The post-World War II economic order should not be destroyed. It needs to be rebooted, with US workers gaining their fair share of the benefits.
PS: apropos
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