Month: July 2018

Looks like a duck, swims like a duck, and quacks like a duck… but when does an embassy “American Institute” finally gain official status as an embassy? Some say that the moment the Marine security detail shows up — a specially trained unit attached to every American embassy throughout the world — it’s pretty much a done deal. 

CNN has reported a new bombshell in US-China-Taiwan relations which is already sending shock waves throughout the region as it seems to negate the official US stance of the “One China Policy” — but which landed with a whimper in Western media over the weekend.

CNN reports:

The State Department has requested that US Marines be sent to Taiwan to help safeguard America’s de facto embassy there, two US officials tell CNN, prompting China to urge the US to “exercise caution.”

One US official said that while the request for a Marine security guard was received several weeks ago, it has not yet been formally approved and coordination about its deployment is ongoing between the State Department’s Diplomatic Security Service and the Marines.

Considering that unnamed officials leaked news of the impending Marine guard deployment to the “de facto embassy” in Taiwan, it appears well on its way to happening, which would constitute the first time in almost 40 years that US Marines will stand guard over a diplomatic post in Taiwan. 

So as not to offend China, the US deals with Taiwan via the “American Institute in Taiwan” as opposed to the Government of Taiwan.

— Mark Knoller (@markknoller) December 3, 2016

As to the uncertain question of whether or not the US has actually pulled the trigger, CNN continues:

A spokesperson for the State Department would not say whether the request had been made, telling CNN, “We do not discuss specific security matters concerning the protection of our facility or personnel.”

The initial Chinese response has been predictably firm but restrained as news of the request for Marines came a mere days after Secretary of Defense Jim Mattis concluded his first – supposedly conciliatory – trip to Beijing and as tensions loom over Trump’s threatening to impose an additional round of tariffs on Beijing.

Chinese Foreign Ministry spokesman Lu Kang responded as follows when asked about the potential Marine embassy security deployment at a news conference on Friday: “That the US strictly abides by its ‘one China’ pledge and refrains from having any official exchanges or military contact with Taiwan are the political preconditions for China-US relations,” he said. “The US is clear about the Chinese position and knows it should exercise caution on this issue to avoid affecting overall bilateral ties.”

Since 1979 the American Institute in Taiwan (AIT) has been considered Washington’s “officially unofficial” embassy in Taipei, Taiwan (established as part of the Taiwan Relations Act), and is staffed by State Department personnel who provide services in a quasi-embassy capacity. It was that year that the US initiated its One China Policy — de-recognizing the Republic of China (also known as Taiwan or the ROC) while formally recognizing the People’s Republic of China (the PRC) instead. 

I randomly ran across the new American Institute in Taiwan building in Neihu, it’s not that close to the MRT station and you have to walk up a giant hill, but it’s huge! pic.twitter.com/RU1JMppoVw

— Foreigners in Taiwan 🇹🇼 (@foreignersinTW) June 23, 2018

The AIT “undertakes a wide range of activities representing US interests, including commercial services, agricultural sales, consular services, and cultural exchanges,” according to the US State Department.

During their meeting last week, President Xi Jinping reportedly told Mattis that China will not give up “any inch of territory” in the Pacific Ocean, though not naming Taiwan specifically. Mattis told reporters afterward that the talks had been “very, very” good and had previously praised the developing “military-to-military relationship” between the two countries. 

However, CNN cites two anonymous senior defense officials who said said that Chinese officials raised the issue of Taiwan “multiple times” and “expressed their concerns” during their meetings with Mattis over recent developments like the Taiwan Travel Act, passed in March, which encourages more frequent diplomatic exchanges and visits between US and Taiwanese officials. 

According to CNN, Mattis responded by saying he would not give any “direction to military components to do anything differently” regarding Taiwan. The defense officials told CNN, “It wasn’t an area that we wanted deep discussion on because we expect it to be an irritant.”

No doubt the onslaught of recent developments centering on the American Institute is immensely worrying for the Chinese, as earlier this month the US launched the official opening of the Institute’s new state of the art facility, which cost $255 million to build, and the naming of a new “director” of the AIT’s Tapei office — career American diplomat William Brent Christensen — essentially filling the role of de facto US ambassador to Taiwan. 

China’s Foreign Ministry had lodged a formal protest with the US upon the opening ceremony for the new building, which had State Department representatives in official attendance, though no cabinet-level officials, as the Trump administration quietly sought to assure China that the opening would be low-key.

Meanwhile, President Trump while speaking to Fox Business on Sunday refused to back down on prior threats to further ratchet up tariffs on Chinese goods: “The tariffs are – well, in fact, It could go up to $500 [billion], frankly, if we don’t make a deal, and they want to make a deal,” Trump said during an interview. “I will tell you, China wants to make a deal, and so do I, but it’s got to be a fair deal for this country.”

A brief reminder on the latest state of developing tit-for-tat trade war:

Already, the White House has imposed a 25% tariff on $50 billion worth of Chinese goods containing ‘industrially significant technologies” in an escalating, tit-for-tat conflict between the world’s two largest economies.

In response, China slapped tariffs worth $34 billion on 545 American goods. In mid-June, Trump warned that if Beijing went through with the tariffs, he would impose tariffs on an additional $200 billion worth of goods.

When a country (USA) is losing many billions of dollars on trade with virtually every country it does business with, trade wars are good, and easy to win. Example, when we are down $100 billion with a certain country and they get cute, don’t trade anymore-we win big. It’s easy!

— Donald J. Trump (@realDonaldTrump) March 2, 2018

Maybe, but for now trade wars remain mostly bluster. If and when they escalate to their full potential, as shown below, watch out below. That may happen as soon as July 6, when tariffs of 25% on some $34BN in Chinese products will go into effect.

In a remark now driving world headlines, Trump added, “The European Union is possibly as bad as China just smaller, OK,” Trump said. And concluded, “It’s terrible what they did to us.”

Trump tweeted in March that trade wars are “good, and easy to win” — yet when combined with potentially explosive geopolitical issues such as what may appear in Chinese eyes a practical abandonment of the One China Policy (a status quo already subject to differing interpretations), the trade war is already proving not in the least bit “easy” with “winning” looking increasingly like a relative and elastic term.

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Authored by Mark Glennon via WirePoints.com,

Only now has it become apparent that federal taxpayers, not Illinoisans, will be funding most of the public support for the controversial Obama Center to be built on Chicago’s Southside.

Wirepoints has learned from administrative officials and legislators that at least $139 million — 80% of the public funding for the center — almost certainly will be reimbursed by the federal government. The project was already under attack for a number of other reasons, including a First Amendment “compelled speech” claim that it would force taxpayers to fund private, political advocacy.

The center was initially pitched as a privately funded presidential library. Many Illinois taxpayers therefore were angered to learn that at least $174 million was included in the state’s 1,246-page budget presented in May to rank and file General Assembly members only hours before their vote. Nor will the center be a presidential library.

However, it turns out that federal taxpayers will be the ones compelled to make the subsidy. The Illinois appropriation is for roadway and transit reconfigurations needed to accommodate the center, and 80% of such spending is generally reimbursable by the federal government. Wirepoints has confirmed with state officials that federal reimbursement of at least $139 million is highly likely.

Stoking the controversy is the stated mission of the center, which is partly political. The Original Request for Proposals said the center would “enhance the pursuit of [President Obama’s] initiatives beyond 2017.” Former President Obama has further commented to the same effect. As the Chicago Tribune put it, “As he’s long maintained, Obama said he envisions his center as a place where young people from around the world can meet each other, get training and prepare to become the next generation of leaders.”

The center is already subject to a federal lawsuit with a First Amendment claim based on taxpayer support for a private, political purpose. A lawsuit of that type is difficult to win, but it may be bolstered by the recent Janus decision by the United States Supreme Court. Janus was based on the prohibition of compelled speech, and that same doctrine underpins the First Amendment claim about the center.

Here are the details and background:

Contrary to its clear, initial description as a presidential library, it won’t be one. The center will be owned and run by the Obama Foundation, not the National Archives and Records Administration, as are presidential libraries. Obama’s records, artifacts and papers will not be there.

Initial claims that it would be funded entirely with private money also evaporated. “Construction and maintenance will be funded by private donations, and no taxpayer money will go to the foundation,” the foundation’s spokeswoman said. The interpretation was that assured 100 percent private funding.

Obama Center rendering, to be built on part of Jackson Park

WTTW, a public television station in Chicago, askedthe obvious question when the idea of state funding first floated:

“How could could a public financing proposal fly in a state that is bleeding red ink, especially when the Obamas have promised 100 percent private funding?”

That’s easy to answer in Illinois. Chicago politicians asked for it and they get what they want. “Another fast one by Chicago pols,” as one Illinois paper put it.

“To give credit where credit is due, when Chicago/Illinois politicians come together on a scheme to fleece the public and demonstrate that they are a law unto themselves, they think big.”

The federal lawsuit was filed by Protect our Parks, a not-for-profit. It alleges that the transfer of land from Chicago’s Jackson Park to the Obama Foundation, at no cost, violated state law a number of ways. It was a “bait and switch,” the legal complaint says. The land was transferred under the pretense of being a privately funded presidential library but in fact will be used for a private purpose.

The First Amendment claim in the lawsuit is particularly interesting. The suit was filed prior to Illinois’ appropriation of money for the center. The claim is based, instead, on authorization for a special property tax levy for the center. Using any source of taxpayer money for a private political purpose may violate the First Amendment because it is compelled speech.

But now, with the state appropriation completed and federal reimbursement uncovered, much more money is at issue and it’s a matter for all Americans.

And just last week the United States Supreme Court delivered the Janus opinion, which was particularly firm on the prohibition of compelled speech. From the majority opinion:

Forcing free and independent individuals to endorse ideas they find objectionable is always demeaning, and for this reason, one of our land­ mark free speech cases said that a law commanding “in­ voluntary affirmation” of objected-to beliefs would require “even more immediate and urgent grounds” than a law demanding silence.

“Compelling a person to subsidize the speech of other private speakers raises similar First Amendment con­cerns,” added the court. That’s what’s alleged in the lawsuit against the Obama Foundation — forcing taxpayers to subsidize the a center to be used to preach Obama’s politics.

Jackson Park today

It’s conceivable federal reimbursement will not materialize. Illinois could elect to pay towards the center though a bond offering, in which case, we are told by state officials, reimbursement is not available. The state could also essentially elect to use its access to federal reimbursement for other projects. Again, however, those possibilities are not anticipated, according to our sources, and federal reimbursement is fully expected.

Indeed, when a few Republican lawmakers objected to inclusion of funding for the center in the budget, they were told by party leadership not to be concerned because of the federal reimbursement. Illinois Rep. Jeanne Ives (R-Wheaton), told me this:

“During the budget discussion, when objections were raised about spending $172 million on infrastructure improvements for the Obama project, we were assured by Republican leadership not to worry since 80 percent of the cost would be picked up by the federal government.”

Some may argue that spending for roadway and transit reconfiguration isn’t really part of the project. That’s specious. The spending is necessitated entirely by the project. It’s part and parcel of the center.

The precise amount of taxpayer money to go towards the Obama Center is subject to some interpretation and dispute, though it’s at least $174 million. A specific appropriation for $180 million is in Section 105 on page 664 of the new Illinois budget, though we are told the current cost estimate is just $174. Another $12 million is appropriated in Section 100 on that page for a transit station, though there’s some opinion that the station is separate from the center. Together with other transit station money, the Washington Examiner pegged the grand total Illinois appropriation at $224 million. Accordingly, the 80% reimbursed by federal taxpayers may be significantly higher than $139 million.

That difference in the numbers matters little.

Nor does it matter whether the First Amendment claim is truly viable in court.

What matters is that funding by any taxpayers for the center is wrong and that the public has been duped. A privately funded presidential library morphed into a monument to hubris and the arrogance of power: Obamaland.

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President Trump’s 2020 campaign manager Brad Parscale recently tweeted that “Over 90,000 kids were detained under Obama. And no one cared.” 

Fact:

Over 90,000 kids were detained under Obama. And no one cared

— Brad Parscale (@parscale) June 20, 2018

What followed was a barrage of angry tweets and an attempt by AP prove the claim false by conflating two narratives; the first being that Trump is putting separated migrant children in prison-like conditions – which the left quickly abandoned after it was revealed that viral photographs depicting the caged migrant children actually happened under Obama.

Caged Migrant Children Photo Goes Viral As Left Rages At Trump…Except It Happened Under Obama https://t.co/0ZsJyQHqjz

— Jack Posobiec🇺🇸 (@JackPosobiec) May 28, 2018

That claim then morphed into outrage over the Trump administration separating 20% of minors who enter the country from their parents – around 2,000 kids, while ignoring the fact that the Obama administration was also separating children from their parents, while widespread abuse of detained migrants under previous administrations was reported by the ACLU and the University of Arizona.  

One woman interviewed was detained for nearly a month in CADC while she was six months pregnant. She was shackled during transport to and from the facility. At the facility, she was denied monitoring or treatment for an ovarian cyst that posed a risk to herself and the fetus, and received no response to her requests for prenatal vitamins or extra padding for her bed.68 (Her case is described more fully in the box below.) Another woman interviewed was separated from her breastfeeding baby daughter, who was less than two months old, while she was detained in Eloy for two weeks. –University of Arizona

and

Among those findings are that women did not receive adequate medical or mental health care,were often mixed together with women serving criminal sentences, and were often transferred from faraway states. In most cases, researchers found that women were separated from at least one child. –ACLUAZ.org

Also overlooked is the fact that 80% of children entering the United States are separated from their parents when they’re shoved across the border with a human trafficker, and that migrants can seek asylum in the United States through one of the several U.S. consulates in Mexico.

There are eight U.S. consulates in Mexico. We have an embassy in Mexico. Why aren’t they seeking asylum there?

— Robert J. O’Neill (@mchooyah) June 22, 2018

The previously silent left became suddenly outraged after President Trump’s “zero tolerance” policy of enforcing existing immigration law resulted in approximately 2,000 minors being separated from their parents. To end this, Trump signed Executive Order #13841 on June 25, ordering that detained families not be separated unless the parents pose a danger to the child, while the Trump administration pledged to reunite separated families.  

The “Fact Check” 

Two days after Parscale’s tweet, AP published the article “NOT REAL NEWS: Obama didn’t separate 90,000 migrant families,” conflating the “separated families” narrative with the “children in cages” narrative – while pointing to a “conservative website” (which they don’t link to) as the source of the claim. 

“The claim, published on a conservative website, was repeated on social media throughout the week as President Donald Trump faced criticism over his administration’s “zero tolerance” immigration policy” –AP

What website? Who said that? Parscale said detained, not separated.

The false claim appears to stem from a January 2016 Senate subcommittee report that investigated how the Department of Health and Human Services, under the Obama administration, placed thousands of unaccompanied children illegally entering the country. 

The subcommittee report found that from October 2013 through 2015 the federal agency placed nearly 90,000 children with a sponsor, after they were detained at the border without a legal guardian. The majority of those sponsors, the report found, were a parent or legal guardian living in the country. –AP

Note how AP simply says that the 90,000 children were placed with a sponsor… Unfortunately, they’re missing a giant link in the chain; the detention centers the kids are placed in first.

Taking a look at the Senate subcommittee report AP references (page 8), since the thrust of the left’s outrage over Trump’s “Zero Tolerance” policy was originally poor migrant children being forced into cages… 

First, we have the 90,000 under Obama figure – but there’s a footnote. Then the report notes that the majority of unaccompanied children over that two-year period were placed with a parent or a legal guardian. 

Since the beginning of FY2014, HHS has placed almost 90,000 UACs [Unaccompanied Alien Child] with sponsors in the United States.⁽³¹⁾ According to HHS, it places the majority of those UACs with the child’s parent or legal guardian.⁽³²⁾

Now let’s look at that footnote (31) attached to the 90,000 figure – which directs us to an Office of Refugee Resettlement publication entitled: Unaccompanied Children Released to Sponsors by State.

Navigating over to that document on page 2, we find section “A” which outlines “Cases in which a determination of UAC (Unaccompanied Alien Child) status has already been made.”

It’s got a footnote too… 

Asylum Offices will see evidence of these prior UAC determinations in A-files or in systems on the form I-213, Record of Deportable Alien; the Form 93 (the CBP UAC screening form0; the Department of Health and Human Services (HHS) Office of Refugee Resettlement (ORR) Initial Placement Form¹.

And what do we find under the ORR footnote “1”?

“After apprehending an individual and determining that he or she is a UAC, CBP or ICE transfers him or her to a facility run by the Office of Refugee Resettlement (ORR), which is part of the Department of Health and Human Services (HHS). 

In other words – all of the unaccompanied minors detained under the Obama administration were locked up in the exact same facilities the Trump administration is using. 

Stats on the minors:

Digging some more, we find a February, 2016 report from the Government Accountability Office entitled :Unaccompanied Children – HHS Can Take Further Actions To Monitor Their Care.

In fiscal year 2014, nearly 57,500 children traveling without their parents or guardians (referred to as unaccompanied children) were apprehended by federal immigration officers and transferred to the care of the Department of Health and Human Services’ Office of Refugee Resettlement (ORR). Most of these children were from Central America.

So tens of thousands of unaccompanied minors were taken in by the Obama administration each year and placed in government facilities. 

Average Stay

In 2011, the average stay of an unaccompanied minor in an Obama-admin facility was 72 days, which dropped to 34 days in 2015. 

How about today? In 2016, the average stay was 41 days, while the Department of Health and Human Services “Unaccompanied Alien Children Program” fact sheet from June 15 states: “Currently, the average length of stay for UAC in the program is approximately 57 days.” So in 2011, precious children remained in Obama’s “concentration camps” as the left now calls them an average of 15 days longer than today. 

Where are most UACs released?

In 2014, most unaccompanied minors were released in Los Angeles, Miami-Dade, and Palm Beach counties. Counties which took in fewer than 50 UACs are not noted on the map. 

In fiscal year 2014, ORR released a total of 53,518 children to sponsors, and these children were released in every state except one.37 The largest number of children were placed in Texas, New York, California, Florida, and the Washington, D.C. area, respectively, with Harris County, TX receiving 4,028 children in fiscal year 2014, more children than any other single county (see fig. 5).38 Often children were placed in counties with large Latino populations.

So to be clear – hundreds of thousands of migrant children whose parents sent them into the United States alone or with a human trafficker remained in Obama administration facilities for up to months at a time, before eventual release or repatriation. 

In fact, if one adds up just the unaccompanied minors taken into custody between 2008 – 2016 (here and here), nearly 300,000 children were placed in federal housing under Obama. 

And as Brad Parscale points out, no one cared.

Finally, to clarify what ‘we, the people’ are supposed to believe:

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Authored by Pepe Escobar via The Asia Times,

Major states buying oil from Iran are unlikely to heed the US call to drop imports; key allies want a waiver to avoid sanctions; OPEC, meanwhile, will have trouble boosting output in the short-term; the puzzle is not solved, but there are dark clouds…

History may have registered stranger geoeconomic bedfellows. But in the current OPEC-plus world, the rules of the game are now de facto controlled by OPEC powerhouse Saudi Arabia in concert with non-OPEC Russia.

Russia may even join OPEC as an associate member. There’s a key clause in the bilateral Riyadh-Moscow agreement stipulating that joint interventions to raise or lower oil production now are the new norm.

Some major OPEC members are not exactly pleased. At the recent meeting in Vienna, three member states – Iran, Iraq and Venezuela – tried, but did not manage to veto the drive for increased production. Venezuela’s production is actually declining. Iran, facing a tacit US declaration of economic war, is hard-pressed to increase production. And Iraq’s will need time to boost output.

Goldman Sachs insists: “The oil market remains in deficit… requiring higher core OPEC and Russia production to avoid a stock-out by year-end.” Goldman Sachs expects production by OPEC and Russia to rise by 1.3 million barrels a day by the end of 2019. Persian Gulf traders have told Asia Times that’s unrealistic: “Goldman Sachs does not have the figures to assert the capability of Russia and Saudi Arabia to produce so much oil. At most, that would be a million barrels a day. And it is doubtful Russia will seek to damage Iran even if they had the capacity.”

In theory, Russia and Iran, both under US sanctions, coordinate their energy policy. Both are interested in countering the US shale industry. Top energy analysts consider that only with oil at $100 a barrel will fracking become highly profitable. And oil and gas generated via fracked in the US is a short-term thing; it will largely be exhausted in 15 years. Moreover, the real story may be that shale oil is, in the end, nothing but a Ponzi scheme.

Those were the days when the Obama administration ordered Riyadh to unleash a de facto oil-price war to hurt both Russia and Iran. Yet the game drastically changes when Venezuela loses a million barrels a day in production and Iran, under upcoming sanctions, may lose another million.

As Asia Times has reported, OPEC (plus Russia) can at best increase their production by 1 million barrels a day. And that would take time because, as Persian Gulf traders said: “800,000 barrels a day of their cutback is due to depletion that cannot be restored.”

Oil producers don’t want high prices

Most oil-producing nations don’t want high oil prices. When that happens, demand goes down, and the dreaded competition – in the form of electric vehicles – gets a major boost.

That explains in part why Riyadh prevailed in the price-capping war in Vienna. Saudi Arabia is the only producer with some spare capacity; the real numbers are a source of endless debate in energy circles. US-sanctioned Iran, for its part, is in acute need of extra energy income and had to be against it.

The bottom line is that despite the agreement in Vienna, the price of oil, in the short-term, is bound to go up. Analyses by BNP Paribas, among others, are adamant that supply problems with Venezuela and Libya, plus the proverbial “uncertainty” about the sanctions on Iran, lead to “oil fundamentals still…favorable for oil prices to rise over the next six months despite the OPEC+ decision.”

Iran’s Petroleum Minister Bijan Zanganeh has done his best to downplay how much oil will really be back on the market. In tandem with Persian Gulf traders, he certainly knows that can’t be more than 1 million barrels a day, and that such an output boost will take time.

Considering that in realpolitik terms Riyadh simply is not allowed any “decision” in oil policy without clearing it first with the US, what remains to be seen is how Washington will react to the new, long-term Riyadh-Moscow entente cordiale. As far as oil geopolitics goes, this is in fact the major game-changer.

Business as usual

The Big Unknown is how the US economic war on Iran’s oil exports will play out.

Iran’s Zanganeh has been quite realistic; he does not expect buyers to get any sanctions waivers from Washington. Total and Royal Dutch Shell have already stopped buying.

Iran’s top oil customers are, in order: China, India, South Korea and Turkey.

India will buy Iranian oil with rupees. China also will be totally impervious to the Trump administration’s command. Sinopec, for instance, badly needs Iranian oil for new refineries in assorted Chinese provinces, and won’t stop buying.

Turkey’s Economy Minister Nihat Zeybekci has been blunt: “The decisions taken by the United States on this issue are not binding for us.” He added that: “We recognize no other [country’s] interests other than our own.” Iran is Turkey’s number-one oil supplier, accounting for almost 50% of total imports.

And Iraq won’t abandon strategic energy cooperation with Iran. Supply chains rule; Baghdad sends oil from Kirkuk to a refinery in Kermanshah in Iran, and gets refined Iranian oil for southern Iraq.

Russia won’t back down from its intention to invest $50 billion in Iran’s energy infrastructure.

Japan and South Korea are lobbying heavily to get waivers. According to South Korea’s Energy Ministry: “We are in the same position as Japan. We are in talks with the United States and will keep negotiating to get an exemption”.

In a less Hobbesian world, the EU-3 (France, UK and Germany), plus China and Russia – which all negotiated the Iran nuclear deal, known as the Joint Comprehensive Plan of Action or JCPOA, along with Japan and South Korea, would be telling the US the Trump administration’s unilateral economic war against Iran is, in fact, a violation of a UN-endorsed treaty, totally disregarding nations that have pledged to protect the JCPOA. In the real world though, that’s not going to happen.

It’s all about energy

Once again, the action to watch will be at the Shanghai Energy Stock Exchange. Petro-yuan contracts started trading in late March. By May, they were already covering 12% of the global market. The price of a barrel of oil, in yuan, has oscillated between Brent and West Texas Intermediate (WTI).

China is going no holds barred, betting simultaneously on Saudi Arabia and Iran. China Investment Corp. may well buy 5% of Aramco, at roughly $100 billion. In parallel, China started paying for Iranian oil in yuan in 2012. If the Europeans buckle up, as top Iranian analysts expect, the volume of energy business with China may soon reach $40 billion a year.

Iran is firmly linked to the petro-yuan. Iran now may rely on a fleet of supertankers, properly insured, to export its own oil. The Iranian calculation is that Washington’s economic war will spur higher oil prices. So, even if Iran’s exports are bound to suffer, energy income may not be affected.

Shaded by all these dramatic eruptions, we find some startling data. Iran – and Russia – may sit on an astonishing $45 trillion worth in oil and gas reserves. US fracking is largely a myth. Saudi Arabia may have at best 20 years of oil supply left. It’s all about energy – all the time.

The usual suspects will hardly sit back and relax while endlessly demonized Russia, just like Norway, builds a solid middle class through oil revenue and massive current account surpluses. Alarm bells are about to sound, to the tune of “Putin has taken over OPEC”. In fact, it was Putin who convinced Mohammad bin Salman (MBS) they should fight the US shale offensive together.

The OPEC-plus-Iran puzzle is far from solved. Only one thing is certain; the future spells out brutal, covert resource wars.

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As expected, Mexico has just elected its first leftist president in decades, with Andrés Manuel López Obrador (or AMLO) winning in a landslide and a near majority outright, or 49% of the vote early exit polls showed; right-left coalition leader Ricardo Anaya, in distant second place with 27% and the incumbent PRI party’s Jose Antonio Meade, with 18%.

And, as Bloomberg headlines flash red, Obrador is now de facto president as his main rivals have conceded:

• MEXICO’S LOPEZ OBRADOR SET TO WIN AS MAIN RIVALS CONCEDE

The victory of AMLO, who suffered defeats in the last two presidential votes, will hardly come as a surprise, as has led by double digit numbers throughout this campaign. His popularity stems from his antiestablishment platform (sound familiar?) which has been riding a public revolt against entrenched corruption, rampant violence and an economy that’s failed to deliver higher living standards for the common man and especially the poor, which comprise about half of Mexico’s 125 million population. He also campaigned with promises for economic reform that has been underlined by a desire to freeze prices of gasoline in Mexico for 3 years, as well as a reduction of external investment in the energy sector.

AMLO has also promised to ramp up social programs and, like so many of his antiestablishment peers, has vowed to fund them without deficit-spending by eliminating graft, a claim which as Bloomberg laconically adds, “has been greeted skeptically by economists.” He’s also promised not to nationalize companies or quit Nafta. Investors are worried however that he may cancel oil contracts signed as part of outgoing President Enrique Pena Nieto’s energy reforms.

* * *

The victory of a leftist in Mexico is a stark reversal for the Latin American nation which unlike most of its peers has not had a socialist leader in decades.

As Bloomberg notes, Lopez Obrador has promised to govern as a pragmatist. Still, his procession toward victory has alarmed many investors and business leaders, who worry that he’ll roll back privatization of the energy industry and push the country into debt by spending more on social programs.

Those concerns will be amplified if Lopez Obrador’s Morena party wins majorities in both houses of Congress, which earlier surveys had suggested is likely.

With the election outcome widely expected, there was little reaction in markets aside from the USDMXN which has enjoyed a relief rally, although as in the case of the Turkish Lira, many expect this will be short-lived as many anticipate Mexico’s problems are set to worsen under the new administration.

What is more notable is that like so many other nations, Mexicans have also opted for change and turned their back on the establishment and the only two parties to have run the country in almost a century. There are plenty of reasons they might want to kick out the governing class.

“We need a complete transformation in Mexico,” said Sergio Oceransky, 45, as he voted at a polling station in central Mexico City. “We’re experiencing a tremendous political crisis that’s no longer sustainable.”

On the campaign trail, many voters say physical security was their top concern. A decade-long war on drug cartels has pushed the murder rate to record levels.

His predecessor, Pena Nieto, also started off on the right foot, opening Mexico’s energy industry to private investors and winning a reputation as an economic reformer early on. However, a surge in violence, and a string of graft scandals that dragged in the president and his family, Pena Nieto is ending his six-year term with some the lowest approval ratings in the history of the presidency. He will remain in office until December when Mexico’s 5 month gap between elections and inauguration lapses.

As discussed previously, here are the main campaign issues that dominated the presidential campaign (via Reuters):

 

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Late last week Middle East Eye published the bombshell contents of newly leaked emails which confirm that “the relationship between the Emiratis and the president’s [Trump’s] inner circle was cemented earlier than previously thought.” And this follows previous emails which we’ve reported on here. 

The new batch of emails shed further light on UAE and Saudi efforts to penetrate the Republican platform in 2016, which the emails show “was altered to remove a call for the publication of 28 pages of allegedly incriminating documents from the 9/11 inquiry” — and attempts to prevent Trump from making any remarks that could potentially embarrass Saudi Arabia, specifically (as one email reads) “the issue of her [Hillary Clinton] taking Saudi Arabian money”.

Though the 28 pages were ultimately released in redacted form just days after the Republican platform battle, the new emails provide a deeper glimpse into how the Saudis are constantly maneuvering to keep the American public in the dark concerning their role in 9/11, as the opening lines of the 28 pages suggest: “While in the United States, some of the September 11 hijackers were in contact with, and received support from, individuals who may be connected to the Saudi Government…”

* * *

Below is analysis of the new emails authored by Brian P. McGlinchey via 28Pages.org

According to leaked emails obtained by Middle East Eye, an unnamed Republican Party figure orchestrated the defeat of a proposed 2016 GOP plank calling for the declassification of 28 pages on Saudi government links to the 9/11 plotters.

That individual then notified Trump presidential campaign manager Paul Manafort of the plank’s defeat and claimed credit for providing instructions to “our political team” to kill it.

Manafort forwarded the news to Tom Barrack—Trump’s billionaire friend, surrogate and fundraiser—who notified Yousef al-Otaiba, the United Arab Emirates ambassador to the United States.

The behind-the-scenes communications seem to suggest that Trump campaign officials and associates, eager to strengthen their relationships with Gulf officials, supported efforts to thwart the release of the 28 pages even though candidate Trump had spoken favorably of it.

Months before the Republican convention intrigue, Trump implied he would release the 28 pages if elected, and suggested they could reveal Saudi guilt for 9/11.

At a February 2016 campaign event, Trump said, “It wasn’t the Iraqis that knocked down the World Trade Center. We went after Iraq, we decimated the country, Iran’s taking over…but it wasn’t the Iraqis, you will find out who really knocked down the World Trade Center, because they have papers in there that are very secret, you may find it’s the Saudis, okay? But you will find out.”

“Really confidential but important. Please don’t distribute.”

During proceedings of the platform committee at the July 2016 Republican national convention, the national security subcommittee approved a plank urging the release of the 28 pages. However, it was rejected when it went before the full platform committee.

Soon after, a Republican party source, whose name is not known, sent a self-aggrandizing email to Trump campaign manager Paul Manafort. In part, it read:

“Paul. Something you can pass along to your friend Tom Barrack. I made certain that language that was anti the Saudi Royal Family was removed from the platform. It was inserted by AIPAC lobbyists and would have been a part of the 2016 Platform. When I saw the amendment that was passed in the subcommittee, I gave instructions to our political team to remove the language in the full committee.”

The full email follows this story. Middle East Eye concluded that “Paul” is Paul Manafort via other context in the leaked email conversations.

After receiving news of the plank’s defeat from Manafort, Barrack—who later chaired Trump’s inauguration committee—forwarded it to al-Otaiba, calling it “really confidential but important. Please don’t distribute.”

Since the platform proceedings were carried live by CSPAN, Barrack’s request for confidentiality seems intended to conceal Manafort and Barrack’s support of the plank’s demise, as they quietly worked to curry favor with the Saudi-aligned UAE and the kingdom itself.

Manafort, who now stands famously indicted for a variety of charges that include obstruction of justice, conspiracy to launder money, making false statements, witness tampering and acting as an unregistered agent of a foreign principal, was once a registered agent of the Kingdom of Saudi Arabia, along with many other regimes known for violating human rights.

“The emails will be of interest to Special Counsel Robert Mueller, who has widened the scope of his inquiry into potential Russian meddling in the 2016 US presidential election to include whether the Emiratis and Saudis funneled payments to Trump’s election campaign,” writes Hearst.

His report also paints a picture of an increasingly warm personal relationship between Barrack and the UAE’s al-Otaiba. “You’re an amazing man,” gushed Barrack after al-Otaiba hosted him at a dinner that also included Saudi foreign minister Adel al-Jubeir. Barrack thanked his host for serving “irreplacable wine.”

The emails also illuminate Barrack’s project to mold Trump’s thinking about the region. “I would like to align in Donald’s mind the connection between the UAE and Saudi Arabia which we’ve already started with Jared (Kushner),” he wrote to al-Otaiba.

Saudi Guardians at the GOP Convention

If the unidentified Republican figure’s boast was truthful, then, by all indications, that person’s instructions to kill the 28 pages plank found their way to Steve Yates, a former deputy national security advisor to vice president Dick Cheney.

A member of the platform committee and then-chair of the Idaho Republican Party, Yates moved for the plank’s rejection and gave a brief speech heavy on fallacious arguments echoing those being contemporaneously advanced by Saudi-accommodating CIA director John Brennan.

Before it was voted down, two Trump-aligned members of the platform committee also spoke up against the plank:

• Thomas Dadey, who co-chaired Trump’s New York campaign, was later named to Trump’s transition team.
• Darcie Johnston, Trump’s Vermont campaign manager, went on to receive a job as a special assistant in the new administration’s Department of Health and Human Services.

Yates become an informal advisor to the Trump transition team, where he played a supporting role in Trump’s controversial receipt of a congratulatory phone call from Taiwan’s president.

Barrack Sought to Curtail Trump’s Exploitation of Clinton-Saudi Links

Hearst provided 28Pages.org with another email exchange not quoted in the Middle East Eye story, one that shows Barrack’s high interest in shielding Saudi Arabia from embarrassing comments by Trump on the campaign trail, and in making sure the UAE ambassador knew about it.

On June 22, 2016, Trump delivered a formal, high-profile campaign speech at the Trump Soho hotel in New York in which he attacked opponent Hillary Clinton, accusing her of corruption during her tenure as secretary of state.

On the same day, in an email to al-Otaiba, Barrack wrote, “I also made sure in his speech against Hillary today that he did not mention or antagonise the issue of her taking Saudi Arabian money! All good.”

Al-Otaiba replied, “I think he did mention Hillary taking Saudi money :)”

The ambassador was correct: Trump said “Hillary took $25 million from Saudi Arabia…where being gay is also punishable by death.”

The Saudi-Clinton monetary connection was one of many dimensions of Clinton’s record that dampened progressive liberal enthusiasm for her, and thus contributed to the low Democrat turnout that proved fatal to her campaign. However, in Barrack’s own political and perhaps financial calculus, fully exploiting that dynamic apparently took a back seat to protecting the interests of Saudi Arabia.

Plank Not the Work of AIPAC

The unidentified Republican party member’s claim that the plank was the brainchild of the American Israel Public Affairs Committee (AIPAC) is not merely odd—given the under-the-table alliance between Saudi Arabia and Israel—it’s also false.

The plank was introduced by delegate and Maine state senator Eric Brakey—and the language was personally drafted by me.

The libertarian Brakey contacted me after hearing my July 6, 2016 appearance on The Tom Woods Show, in which I discussed the growing, nonpartisan drive to declassify the 28 pages. He informed me of his interest in introducing a plank supportive of the cause and I drafted language for him to use.

Earlier this month, Brakey won the Republican nomination for U.S. Senate, and will take on incumbent Angus King.

Reached with news of the intrigue surrounding his plank, Brakey says, “It doesn’t necessarily surprise me. There’s a lot that happens (at party conventions) out in front for people to see, but that’s just the tip of the iceberg. If there were really powerful people trying to stamp it out, we must have been on to something, and we found out we were on to something when they were released.”

As it turned out, the 28 pages were declassified just days after the platform battle, albeit with many remaining redactions.

Among other things, the 28 pages revealed many troubling connections between the 9/11 hijackers’ support network and other people of interest to investigators and then-Saudi ambassador to the United States Prince Bandar bin Sultan.

However, thanks to a perfect storm of major competing stories, a comprehensive U.S. government campaign to downplay the pages’ significance, and the media tendency to report official stances with little or no questioning, their impact was muted.

“It’s kind of a shame they’ve been swept under the rug,” says Brakey.

Tom Barrack’s Email to UAE Ambassador Yousef al-Otaiba Regarding 28 Pages Plank

Middle East Eye provided a copy of the content of this email to 28Pages.org.

From: Tom Barrack 

Sent: Wednesday July 13, 2016 8.02 AM

To: His Excellency Yousef Al Otaiba

Subject:

Really confidential but important. Please don’t distribute. Where are you this summer. Would love to get together

Sent from my iPhone

Removed from Platform

Paul

Something you can pass along to your friend Tom Barrack.

I made certain that language that was anti the Saudi Royal Family was removed from the platform.

It was inserted by AIPAC lobbyists and would have been a part of the 2016 Platform.

When I saw the amendment that was passed in the subcommittee, I gave instructions to our political team to revoke the language in the full committee.

The final report of the Platform Committee does not contain the language.

1. Saudi Arabia

a. Removed a section in the Platform that was inserted to embarrass the royal family. The section called for the release of 28 pages of sensitive documents gathered during the 911 investigation. The pages allegedly contain information that asserts involvement by the Saudi Government/Royals as related to the alleged Saudi funding of terrorists who were involved in the 911 bombings

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Submitted by Priceonomics

The income gap remains a discussion topic – the current average CEO to median employee salary is about 200:1. In 2015, the Securities and Exchange Commission mandated that all publicly traded companies disclose their executive compensation. This means that companies need to include a summary table of the 5 highest paid executives as part of their annual Proxy statement (Form DEF 14A).

In this report, we analyzed the performance of the salary of Fortune 100 their CEOs and their company performance. The total salary of a CEO is broken down into seven categories: base salary, bonus, stock awards, option awards, non-equity incentives, pension value, and “other” compensations. In the pie chart below, we show an average composition of all salary data.

Base salary makes up only 8% of total compensation. The largest source of income is from stock awards, which represent nearly 50%.

Is the 200x multiple of median salary justified? Do companies do better when their CEO is paid more? One might argue that a higher salary drives better performance. We took the total pay of the Fortune 100 CEOs and compared it to the performance of the company, measured by annual revenue growth rate (as a % change from FY16 to FY17). With a correlation coefficient of 0.069 (as shown in the chart below), we can see there is no clear relationship between how much a CEO takes home and how well the company performs.

Confounding the issue that that the CEOs of some high growth companies don’t receive high salaries because they already own a lot of equIty. Of note Larry Page, CEO of Alphabet, took home a total salary of $1. The $1-Salary-Club also include Oracle Executive chairmain, Larry Ellison, and Facebook CEO, Mark Zuckerberg. As these Founder/CEOs possess large holdings of stock in the company, such compensation signifies their pledge to bear full responsibility for the well-being of the company.  

The table below shows the most of the Fortune 100 companies, ranked by CEO compensation.

Key takeaways:

• A majority of (46%) of CEO compensation comes from stock awards, which is directly correlated with the performance of the company.
• There is no strong correlation between how well the company performs (measured as annual growth in revenue) and how much the CEO gets paid

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The second-longest economic expansion in US history will most likely end in 2020 as the Fed raises interest rates to cool off an overheating economy, reports the Wall Street Journal which surveyed 76 forecasters. 

Some 59% of private-sector economists surveyed in recent days said the expansion was most likely to end in 2020. An additional 22% selected 2021, and smaller camps predicted the next recession would arrive next year, in 2022 or at some unspecified later date. –WSJ

 “The current economic expansion is getting long in the tooth by historical standards, and more late-cycle signs are emerging,” said Bank of the West’s chief economist Scott Anderson, chief economist, who thinks a 2020 recession is likely. 

As for the cause – 62% of forecasters said that an overheating economy would lead to Fed tightening, while other economists (at least 5%) said that another financial crisis, bubble bursting or disruptions to international trade would be the culprits.

Recessions are notoriously difficult to predict, and sometimes are tricky to recognize even after they start. The recession that began in December 2007 wasn’t officially proclaimed by the National Bureau of Economic Research’s recession-dating committee until a year had gone by. Forecasters saw the chances of a recession rise back in 2011 and in 2016; both turned out to be false alarms. –WSJ

“Recessions occur because of unforeseen shocks, so by definition there is no meaningful answer,” said Daniel Bachman – an economist with Deloitte who declined to estimate either the timing or cause of the next downturn.

The takeaway: while a recession isn’t imminent, the economy won’t expand forever – and the next downturn may arrive during the 2020 presidential campaign. 

“Any year from 2019 onward is in play,” Lou Crandall, chief economist at Wrightson ICAP told the Journal. 

On average, economists predicted gross domestic product will expand 2.9% in the fourth quarter of 2018 compared with a year earlier, up from 2.6% growth in 2017. The unemployment rate, which fell to 3.9% in April, was expected to slide further to 3.7% by the end of this year and 3.6% by mid-2019. The average risk of a recession in the next 12 months was pegged at 15%. –WSJ

The forecasters also predicted that the unemployment would rise slightly going into the next election, and that the Fed Funds rate would top 3%.

One positive note: Economists think that sluggish US productivity should pick up over the next few years. 

Labor-productivity gains averaged just 1.2% a year in 2007 through 2017, according to the Labor Department, a weak trend that threatens to restrain the pace of economic growth. After remaining flat in 2016, nonfarm business labor productivity rose 1.3% in 2017, and economists on average predicted annual growth will average 1.5% over the next five years. –WSJ

“More capital investment should help revive productivity,” said Lynn Reaser of Point Loma Nazarene University.

In fact, 71% of economists say there’s a good chance that productivity growth will exceed forecasts rather than disappoint. 

Tax cuts

While Trump’s corporate and personal tax cuts provided a boost to the economy, most of the surveyed professionals said that it isn’t the sole explanation for the recent surge in US business investment. Most said that the tax-code changes were one of several major causes – with only 5% attributing the cuts to the primary driver.

See interactive results of the survey here (paywall). 

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White House Chief of Staff John Kelly’s departure from the West Wing is looking imminent after the administration offered up a half-hearted denial following reports that Kelly will leave his post by the end of the summer. But who might take his place? If the Washington rumor mill is to be believed, former White House Communications Director Hope Hicks is now a dark horse contender for the job. 

The Daily Mail and Vanity Fair are the latest publications to jump on the Hicks bandwagon, reporting that Hicks has told confidants that she would absolutely be interested in the position, and that her name is rising up the list of possible candidates, which also includes Nick Ayers, Vice President Pence’s chief of staff, and Mick Mulvaney, the OMB chief who is essentially the Elon Musk of the Trump administration (a reference to his multiple roles running OMB and serving as acting director of the Consumer Financial Protection Bureau).

A source close to Hicks told the publication that she has told people she is open to the job if Trump asked, but is not pursuing it. Hicks declined to comment.

Meanwhile, supporters are lobbying for Hicks, a longtime Trump spokeswoman from both his private business and the campaign, to return to the administration after stepping down as White House Communications Director in March.

“Unlike any other candidate he may be considering, she doesn’t need a learning curve and possesses the most important qualities that the president cares about: loyalty, independence, and a calming presence during chaos,” conservative commentator Ryan Girdusky wrote for the Washington Examiner.

VF added that Hicks is being actively discussed, citing two sources from inside the administration.

Another dark-horse candidate is Hope Hicks. Two sources say Hicks’s name is being discussed inside the White House. According to a source close to Hicks, she has told people she is open to the job if Trump asked, but is not pursuing it. When I reached out, she declined to comment.

Hicks’ chances are bolstered by the fact that she’s an unabashed Trump loyalist, and would reportedly “help Trump connect with his base.”

Plus, hiring Hicks would be a historic move. She would be the first female White House chief of staff, as well as the youngest – helping Trump swat away critics who’ve accused him of being a misogynist. The president himself has helped stoke rumors by telling reporters that he’d love for Hicks to return to the White House, adding that “everybody misses” her.

“I love Hope.. I think everybody misses it, I think when they leave for a while,” Trump told reporters. “Many people would like to come back. Look, there is nothing more exciting than what we’re doing.”

As rumors of Kelly’s departure have metastasized, Trump has taken deliberate steps to publicly praise his chief of staff. Following reports about Kelly’s departure last week, Trump on Tuesday gave Kelly a shout-out while awarding a posthumous medal of honor, referring to his chief of staff as a “special man.” But with Kelly’s one-year anniversary just around the corner, it’s looking increasingly likely that his tour of duty in the White House is coming to a close.

The only question is: Would Hicks be up for the challenge of imposing discipline on an unruly West Wing that has resisted Kelly’s best efforts? (evidenced by the fact that a prank caller recently got through to President Trump while he was traveling on Air Force One)

What do you think?

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Authored by EconomicPrism’s MN Gordon, annotated by Acting-Man’s Pater Tenebrarum,

Of No Real Use

A young man might go to business school believing he is obtaining some sort of academic training that will enable him to make a comfortable living.  His degree may gain him entry into a large corporation, where he can work his way up to a good income.  This may even put him on the fast track to what he envisions as success.

Don’t knock it: Being useless can lead to unexpected career opportunities… [PT]

But his academic training likely won’t be of any real use.  He won’t be prepared to create new products or deliver new services or technologies.  He won’t possess any special knowledge that will improve the well-being or satisfaction of others.  He won’t have the skills to bring in new business or grow the bottom line.

Rather, his academic training will have prepared him to use spreadsheet entries to forecast quarterly revenue and margin targets.  What’s more, if the numbers show a disagreeable trajectory, he won’t have the skills or slightest inkling as to what to do about it.  He’ll merely ride the wave down until it crashes on the rocky reef.

But if he is in a position of leadership, he will likely panic.  Out of his element, he will chase one idiotic solution after another.  He will package up and sell off a segment of the business.  He will invest in a new company branding initiative or fancy computer based system tools.  He will postpone the effective date of annual merit increases until the second quarter.  He may even require that workers put $0.25 cents in a collection jar every time they fill up their coffee mug.

The results of these efforts will likely be the exact opposite of that intended.  Instead of stemming the hemorrhage of red ink, these efforts will accelerate it.  Before long the productive employees will jump like rats from a sinking ship.  After that, the company will take on water in earnest.

We have seen it happen first hand.  We know how quickly these things can go down.  Here is the point…

Discovering satisfying ways of failing collectively…  [PT]

 

A Track Record of Perfection

Peter Navarro is the Director of the National Trade Council of the United States.  This, no doubt, sounds like an impressive and essential job title.  Yet, somehow, the first 241 years of the nation’s existence passed along fairly well without it.

So given that this is now an essential office of the executive branch of the U.S. government, we have some questions.  Namely, what is it, exactly, that the Director of the National Trade Council does?  Do you know the answer?  Well, neither do we.

Peter Navarro, author of “Death by China”, which has recently been made into a movie (!), posing in front of the movie poster. One critic described the movie as “a rabid piece of agitprop… with the strident brushstrokes of a bad editorial cartoon… sky-is-falling hysteria… the documentary equivalent of a raving street-corner derelict”. We haven’t seen the movie, but we have listened to Navarro ranting about trade and we would therefore guess that this assessment of his movie is pretty much on the mark. [PT]

We do know that Director Navarro, a PhD in economics from Harvard, spent over 40 years in academia.  His primary purpose has been researching and writing about how America gets a raw deal from its global trading partners.

On occasion, Navarro’s taken a break from his studies to run for political office in San Diego.  As a political candidate his track record is perfect.  He lost the mayor’s race in 1992, the 49th Congressional District in 1996, and the District 6 city council seat in 2001.  We even came across one report that he’d run for political off five times, losing each time; though we couldn’t confirm the details.

The exclusive attention of Navarro’s labors since roughly 2005 has been focused, in the words of one of his book titles, on Confronting the Dragon.  The dragon to be confronted, according to Navarro, is China.  His main premise is that war with China – both trade and military – is inevitable.

In economic circles, he is considered an embarrassment.  Dan Ikenson, director of the Cato Institute’s Herbert A. Stiefel Center for Trade Policy Studies, called Navarro a “charlatan”.  The Economist thinks his ideas on the trade deficit are “dodgy economics” and “fantasy”.

Back when he was still pursuing a political career, Navarro advertised himself as “the Democrat Newt Gingrich fears most”. It should be kept in mind in this context that Trump’s protectionist agenda would normally be expected to emanate from the political left – Democratic stalwarts like Charles Schumer were in the past always on the forefront of efforts to declare China a “currency manipulator”, which would essentially have led to escalating trade sanctions on auto-pilot. Unions – which are as a rule allied with the Democrats – are also well known for their opposition to free trade. In the post-war era it is rather unusual to see a Republican administration openly pursuing a protectionist agenda. Trump is of course not the first Republican president to impose steel tariffs. Both Reagan and G.W. Bush did the same (the demise of the US steel industry promptly accelerated in the wake of these measures designed to “help” it).

 

Confronting the Dragon with Peter Navarro

But in Navarro, President Trump found his perfect stooge.  Here is a man who provides Trump with the limited academic cover he desires to pursue his MAGA agenda.  Attainment of this ideal seems to hinge upon closing America off from foreign competitors so that American workers can get back to work making light bulbs and picture frames.

The difference between the President and the Director of the National Trade Council on any issue of the day comes down to one point: rule.  The President can order practical or impractical actions on all important and trivial matters.  The Director, on the other hand, is limited by his influence.

Navarro, a lunkhead, has presently garnered full influence over President Trump in the area of foreign trade.  Together, they are unleashing economic chaos on friends and foes alike through new tariffs and border taxes.  Yet, their assessment of the cause of America’s troubles is off the mark.

US real manufacturing output per worker is close to a record high (so is real manufacturing output overall, although it remains slightly below the peak it reached just before the GFC). As this chart illustrates, manufacturing output and employment have moved in opposite directions for a very long time. This is akin to what happened in the agricultural sector, which employed almost 80% of the workforce a century ago – and although it employs just 2% of the workforce today, its output has gown by orders of magnitude. Such far-reaching changes in the economy are a hallmark of progress, but they are always disruptive. This is why there is always resistance to such changes, despite their promise of boosting overall living standards (a famous example are the Luddites who tried to stop factory automation in its tracks at the time of the Industrial Revolution). The chart also hints at the fact that decades of incessant money printing and debt accumulation under the fiat money regime have led to capital consumption, as too much capital has been malinvested over a succession of boom-bust cycles – hence the sharp slowdown in productivity growth in recent years. One can hardly blame trade with China for this. [PT]

 

After decades of government expansion and ever increasing government and consumer debts, the United States finds itself on a disagreeable trajectory.  These massive debts, remember, are responsible for the gaping trade deficit.  In China, Trump and Navarro have a convenient boogeyman – a dragon – for the imagined decline of America’s manufacturing sector.

Alas, the result of their trade policies will likely be the exact opposite of that intended. Confronting the dragon with Peter Navarro is a losing prospect.  Without question, these actions will lead us to bitter defeat.

Trump mainly seems to be fighting the Dragon by utterly confusing it. One should probably wait and see what will actually happen. Trump often makes astonishing U-turns which reveal that whatever he threatened to do was really just part of his negotiation strategy (US-North Korea relations are a prime example of this approach). It may well be that he is merely using the rabid one-track Navarro as a stick. It is of course true that current global trade arrangements do not represent free trade, but rather managed trade. They are still better than the heavily protectionist situation in place before. We should add, we have rarely heard Trump say anything about trade that didn’t sound economically ignorant;  however, to his credit, he appears to have proposed at the recent G7 pow-wow that everybody should simply remove all trade restrictions, which his counterparts apparently considered a complete non-starter (that would not surprise us, as their commitment to free trade is paper-thin) – if that is his goal it would certainly be worthy of support. We cannot really know if that is truly the case though (not yet, anyway). [PT]

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