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April 25, 2017, 01:33:27 AM
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Topic: Trade Issues: (Read 3647 times)
Re: Trade Issues, Greg Mankiw, trade 'deficits' pro and con
Reply #50 on:
December 15, 2016, 08:58:12 AM »
DDF, Thanks for your view on that.
My opinion, BOTH imports and exports are good. It is the uneven playing field that isn't. We don't have control over their playing field, but we do have considerable influence over it and that is where the tough talk and action by Trump could be very helpful.
To increase exports by making it less punitive to produce here in terms of taxes and regulations is great policy and great for income and wealth creation. But to have government curtail our right and freedom to buy anything we want from anywhere around the world (with legitimate exceptions like national security interests) is leftist, anti-freedom policy IMHO, and even our own recent leftists didn't do much of that.
A trade deficit is a symptom of things, not a central problem in itself. Imports and exports are two different phenomena that grow at different rates at different times. There is no reason they should be exactly the same. Yet when they are way out of whack, other problems arise like currency rate changes and capital flows.
Besides anti-productive policies at home, the other factor limiting our exports is that the economy sucks nearly everywhere else in the world even worse than here. We don't have any US-sized, prosperous, high growth countries to sell to. When Margaret Thatcher and Ronald Reagan turned Britain and the US around, the rest of the world was forced to reform some of their own problems too in order to compete. Watch for that effect with Trump if our policies really do get turned around and our economy really does start moving again. We don't want IMHO to bring imports down to the size of lethargic exports; we want to grow business on all fronts for all our people who want to produce.
To put a special incentive or economic penalty on some businesses and not others in similar circumstances is a violation of equal protection under the law. Reagan did it a couple of times in temporary and emergency situations, but those were the exceptions or violations of his principles, not the engine of the growth he brought.
If Trump focuses on doubling the growth rate of the whole economy rather than micromanaging the sectors of where and how that happens, we will be far better off.
Re: Trade Issues: (TPP Trans Pacific Partnership and more)
Reply #51 on:
December 15, 2016, 05:09:20 PM »
I agree with your analysis 100%.
There is no way to compete with the 156 dollars a month they make in Vietnam, or the daily wage here in Mexico, without finding a way to stimulate their economies too, because if it comes down to dollars versus dong or pesos in terms of manufacturing, we lose. I've seen it. Key focus is getting other corrupt governments to play ball. I've seen that personally as well.
Do not fear going anywhere, nor doing anything. You will die where you are supposed to.
WaPo on Ford's decision to build in US
Reply #52 on:
January 04, 2017, 11:17:55 AM »
Stratfor's analysis of prospects for NAFTA
Reply #53 on:
January 04, 2017, 11:19:48 AM »
Trade Stays Intact
The North American Free Trade Agreement will remain largely intact in 2017 despite U.S. campaign promises made to the contrary in 2016. The fact of the matter is that the trade ties and supply chains of North America are so tightly bound that a sudden and dramatic reversal to an agreement such as NAFTA would contravene the interests of all its members. The United States will nonetheless renegotiate the deal, albeit gradually, to honor the campaign promises made by president-elect Donald Trump. Those talks will likely extend beyond 2017.
That is not to say the United States is without options for improving the terms of the contract. The Trump administration could increase regional content requirements for products to qualify for tariff-free export to the United States and use non-tariff barriers more selectively. Mexico will have much more at stake in the negotiations, but its imperative is far simpler. It means to leverage its low labor costs and its high number of free trade agreements to maintain as much of the status quo as possible on trade and to maintain foreign direct investment flows into domestic manufacturing. And so Mexico will have a few tools to use against the United States. Mexico could influence the Trump administration by allying with businesses and states that would be hurt by more expensive labor and goods. (As a matter of fact, it has already begun to do so.) It could, moreover, leverage intelligence cooperation on counternarcotics operations to try and shape the dialogue.
Lower investment flows that could result from the uncertainty surrounding the NAFTA negotiations could hurt Mexico in the meantime. But even this will be tempered by Mexico's proximity to the United States and its multitude of free trade agreements. Canada, with its advanced economy and high labor costs, will receive much less scrutiny. The Canadian government has indicated its willingness to take part in the NAFTA talks and will be seeking measures to protect its own manufacturing sector.
Canada could also renegotiate NAFTA's investor-state dispute settlement, which allows an investor to sue a foreign government in international arbitration without going through domestic courts. Having been challenged under the ISDS procedure, Canada will certainly want to revisit its terms, even if a business-friendly Trump Cabinet were to resist measures that undermine foreign corporate protection abroad.
The negotiations will be slow going, no matter how they play out. Many of the points up for discussion would still center on concentrating economic production in North America, where supply chain interdependencies are developing organically.
A Tighter Energy Bloc
The Trump administration will loosen regulations on domestic energy, enabling North America to more easily integrate as an energy bloc. It plans to streamline the process for federal permits on energy projects and to pull back from climate change initiatives, measures that could also provide a relative boost to the coal and nuclear power industries. They could also enable the beleaguered U.S. energy sector to rebound after a prolonged depression in the price of oil. A gradual recovery in North American production will, in turn, allow for a modest increase in global oil prices since it will take time for increased North American oil output to offset coordinated production cuts by the world's oil producers.
Canada and Mexico will meanwhile continue to make measured progress in energy integration with the United States. In Canada's case, this will include increased cross-border pipeline construction and supply integration. In Mexico's case, it will entail implementing broader energy reforms, including further liberalizing domestic energy prices and loosening Pemex's dominance in refining and distribution.
The Pinch of Low Prices
Latin American commodities exporters will continue to feel the pinch of low commodities prices in 2017. The economies of Brazil, Argentina, Chile and Colombia will begin to recover somewhat, but slow demand growth from China, low oil prices and an oversupply of agricultural commodities such as soybeans will otherwise keep exports largely depressed.
Further stunting economic growth and fiscal health is the strength of the U.S. dollar. Colombia, Brazil, and Chile have substantial dollar-denominated debt, which will become harder to repay or rollover. For Venezuela, which is already on the edge of default, heavier debt payments will increase the risk of default. For Brazil, Chile, Mexico and Argentina, more expensive debt payments amid the general commodity downturn will limit the amount governments can spend on domestic priorities.
A modest increase in global oil prices could meanwhile bring temporary relief for oil producing nations in Latin America. Even a temporary hike would be a welcome reprieve for central governments, which would then have a little more leeway in managing public finances. For Venezuela, a country already in an extreme state of economic deterioration, even a slight rise in oil prices could lower the odds that it will default on its foreign debt.
And so, faced as they are with relatively low export growth, certain Latin American countries will seek increased access to markets abroad by advancing trade agreements with nations outside the region. In light of the demise of the Trans-Pacific Partnership and the rise of new if limited NAFTA negotiations, Mexico will tentatively try to enter discussions on trade deals with Asian states, particularly with China. The countries that comprise Mercosur, or the Common Market of the South, will also continue to negotiate with the European Union on a future trade agreement, though political constraints on both sides of that dialogue could drag things out.
China Trade Shock
Reply #54 on:
January 20, 2017, 12:55:50 AM »
WSJ: Trump's real trade problem is money
Reply #55 on:
January 25, 2017, 07:14:36 AM »
Not sure that I understand this , , ,
Trump’s Real Trade Problem Is Money
Protectionism won’t cure the import-export imbalance. The solution lies in monetary policy.
By John D. Mueller
Updated Jan. 24, 2017 7:25 p.m. ET
Neither President Trump nor any of his economic advisers appear to have heard of, let alone be worried about, the Triffin Dilemma. But Mr. Trump’s economic and trade policies will fail unless he finds a solution to the dilemma—the inherent incompatibility, in a reserve-currency country, of domestic policy with the international monetary order.
A gold or other precious-metal standard prevents the financing of budget deficits through the monetary system. When America had a gold or silver standard, the federal budget ran an annual surplus averaging 0.4% of gross domestic product; when it hasn’t, the average deficit has been 2.7%. Similarly, from 1979-2015, U.S. state governments—which cannot print money—averaged budget deficits of 0.3% of GDP, while in the same economy the federal deficit averaged 3.3%. There has been no long-term inflation under the gold or silver standard in American history; substantial inflation (or deflation) has occurred only with paper money.
The move away from precious metals began more than a century ago. John Maynard Keynes argued in 1913 that whether a monetary authority holds gold or foreign-exchange reserves “is a matter of comparative indifference.” Colonial India’s “Gold-Exchange Standard,” he wrote, “far from being anomalous, is in the forefront of monetary progress” toward what he called “the ideal currency of the future.” British experts succeeded in promoting foreign-exchange reserves at the 1922 Genoa Conference, to forestall redemption of British World War I debts in gold. That ended the international gold standard born in Genoa in the 1440s, after the Hundred Years War.
The French economist Jacques Rueff explained in 1932 why the gold-sterling-dollar standard had collapsed: With the creation of—for example—dollar reserves, purchasing power “has simply been duplicated, and thus the American market is in a position to buy in Europe, and in the United States, at the same time.” Hence the purchase of dollar reserves causes inflation (and the sale of dollar reserves, deflation) for countries with currencies tied to the reserve currency. Moreover, the credit duplication makes prices rise faster in the reserve-currency country, causing its goods to be uncompetitive and turning it from an international creditor to a debtor.
The post-World War II Bretton Woods gold-dollar-exchange standard broke down in 1968-71, for essentially the same reasons that had caused the interwar gold-sterling-dollar standard to collapse. Since 1971, international payments have been made chiefly in paper dollars.
Thus the Triffin Dilemma, named for Belgian-American economist Robert Triffin. National income (or output) is the sum of private consumption, private investment, government consumption, government investment, and net exports. Many economists wrongly assume that total world net exports must equal zero, but in fact countries participating in the international gold standard had combined net exports equal to the total increase in world gold reserves (which in turn approximated world gold exports). As a result, world monetary policy was countercyclical: When the prices of other goods fell, the profitability of gold mining rose.
Triffin showed that a monetary system based on a reserve currency is unsustainable, since foreign official dollar reserves (for example) are acquired and must be repaid in goods. In other words, the increase in official dollar reserves equals the net exports of the rest of the world, which means it must also equal U.S. international payments deficits—an unsustainable situation.
As the nearby chart shows, the cost of German manufactured goods has roughly tripled since 1955, but the cost of American manufactured goods has more than sextupled. That is why U.S. trade and budget deficits will be impervious to any Trump administration “deals” that focus on trade rather than monetary reform.
There are three main alternative solutions to the Triffin Dilemma:
First, muddle along under the current “dollar standard,” a position supported by resigned foreigners and some nostalgic Americans—among them Bryan Riley and William Wilson at the Heritage Foundation, James Pethokoukis at the American Enterprise Institute and Ramesh Ponnuru at National Review.
Second, turn the International Monetary Fund into a world central bank issuing paper (e.g., special drawing rights) reserves—as proposed in 1943 by Keynes, since the 1960s by Robert A. Mundell, and in 2009 by Zhou Xiaochuan, governor of the People’s Bank of China. Drawbacks: This kind of standard is highly political and the allocation of special drawing rights essentially arbitrary, since the IMF produces no goods.
Third, adopt a modernized international gold standard, as proposed in the 1960s by Rueff and in 1984 by his protégé Lewis E. Lehrman, writing on this page, and then-Rep. Jack Kemp.
The stakes are high. The Great Depression began with the collapse of the interwar monetary system in 1929-32, aggravated by the trade war that America’s Smoot-Hawley tariff triggered. Ironically, if Mr. Trump ignores the Triffin Dilemma, he will perforce promote the cosmopolitan crony capitalism by which the Clinton Foundation stuffed itself with so much cash from America’s client-states.
Mr. Trump’s own nostrum of trade protectionism is an understandable but easily exploded fallacy. The current account (the broadest measure of the trade balance) must equal the excess of national saving over investment. Therefore, while tariffs can curb imports, they cannot increase the trade balance, because they don’t affect the saving-investment balance; instead, they cause the currency to rise and exports to fall.
From 1971 through 2015, U.S. current account deficits totaled 93% of GDP because of the Triffin Dilemma: The increase in dollar reserves must equal the rest of the world’s surplus (and America’s deficits) in net exports. Perhaps it would take a deal-maker in Alexander Hamilton’s league to end the exorbitant burden of the dollar’s reserve-currency role and replace it with the only monetary standard that has worked in American or world history: gold.
Mr. Mueller directs the economics and ethics program at the Ethics and Public Policy Center.
Scott Grannis comments on the Mueller article
Reply #56 on:
January 25, 2017, 12:34:10 PM »
"Mueller is right, but this is just one more way of demonstrating that Trump utterly fails to understand how international trade and the balance of accounts work. In our current system is it not only impossible but also foolhardy to attempt to have a balance in our international trade accounts. Trade ignorance is the most glaring of Trump’s deep-seated faults. On almost every other issue he is moving correctly. Too bad he’s not perfect. We can only hope that someone sets him right on this issue before he does something stupid."
WaPo: Trade Issues and Capital Flows
Reply #57 on:
February 17, 2017, 12:13:29 PM »
Not impressed with this article but I post it because it does make an argument of some relevance:
POTH: Trump talk rattles aerospace industry
Reply #58 on:
February 26, 2017, 09:36:22 AM »
WSJ: Chinese firms setting up shop in US
Reply #59 on:
February 27, 2017, 09:36:48 AM »
Wesbury makes the case for Free Trade
Reply #60 on:
February 27, 2017, 01:17:03 PM »
Monday Morning Outlook
Trade Is Not Our Enemy To view this article, Click Here
Brian S. Wesbury, Chief Economist
Robert Stein, Deputy Chief Economist
We think it was Art Laffer who said it best. Let's say the US invented a cure for cancer and China a cure for heart attacks. If China decided to ban the cure for cancer, should the US retaliate by banning the cure for heart attacks?
Obviously not! The US is better off trading with China regardless of what China does. And although things like computers and toys are not nearly as serious as a heart attack, the same principal applies. Think about this idea the next time you hear about some other country "killing" the US on trade.
The US has run a merchandise trade deficit every year since 1975. The US has also run persistent trade deficits with many countries around the world, including Canada and Germany for the past 40 years, China for 35 years, and Mexico for the past 20 years. And yet it's the US that remains a magnet for immigrants from around the world. If the US is getting killed economically, wouldn't people be leaving, not trying to get here? People vote with their feet and the votes clearly suggest there is more economic opportunity in America, enough more that people enter illegally.
Some are concerned that global trade flows for the US have peaked, and it is true that overall imports and exports slowed in late 2014, 2015 and 2016. But we attribute this to the large drop in oil prices. We spent less on oil imports and oil exporters (like OPEC) earned fewer dollars to spend back here.
But, "real" (inflation adjusted) US goods exports outside the oil sector rose 5% in 2016 and are up 2.6% per year in the last decade. The real value of non-oil imports increased 4.2% in 2016 and are up 2.5% per year in the past decade. All of these figures are outstripping real economic growth in the US. Trade is an unambiguous positive for growth worldwide.
Although some analysts have spread fear about our trade in services, we see no reason for concern. US service sector exports ended 2016 at an all-time high. Service exports did decline 1.1% in 2015, but if that's supposed to be a leading sign of economic weakness, why didn't we have a recession in 2016? And why are broader measures of the economy still improving? We think the 2015 drop was a result of less dollars flowing through the trade system as oil prices fell.
Some argue that trade deficits must be offset by future trade surpluses. We beg to differ. The US finances its trade deficits with a surplus of capital coming in from the rest of the world. If foreigners were buying US assets that generated a high return on capital, you can make up a story where that could eventually be a problem. We could find ourselves in a situation where we have to both pay for our trade deficits and give foreign investors a healthy return.
But foreign investors are willing to earn a very low rate of return on their US assets – the price they pay for the safety and security of the US. That return is so low, in fact, that despite owning considerably more US assets than the amount of assets Americans own in foreign countries, foreigners earn far less on American assets than US investors earn on foreign assets.
Ultimately, free trade is critical to the prosperity of the US. Policies that seek to protect certain industries or companies are just a way of putting politicians in charge and weakening the inherent resourcefulness of the American people.
A theory about Chinese History
Reply #61 on:
March 02, 2017, 10:05:19 AM »
The case for Trump Trade Theory
Reply #62 on:
March 06, 2017, 09:03:28 AM »
Why the White House Worries About Trade Deficits
An imbalance imperils economic growth—and could put U.S. national security in jeopardy.
The then-president-elect speaking at Carrier Corp. in Indianapolis, Dec. 1, 2016.
The then-president-elect speaking at Carrier Corp. in Indianapolis, Dec. 1, 2016. Photo: Bloomberg News
By Peter Navarro
Updated March 5, 2017 6:21 p.m. ET
Do trade deficits matter? The question is important because America’s trade deficit in goods is large and persistent, about $2 billion every day.
The economic argument that trade deficits matter begins with the observation that growth in real GDP depends on only four factors: consumption, government spending, business investment and net exports (the difference between exports and imports). Reducing a trade deficit through tough, smart negotiations is a way to increase net exports—and boost the rate of economic growth.
Suppose America successfully negotiates a bilateral trade deal this year with Mexico in which Mexico agrees to buy more products from the U.S. that it now purchases from the rest of the world. This would show up in government data as an increase in U.S. exports, a lower trade deficit, and an increase in the growth of America’s GDP.
Similarly, if the U.S. uses its leverage as the world’s largest market to persuade India to reduce its notoriously high tariffs and Japan to lower its formidable nontariff barriers, America will surely sell more Washington apples, Florida oranges, California wine, Wisconsin cheese and Harley-Davidson motorcycles. Just as surely, the U.S. trade deficit would fall, economic growth would increase, and real wages would rise from Seattle and Orlando to Sonoma and Milwaukee.
Now, what about the investment term in the GDP equation? When U.S. companies offshore their production because of America’s high taxes or burdensome regulations, that shows up in government data as reduced nonresidential fixed investment—and a growth rate lower than it would be otherwise.
That isn’t the end of the story. If such offshored production then generates products for export back into the U.S.—say, an American consumer buys a Ford Focus imported from Mexico rather than assembled in Detroit—the trade deficit rises, further reducing growth.
To better understand these complex adjustments, consider Carrier. Its management had announced the company would close its air-conditioner factory in Indianapolis and move to Mexico—and then sell products back into the U.S. tariff-free. But President-elect Trump and Vice President-elect Pence negotiated a deal to keep Carrier in the U.S. and expand its facilities. How will this show up in government statistics? Fixed nonresidential investment will increase rather than decrease. Imports from Mexico will be lower than they would be otherwise, and U.S. exports will be higher. In today’s parlance, that’s “all good.”
The national-security argument that trade deficits matter begins with this accounting identity: Any deficit in the current account caused by imbalanced trade must be offset by a surplus in the capital account, meaning foreign investment in the U.S.
In the short term, this balance-of-payments equilibrium may be benign, as foreigners return our trade-deficit dollars to American shores by investing in U.S. bonds and stocks and perhaps by building new production facilities. The extra capital keeps mortgage rates lower, the stock market abundantly capitalized, and Americans more fully employed.
But running large and persistent trade deficits also facilitates a pattern of wealth transfers offshore. Warren Buffett refers to this as “conquest by purchase” and warns that foreigners will eventually own so much of the U.S. that Americans will wind up working longer hours just to eat and to service the debt.
Dark though it is, Mr. Buffett’s scenario may still be too rosy. Suppose the purchaser is a rapidly militarizing strategic rival intent on world hegemony. It buys up America’s companies, technologies, farmland, food-supply chain—and ultimately controls much of the U.S. defense-industrial base. How might that alternative version of conquest by purchase end for our sons and daughters? Might we lose a broader cold war for America’s freedom and prosperity, not by shots fired but by cash registers ringing? Might we lose a broader hot war because America has sent its defense-industrial base abroad on the wings of a persistent trade deficit?
Today, after decades of trade deficits and a mass migration of factories offshore, there is only one American company that can repair Navy submarine propellers—and not a single company that can make flat-panel displays for military aircraft or night-vision goggles. Meanwhile, America’s steel industry is on the ropes, its aluminum industry is flat on its back, and its shipbuilding industry is gathering barnacles. The U.S. has begun to lose control of its food-supply chain, and foreign firms are eager to purchase large swaths of Silicon Valley’s treasures.
Much of Wall Street and most economists simply don’t care. But to paraphrase Mike Pence on the 2016 campaign trail, the people of Fort Wayne know better. The analysts at the Pentagon know better, too. That’s why, for both economic and national-security reasons, it is important to bring America’s trade back into balance—through free, fair and reciprocal trade.
Mr. Navarro is director of the White House National Trade Council. This article is adapted from his March 6 address in Washington before the National Association of Business Economists.
WSJ/Bolton: Trump, Trade, and Sovereignty
Reply #63 on:
March 08, 2017, 12:00:55 PM »
By John Bolton
March 7, 2017 6:59 p.m. ET
President Trump’s trade rhetoric until now has been simple and effective: America is getting ripped off, he says, and things need to change. Simplicity works on the campaign trail, but how does it translate into actual governance?
Earlier this month the administration submitted the annual National Trade Policy Agenda to Congress. The submission takes particular aim at the World Trade Organization’s “Dispute Settlement Understanding,” which provides a quasi-judicial process for resolving international trade disagreements. Although technical, even arcane, the DSU is dear to the hearts of global-governance advocates. The Trump administration is right to criticize its performance.
Agreed to during the Uruguay Round of world trade talks in 1994, the DSU has had some successes. But it is often criticized for failing to deter violations of the WTO’s substantive trade provisions and for too often exceeding its mandate by imposing new obligations on one or more parties, particularly against American interests.
–– ADVERTISEMENT ––
This alarming trend extends beyond trade. A rising number of international agreements create “judicial” or “legislative” bodies that interpret and expand obligations well beyond what is laid out in underlying treaties, placing them beyond the effective control of domestic democratic institutions. This trend raises legitimate fears among states that they will lose sovereign authority. This fear is particularly acute in America, where the Constitution unmistakably fixes sovereignty in “We the People.”
The U.S. has in the past rejected or renounced international agreements that were not conducive to its interests. In 1986 the Reagan administration withdrew from the compulsory jurisdiction of the International Court of Justice. In 2002 the Bush administration unsigned the Rome Statute, which created the International Criminal Court. The U.S., thankfully, still has not ratified the Law of the Sea Treaty, thereby avoiding the jurisdiction of the tribunal it creates.
Washington has also blocked declarations by periodic “treaty-review conferences,” which have a similar tendency to expand member-state obligations beyond those contained in the original agreements. Likewise, the Trump administration is considering withdrawing from the U.N. Human Rights Council, whose creation the Bush administration voted against in 2006, and which the U.S. did not join until President Obama took office in 2009. The American people are often the last to learn of their new and purportedly legally binding commitments.
That isn’t to say that these international decision-making bodies are established exclusively to evade the burdens of America’s Constitution, only that evasion is their clear consequence. The unspoken objective is to constrain the U.S., and to transfer authority from national governments to international bodies.
The specifics of each case differ, but the common theme is diminished American sovereignty, submitting the United States to authorities that ignore, outvote or frustrate its priorities. Nothing in the Constitution contemplates such submission to international treaties or bodies. While many European Union governments seem predisposed to relinquish sovereignty, there is scant hint of similar enthusiasm in America. Moreover, the United Kingdom just dealt a stunning blow to the notion of Europe’s “ever closer union.” By reasserting their sovereignty, the British are in the process of escaping, among other things, the European Court of Justice and the European Court of Human Rights.
That brings us back to trade. The DSU is not, as some say, analogous to U.S. courts, which preserve the Constitution’s nationwide free-trade area through the “dormant Commerce Clause” doctrine. America is a real civil society where real courts have real enforcement capabilities—a far cry from the “global community” fantasyland. If Americans feel increasingly unable to restrain the exercise of judicial and legislative power at home, why should anyone be surprised to learn that international bodies are even worse?
Limiting an aggrieved country’s ability to resort to the DSU is not a rejection of free trade. To the contrary, it is a rejection of the unaccountable, legalistic morass into which free trade can all but disappear. In reality, ignoring DSU outcomes has always been an option for those prepared to face the consequences.
What is the World Trade Organization’s central objective? Is it to promote actual free trade, or is it merely to reify the DSU? If, in fact, this faltering dispute-resolution mechanism is the WTO’s central pillar, without which global free trade is doomed to collapse, we can legitimately conclude there is something gravely wrong with the direction of the basic enterprise.
Some countries cause more global trade problems than others. China is doing tangible harm to the regime of liberal international trade by striking first, and sometimes repeatedly, in violation of substantive WTO obligations in fields like intellectual property protection. Such countries—not those that retaliate rather than submit to the DSU—deserve the world’s ire.
If the DSU fails to deter repeated acts of trade aggression because of its cumbersome nature and faulty decisions, then the problem is likely the DSU, not its critics. Ironically, many global-governance advocates play down the DSU’s significance since it involves only trade, not existential political questions. Such modesty might seem becoming, but precedents established in one aspect of international affairs inevitably bleed into others.
The burden properly lies with the White House to specify how it will confront the DSU’s failings, many of which seem embedded in its design. Whatever steps President Trump recommends should be understood and measured against the larger dangers of global governance. The shadows cast by other flawed multilateral “authorities” make clear that U.S. sovereignty is at stake.
Mr. Bolton is a senior fellow at the American Enterprise Institute and author of “Surrender Is Not an Option: Defending America at the United Nations and Abroad” (Simon & Schuster, 2007).
Trump EOs on China trade week before meeting Chinese Xi
Reply #64 on:
March 30, 2017, 10:52:44 PM »
Trade Issues: Trump advisers wrong on Korean trade agreement
Reply #65 on:
April 06, 2017, 09:22:05 AM »
Anti-free trade tough talk requires reliance on false facts.
Trump Advisers Are All Wrong about South Korea Trade Deal
By ALAN REYNOLDS
The Wall Street Journal reports: “Mr. Trump’s nominee for U.S. Trade Representative singled out Mexico and South Korea during his Senate confirmation hearing as sparking American trade deficits. ‘In some cases, the rules don’t seem to be working as well as others,’ Robert Lighthizer said. Critics say the deal has led to a flood of South Korean cars, auto parts, memory chips, motors and pumps into the U.S., weighing on American competitors and jobs. A U.S. Trade Representative report this month said the pact… doubled the U.S. trade deficit in goods with South Korea.”
National Trade Council boss Peter Navarro has likewise claimed “We lost 100,000 jobs because of that South Korean deal. Our trade deficit has doubled, and, more importantly, 75 percent of the damage that has been caused by that deal has been to the auto industry itself, which, of course, is based in Michigan.”
Navarro, Lighthizer and the Journal’s unnamed critics are entirely wrong about the March 15, 2012 Korea/U.S. Free Trade Agreement (KORUS).
KORUS could not possibly have “led to a flood of South Korean… memory chips, motors and pumps into the U.S.” because memory chips were already duty-free before that FTA, and so were motors (HS code 8501) and pumps (8413).
KORUS could not possibly explain the post-recession 2010-2015 rise in U.S. imports from South Korea because most U.S. tariffs were scheduled to be reduced from 2016 to 2021 – not from 2010 to 2015.
KORUS had precisely zero effect on U.S. imports of Hyundai and Kia vehicles before 2016 because the U.S. tariff on Korean cars (HS code 8703) was 2.5% before KORUS and remained at 2.5% through 2015. Ironically, when U.S. tariffs on autos and other products finally did come down in 2016, total U.S. imports from South Korea fell 2.6% (by $1.9 billion).
The Korean tariff on imports of U.S. cars was cut from 8% in 2012 to 4% in 2015 and zero in 2016 and a 10% Korean tariff on U.S. trucks was eliminated. Even before Korea cut its tariff on U.S. cars to zero in 2016, U.S. exports of cars to So. Korea tripled from $418 million in 2011 to $1.3 billion in 2015, according to the USTR. Incidentally the USTR also notes that “Korea is currently our fifth-largest market for agricultural exports thanks to KORUS,” with farm exports up 208% from 2011 to 2015.
What has been most changed about the auto industry since KORUS is that South Korea exported a sizable share of its auto industry to the United States, displacing previous Korean imports and adding to U.S. auto exports. More than half the Hyundais sold in the U.S. are now assembled in Alabama, and more than 40% of Kias in Georgia (contrary to Peter Navarro, 82.5% of U.S. auto industry jobs are not in Michigan). The Hyundai Santa Fe and Kia Sorento have 67% domestic content. Hyundai has invested $2.8 billion in the U.S. and plans to add $3.1 billion more.
U.S. Korea Trade (graph at link)
As the Graph shows, U.S. routinely ran sizable trade deficits with South Korea long before the FTA (and the U.S. routinely runs surpluses with other FTA countries, Australia and Singapore). The U.S. trade deficit with South Korea and other countries came way down in 2009-2011 because deep recessions always slash U.S. imports, particularly industrial imports.
The graph includes services which, like farm products, were an important part of the deal. The U.S. trade surplus in services with Korea rose from $6.9 billion in 2011 to $10.7 billion in 2016. With services included, U.S. imports from South Korea did not rise at all from 2014 to 2016 ($81.4 billion in both years), and goods imports fell in 2016.
South Korea’s imports of goods from the U.S. rose from $29.7 billion in 2009 to $46.3 billion by 2014 before falling 8.4%to $42.4 billion in 2016. Even with services included, South Korea’s imports from the U.S. fell from $66.5 billion to $63.9 billion since 2014.
KORUS could not possibly have had anything to do with the 2014-2016 drop in Korean imports from the U.S. because that agreement lowered rather than raised Korean tariffs.
South Korea’s demand for imports weakened because annual growth of industrial GDP fell to 2.5% from 2012 to 2015 – down sharply from a 6% pace from 2000 to 2011. One reason for Korea’s post-2014 import slump is that China’s imports from South Korea fell from more than $20 billion in October 2014 to $10-12 billion recently.
The Trump Administration’s top trade advisers are entirely wrong about what happened when with respect to trade between the U.S. and South Korea. KORUS had no effect at all on U.S. imports of auto, chips, motors or pumps between 2009 and 2015, because the U.S. auto tariff was unchanged until 2016 (when overall U.S. imports fell) and most other industrial products were already tariff-free before KORUS.
The Korea-U.S. trade deficit in goods did not rise from 2011 to 2015 (or fall in 2016) because of U.S. auto tariff cuts in 2016, but because the U.S. economy strengthened after 2010 and the Korean economy weakened after 2014.
Blaming free trade agreements helped elect Trump. Now what? Double down on wrong?
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