Non-Event: 'Revised' Korea-US FTA

♠ Posted by Emmanuel in , at 3/29/2018 02:07:00 PM
This isn't newsworthy at all. News about Trump's trysts with porn stars actually matters more.
You may be wondering why I haven't written anything at all about the so-called 'revised' Korea-US Free Trade Agreement (KORUSFTA). The main reason is that there have been very few changes, and these changes are next to inconsequential anyway. As you know, the main bone of contention of the Trump administration has been how Korean auto exports heading America's way have been far greater than those going in the opposite direction. So, it was inevitable that autos would be the main point of discussions.

What's actually been reported is quite laughable and does not address the main problem here: American cars remain largely unsuitable for the Korean market (or most of the Asian car markets, for that matter). As such, it is rather pointless to increase the cap for Korean importation of cars from the United States when the old cap was far from being reached anyway:
Under the terms of the draft agreement, the US was able to secure improved market access and eased import restrictions for automobiles. In 2016, the US deficit in the sector alone was US$24 billion – nearly 90 percent of the total goods deficit, according to a USTR statement from October 2017. The deal will allow US automakers to export 50,000 vehicles that do not comply with domestic safety regulations per manufacturer each year to Korea – double the figure previously agreed under KORUS. These vehicles do meet US safety standards and would be treated as such. 

[Korean Trade Minister Hyun-chong] Kim said that he expected minimal impacts on the import volume from this concession, given that the existing threshold has not been met for six years and Ford and General Motors shipped less than 10,000 units apiece to Korea under the allowance last year [2017 my emphasis].
Given that light trucks like pickups are the most saleable and profitable segments of the US auto industry, the deal is reportedly amended to make it harder for Korean automakers to sell such vehicles Stateside:
The US further extended its 25 percent duty on Korean pick-up trucks until 2041, 20 years later than permitted under the deal’s previous timeframe, according to the Korean Ministry of Trade, Industry and Energy. "We reached an agreement by accepting some of the US demands in regard to market access," Kim said. "We took consideration of the fact that no companies are currently exporting domestically-produced pickup trucks to the US.”
This was a big so-what since Korean automakers make no pickups anyway. However, in exchange for these so-called concessions, the Koreans actually got something substantial. That is, they don't need to increase the share of American parts their US-bound exports contain:
Korean negotiators were able to avoid higher content requirements for US auto parts, officials say.
So contrary to what Trump said, this is essentially the same deal for American workers for better or worse. As I said, it's a non-event.

Oh, Canada: Ongoing Exodus of Techies from US

♠ Posted by Emmanuel in at 3/28/2018 03:51:00 PM
Toronto is one of the places where immigrant tech workers can work without Trump seeking to deport them at each turn.
The polite term used to describe Donald Trump's anti-immigrant, whites-first policies is "nativist." I have never found that euphemism useful since, well, the real natives of the United States are actually Native Americans. On the other hand, there is next to nothing distinguishing Trump's policy preferences to those of white supremacists. Like re-tweeting British hate group videos. Like discouraging people of color from being counted in the 2020 Census--and by definition being considered "non-persons" in Trump's America--these policies are legion.

Wouldn't America be great again (like the 1950s) if all these coloreds (and women, gays, Muslims, etc.) knew their (subordinate) place in a white man's world? 

It is no surprise then that those who have worked in the United States' most dynamic sector--not coal or steel for Trump fans, by the way--are not exactly finding Trump's discriminatory immigration policies to their liking. I've featured the ongoing Silicon Valley exodus to Vancouver already before. To no one's surprise, further discrimination in immigration policies are driving even more of these folks to the United States' northern neighbors--this time to the fine city of Toronto. A Canadian tech hub, MaRS, has just conducted a survey mirroring earlier anecdotal evidence:
The survey, carried out by MaRS, a tech hub in Toronto, had a relatively small sampling — 55 companies. But its target — tech companies — hit the much-coveted professionals courted by Canada, France and other countries since Trump began raising obstacles for foreigners working and studying in the U.S.
Among the results:
  • 53% of the companies said their international applications grew over the course of 2017, and 45% hired one or more of the people who applied.
  • 82% of the applicants were from the U.S., 55% from India, and 36% from China. As for those actually hired, 55% were from the U.S., 23% from China and 9% from India.
  • These were largely tech workers — 47% of them were engineers, 24% data scientists and 10% researchers.
The reality of it--not the reality show of it--is that the United States is an increasingly unattractive place to work for knowledge workers who tend to thrive more in an open, multicultural setting. Somehow, I don't think Trump aspiring to a coal- and steel-powered economy where a tertiary education is not required--least of all in STEM disciplines where they teach you left-wing nonsense that climate change is man-made and suchlike--is attractive to footloose knowledge workers who countries the world over seek to employ.

Aside from starving the United States of workers outright given its unfavorable demographics, what Trump is also doing is starving it of the most talented and sought-after ones to appease an ever-dwindling base of, well, disgruntled (former) coal and steel workers. If there ever was a definition of "backward-looking," it's Trump.

China and the Fog of Trade War

♠ Posted by Emmanuel in , at 3/23/2018 12:15:00 PM
Watch out: blowback may be severe.
The Trump administration is a triumph of gesture over substance, so it should be no surprise that his China-bashing trademark has the feel of a really lousy made-for-TV "special" wherein signing ceremonies matter more symbolically than the actual policies being implemented. Specifics can wait: see the example of tariffs on steel and aluminum that are still up in the air despite being announced at the start of the month.

That Trump is improvising on trade policy with less-than-comprehensive details from his economic ministers is obvious. My favorite current example is that there isn't even clarity on whether the forthcoming tariffs on Chinese-made goods supposedly taking advantage of intellectual property [IP] violations are worth $50 or $60 billion dollars. Trump likes to style himself as a dealmaker, and so something in that range would be his "opening gambit." This, however, introduces a lot of market uncertainty as to who might be able to wangle "special deals" to limit the harshness of trade penalties.

What we haven then is the fog of trade war in the era of Trump. A reason why I haven't written more about these assorted China-bashing penalties is that, well, many of the details are still up in the air. From what we know so far largely based on (limited) information provided by the USTR, the intellectual property offensive has three parts to it:

I. The unilateral component - applying tariffs on IP-related Chinese exports makes use of the United States "Section 301" concerning sanctioning unfair trade practices by other nations. The reason most are unfamiliar with it is that the law was more widely used during the 1980s before there was a WTO to adjudicate such matters--when current US Trade Representative Robert Lighthizer was busy trying to bash the Japanese (not the Chinese) during the Reagan (not the Trump) administration. The whiff of antiquity about its current use is that it hasn't really been deployed all that much since, well, Trump made the old trade warrior Robert Lighthizer his point man after a hiatus of nearly four decades.

Usually, an order of the cease-and-desist variety (here of allegedly unfair trade practices) clearly states which behaviors must be halted immediately. Unfortunately for the Chinese, the grand signing ceremony was all show; Lighthizer has yet to unveil what exactly it is that will be targeted:
The President has instructed the Trade Representative to publish a proposed list of products and any tariff increases within 15 days of today’s announcement.  After a period of notice and comment, the Trade Representative will publish a final list of products and tariff increases.
So in response to $50-60 billion worth of Chinese goods to be penalized, the PRC has only identified $3B worth of American exports to China to retaliate against. It's early days still, and China cannot be expected to calibrate its response when these American unilateral actions are under a cloud. Alike the tariffs on steel and aluminum, these are eminently questionable from the standpoint of WTO legality. Speaking of which there is also...

II. The multilateral (WTO) component - for a guy criticizing the WTO for allowing unfair practices of American to persist for so long, it's interesting that Trump and his administration are nonetheless attempting to bring a case against China regarding IP. Just today, the United States filed a case there:
"China appears to be breaking WTO rules by denying foreign patent holders, including U.S. companies, basic patent rights to stop a Chinese entity from using the technology after a licensing contract ends," the U.S. Trade Representative's office said in a statement.

"China also appears to be breaking WTO rules by imposing mandatory adverse contract terms that discriminate against and are less favorable for imported foreign technology," it said. Such policies interfered with foreign technology holders' ability to set market-based terms in licensing and other technology-related contracts, it said.
Parts I and II are inconsistent in the sense that I undermines the whole WTO system by suggesting might makes right: because the US is such a powerful country economically, it can pretty do what it pleases unilaterally. Yet, in the same breath, II wants to use the very same WTO it undermines by taking such courses of action to pursue IP remedies. What will it be? China will certainly be looking at making its own WTO case against forthcoming tariffs on its goods in I. Maybe the real question in the meantime is whether the WTO still matters by then while the US alternately seeks to undermine and uphold it.

III. The investment component - as many have noticed, preventing further Chinese investment in US firms to presumably stop the PRC from gaining more American technology is rather redundant. Since the Committee of Foreign Investment in the United States (CFIUS) has dissuaded Chinese firms for a long time from buying American technology companies on "national security" grounds, what's different here? This from the Obama era circa 2015:
For more than a decade, China has complained about what it maintains has been a pattern of erratic and politicized treatment of Chinese investors when they attempt to acquire US companies. The Chinese want the Committee on Foreign Investment in the United States (CFIUS) to be more open and transparent in its rulings and to not discriminate against Chinese firms. The United States is not likely to accede to these demands in any formal or legal manner.
How much more PRC "technology-" or "security-"related investment in the US is there to stop when almost all of it is stopped while subject to CFIUS scrutiny? See the egregious example of Jack Ma's Ant Financial being stopped from buying money transfer service MoneyGram or even (Singapore-based) Broadcom's proposed merger with (US-based) Qualcomm. Broadcom is not even PRC-based, but they made it sound like another unwanted Chinese intrusion in the technology space.

BOTTOM LINE: In a sensible world, the Chinese would accede to American wishes to not so explicitly make technology transfer provisions for foreign companies wishing to enter the Chinese market. In exchange, the free-spending Americans would acknowledge that such profligacy inevitably means foreigners would come to own more and more of its largest debtor's (US) properties. In the real world, though, we get few of these things and a trade war in which many details are...covered in fog as mutual grievances fester. Stay tuned as we navigate this opacity.

And no, I don't believe anyone "wins" a trade war.

Did Golfer Greg Norman Save Oz From Tariffs?

♠ Posted by Emmanuel in , at 3/17/2018 10:24:00 PM
Who you gonna call when Trump's hitting your country with tariffs? Golfing great Greg Norman.
I'll have more to say about the United States being poised to apply $50 billion worth of tariffs annually on China over alleged intellectual property theft and related issues, but I wanted to get this news out of the way first as it involves one of the countries Trump does not consider an ally by any means. Just today, we received news that a lot of American (military) allies are going to be exempted from the forthcoming tariffs on steel. At this rate we're losing track of Trump's trade measures, but it turns out Australia is among those getting a free pass as confirmed by the USTR:
The United States trade representative, Robert Lighthizer, said on Thursday that several American allies would initially be exempt from the steel and aluminum tariffs that are to take effect shortly. Speaking at a meeting of the Senate Finance Committee, Mr. Lighthizer said that the European Union, along with Argentina, Australia, Brazil and South Korea, would be exempted. Canada and Mexico were earlier left off the list of countries subject to the tariffs.
As a side note to the exemption, it may have been the case that a famous name lobbying for the Aussie side could have swayed Trump. He is none other than Australian golfing great Greg Norman--nicknamed the Shark--winner of multiple major titles (but famously never the Masters Tournament). From the sport, remember that Trump owns many golf courses--some regularly featured on professional tours--Norman became a friend of Trump. Being wise, the Australian government sought his help:
Golfing legend and Donald Trump mate Greg Norman was "called in" to lobby the US President on Australia's behalf over steel tariffs, Foreign Minister Julie Bishop has confirmed...

Mr Norman was among a number of senior business leaders to petition Mr Trump in a letter reminding him of the US's trade surplus with Australia, as well as the two countries' long-standing defence ties.

Mr Norman is a good friend of Mr Trump's, bonding through a mutual passion for golf. When Mr Trump won the presidency, Australian ambassador to Washington Joe Hockey called Mr Norman on behalf of Prime Minister Malcolm Turnbull to find out Mr Trump's mobile phone number."I don't normally give out cell phone numbers of people in my database, but considering it was for the Prime Minister to call the President of the United States, I thought that would be the right thing to do," Mr Norman later explained.
The full letter signed by Australian business leaders...and Greg Norman, of course, you can find here. With Trump, it appears flattery will get you places, no matter how the saying goes. 

Maybe Trump Admin's Intent is to Leave the WTO

♠ Posted by Emmanuel in at 3/07/2018 04:24:00 PM
It may be an American farewell to the WTO building on the shores of Lake Geneva real soon.
As I've written in a previous post, it is unlikely that the United States will win a case against its proposed tariffs on imported steel (Trump mentions 25%) and aluminum (10%) if one is brought by the affected exporting countries. While there is a clause as I've also mentioned for applying such tariffs if the nebulous "national security" reason is invoked, [a] there is no real precedent for doing so and [b] it's unlikely to be sustained since American defense industries only represent 3% of steel demand.

But, consider this: What if Trump is going into this fully knowing that he will be ruled against? This could be a political ploy that works in favor of his "war on globalists" Bannonite shtick. If the WTO is "against America" as a losing ruling would indicate, then why not just leave altogether? That's how MarketWatch's Greg Robb sees how things may pan out:
There is concern among trade experts that President Donald Trump’s plan to impose tariffs on foreign steel and aluminum may eventually give the administration an excuse to walk out of the World Trade Organization entirely.

It is not difficult to sketch out a scenario where the Trump administration would just say “that’s it, we are leaving,” said Jennifer Hillman, a fellow at the Institute of International Economic Law at Georgetown University, on a conference call with reporters sponsored by the Atlantic Council. Trump is planning to justify the sweeping tariffs on the grounds that the foreign imports threaten national security.

Foreign government are likely to quickly go to the WTO and ask that the tariffs be ruled illegal. Hillman said the U.S. may counter by saying it was taking the action under Article 21 of the General Agreement on Tariffs and Trade, which Hillman called the untested “third rail” of trade laws. Essentially, the article says that some binding tariff agreements can be broken during wartime.
That is, a "biased" losing ruling--which is the generally expected outcome--would be the pretense to end American participation at the WTO:
The WTO panel might rule anyway, setting up a standoff. This suggests to some that the whole reason to go down the national security route is really to create a crisis so the U.S. can withdraw from the WTO, Hillman said.
It was previously unthinkable that something like this could happen since the Americans of old came up with the entire idea of a WTO. With Trump, the impossible has a way of becoming the probable. Let's see if the Republicans can rein in their "rogue" president as times have changed...and we haven't even gotten around to talking about the fate of NAFTA yet.

Tariff Terrorist Trump, Meet Tariff-Cutting Congress

♠ Posted by Emmanuel in at 3/05/2018 11:30:00 AM
Yay! Cheaper GAP vest soon care of...American politicians?
I will soon have (rather lots) more to say about the upcoming Trump tariffs on steel and aluminum. Since the US Trade Representative has not yet finalized the terms as to whether some countries or US domestic industries buying from abroad are exempt among other details, there is still some uncertainty about their ultimate form. That is, the full extent of the economic terror Trump will unleash on global markets is still up in the air.

In the meantime, though, consider this: the American congress is considering legislation that will cut tariffs on a grab-bag of imported goods currently falling under the miscellaneous tariff bill. So, it's like a push-pull set of messages from the American executive and legislature that's got us foreigners rather confused. A handful of protectionist US lawmakers still want to keep it largely intact, though:
Even as President Trump threatens to slap protective tariffs on steel and aluminum, lawmakers are moving forward with legislation to lower trade barriers on hundreds of other products, from chemicals to toasters, in a bid to lower costs for U.S. companies and consumers.

Supporters of the so-called miscellaneous tariff bill, which unanimously passed the House of Representatives in January, say it would boost the economy by getting rid of tariffs designed to protect U.S. industries that no longer exist. The National Association of Manufacturers says U.S. companies pay hundreds of millions of dollars each year on unnecessary import fees.

Critics say that miscellaneous tariff bills, which began decades ago as modest efforts to help U.S. manufacturers, have in recent years become sprawling packages of tariff reductions that undercut domestic producers without the means to defend their interests in Washington.

Ohio Senator Sherrod Brown, a Democrat who worked to get several products removed from the current bill, said Congress should do a better job to ensure tariff reductions do not impede U.S. producers. “Miscellaneous Tariff Bills should help, not hurt American manufacturers,” Brown said in a statement to Reuters.
The original bill is said to have become severely distorted. Intended to lower the cost of importing intermediate goods American manufacturers purchase from abroad, it's since become a sprawling bit of legislation covering more of finished articles:
Miscellaneous tariff bills were originally conceived in the 1980s as a way of lowering costs for U.S. manufacturers that could not get chemicals and other component products from domestic sources. The original point of the efforts“was to encourage domestic manufacturing,” recalls Jennifer Hillman, who worked on the legislation as a Senate staffer in the 1980s and 1990s.

All but two of the 163 items in a 1999 version of the bill, for example, were used in the manufacturing process, according to a House Ways and Means Committee report. Since then, Congress has broadened successive tariff bills to include many finished products that can go straight to store shelves.

Only 55 percent of the items in the current bill are“intermediate goods” used in manufacturing, according to applications filed with the International Trade Commission. Many of the rest are finished consumer products. 
The apparent disjoint between Trumpian protectionism and the apparently more favorable trade outlook of American lawmakers does reflect wider societal conflicts over the desirability of free trade. Even within the Republican party alone, there is a pronounced difference of opinion. Meanwhile, those of us in the rest of the world will have to learn the nuances of US political economy to come up with an informed view of how this key trading nation treats the issue.

Trump Escalates Trade War: Steel & Aluminum

♠ Posted by Emmanuel at 3/01/2018 07:07:00 PM
If Trump goes down, he's decided to take the world economy with him.
It's no secret that the Trump administration is besieged on all sides now. As White House staffers flee or begin to leave Trump's sinking ship while it takes fire from every conceivable direction, Trump has decided to make a distraction he believes will distract public attention. While hosting American steel executives today, he went against the wisdom of his saner (read: non-white nationalist, non-xenophobic, non-protectionist) advisers. It's the Trump equivalent of damn the torpedoes as far as economic matters are concerned as cooler heads have definitely not prevailed:
President Trump on Thursday said he had decided to impose punishing tariffs on imported steel and aluminum in a major escalation of his trade offensive, disappointing Republican congressional leaders and inviting retaliation by U.S. trading partners.

Speaking at the White House, the president said he had decided on tariffs of 25 percent for foreign-made steel and 10 percent for aluminum. “We’ll be signing it next week. And you’ll have protection for a long time in a while,” the president said. “You’ll have to regrow your industries, that’s all I’m asking.”
While tariffs on steel applied by the United States are fairly common, the stated reasons this time around raise a lot of eyebrows--especially among American trade partners that will be affected. The 2002 tariffs George W. Bush was "conventional" in invoking what are known as "safeguards" in the event of a sudden surge of imports that threatens domestic industry. Ultimately, the United States backed down after two years. Not only did other countries make a WTO case against America, but they won by demonstrating that there was no sudden, sharp increase in America's steel exports. Quite the opposite, in fact.

Probably to get around this line of response by other countries, the United States is now citing that all-purpose chestnut, "national security." While there is a WTO clause concerning when such justifications are valid, it is most likely not going to be considered as such with America's current case. Simply put, it is highly dubious claim that longstanding purchases by US manufacturers of foreign-made steel threaten to undermine US security. Is the situation different now compared to before Trump and his protectionist lackeys? For instance, have foreign producers begun sell the US substandard steel to undermine American safety for use in infrastructure, automobile manufacture and so on? I don't think so.
The president’s move, relying upon a little-used provision of U.S. trade law, is expected to trigger immediate legal challenges by U.S. trading partners at the World Trade Organization and invite retaliation against American exports.

Trump also turned back pleas from companies that are heavy users of steel and aluminum, including automakers, who warn that higher prices will hurt their sales and potentially lead to layoffs. In 2002, the last time the United States imposed steel tariffs, steel users blamed the measures for the loss of up to 200,000 jobs.
The likely near-term responses of the others will probably include retaliatory, tit-for-tat tariffs on products which the US exports to them. In the medium term, the affected countries will probably file another multi-country case at the WTO arguing precisely what I've suggested. That is, "national security" justifications as offered by the Trump administration are inadmissible at the WTO dispute settlement mechanism.

Also, expect China to be more proactive this time around. More often than not, it's been at the receiving end of the US filing WTO cases against it. With Trump going bonkers, it needs to make a stand sometime lest it be hit with other protectionist measures:
On Thursday, China’s Foreign Ministry repeated its government’s objections. “The United States is disregarding the rules of the WTO, and China is dissatisfied with this,” spokeswoman Hua Chunying told a regular news conference. She said such measures would affect employment in the United States and affect the interests of the United States’ consumers. “As for the actions of the United States, China will take proper measures to safeguard its legitimate rights and interests.”
Why are Trump steel tariffs made on dubious grounds worse than George W. Bush ones? My view is as stated above: Trump's are made on justifications that are several magnitudes flimsier and won't withstand scrutiny. I predict a rough patch for world trade over the next few months; that much is obvious. However, I also predict that a WTO complaint filed at the WTO against the United States has an even higher chance of succeeding than the earlier (unfavorable) ruling on the Bush steel tariffs. It is then that the US will have to decide--if we get there--whether to withdraw support altogether for an institution it's been the main proponent of all these years. Now that would really set world trade afire. 

However, the rather more likely possibility is that even the Trump administration will back down as pressure from various constituencies and their lawmakers mounts. Remember, there are far more US-based customers of imported steel than there are American steelmakers. My belief is that Trump's trade action is an act of economic desperation as he is under political siege. Ironically, it is the American and, most likely, the wider world economy that will have to suffer the consequences of this vainglorious jackass's attempt to distract from the chaos surrounding the American executive branch..