Can Trump Withdraw US From WTO as He Wishes?

♠ Posted by Emmanuel in , at 6/29/2018 08:06:00 PM
Are the WTO's days numbered with Trump desiring that the US leave it?
Well, it always was bound to come down to this: I have discussed about how various US trade actions on aluminum, steel, automobiles and heaven knows what else are flat-out WTO-illegal. These Section 232 actions on dubious "national security" grounds and Section 301 actions on equally questionable claims about righting US trade partners' injurious trade policies predate the WTO. Indeed, Trump's US Trade Representative Robert Lighthizer who was renowned for using these actions was last in government when Ronald Reagan was in power.

A common thread here is a desire to return to a pre-WTO situation when international trade rules were less codified and the United States presumably had more leeway in pushing others around as it pleased--at least according to the likes of Lighthizer and Trump's assorted minions. Ironically, of course, many developing countries have criticized the WTO for being designed largely to fulfill US wishes regarding trade such as the incorporation on intellectual property rights. At any rate, the main reason to leave the WTO as I have explained is that cases involving Trump's trade actions are likely to be ruled against when brought to its dispute settlement mechanism. To his way of thinking, this outcome would be "unfair." So, why not just leave altogether?
President Trump has repeatedly told top White House officials he wants to withdraw the United States from the World Trade Organization, a move that would throw global trade into wild disarray, people involved in the talks tell Axios.

What we're hearing: “He’s [threatened to withdraw] 100 times. It would totally [screw] us as a country,” said a source who’s discussed the subject with Trump. The source added that Trump has frequently told advisers, "We always get fucked by them [the WTO]. I don’t know why we’re in it. The WTO is designed by the rest of the world to screw the United States."
There will certainly be "globalists" even in Trump's cabinet pushing back against this line of action. But, as his other moves on trade demonstrate, he often ignores advisers going against his racist / protectionist / isolationist instincts:
Between the lines: Even if his advisers put a policy process in place and try to make sure he’s well-informed on what it would mean to try to withdraw from the WTO — there is no guarantee that Trump won’t do it. History shows he doesn't care about the process.
  • Remember when Trump upended his globalist trade advisers’ carefully constructed policy process and simply announced he’d be imposing massive tariffs on steel and aluminum imports? It’s not unimaginable that the same could eventually happen with his desire to try to withdraw from the WTO.
So, what can Trump do? Similar to NAFTA, it is a question as to whether withdrawing from the body in question can be done by the executive. That is, congress having authorized entry into NAFTA or the WTO, another act of congress should also be necessary to authorize departure:
The safety valve: Should Trump defy his advisers and announce a withdrawal at some point in the future, he would run into significant legal hurdles.
  • As head of state, Trump under international law could make the notification at the WTO. But the U.S. law implementing the WTO agreements states quite plainly that withdrawal from the WTO requires an act of Congress.
Just because he isn't authorized to leave NAFTA or the WTO doesn't mean he won't try since this president does not feel bound by law.

One Belt, One Empire? PRC's Sri Lankan Port

♠ Posted by Emmanuel in at 6/26/2018 06:17:00 PM
A port in Sri Lanka made by China and now owned by it shows dangers in borrowing from the PRC for infrastructure.
A continuing thread I've been investigating is the PRC's grandiose One Belt, One Road Initiative, lately abbreviated to the Belt and Road Initiative. Its stated intention is to restore the commercial infrastructure of the historic Silk Road which stretched from China all the way to the Middle East. To this end, the Chinese government has been spending a lot on infrastructure projects in many developing countries stretching from the Far to the Middle East.

It cuts both ways: developing countries are keen on alternate sources of financing for their infrastructure needs. What's more, China knows a thing or two about improving infrastructure going by the improvements they've made in this respect over the years. Meanwhile, the Chinese benefit by gaining commercial and of course trade access to these nations.

Today, though, we have an interesting counterpoint: What if China's "non-intervention" in the internal affairs of other countries actualy involves lending to corrupt leaders who the Chinese know have no ability to pay them back for these grandiose infrastructure projects? Then the Chinese may still benefit by taking over these facilities. Indeed, the cynical would say that's the entire point of this initiative.
“John Adams said infamously that a way to subjugate a country is through either the sword or debt. China has chosen the latter,” said Brahma Chellaney, an analyst who often advises the Indian government and is affiliated with the Center for Policy Research, a think tank in New Delhi.
Witness what's happening with Sri Lanka nowadays. As the Chinese sought a presence on the Indian subcontinent, its borrowers have conveniently gone belly up and have given up control of a newly port by the Chinese to its builders:
Over years of construction and renegotiation with China Harbor Engineering Company, one of Beijing’s largest state-owned enterprises, the Hambantota Port Development Project distinguished itself mostly by failing, as predicted. With tens of thousands of ships passing by along one of the world’s busiest shipping lanes, the port drew only 34 ships in 2012. And then the port became China’s.

[Former Sri Lankan President] Rajapaksa was voted out of office in 2015, but Sri Lanka’s new government struggled to make payments on the debt he had taken on. Under heavy pressure and after months of negotiations with the Chinese, the government handed over the port and 15,000 acres of land around it for 99 years in December.
The case of a single port is not enough to indict China's intentions, of course. A multi-country study would be useful on whether infrastructure projects were actually completed, used, or worse handed to the PRC after recipient governments could not pay off loans. At this point, though, nobody should believe China's intentions are purely altruistic "third world solidarity" and all that jazz.

There are many dupes like those in Sri Lanka just waiting all over the world.

Trade Wars & Impending Death of American Soy

♠ Posted by Emmanuel in , at 6/20/2018 04:21:00 PM
 
There's a saying that you get the leaders you deserve, and it seems American soybean farmers have voted to put themselves out of business.  Overwhelmingly carrying states where soybean farmers are located, Trump is hellbent on rewarding his voters with economic misfortune. Given Trump's radically anti-China campaign rhetoric, let's say this turn of events is of no surprise to no one. What's more, the export of soybeans was one of the few bright spots in an otherwise dismal agricultural industry:
Soybean-producing counties went for Trump by a margin of more than 12 percent, according to a Washington Post analysis...

Like most large-scale soybean farms in the United States, [this] business relies heavily on foreign markets. China buys 60 percent of all U.S. soybean exports to feed a growing fleet of hogs, fish and chicken.

The high demand has made soybeans a bright spot of profitability for farmers at a time when many other crop prices are down. But Trump’s aggressive tariffs against Chinese goods, meant to protect U.S. intellectual property and manufacturing interests, have incited retaliatory actions that farmers say threaten their profits.
In recent days, the price of soybeans has dropped precipitously, probably causing no small amount of concern for the folks who voted for Trump to punish themselves:
Soybean futures for July delivery dropped more than 7 percent to a low of $8.415 a bushel, their lowest since March 2009, according to Thomson Reuters. They were trading near $8.64 a bushel as of 11 a.m. ET. There are a lot of "unknowns and no confidence," said Rich Nelson, director of research at Allendale, an agricultural market research and trading firm...

With Tuesday's late morning sell-off, soybean prices are now more than 17 percent lower for the quarter and down more than 10 percent for the year..."The dramatic drop today is soybeans because soybeans is first and foremost what the Chinese like to buy from us," said Phil Flynn, senior market analyst at The Price Futures Group.
As a mainly export-driven industry selling to the Chinese, the future of soybean farming has been cast in doubt despite the trade making sense on paper. But, who says logic matters during a trade war as belligerents seek to one-up each other in harming themselves?
But that situation only holds in the short term. Yes, as the world’s top buyer, China needs U.S. soybeans today, in a few months, and likely even next year. However, it is not unreasonable for China eventually to wane itself off American beans in the longer term, which could have detrimental and irreversible effects on U.S. markets...

On paper, a soybean trade war involving the United States and China makes no sense for either party. China imports roughly 100 million tonnes of soybeans each year, primarily from Brazil and the United States, which together produce 70 percent of the global supply.

Simple math demonstrates that under the current structure, China cannot avoid U.S. soybeans right now if it is to meet its import schedule. And besides, why would China want to pay more for a product it clearly needs? Why would the United States threaten its No. 2 export (behind aircraft) to the East Asian country? But logic apparently matters not in this case, as these are the choices that have ultimately been made under the decision to proceed with the tariff tit-for-tat, and potentially a full-on trade war.
When they chalk up the demise of the American soybean industry years from now, it will come down to one word: "Trump". Having voted for him in the first place, soybean farmers will have no one to blame but themselves.

UPDATE: Using the familiar computable general equilibrium model GTAP, researchers at Purdue University estimate Chinese soybean imports from the United States can drop up to 71% if 30% tariffs are applied. Currently, Chinese authorities have indicated a 25% tariff. Not far off...

US Against the World: Three-Front Trade War

♠ Posted by Emmanuel in ,,, at 6/01/2018 07:25:00 PM

Military historians generally believe that World War II was lost by the Germans waging a two-front war. In the West, it fought against the UK, France, and the rest while it simultaneously fought Russia in the East. Not being a close follower of military history, Donald "Trade Wars are Good and Easy to Win" Trump has now  simultaneously declared war not on two but three fronts: against China (by vowing to make good on slapping tariffs on $50B worth of Chinese imports), the European Union, and North America (by not renewing exemptions from steel and aluminum in June).

Can Trump Make America Great Again through US Against the World? Jeffrey Sachs believes Trump has gone insane and that the obvious answer is "no" in calling for Trump to be relieved of office:
The US has probably never before had a delusional President, one who speaks gibberish, insults those around him including his closest associates, and baffles the world. By instinct, we strive to make sense of Trump's nonsense, implicitly assuming some hidden strategy. There is none.
Trump's trade actions are blatantly illegal. They are flimsily justified as an act of national security, but this is sheer nonsense. They are also fatuous in terms of US economic and geopolitical interests. Harming our closest allies, raising the prices on key intermediate products, and provoking retaliation cannot possibly deliver higher wages, better jobs, or an improved trade balance. Trump's latest notion to slap tariffs on German automobiles would be even more damaging geopolitically.
Jeffrey Frankel, like most other sensible observers, also sees folly in Trump's nonsensical moves:
But the economics would be illusory. There would be virtually no effect on the overall U.S. trade deficit: We would otherwise sell the natural gas to some other country, and in reality those smartphones already get about 95 percent of their value added from South Korea, the United States and other countries anyway. Focusing on the bilateral balance is a waste of time. Regardless what happens with China, the overall U.S. trade deficit will rise this year as a result of the Republican tax cuts, enacted at a time when the economy is already producing at the limit of its capacity.

Similarly unmoored from both economic and legal logic are the tariffs that Trump has imposed on imports of steel and aluminum, and threatens to impose on automobiles and other goods. With respect to legal criteria, the national security justification that he has invoked is flimsy in the extreme and will likely inspire other countries to retaliate. With respect to economic criteria, the beneficiaries in the steel industry, for example, are vastly outnumbered by those who will be hurt because they use steel as inputs, they consume the final product, or they produce export goods that will be hit by the repercussions, such as farmers.
Anyway, on to the belligerents. Take, for instance, slapping unexpected steel and aluminum tariffs on Canada and Mexico after Canada's PM Justin Trudeau flat refused to have NAFTA renegotiated every five years (as he should):
The White House launched a round of strong-arm tactics Tuesday when Vice President Mike Pence called Justin Trudeau and issued an ultimatum: A reworked NAFTA deal would need to be renewed every five years. In response, Trudeau canceled a trip to the U.S. Then on Wednesday, the Trump administration announced surprise steel and aluminum tariffs on Canada and Mexico. And on Thursday and Friday, President Donald Trump bashed Canada’s trade practices.

The White House is hoping the campaign of aggression will cause Canada and Mexico to cave as talks to renegotiate the 25-year-old NAFTA agreement are plagued by standoffs and delays. But instead, the moves could backfire as Canada and Mexico retaliate with their own tariffs, leading to a stalemate that would result in Trump pulling out of NAFTA altogether.
The other NAFTA countries are now engaged in a retaliatory tariff slapping frenzy:
Starting July 1, Canada will impose duties on about $12.8 billion worth of U.S. imports. The tariffs will target steel and aluminum imports from the U.S., but also agricultural and manufactured goods like cucumbers, laundry detergent and mattresses.

Mexico also said it would impose tariffs on $8 billion in American pork, blueberries, lamps and other goods. Mexican Economy Secretary Ildefonso Guajardo told reporters on the sidelines of a summit in Paris that his government is taking the action under the rules of NAFTA, which will allow the country to impose its retaliatory tariffs immediately, as soon as early next week.
Not content with irking the normally placid Canadians, the Yanks are making Europeans also deal with the same steel and aluminum tariffs. More specious measures are said to be forthcoming on "national security" grounds on Germans cars:
Mr Trump had warned before Thursday’s decision that any EU countermeasures would be responded to in kind — a message reaffirmed by US officials in recent contacts with European diplomats. The US administration in May announced an investigation into whether car imports pose a national security risk— a probe that is being eyed warily in Germany and elsewhere, as auto tariffs pose a much larger potential threat to the EU than the steel and aluminium duties. Germany, for example, accounted for just 4 per cent, or about $1.2bn, of the US’s $29bn in steel imports last year. But the US imported $20.2bn worth of cars from Germany and a further $8.6bn from the UK.
We'll see how the third round of China-US trade talks will go the next few days, but the writing appears to be on the wall already. As many have observed, the US trade actions are unlikely to be upheld at the World Trade Organization. Following China and India, the European Union has just initiated a case at the WTO against these steel and aluminum tariffs.

Given Trump's unrivaled ability to offend everyone--others Asians like China and Japan included over steel and aluminum alone--I would expect the rest to consolidate their cases against America. An interesting aspect here is that Trump is potentially driving the Europeans into the arms of China now since the EU has traditionally had complaints about the PRC more similar to those of the United States concerning the overproduction and dumping of Chinese steel and other goods. America will be left with no real major economic allies, be they Asian, European, or North American.

Let's further assume that the Europeans and the others win their WTO case(s) against the United States. These things take time. It may be that the case stretches into the 2020 US presidential elections when a less protectionist candidate wins--it's hard to imagine anyone more protectionist than Trump. The more "exciting" outcome would be the US losing its case while Trump is still president, in which case the US will probably just ignore the WTO ruling. It has done so in the past, and Trump has already pledged to ignore those it sees as "anti-US". With that result, we must return to the idea that Trump's intent, knowing full well that his trade policies are WTO-illegal, is to blow up the institution. Here, the question would be how long it is before a more conventional American leader is put in place to shore up an institution the United States thought up in the first place.

So, can the US "win" a three-front trade war? Two was already a stretch going by conventional wars; three is probably a step even beyond "too far already". In the end, the losers here are probably everyone involved as history suggests there are no real victors in these trade wars.