Trump Supposedly [Hearts] an FTA...With Europe

♠ Posted by Emmanuel in , at 4/24/2017 12:11:00 PM
Most nations have an inferiority complex relative to Germany. Why should the US be any different?
Has the maximally unpredictable Donald Trump, who you'd think sees any sort of multilateral FTA as a giveaway to foreigners (who steal jobs through unfair trade practices), changed his mind? Remember, this guy actually kept one of few campaign vows in extricating the US from the Trans-Pacific Partnership enlargement negotiations. However, a brace of news reports now suggest that he is willing to negotiate an FTA...with the European Union.

Yes, that very same EU he encourages its members to leave from the UK to France he now wants his country to sign a trade deal with if reports are to be believed. The way the current story goes, Trump originally wanted an FTA with Germany during Chancellor Merkel's recent trip to Washington, DC. However, she rebuffed him by saying that any US-Germany deal must involve the whole EU. (Being an A1-ignoramus, Trump likely does not recognize that trade deals negotiations involving EU members have been assigned to the European Commission.) To this Trump supposedly said he will consider it.

What's more, Trump is said to be putting the EU next in the queue ahead of the UK European Union leavers:
A source close to the White House was quoted as saying that there had been a "realisation" in the Trump administration that a trade deal with the EU - allowing the tariff-free exchange of goods and services - was more important to U.S. interests than a post-Brexit deal with Britain.


"Ten times Trump asked her (Merkel) if he could negotiate a trade deal with Germany," the newspaper quoted a senior German politician as saying.

"Every time she replied, 'You can't do a trade deal with Germany, only the EU'," the politician said. "On the eleventh refusal, Trump finally got the message, 'Oh, we'll do a deal with Europe then.'"
Trump, who has repeatedly criticised the EU, had welcomed Britain's 2016 vote to leave the bloc and said he would work hard to get a quick bilateral trade deal done.
But wait, it gets more interesting. Chancellor Merkel is tacitly going along with this version of events by encouraging it to play out:
German Chancellor Angela Merkel fueled expectations of a future EU-U.S trade deal on Sunday, saying she was "very encouraged" talks were being looked at after her recent trip to Washington.
Merkel, speaking at the opening of the 70th annual Hannover Messe trade fair, said Germany was opposed to protectionism and trade barriers, and would continue to work for trade agreements like the one signed between the European Union and Canada.

"I also feel very encouraged by my visit to the United States that negotiations between the EU and the United States on a free trade agreement ... are also being looked at," she said.
The inconsistency is puzzling but not unexpected since this is Trump after all: Being the unabashed white supremacist that he is, Trump likely thinks Germany and other Europeans come from "superior" racial stock worthy of signing an FTA with instead of Asians. So Germany runs a huge trade surplus with the US, but hey, they can better be trusted since they aren't coloreds! Plus, Germany today with its strong manufacturing base and export machine is exactly the sort of country he wishes the United States was. Voila! As Dick Cheney would say, trade deficits don't matter in this case since enhanced German market access to the US may result in an even larger bilateral German trade surplus given Deutschland's already-elevated competitiveness. 

Another thing an EU-US FTA would be is multilateral instead of bilateral. Trump prefers bilateral deals since they would be easier to strong-arm the other party given the sheer economic might of the US. Plus, it's easier to extricate the US from deals involving just one other party instead of many by putting in many conditions regarding currency manipulation, export surges to the US and so forth.

I suppose that if even Trump doesn't know what Trump will do next that it's quite pointless to speculate what may happen. Still, even by his standards, going all-out on an FTA with the EU would alienate the racist/protectionist/isolationist elements who elected him. (They have many Muslims in Europe besides, right?)

I leave you with this food for thought: whereas the US Trade Representative's website has already declared the Trans-Pacific Partnership dead at the hands of Trump, the EU-US Transatlantic Trade and Investment Partnership negotiations are still described in detail there.
Read More

Beat-Up Travelers: Estimating Trump's Hit to US Tourism

♠ Posted by Emmanuel in at 4/17/2017 04:00:00 PM
(White) natives-only policy: Trump repels legions of foreigners from US travel, AKA self-inflicted torture.
It won't be long now until we have a reasonably accurate read on how much travel to the US has been affected so far by the rampant xenophobia incited by Donald Trump. At month's end, GDP for first-quarter 2017 should indicate the hit to tourism-related trade: food services, accommodations, recreation/entertainment/shopping, and transportation.  What's there to like about traveling to the US unless you're a masochist? You've got Muslim Ban 1.0 and 2.0, extreme vetting, being forced to give up device passwords (or get waterboarded?), invasive pat-downs, Indian nationals being shot and killed, Vietnamese migrants being forcibly dragged off planes...the list goes on and on.

Foreigners being sensible people who don't appreciate being discriminated against, shot, dragged, detained, having their private parts fondled and so forth, it's no surprise that news reports about falling tourist arrivals in the US have been plentiful. Here are two more guesstimates on the negative impact as we await the month-end GDP figure. First, the Washington Post:
Demand for flights to the United States has fallen in nearly every country since January, ­according to Hopper, a travel-booking app that analyzes more than 10 billion daily airfare price quotes to derive its data. Searches for U.S. flights from China and Iraq have dropped 40 percent since Trump’s inauguration, while demand in Ireland and New Zealand is down about 35 percent.

The result could be an estimated 4.3 million fewer people coming to the United States this year, resulting in $7.4 billion in lost revenue, according to Tourism Economics, a Philadelphia-based analytics firm. Next year, the fallout is expected to be even larger, with 6.3 million fewer tourists and $10.8 billion in losses. Miami is expected to be hit hardest, followed by San Francisco and New York, the firm said.       
It may be 9/11 all over again for an industry just recently recovered from the United States' initial foray into enhanced foreign traveler harassment:
The result could be an estimated 4.3 million fewer people coming to the United States this year, resulting in $7.4 billion in lost revenue, according to Tourism Economics, a Philadelphia-based analytics firm. Next year, the fallout is expected to be even larger, with 6.3 million fewer tourists and $10.8 billion in losses. Miami is expected to be hit hardest, followed by San Francisco and New York, the firm said.       

The administration’s travel ban deals a blow to an industry that has only recently recovered from a $600 billion loss following the Sept. 11, 2001, attacks.

“In the aftermath of 9/11, at first people didn’t feel safe coming here, and then they didn’t feel welcome,” said Jonathan Grella, an executive vice president at the U.S. Travel Association. “Our industry still refers to that as ‘the lost decade.’ There is a very real risk that that could happen again.”
Good job, Trumpy, good job. Meanwhile, the World Travel and Tourism Council predicts declining tourism activity, partly due to the stronger dollar:
The WTTC’s annual report forecast that the travel and tourism sector, which contributed $1.5tn to the US economy, or 8.1 per cent of its GDP, will grow at 2.3 per cent in 2017 — a contraction of 0.5 percentage points compared with last year. Spending by foreign visitors in the US is predicted to fall 0.6 per cent, mainly due to the strength of the dollar that is making the country a less attractive spending destination. The WTTC said that travellers would seek alternative travel destinations, with “the most likely beneficiaries” being Canada, Mexico, the Caribbean and Mediterranean.
Unless your idea of a good time is getting molested at a US airport, I think us foreigners have better things to do. Roll on the US Q1 GDP figures; with travel constituting 8.1% of the US economy, I don't think it's going to look very good for the first quarter. Or the rest of Trump's term for that matter unless he realizes that, hey, US travel is often discretionary for the rest of us and can be put off indefinitely.

UPDATE: Perhaps due to Trump's election, travel in the last quarter of 2016 already slumped. More of the same to come? I think so.
Read More

See? Even Trump Recognizes Ex-Im Bank's Worth

♠ Posted by Emmanuel in , at 4/15/2017 04:46:00 PM
Back in business thanks to Trump...of all people.
When you think of a person of no conviction, the name "Donald Trump" comes to mind. Mind you, the lack of core beliefs is not always a drawback when you are (rather regrettably) [a] the most powerful person in the world and [b] have a fondness for conspiracy theories and extremist ideologies. So it was perhaps inevitable that the reality of actually governing would lead him to recognize that many of his views are, well, economically untenable. Think of it: in the past few days...
President Donald Trump’s declaration that he won’t label China a currency manipulator stands as the clearest example of the difficulty he’s having delivering on big campaign promises.

The currency decision is one among many instances of Trump reversing course since taking office a little less than three months ago. Within the space of a few hours on Wednesday, Trump changed previously critical stances on the U.S. Export-Import Bank, the value of NATO, interest rates, and Federal Reserve Chair Janet Yellen. 
For this post, the item of interest is the US Export-Import Bank. For a number of months, it's been unable to provide credit to foreign buyers of US-made goods since the Republican-dominated Congress has slowed down the process of fully appointing its membership. The absence of a full slate has meant it has limits on how much in loans it can disburse. But wonders of wonders, Trump of all people has now restored it to full functioning. To be sure, his picks will need congressional approval, but it's unlikely that he will be waylaid by fellow Republicans on this at least:
President Donald Trump nominated former Republican lawmaker Scott Garrett as president of the Export-Import Bank of the United States on Friday, completing an about-face over an institution he had denounced as "featherbedding" for big business.
A White House statement also named Spencer Bachus, another Republican former congressman, to be a member of the board of directors of the bank. Both were named for four-year terms.

Trump told the Wall Street Journal on Wednesday he would fill the two vacancies on the bank's five-member board that have prevented it from having a quorum and being able to act on loans over $10 million.
His picks must gain approval from the Senate, which blocked nominees by former President Barack Obama.
When it comes to sheer economic ignorance, you will probably find it very hard to beat Donald Trump. In this case, however, you will have to give that designation to Congressional "small government" nutters who think that Ex-Im Bank is a little more than a subsidy provider. Those guys have both blocked efforts to get Ex-Im Bank from being fully functional and have delayed Obama's efforts to get it going despite bipartisan consensus to do so:
The bank has become a popular target for conservatives, who worked in Congress to kill the institution, arguing that it perpetuates cronyism and does little to create American jobs.

Trump's backing of the bank represents a victory for manufacturers like Boeing and General Electric Co (GE.N), which have overseas customers that use the agency's government-backed loans to purchase their products.

Trump told the Journal the bank benefits small businesses and creates jobs, a reversal of his earlier criticism of the bank as being "featherbedding" for wealthy corporations.
The truth of the matter is that most other countries--especially major exporters of manufactures like China (China Exim Bank) and Japan (Nippon Export and Investment Insurance) have export credit providers. Virtually all OECD nations have such institutions. So what the right-wing nutters were effectively doing was uniquely handicapping US exports in the face of international competition. The whole point is that the financial systems of many prospective buyers--especially in developing countries--may be unable to provide [a] larger-sized loans at [b] reasonable enough rates for [c] a long enough time. Those risks--amount, repayment and duration--usually entail official international credit.

As such, credit provided by export-import entities can be "developmental" in enabling purchases of capital equipment useful to fostering economic growth--especially in poorer countries whose financial systems are less sophisticated by definition. 

If even Trump can recognize that, what does it says about those who don't?

UPDATE: It is fair to reiterate that among the nominees of Trump, the putative president Scott Garrett was an Ex-Im Bank doubter who used to vote down re-authorization while a congressperson. However, it's counterbalanced by the other person proposed as a director, Spencer Bachus, being a proponent of getting it going again.

They cancel each other out, IMHO, and the bank will be back in business. After all, why activate it if you're not going to grant any financing to help US firms?
Read More

UK Delusions of Becoming Singapore 2.0 Post-Brexit

♠ Posted by Emmanuel in , at 4/11/2017 04:00:00 PM
By leaving the EU, the UK is making itself less--not more--like Singapore.
It strikes me as very odd that the architects of Brexit--which many voters supported to do away with economic integration in the first place--see an opportunity to remake the UK as Singapore. The story of its former colony becoming wealthier than it on a per capita basis is certainly something to admire. That said, Singapore is firmly entrenched in a regional integration of its own in the 1993 ASEAN Free Trade Area or AFTA. That ASEAN itself and AFTA were modeled to an extent on the EU, well...let's say people see what they want to see. It's called "confirmation bias."

Justin Fox shares his bemusement, Maybe part of the point of MNCs locating in the UK or Singapore for that matter was to be in an English-speaking gateway to a wider region--Europe or Southeast Asia? Through point is lost by the Brexiteers who've killed the regional golden goose:
The New Singapore idea seems to be mainly that leaving the EU will allow the U.K. to cut taxes and roll back regulations, positioning itself as a free-market oasis just off the coast of Europe.

Now, the U.K. already has a lower tax burden and a less-regulated labor market than most of the countries across the Channel, and London has been playing a role in Europe similar to that of Singapore in Asia for decades now. Global corporations, especially financial ones, have chosen Singapore and London as operations bases where the language is more familiar and the rules more amenable than in other countries in those regions. So far, most of the attention has been focused on the risk that Brexit, by restricting access to European markets, will harm London's status as a financial hub. But there's enough uncertainty about this that I guess it's impossible to dismiss the opposite argument entirely.
Kiwi economics commentator David Skilling who's written extensively about Singapore's virtues actually thinks smallish Scotland, if it gains independence, would be better placed to replicate Singapore than the biggish UK:
Cutting loose from the European Union could give the U.K. more room to maneuver. But the U.K. is a relatively large country that would be hard-pressed to maneuver like a Singapore -- and it may be shooting itself in the foot by walling itself off from its neighbors. There is a part of the U.K., though, that Skilling thinks shows promise. An independent Scotland, he wrote in his weekly note on Sunday, might just be small and cohesive and agile enough to make a go of it as a cold, windy Singapore on the moors.
In a separate article, Skilling underlines the point that ASEAN and AFTA are the bedrocks of Singapore's success:
But the foundation for Singapore's international economic and political engagement is Asean, and Asia more broadly. This regional engagement is a complement to, not a substitute for, Singapore's global network of trading and investing relationships.

Over 60 per cent of Singapore's exports and outward direct investment is focused on Asian markets. And Singapore's success in attracting inward investment - remarkably Singapore receives more foreign direct investment from the US than China does - is largely because Singapore serves as a hub for companies operating in the region. This regional bias in Singapore's economic engagement is likely to remain, supported by ongoing Asean economic integration.
So, a far more sensible argument is that, by leaving the EU, the UK has dismantled the scaffolding that would have enabled it to be the Singapore of Europe.

Some people need to be disabused of their Brexit senselessness. Economically speaking, it has definitely shot itself in the foot.
Read More

British Rat: EU Wants to Exclude UK From Trade Negos

♠ Posted by Emmanuel in , at 4/08/2017 04:18:00 PM

So the UK is hellbent on implementing its death wish of going it alone in the international trade arena. So be it. Not only will the UK be frozen out of the world's largest tariff-free area real soon, but it will have to renegotiate all its trade deals with countries it formerly had preferential agreements with as part of the European Union.

To add insult to injury, the EU is now thinking of sidelining the UK from fora for discussing ongoing negotiations with other non-European countries. (Having left the European Union, it would be hard to characterize the British as "real" Europeans.) The point of this exercise in sidetracking Britain is to ensure that it does not gain an unfair advantage when it comes time to negotiate an (admittedly far off) EU-UK trade deal:
Brussels is eyeing the exclusion of Britain from updates on EU trade talks amid concerns that the UK could take advantage of sensitive information in its own post-Brexit trade negotiations.

After a briefing last month by Michel Barnier, the EU’s chief Brexit negotiator, the European Commission warned that there needed to be a “discussion about the treatment of sensitive information in the context of certain trade negotiations, to which the UK would continue to have access to while it remained a full member of the union”. 

The warning, in an official account of the meeting, came as the EU prepared to initiate trade talks with Australia, a country which with the UK hopes to strike its own post-Brexit free-trade deal. All EU member states, including the UK, participate in a trade policy committee that meets weekly in Brussels to discuss the EU’s trade dealings. Representatives of member states also meet regularly with EU trade negotiators to discuss strategies and aims. 
Unsurprisingly, the remainers smell a British rat:
Many EU leaders are worried that allowing the UK to continue to receive the routine updates until it leaves the bloc in 2019 will strengthen Britain’s bargaining position in post-Brexit trade talks and potentially enable it to outbid the EU in future negotiations.

“The question is to what extent Britain should be involved or informed or have access to ongoing negotiations when they are leaving because then they will proceed to conclude their own deals,” said a senior figure briefed on discussions within the European Commission. 
That said, it will not be straightforward to freeze out the UK at just this moment:
In theory, the UK remains a full-fledged member of the EU until its separation and is entitled to participate fully in trade-related matters. In practice, however, there may be an arrangement arrived at in which the UK does not participate in trade-related EU matters in exchange for it being to negotiate FTAs with other countries prior to the 2019 anticipated breakup date.
I'd kick the British bums out now in trade-related matters, but it seems the rules-based EU will have to compensate the UK if it really is serious about removing it from the loop as early as now.

As with the real thing, there is no such thing as "amicable divorce" in customs unions.
Read More

Alibaba Buying MoneyGram: US Protectionism Revisited

♠ Posted by Emmanuel in , at 4/01/2017 05:33:00 PM
The use of "national security" grounds to discourage Chinese investment in the United States has been a recurrent issue for would-be PRC FDI in the US. Especially now in the age of Trump who encourages employment Stateside, it's ironic that American politicians would still dissuade foreigners from setting up shop in the so-called land of the free.

So it is particularly galling that Jack Ma of Alibaba fame is getting the full-on "national security" treatment. Not only did he meet Trump at Trump Tower before Trump assumed office, but he also vowed to help create American jobs. However, he is now being thwarted in his efforts to expand his money transfer service operations to North America through buying MoneyGram International.

As far as I am concerned, money transfer is an innocuous service in this day and age. There is no particular technology crucial to American security involved in sending money overseas. Nor is there a "terrorist" threat in China the Yanks are especially concerned with. Nevertheless, two American congresspersons have somehow found sinister motivations in the proposed purchase of MoneyGram:
On Friday, two members of the House of Representatives urged the Committee on Foreign Investment in the U.S. to conduct a "full and thorough" investigation of Ant Financial’s proposed acquisition of MoneyGram International Inc., a money-transfer service.

"The proposal merits careful evaluation as it would provide Chinese access to the U.S. financial infrastructure, a move that would pose significant national security risks if completed," Congressman Kevin Yoder and Congresswoman Eddie Bernice Johnson wrote in a letter to Treasury Secretary Steven Mnuchin.

Formerly a financial-services affiliate of Alibaba Group Holding Ltd. and controlled by Ma, Ant made its bid in January for $880 million, or $13.25 a share. In March, Leawood, Kansas-based rival Euronet Worldwide Inc. came in at $15.20, saying its offer had a better chance at regulatory approval. Dallas-based MoneyGram entered a confidentiality agreement with Euronet in late March to further consider its unsolicited proposal.
I suppose that if American lawmakers see "national security" concerns in hog farms, then they can certainly see sinister machinations at hand when a Chinese firm proposes purchasing a money transfer franchise. The other would-be purchaser of MoneyGram, Euronet, has been making claims that know-your-customer (KYC) regulations would allow the Chinese access to sensitive information:
Euronet CEO Michael Brown wrote to Mnuchin this week arguing Ant’s offer raises national security concerns because money transmitters collect confidential data on users which the government requires them to retain for several years. Money transmitters also get confidential requests from the U.S. Treasury’s Financial Crimes Enforcement Network about transactions that may be connected to terrorism or money laundering.

Yoder and Johnson reiterated those concerns in their letter on Friday, pointing out that Ant Financial is partly owned by Chinese state institutions. This could give a foreign government access to critical infrastructure and could be used for "intelligence purposes, location tracking, and identifying vulnerabilities for coercion," they said.

The total Chinese state-owned or state-affiliated ownership of Ant Financial is just below 15 percent, according to a person familiar with the matter. Those investors are passive and the entities don’t participate in Ant’s management or board, the person said. They asked not to be identified talking about Ant’s ownership structure.
Those who make money transfers via MoneyGram are not likely to be movers and shakers of international capitalism but rather migrant workers. These are small amounts we're dealing with, and I hardly think Chinese authorities would be keen on their personal information.

In this respect at least Trump is right: If Jack Ma wants to invest and create jobs in the US honestly, what's the matter? While Ma is certainly friendly with the Communist Party, sharing information on those making small money transfers Stateside is hardly one of his priorities. He just wants to make money; fancy that. No more, no less.
Read More