Economic boom, or bust? Or both?

Two contrasting views on economic prospects in the US. Given it’s size the economy in the US will impact on the rest of the world, including New Zealand.

Kevin Brady, Republican member of Congress and chairman of the House Ways and Means Committee writes (WSJ): Six Months After Tax Reform, Something Big Is Happening

Six months ago, Republicans in Congress joined with President Trump to redesign America’s tax code and enact sweeping tax cuts. We were determined to let families and local businesses keep more of what they earn. The new tax code was built to help American companies and workers compete and win anywhere in the world.

Now something big is happening to America’s economy. Since January, more than one million jobs have been created.

In only six months, the economy has been reinvigorated—and the best is yet to come. That’s because the new tax code leapfrogs America’s competitors abroad. The U.S. is now at the head of the pack—one of the best places on the planet to find that next job, to build that new manufacturing plant, or to set up company headquarters.

As a result, businesses of all sizes are now investing in American workers and communities. They are bringing back their dollars from overseas and investing at home again. It’s no coincidence that small-business optimism has hit its highest reported level in 35 years.

There is a new hope and a new optimism that wasn’t here before

Given the choice between keeping taxes high and allowing families to keep more of their money, Republicans chose—and continue to choose—the American people. Empowering families to run their own lives is at the heart of the American Dream. It’s the key to our nation’s economic success, and it’s the reason that, six months into tax reform, Americans are more hopeful about their future.

But domestic tax rates aren’t the only thing that affects the US and world economies. Not everyone is this hopeful about the economic future.

Nomi Prins (The Nation): Donald Trump’s Trade Wars Could Lead to the Next Great Depression

Leaders are routinely confronted with philosophical dilemmas. Here’s a classic one for our Trumptopian times: If you make enemies out of your friends and friends out of your enemies, where does that leave you?

Let’s cut through all of this for the moment and ask one crucial question about our present cult-of-personality era in American politics: Other than accumulating more wealth and influence for himself, his children, and the Trump family empire, what’s Donald J. Trump’s end game as president?

If his goal is to keep this country from being, as he likes to complain, “the world’s piggy bank,” then his words, threats, and actions are concerning. However bombastic and disdainful of a history he appears to know little about, he is already making the world a less stable, less affordable, and more fear-driven place.

Trump’s approach may force the world into sorting out some shortcomings of current trade arrangements, but it has major risks.

What the American working and the middle classes will see (sooner than anyone imagines) is that actions of his sort have unexpected global consequences. They could cost the United States and the rest of the world big-time.

Could.

So far, President Trump has only taken America out of trade deals or threatened to do so if other countries don’t behave in a way that satisfies him. On his third day in the White House, he honored his campaign promise to remove the United States from the Trans-Pacific Partnership, a decision that opened space for our allies and competitors, China in particular, to negotiate deals without us. Since that grand exit, there has, in fact, been a boom in side deals involving China and other Pacific Rim countries that has weakened, not strengthened, Washington’s global bargaining position.

Meanwhile, closer to home, the Trump administration has engaged in a barrage of NAFTA-baiting that is isolating us from our regional partners, Canada and Mexico.

Trump is also annoying Britan and the EU over his trade barrages.

In the past four months, Trump has imposed tariffs, exempting certain countries, only to reimpose them at his whim. If trust were a coveted commodity, when it came to the present White House, it would now be trading at zero.

His supporters undoubtedly see this approach as the fulfillment of his many campaign promises and part of his classic method of keeping both friends and enemies guessing until he’s ready to go in for the kill. At the heart of this approach, however, lies a certain global madness, for he now is sparking a set of trade wars that could, in the end, cost millions of American jobs.

“Could, in the end, cost millions of American jobs” contrasts with Brady’s “more than one million jobs have been created”.  In fact both could be correct. Short term gains could disappear if Trump tirades turn trade into a turkey and the economy goes bad.

As the explosive Group of Seven, or G7, summit in Quebec showed, the Trump administration is increasingly isolating itself from its allies in palpable ways and, in the process, significantly impairing the country’s negotiating power.

If you combine the economies of what might now be thought of as the G6 and add in the rest of the EU, its economic power is collectively larger than that of the United States. Under the circumstances, even a small diversion of trade thanks to Trump-induced tariff wars could have costly consequences.

Good international relations generally means better outcomes. Wars of any kind are likely to make things worse.

A recent report by Andy Stoeckel and Warwick McKibbin for the Brookings Institution analyzed just such a future trade-war scenario and found that, if global tariffs were to rise just 10 percent, the gross national product (GDP) of most countries would fall by between 1 percent and 4.5 percent—the US GDP by 1.3 percent, China’s by 4.3 percent. A 40 percent rise in tariffs would ensure a deep global recession or depression.

In the 1930s, it was the punitive US Smoot-Hawley tariff that helped spark the devastating cocktail of nationalism and economic collapse that culminated in World War II.

The current incipient trade war was actually launched by the Trump administration in March in the name of American “national security.”

Using “national security” as a loose excuse for abuse is bad enough, but it has some disturbing parallels.

From the United States Holocaust Memorial Museum:

As an absolute principle of national security, Nazi ideology called for the elimination of “racially inferior” peoples (such as Jews and Roma) and implacable political enemies (such as communists) from regions in which Germans lived.

Back to Prins:

The global economic system first put in place after World War II was no longer working particularly well even before President Trump’s trade wars began. The problem now is that its flaws are being exacerbated.

Once it becomes too expensive for certain companies to continue operating as their profits go to tariffs or tariffs deflect their customers elsewhere (or nowhere), one thing is certain: It will get worse.

I don’t think that’s a certainty, but it is a real possibility if Trump’s ‘negotiations’ turn trade to custard.

Is the US headed for boom, or bust?

It could easily be both. Busts often follow booms.

 

 

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US Supreme Court rules on online sales tax

The US Supreme Court has overturned a ruling that had given online retailers a way of avoiding some state taxes.

NY Times: Supreme Court Clears Way to Collect Sales Tax From Online Retailers

Internet retailers can be required to collect sales taxes in states where they have no physical presence, the Supreme Court ruledon Thursday.

Brick-and-mortar businesses have long complained that they are disadvantaged by having to charge sales taxes while many of their online competitors do not. States have said that they are missing out on tens of billions of dollars in annual revenue under a 1992 Supreme Court ruling that helped spur the rise of internet shopping.

On Thursday, the court overruled that ruling, Quill Corporation v. North Dakota, which had said that the Constitution bars states from requiring businesses to collect sales taxes unless they have a substantial connection to the state.

This could be significant for New Zealand. If internet retailers like Amazon have to comply with all the state taxes in the US (a complex thing) depending on the location of the purchaser,then it should be simple to also comply with tax requirements for other countries.

Writing for the majority in the 5-to-4 ruling, Justice Anthony M. Kennedy said the Quill decision had distorted the nation’s economy and had caused states to lose annual tax revenues between $8 billion and $33 billion.

But there could be a downside. If online retailers are forced to charge more tax in the US they may look for more sales in places where they can get away without charging tax.

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Trump approval poll from RCP to 19 June:

This closed up significantly after the Singapore meeting between Trump and Kim. It could easily spread again if the raging over the caging of kids on the US Mexico border continues.

US-China trade war escalates

The on again, off again trade war between the US and China is escalating, with more tariff threats from both countries.

Trump aims to hit China as tit-for-tat tariff war erupts

A top U.S. trade adviser said China has underestimated President Trump’s resolve to press ahead with tariffs, in comments that undercut the chances of settling a looming trade war between the economic superpowers.

The threat of a growing trade conflict with China hit financial markets hard, with Beijing vowing a firm response after Trump on Monday said he would implement tariffs on an additional $200 billion of imports from China if Beijing went ahead with reprisals over an initial set of U.S. tariffs.

White House trade adviser Peter Navarro, a sharp critic of Chinese trade actions, said China has more to lose from any trade war.

“The fundamental reality is that talk is cheap,” Navarro told reporters on a conference call, again accusing China of “predatory” trade policies.

When it comes to stoking a major trade war talk could be quite expensive to both countries, and potentially to others including New Zealand.

The threat of new tariffs against China pits the world’s two largest economies against each other and looks set to disrupt global supply chains for the tech and auto industries, two sectors that rely heavily on outsourced components.

In total, Trump has now threatened up to $450 billion in Chinese imports with tariffs, including another $200 billion in Chinese goods if Beijing retaliates after the step Trump announced on Monday.

Mounting concerns over the U.S.-China dispute sent global stock markets skidding and weakened both the dollar and the Chinese yuan on Tuesday. Shanghai stocks plunged to two-year lows.

The Dow Jones is still trading in the US Tuesday and is currently down 1.18% for the day. That isn’t a drastic drop.

This could all have significant impact in this part of the world – From the Aussie to soybeans and cars: what’s at risk in a trade war?

The Aussie dollar takes a thumping, soybean prices swing and German carmaker shares are stuck in reverse.

Countries with open economies reliant on global trade are most at risk when disputes over international commerce hit.

The Australian dollar ticks those boxes. Australia counts China as its biggest trading partner and its currency is heavily correlated to global growth. Many investors see the currency, known as the Aussie, as a better global trade bellwether than the Canadian dollar, which has been buffeted by negotiations over NAFTA, the North American trade pact.

This week, the Aussie fell to its lowest level in 13 months, and the positioning of options signal more weakness ahead.

If Australia is badly affected that must have an impact here. New Zealand is also at risk directly with US and Chinese trade upheaval.

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Yemeni war continues, as does the arms industry

The war in Yemen has been going for three years, but it doesn’t get much attention still. But like Syria, it is not just an internal battle, it is a battle that regional and international powers are also involved in, with little success except for feeding the arms industry.

Reuters: Saudi-led coalition conducts air strikes on Yemen’s Hodeidah airport

Houthi forces fought to keep control of the airport in Yemen’s main port city of Hodeidah on Sunday as Saudi-led coalition air strikes struck the compound, in an offensive that could be a turning point in the three-year conflict.

Losing Hodeidah would deal a serious blow to the Iran-aligned Houthis, cutting supply lines from the Red Sea to their stronghold in the capital Sanaa.

It could also give an edge to the Western-backed military alliance which, despite superior weaponry and firepower, has failed to defeat the Houthis in a war that has killed 10,000 people and created the world’s most urgent humanitarian crisis.

The coalition wants to restore an internationally recognized government in exile and thwart what Riyadh and Abu Dhabi believe are arch-foe Iran’s ambitions to dominate the region.

Riyadh is Saudi Arabia, and is Abu Dhabi is United Arab Emirates – so they are battling Irani influences in Yemen. And the US is in the mix too.

The offensive could also have ramifications further afield due to Yemen’s role in a proxy war between Saudi Arabia and Iran that has fueled instability across the Middle East.

U.S. President Donald Trump’s withdrawal from Iran’s nuclear deal and his embrace of nuclear state North Korea have added to Tehran’s isolation and put pressure on the Islamic Republic to preserve its interests in Yemen and other Arab states.

 

The United Nations says the assault on Hodeidah could trigger a famine imperiling millions of lives. Many residents are bracing for more hardship as the warring sides dig in.

Imperilling millions of lives – the collateral damage. The population of Yemen is about 28 million people.

In March US approves proposed $1bn arms sale to Saudi Arabia

The US State Department has approved a possible arms sale to Saudi Arabia worth more than $1bn.

“This proposed sale will support US foreign policy and national security objectives by improving the security of a friendly country,” the statement read.

But campaigners, including some US legislators, are urging western governments to halt or limit arms sales to Saudi Arabia because of its involvement in a devastating civil war in Yemen.

The Saudi military offensive, which began in March 2015, has killed at least 10,000, displaced more than 2 million people and pushed Yemen to the brink of famine.

US Secretary of Defence Jim Mattis, speaking ahead of a Pentagon meeting with bin Salman on Thursday, said Saudi Arabia was “part of the solution” in Yemen.

Meanwhile, Amnesty International, in a statementon Friday, said there “was extensive evidence that irresponsible arms flows to the Saudi Arabia-led coalition have resulted in enourmous harm to Yemeni civilians”.

“But this has not deterred the USA, UK, and other states, including France, Spain and Italy, from continuing transfers of billions of dollars’ worth of such arms,” it added.

Also Nearly half of US arms exports go to the Middle East

Nearly half of US arms exports over the past five years have gone to the war-stricken Middle East, with Saudi Arabia consolidating its place as the world’s second biggest importer, a report has shown.

The Stockholm International Peace Research Institute (Sipri) said on Monday that global transfer of major weapons systems between 2013 and 2017 rose by 10% compared with the five-year period before that, in a continuation of an upward trend that began two decades ago.

The US, which is the world’s biggest exporter, increased its sales between those two periods by 25%. It supplied arms to as many as 98 states worldwide, accounting for more than a third of global exports.

Russia, the world’s second biggest exporter, saw a decrease of 7.1% in its overall volume of arms exports; US exports were 58% higher than those of Russia.

France, Germany and China were also among the top five exporters. The UK is the sixth biggest weapons exporter.

Killing people and destroying stuff is big business.

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