BULLY IN THE CHINA SHOP

NAFTA:   I will have a short discussion about the much maligned NAFTA.  Initiated by former President George H.W. Bush and signed into law by former President Bill Clinton in 1994, NAFTA has helped boost U.S. exports to Canada and Mexico, the nation's largest and 3rd largest trading partners. not including the Europe Union as a whole. (https://en.wikipedia.org/wiki/North_American_Free_Trade_Agreement).

"Goods exports totaled $236 billion; goods imports totaled $295 billion. The U.S. goods trade deficit with Mexico was $58 billion in 2015. "

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"The top import categories (2-digit HS) in 2015 were: vehicles ($74 billion), electrical machinery ($63 billion), machinery ($49 billion), mineral fuels ($14 billion), and optical and medical instruments ($12 billion)"*

President Trump has succeeded in raising the hackles of the Mexicans by trying to bully them into directly paying for the Great Wall of Trump.  Not surprisingly Mexico confronted the bully and said hell No.   If the U.S.had problems with Mexico before, now they seem to be a disaster.

There is a proposal to put a border tax of 20% on Mexican exports to the U.S.  Please note that the only government owned operation in the above list  of  imports is the mineral fuels so all the border tax would be paid by private industry, often U.S. companies.  So with a border tax, it will be the U.S. consumer who pays the tax because of increased pricing, everything else considered equal.  However, everything else is not equal and the value of the dollar index is expected to rise.  If the dollar index were to rise by 20% (which might happen if the border tax applies to all countries), then I think (but do not know) that the whole thing is a wash.

Institution of the border tax would, of course, scrap NAFTA.  the proposal is to use that money gained from the border tax to pay for the Great Wall of Trump.  At any rate, I am sure that it is the U.S. consumer that pays the tax thus the Great Wall of Trump.

Under consideration by the Republicans is to make the border tax universal, e.g. apply to all countries.  I hope the Republicans think this whole thing through, something they are not known to do. ** In addition to the complexity of the dollar index, Mexico is almost certain to institute a border tax of their own.  It was NAFTA that got Mexico to do away with their import taxes and exports from the U.S. to Mexico rose greatly as a result.  So our border tax plus Mexico's new border tax probably ends up costing U.S. jobs.

U.S. goods exports to Mexico in 2015 were $236 billion, down 1.6% ($3.9 billion) from 2014 but up 97% from 2005. U.S. exports to Mexico are up 468% from 1993 (pre-NAFTA). U.S. exports to Mexico account for 15.7% of overall U.S. exports in 2015.**

I hope present day politics doesn't screw NAFTA up.

There is some modification of NAFTA in the TPP (Trans-Pacific Partnership) (a trade agreement between Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru,Singapore, the United States and Vietnam.) (https://en.wikipedia.org/wiki/Trans-Pacific_Partnership); however, we are going to trash that before it begins and cede Asia to China.

It is hard for me to see how all this ends well.

* https://ustr.gov/countries-regions/americas/mexico 

** For example, Republicans were all for the President having a line item veto, apparently never thinking that there might be a Democratic President; however President Clinton was elected.  When he used the line item veto, Republicans howled and took it to the Supreme Court that said it was unconstitutional.   Some Republicans still want the line item veto.

THE TRANS PACIFIC PARTNERSHIP - TPP

Anti-trade has become a major political issue in both major political parties in the 2016 election and has forced the candidates for president  to disavow foreign trade.  Without doubt, automobile assemblers in Michigan and some other states have been hurt by NAFTA, even though, over all, there was a net gain in jobs in America.*  The fact that those workers left out of the benefits of free trade did not get any Adjustment Assistance (for what this is, see below) is a failure of government and not of the trade deal.   I suspect that few of those against foreign trade know of this program.  This is the target they should be aiming at and not foreign trade. Below are excerpts from the Guardian and the Washington Post on the Trans Pacific Partnership.  Bolding and underlining have been added for emphasis.

From the Guardian:
But the reality is that, if two sides willingly trade, it can be assumed that both are better off; otherwise, one of them would refuse to trade. So, while trade liberalisation may entail some (smaller) losses for certain groups, these can – and should – be addressed through domestic relocation and assistance schemes, such as America’s Trade Adjustment Assistance programme, [See note on the Trade Assistance Program below]and transition rules for affected industries, firms, and workers.
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At a time when growth is failing to meet expectations almost everywhere, the TPP thus seems like a good move. To be sure, because tariffs in the TPP member countries are already low (with some exceptions, such as Canada’s tariffs on dairy products and Japan’s on beef), the net benefit of eliminating them would be modest (except for a few items that are very sensitive to small price changes). But the TPP is also expected to reduce non-tariff barriers (such as red tape and protection of state enterprises); harmonise policies and procedures; and include dispute-settlement mechanisms.
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That would be a major loss. Allowing existing protectionist trade barriers to remain in place – or worsen – would not only deprive citizens in TPP countries of higher incomes; it would also deal a damaging blow to international cooperation.***

And from the Washington Post:

The security effects of trade agreements can be significant — indeed, one could argue that this was the most important thing about the North American Free Trade Agreement, the deal that has caused DeLong such existential angst. It’s worth remembering that prior to NAFTA, Mexico had a … let’s say “fraught” relationship with the United States. NAFTA made it clear to U.S. policymakers that Mexico was now a key partner and merited treatment as such. Which is why the United States helped Mexico in the mid-1990s and during the 2008 financial crisis. And the lock-in effects of NAFTA also helped Mexico transition from a one-party-dominated state to a true multiparty democracy.****

The Trade Assistance Program The Trade Adjustment Assistance (TAA) Program is a federal program that provides a path for employment growth and opportunity through aid to US workers who have lost their jobs as a result of foreign trade. The TAA program seeks to provide these trade-affected workers with opportunities to obtain the skills, resources, and support they need to become reemployed. The program benefits and services that are available to individual workers are administered by the states through agreements between the Secretary of Labor and each state Governor. Program eligibility, technical assistance, and oversight are provided by the US Department of Labor's Employment and Training Administration's Office of Trade Adjustment Assistance.(https://www.doleta.gov/tradeact/factsheet.cfm)


* http://stopcontinentaldrift.blogspot.com/2016/07/the-american-economy-great-recovery.html
*** https://www.theguardian.com/business/2015/oct/30/tpp-trans-pacific-partnership-the-case-for-trade
**** https://www.washingtonpost.com/posteverything/wp/2015/05/07/the-trans-pacific-partnership-is-about-more-than-trade/

AMERICAN ECONOMY - THE GREAT RECOVERY

Since the depths of the 2008-2009 Great Recession, there has been a steady, if slow, recovery for what is, right now, the second longest economic recovery.  The recovery undoubtedly would  have been quicker if the Republicans had permitted an infrastructure program.  Heaven knows there is plenty to do on the infrastructure.  But they wouldn't permit it and have tried to see that the recovery is disrupted.  Business, however, has had other ideas.  Republicans are probably frustrated that the recovery continues to take place.   As they cannot stop it, they demean it.  I think that in history, Obama will probably be known for this remarkable economic recovery from near economic death.  The Wall Street Journal has an article saying that things are picking up economically.  So in the end, this may turn out to be the longest economic recovery in history.

As so many people are unhappy with this economic recovery, I sometimes wonder if people are happier with a boom and bust economy?

But there is a problem that precedes the Great Recession in that, say, automobile assembly workers in Michigan lost their jobs and there wasn't anything to take its place as the factories moved to the South or Mexico and elsewhere.  Of course they are unhappy, and Hillary gets the blame because she was for NAFTA, a free trade agreement with Mexico and Canada.  Actually, there was a positive gain in U.S. employment during NAFTA,** but this increase was significantly in the lower paying service sector and others not where the automobile assembly workers were.

Proponents reject the claims of some that the free trade agreement is destroying the manufacturing industry and causing displacement of workers in that industry. The rate of job loss due to plant closings, a typical argument against NAFTA, showed little deviation from previous periods.^[13] Also, US industrial production, in which manufacturing makes up 78%, saw an increase of 49% from 1993-2005. The period prior to NAFTA, 1982-1993, only saw a 28% increase.^[10] In fact, according to NAM, National Association of Manufacturers, NAFTA has only been responsible for 10% of the manufactured goods trade deficit, something opponents criticize the agreement for exacerbating.^[14] The growth of exports to Canada and Mexico accounted for a large proportion of total U.S. export gains.^[15] However, the growth of exports to Canada and Mexico in percentage terms has lagged significantly behind the growth of exports to the rest of the world.**

New York has a plan called Start-Up NY*** where new businesses can start up and not pay taxes for 10 yrs.  This might have helped Michigan.

Detroit finally seems to be beginning to recover boosted by an insurance company Quicken Loans.*

But the problem left by companies moving elsewhere is general with a long history. Even where I live in the Sandhills area of North Carolina, there is an abandoned furniture factory some 15 mi. away in a town called West End.  I've heard that 300 workers were let go, devastating the town.  There was an attempt to convert the factory into a boutique mall, but that failed.  So there the large building sits, sometimes with part used for temporary storage.  You can see abandoned  buildings all over the country, i.e. abandoned textile mills in New England, abandoned steel plants in Pennsylvania, Maryland and elsewhere, etc., none of which were caused by NAFTA

I think the answer is not to abandon free trade which gives us low-cost goods, but to find ways to help communities hurt by free trade.

* http://www.huffingtonpost.com/sandy-baruah/detroits-tale-of-two-citi_b_1438786.html
https://en.wikipedia.org/wiki/List_of_Michigan_companies
** https://en.wikipedia.org/wiki/NAFTA%27s_effect_on_United_States_employment
*** http://startup.ny.gov/