Tag: Trade Policy

Saturday Soother – Brexit Edition, February 1, 2020

The Daily Escape:

Sunrise, Castle Mountain, Banff, Alberta, CN – 2019 photo by anitajwani

(Sunday Cartoons will appear on Monday)

Yesterday, Brexit became official. The UK is no longer part of the European Union.

The decision to stay or go consumed the UK to the exclusion of all else for four years. But listening to the BBC, they now are barely talking about it. For all the arguing about “Leave” or “Remain”, nothing much was really said about what would happen once things got concrete.

It may be hard for Americans to understand, since we are seduced by British accents, but the Tories are dumber than Republicans. One example of what changed on Friday, as the UK Independent observed:

“Brexit day is here, so let us celebrate our biggest victory – the freedom to drink very bad wine.”

So now comes the hard part. Britain has until the end of this year to make a new trade deal with Europe, the US, and with other non-EU countries. The EU is the UK’s largest trading partner. In 2018, UK exports to the EU were £291 billion (45% of all UK exports). UK imports from the EU were £357 billion (53% of all UK imports).

Services accounted for 41% of the UK’s exports to the EU in 2018. Financial services and other business services (including legal, accounting, advertising, research and development, architectural, and engineering) are important categories of services exports to the EU. They made up just over half of UK service exports to the EU in 2018.

Because of the EU’s structure, the parliaments of 27 countries will have to agree to any new deal. Imagine what a “No Deal” would mean starting in 2021: Both Britain and the EU would stand to lose a big chunk of their trade revenue.

It will be fascinating to see which side has the greater negotiating power. For example, the UK only accounts for just 6% of German exports of goods. It accounts for 6.8% of French exports.

The US needs a new trade deal with Britain as well. That deal will have to be approved by the US Congress. The US will want open access to the British markets for its agricultural and healthcare industries. That will conflict with Britain’s own farmers, food regulations and its National Health Service.

Britain will be negotiating these two large, and very complicated deals under severe time pressure. The EU might offer to extend the deadline, but Prime Minister Boris Johnson has said there will be no extensions. Despite Johnson’s promise, comprehensive trade deals take several years to complete, averaging 7-8 years. So there will be little deals announced in steps, with the simplest to agree areas finished first.

There are also the national issues: North Ireland will be integrated economically with Ireland. Having a customs border in the North Sea may prove unwieldy. Scotland preferred to remain with the EU, and voted “Remain”. After Parliament finally voted to Leave, Scotland asked to hold a referendum on leaving the UK, but were turned down by the Tories. They may try again to secede over the Prime Minister’s objections.

These new trade deals may be on less favorable terms than what the Tories told the voters. As an example, one argument for Brexit was that the UK would regain exclusive fishing rights within its economic zone. But some EU countries will likely ask for additional fishing rights in British waters in exchange for something Britain urgently needs.

We won’t know the outcome for five to ten years from now, but it’s likely that Great Britain will be less great than it is today.

What with the impeachment show drawing to a conclusion without calling witnesses, and the impending food fest of Super Bowl Sunday, it’s time for our Saturday Soother.

Our one oasis of calm in a week of crisis.

Let’s start by brewing up a big mug of Ethiopia Shaskiso Natural ($18/12oz.) roasted by Michigan’s own Battlecreek Coffee Roasters. The roaster says it tastes of strawberry and cocoa supported by spice-toned florals.

Now, settle back by the fire and listen to Telemann’s Concerto in D major for Violin, Cello, Trumpet and Strings, played live by the Bremer Barockorchester, in 2015:

Those who read the Wrongologist in email can view the video here.

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Sunday Cartoon Blogging – July 8, 2018

The trade war has started. Bloomberg has an interesting map that shows how Chinese retaliation is directed at creating political damage for Republicans in the mid-term election this November. Soybeans are among the largest targets for the Chinese, and here is how Congressional districts most affected break down by political party:

From Bloomberg: (edit and emphasis by Wrongo)

Of the 30 districts most reliant on soybeans, Republicans represent 25 and Democrats 5; all [30 districts] voted for Trump in 2016.

Bloomberg thinks this could hurt farm state Republicans in the midterms. Maybe. Wrongo will become a believer if it actually happens. These are Trump voters, they aren’t economics voters. Unless he revives DACA or creates a pathway to permanent residence or citizenship for a whole lot of people, Wrongo believes Trump is fireproof in farm country.

On to cartoons. Last week, Justice Kennedy retired, EPA head Scott Pruitt quit, and Secretary of State Pompeo met with North Korea, and it didn’t go well. Next week, Trump heads to Europe to meet with our NATO partners. He’s also meeting the Queen while in London. Then it’s off to his annual performance review with Mr. Putin.

When Kennedy hung up the robe, a few other things also got hung up:

Pruitt climbed out of the swamp:

Trump’s trade war and its potential to hurt the economy doesn’t bother the GOP so much:

Trump can’t wait for his really cool meeting:

Trump says nobody can attend the first hour of his meeting with Putin:

Trump misunderstood that what happened in Singapore was supposed to stay in Singapore:

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Steel Tariffs Against China Make Sense

The Daily Escape:

Winter Morning, Moscow Oblast, Russia – 2018 photo by kostya8. Good luck to those in New England today!

“Shortly, the public will be unable to reason or think for themselves. They’ll only be able to parrot the information they’ve been given on the previous night’s news” – Zbigniew Brzezinski

Did Wrongo ever tell you about meeting Zbig? We had lunch together in the officer’s dining room at the big NY bank that Wrongo was with, sometime in the early 1980’s. It must have been a real comedown for him, lunching with an international department strategic planner, after serving four presidents. We focused on the (then) current state of the Asian economies, but his eyes scanned the room, looking (maybe hoping) for a better deal than simply talking to a young vice president.

Zbig’s quote is on the money. It is America today: We don’t figure things out, because everyone is an expert. Today, anyone you meet already knows everything. They’ve taken a quick look at Wikipedia, and they know that their opinions are worth as much as any expert.

If average people can be experts, why is Trump’s effort to do a better deal on trade so off the mark?

His proposed steel and aluminum tariffs are levied against all producers. The table below from a 2016 Duke University study, shows production by country. You can see the extent to which China is an outlier:

Note that the US is fourth on the list. Take a look at where Canada ranks. It’s hard to see Canada as a strategic risk to US military needs, but since Trump plans to deploy a blanket steel tariff, everyone suffers, at least until the retaliation begins. The Duke study makes the point:

The global steel sector is once again in a state of overcapacity. The sector, predominantly fueled by China’s expansion since 2000, has grown to over 2,300 million metric tons (MT) while only needing 1,500 MT to meet global demand. The result is a global steel sector at unviable profit levels and an influx of cheap steel in the global trading system adversely affecting companies, workers, and the global trading regime.

Both George W. Bush and Barack Obama applied steel tariffs. Bush imposed broad tariffs of up to 30% on steel imports in 2002. His tariff was supposed to last three years, but was withdrawn after the World Trade Organization (WTO) ruled against them. In 2016, the Obama administration imposed duties on some Chinese steel imports by more than 500%, on Chinese cold-rolled steel, which is used to make appliances, cars and electric motors. Subsequently, Chinese imports to the US dropped by almost two-thirds. China now ranks as the 11th largest exporter of steel to the US.

WaPo notes that Chinese steel accounts for about 6% of US steel imports, but China’s capacity is eight times that of the next biggest producer, Japan. Clearly, its Chinese capacity that must be addressed.

On Tuesday, the European Commission announced it had renewed tariffs on Chinese steel imports, some as high as 71.9%, saying producers in France, Spain and Sweden face a continued risk of imports from China at unfairly low prices. The Commission concluded that Chinese producers had significant spare capacity. This was likely to lead to large-scale imports into the European Union at dumped prices if the measures were lifted.

And even though China’s share of the EU market for stainless steel seamless pipes and tubes has hovered around 2% since 2013, Brussels had no problem with pursuing what it thought was a fair remedy, despite the possibility of blowback.

Ironically, that’s similar to what Trump says he wants to do. Similar, but far from the same.

Trump’s plan hits all global steel producers, not just China, which, as the chart above shows, produces 52% of the world’s supply. So instead of confronting only China, we will face blowback from everyone.

OTOH, the politics of Trump’s tariffs may play out differently than the economics. The economics suggest they are a loser. According to a January Bureau of Labor Statistics report, about 377,000 Americans work in metal manufacturing jobs that could be protected by these tariffs.

That’s a lot of votes in the Rust Belt. And the steel company CEO’s will also see bigger bonuses.

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Saturday Soother – March 3, 2018

The Daily Escape:

Eagles Nest, Housatonic River, Litchfield County CT – 2018 photo by JH Cleary

To say that the Trump administration has become a dysfunctional mess is an understatement. Here’s one example: Yesterday, the Administration announced that it would impose 25% tariffs on imported steel and 10% on imported aluminum. Here is some detail behind Trump’s tariff announcement:

There were no prepared, approved remarks for the president to give at the planned meeting, there was no diplomatic strategy for how to alert foreign trade partners, there was no legislative strategy in place for informing Congress and no agreed upon communications plan beyond an email cobbled together by [Wilbur] Ross’s team at the Commerce Department late Wednesday that had not been approved by the White House.

No one at the State Department, the Treasury Department or the Defense Department had been told that a new policy was about to be announced or given an opportunity to weigh in in advance.

The Thursday morning meeting did not originally appear on the president’s public schedule.

The greatest danger to America is not Russia or China, it’s actually Donald Trump. When so much of your goods are imports, saying “1, 2, 3, 4, I declare a trade war” will not produce positive outcomes for the average American, who will simply pay more for their imported products. That will cause some inflation, and maybe, impact the bond markets, which hate higher inflation. It could also cause profit pressure for certain companies that rely on steel and aluminum as a basic raw material, companies like auto and airplane manufacturers.

OTOH, while elites will not like Trump’s move, free trade is not always good for Americans.

But, this guy doesn’t know what he’s doing when it comes to global trade. It isn’t a real estate deal. It involves multiple inputs and outputs across multiple industries and countries.

Not simple enough for a Stable Genius to understand.

On the road here in the south, Wrongo stopped at a McDonald’s to pick up a plain burger patty for a dog who was fussy on our trip. Wrongo asks for a plain patty, no sauce, no bun. The clerk says: “What’s a patty?”

So, this weekend when the Atlantic Northeast and the Pacific Northwest are both experiencing highly unusual weather, Wrongo and Ms. Right and the dogs are in the Southeast, experiencing spring-like weather. It’s time to forget Trump and his wars, real and imagined, and think spring. Sit back and brew up a hot cup of Kicking Horse’s Smartass Coffee. The brewer says: “just a bright, chocolaty concoction for the smart-thinking, deep-drinking, good-at-their-game-in-the-morning crowd”.

Obviously, not a coffee for Trump.

Now, settle back and listen to “On Hearing the First Cuckoo in Spring” by Frederick Delius. He composed it in 1912. Here it is performed by Portugal’s Orquestra Clássica do Centro in 2013:

Those who read the Wrongologist in email can view the video here.

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