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As we launch into the 2018 summer season of punishing tariffs and counter-tariffs and with the present bad feelings between the global powerhouses, perhaps a second look at what we are *actually* trying to accomplish is in order — and if a better way of accomplishing our goals appears — would today’s leaders be bold enough to employ such a change-up?
Taking the American position as an example; U.S. President Trump feels that American steel and aluminum are at a competitive disadvantage to countries like, well, every other country in the world, which is why he has instituted import tariffs of 25% on steel and 10% on aluminum. Different tariffs have been levied by Trump on other imported items. All of which is supposed to help American steel and aluminum companies compete in the international marketplace and overcome decades of less-than-stellar reinvestment in U.S. rust belt industries such as steel and aluminum mining and smelting.
The pushback from exporting countries has been considerable and is expected to be matched on a dollar-for-dollar basis. Trade war, much?
The First Rule in Every Crisis: Don’t Make it Worse!
While there is plenty of angst to go around, President Trump must remember that the entire situation was created by every U.S. president since President Carter, and that countries were never told to stop or slow the exports to the United States, nor told to lower their exports to other Western nations.
That means it’s time for President Trump to ‘play nice’ with exporting countries — which have done nothing more than play by the rules that America itself had set.
The problems of the $862.2 billion balance of trade deficit that America is trying to draw-down can be made worse via bad communications, additional tariffs, or clumsy handling of the situation. Let’s not do that.
Rather, let’s try to improve on trade deficit elimination as time rolls forward.
How to Make it Better
Apart from not making it worse, the present uncomfortable situation could be solved to every party’s satisfaction by designing a tariff regime to solve the fundamental problem instead of trying to address each good or service individually — creating a pathway, not only to solve immediate concerns — but to provide additional revenue to assist the above-noted and other American industries stung by poor vision, poor leadership, and poor management of U.S. trade policy from the 1980’s onward.
Instead of piecemeal (and high) tariffs that are seen as exorbitant in some quarters, President Trump should institute a standardized 5% across-the-board tariff on every single good imported into the United States.
The gross total revenue of that 5% tariff would far exceed the revenue that would be collected by the present bric-a-brac collection of deeply unpopular tariffs.
With an annual tariff revenue pool that would far exceed that of the present tariff regime, the United States could allocate generous and proactive funding to several of America’s poorly-performing economic segments, which spending would be completely at the discretion of the Trump Administration and its successors.
That’s an extra $120 billion (approx) for America annually.
Invite America’s Trade Partners to Drop Their Existing Tariffs and Match the New 5% Standardized Tariff
And then, pour yourself a nice cool drink Mr. President because you’ve won.
End of the trade war, the beginning of accumulating billions of dollars that can be directed to American industries that have suffered as a result of heretofore unrestricted imports from economies that benefit from low-cost labour and lower environmental standards.
Be part of the solution.
Nothing would put a salve on the present air of hurt feelings like a major signing ceremony between the U.S. and China where both countries see it’s in their best interests to drop the existing punitive tariffs and support and abide by a standardized 5% tariff regime.
No doubt that the EU, The Commonwealth of Nations, Russia, and other global exporters would enthusiastically sign a matching and standardized 5% tariff agreement with the Trump Administration.
Problem solved. And everyone makes more money!
That’s how to employ the ‘Art of the Deal’ to turn a negative into a positive.
As trade tensions rise between the United States of America and its traditional allies, Canada’s Foreign Minister Chrystia Freeland hits the right note in responding to U.S. President Donald Trump as she accepts the Diplomat of the Year Award from Foreign Policy magazine.
Below are both the full video and transcript of her speech courtesy of ForeignPolicy.com
“Tonight, I would like to speak about a challenge that affects us all: and I believe worries us all, and that is the weakening of the rules-based international order and the threat that resurgent authoritarianism poses to liberal democracy itself.
I’d like to start on a personal note. In the 1980’s and 1990’s, I studied and worked as a reporter in what was first the USSR and while I was living there [it] became independent Ukraine and Russia.
My experience of watching from the inside as this vast authoritarian regime crumbled, profoundly shaped my thinking. It was a euphoric moment, and one in which it was tempting to imagine that liberal democracy was both inevitable and invulnerable.
As Francis Fukuyama put it, we seemed to have reached the ‘end of history’.
Fukuyama wasn’t, of course, arguing that history had ground to a halt. Rather, he was saying that the half-century-long competition between liberalism and authoritarianism had been settled and that liberal democracy had won. What a seductive argument.
Now, we harbored no illusions then, that institutions such as the WTO, or the IMF, or the World Bank, or the U.N. were perfect. Or that that our own democracies at home with their sausage-making methods of legislating and governing were without flaw.
But there was a broad consensus that the Atlantic nations, plus Japan, led an international system of rules that had allowed our peoples’ to thrive and which would surely continue to do so. Crucially, this was built as a system that other nations, emerging powers could join, and join they have.
The past 25 years have seen the rapid rise of the global south and Asia, most prominently China, as major economic powers in their own right. We created the G20, with Canadian leadership I might add. Russia was invited into the G7 making it the G8 in 1998, and the WTO in 2012. China has been a WTO member since 2001.
In Latin America, in the Caribbean, in Africa, and in Asia, developing countries have joined these institutions and accepted their rules, and that has delivered ever-greater living standards to their people.
But although this was and remains a broadly positive evolution, with extraordinary gains, in reducing extreme poverty, lengthening lives and decreasing infant mortality, one assumption about this great global shift turned out to be wrong: that was the idea that as authoritarian countries joined the global economy and grew rich, they would inevitably adopt Western political freedoms too. That hasn’t always happened. Indeed, in recent years, even some democracies have gone in the other direction and slipped into authoritarianism, notably and tragically, Venezuela. And some countries that had embarked on the difficult journey from communism to democratic capitalism have moved backwards. The saddest personal example for me is Russia.
Even China, whose economic success in lifting hundreds of millions of people out of poverty is one of the great accomplishments of recent times, stands as a rebuke to our belief in the inevitability of liberal democracy.
And within the club of wealthy Western nations, we are seeing homegrown anti-democratic forces on the rise. Whether they are neo-Nazis, white supremacists, incels, nativists, or radical anti-globalists, such movements seek to undermine our democracies from within. Liberal democracy is also under assault from abroad. Authoritarian regimes are actively seeking to undermine us with sophisticated, well-financed propaganda and espionage programs. And they seek to suborn smaller countries, those wavering between democracy and authoritarianism.
Now, the idea that democracy could falter or be overturned in places where it had previously flourished may seem outlandish. But other great civilizations have risen and then fallen. It is hubris to think we will inevitably be different. Our Prime Minister likes to say about our country that Canada didn’t happen by accident and it won’t continue without effort.
The same can be said of liberal democracy itself.
Now let’s set aside the external malevolent actors for a moment. Why are liberal democracies vulnerable at home?
Here’s why: Angry populism thrives where the middle class is hollowed out, where people are losing ground and losing hope, even as those at the very top are doing better than ever. When people feel their economic future is in jeopardy — when they believe their children have fewer opportunities than they themselves had in their youth, that’s when people are vulnerable to the demagogue who scapegoats the outsider, the other, whether it’s immigrants at home or trading partners abroad.
The fact is, middle-class working families aren’t wrong to feel left behind. Median wages have been stagnating. Jobs are becoming more precarious, pensions uncertain, housing, childcare, and education harder to afford. These are the wrenching human consequences, the growing pains, if you will, of the great transformative forces of the past 40 years — the technology revolution and globalization.
Now, of the two, technology is having the greatest impact. But even free traders like me need to recognize that globalization has contributed as well. So, what’s the answer?
I think we are agreed that it is not, as the Luddites unsuccessfully proposed at the start of the Industrial Revolution, to stop the march of technology. We all love our smartphones too much.
When it comes to trade though, we do need to introduce labor standards with real teeth as Canada and the EU have done in our free trade agreement, and as we are discussing as part of our ongoing NAFTA modernization negotiations. It is long past time to bring the WTO up to date with the realities of 2018 and beyond. We need to seriously address non-tariff barriers to trade and force technology transfers.
However, and overwhelmingly, the chief answer to the legitimate grievances of the middle class lies in domestic policies.
The middle class and people working hard to join it need the security that comes from educationing your youth, health care for your family, good jobs for your children, and dignity in your retirement.
We need to think about what the jobs of the future for our citizens will be, and ensure that those jobs will pay a living wage and that our people have the skills to do them. Perhaps most importantly, and this is work that would benefit from international cooperation, in a 21st century in which capital is global but social welfare is national, we need to ensure that each of our countries has the durable tax base necessary to support the 99 percent.
But setting our own house in order is just one part of the struggle. The truth is that authoritarianism is on the march and it’s time for liberal democracy to fight back. To do that, we need to raise our game.
One device strongmen use to justify their rule is the Soviet trick of whataboutism. The strategy of false moral equivalency which holds that because democracies are inevitably imperfect, they lack the moral authority to criticize authoritarian regimes.
We heard this species of cynical rhetoric for example, from the Venezuelan foreign minister at the Organization of American States meeting in Washington just last week. We must be smart enough to see through it. It’s possible, indeed necessary, for us to acknowledge that our own democracies aren’t perfect.
The record of my own country’s relationship with indigenous peoples, for example, is one of tragic failure.
But admitting our mistakes doesn’t discredit us. On the contrary, it is one of the things that makes us who we are. Authoritarianism is also often justified as a more efficient way of getting things done. No messy contested elections, no wrenching shift from one short-termist governing party to another, no troublesome judicial oversight, no time-consuming public consultation. How much more effective the apologists argue for a paramount leader with a long-term vision, unlimited power and permanent tenure, to rule.
We need to resist this corrosive nonsense. We need to summon Yeats’ oft-cited passionate intensity in the fight for liberal democracy and the international rules-based order that supports it.
Remember those great words at Gettysburg. Government of the people, by the people, for the people, shall not perish from the Earth. Preserving Lincoln’s vision means striking back. It means resisting foreign efforts to hijack our democracies through cyber-meddling and propaganda. It means outshining the other models and encouraging those who are on the fence. And it means governing with integrity.
Facts matter. (applause) Truth matters. (applause) Competence and honesty among elected leaders and in our public service matter. (applause)
Now, I’d like to speak directly to Canada’s American friends and to my own many American friends who are here in this room.
Let me begin by simply saying: Thank you.
For the past 70 years and more, America has been the leader of the free world. We Canadians have been proud to stand at your side and to have your back. As your closest friend, ally, and neighbor, we also understand that many Americans today are no longer certain that the rules-based international order of which you were the principal architect and for which you did write the biggest cheques, still benefits America.
We see this most plainly in the U.S. administration’s tariffs on Canadian steel and aluminum imposed under the 232 national security provision. We share the world’s longest undefended border. Our soldiers have fought and died alongside yours in the First World War, in the Second World War, in Korea, in Afghanistan, and in Iraq.
The idea that we could pose a national security threat to you is more than absurd, it’s hurtful.
The 232 tariffs introduced by the United States are illegal under WTO and NAFTA rules. They are protectionism pure and simple. They are not a response to unfair actions by other countries that put American industry at a disadvantage. They are a naked example of the United States putting its thumb on the scale in violation of the very rules it helped to write. Canada has no choice but to retaliate with a measured, perfectly reciprocal, dollar for dollar response. And we will do so. We act in close collaboration with our like-minded partners in the EU and Mexico.
They too are your allies, and they share our astonishment and our resolve.
Chrystia continues her speech in Canada’s other official language (French) then reverts to English, as below…
No one will benefit from this beggar-thy-neighbour dispute. The price will be paid in part, by American consumers and American businesses and the price will also be paid by those who believe that a rules-based system is worth preserving.
Since the end of the Second World War, we have built a system that promoted prosperity and prevented smaller and regional conflicts from turning into total war. We’ve built a system that championed freedom and democracy over authoritarianism and oppression. Canada for one, is going to stand up in defense of that system. We will not escalate and we will not back down.
We remember a time when the United States believed great international projects like the Marshall Plan or the reconstruction of Japan were the path to lasting peace. When America believed its security and prosperity were bolstered by the security and prosperity of other nations. Indeed, that America could only be truly safe and prosperous when its allies were too. This vision, the greatest generation’s vision, was crucially dependent on the rules-based international order and the postwar institutions built to maintain it. It was based upon the willingness of all, especially the strongest, to play by the rules and be bound by them. It depended on the greatest countries of the world giving up, collectively, on the idea that ‘might made right’.
Now, the Second World War was over 70 years ago, it is reasonable to ask whether our grandparents’ hard-won wisdom still applies today. I am certain that it does and for some new reasons.
After the devastation of the Second World War, the United States was the unquestioned colossus, accounting alone for half the world’s economy. Today, the U.S. economy stands at just a quarter of the world’s. Together, the EU, Canada, and Japan, your allies in the G-7 and beyond, account for just a little bit more. China, meanwhile, produces nearly 20 percent of the world’s GDP. And in our lifetimes, its economy is set to become the world’s largest.
Now, that’s not necessarily a bad thing.
Americans, Canadians, and Europeans are much richer and healthier, and live longer than our grandparents did. The ‘rise of the rest’ has been a chapter in the story of our own increased prosperity. And it’s only natural that the 85 per cent of people who live outside the industrialized West should, over time, account for a greater and growing share of the world’s wealth.
But that shift leaves the Western liberal democracies with a dilemma. How shall we behave in a world we no longer dominate?
One answer is to give up on the rules-based international order, to give up on the Western alliance and to seek to survive in a Metternichian world defined, not by common values, mutually-agreed upon rules and shared prosperity, but rather by a ruthless struggle between the great powers governed solely by the narrow, short-term, and mercantalist pursuit of self-interest.
Canada could never thrive in such a world. But you, still the world’s largest economy, may be tempted. That, of course, is your sovereign right. But allow me, as your friend to make the case that America’s security amid the inexorable ‘rise of the rest’ lies in doubling-down on a renewed rules-based international order. It lies in working alongside traditional allies like Canada and alongside all of the younger democracies around the world.
From the Americas, to Africa, to Asia, to the former Soviet Union — who are so keen to join us and who yearn for leadership, you may feel today that your size allows you to go ‘mano a mano’ with your traditional adversaries and be guaranteed to win. But if history tells us one thing, it is that no one nation’s preeminence is eternal.
That is why the far wiser path and the more enduring one is to strengthen our existing alliance of liberal democracies. To hold the door open to new friends. To countries that have their own troubled past such as Tunisia, Senegal, Indonesia, Mexico, Botswana, or Ukraine.
To reform and renew the rules-based international order that we have built together. And in so doing, to require that all states, whether democratic or not, play by these common rules.
This is the difficult truth. As the West’s relative might inevitably declines, now is the time when, more than ever, we must set aside the idea that ‘might is right’. Now is the time for us to plant our flag on the rule of law so that the rising powers are induced to play by these rules too.
To explain my faith in you, in America, let me remind you of the ‘City on the Hill’ Ronald Reagan evoked in his farewell speech in 1989. It was a tall, proud city, built on rocks stronger than oceans, windswept, God-blessed, and teeming with people of all kinds living in harmony and peace. A city with free ports that hummed with commerce and creativity and if there had to be city walls, the walls had doors and the doors were open to anyone with the will and the heart to get there.
This city, open to trade, open to immigrants, speaks to Canada’s values too. Indeed, these are the values of liberal democracy. These values are under attack from outside our walls. Most corrosively, even inside the shining city some have begun to doubt them. My country, Canada, believes in these values. We are ready to defend them and the rules-based international order that unites all of the world’s cities on the hill.
Our friends among the world’s democracies in Europe, in Asia, in Africa, and here in the Americas are shoulder to shoulder with us. We all know we will be strongest with America in our ranks and indeed, in the lead. But whatever this great country’s choice will turn out to be, let me be clear that Canada knows where it stands, and we will rise to this challenge. Thank you.” — As read by Chrystia Freeland, Foreign Minister for Canada, June 14, 2018
Allow me to make a prediction.
And there’s a simple reason for it; U.S. President Donald Trump feels that every organization to which his country belongs has ‘taken advantage of the United States’ for decades and the only way to ‘stop the hemorrhaging’ is to quit all those institutions — perhaps forever.
Even if the U.S. decides to retain its UN membership for a time, my point will have been made.
Perhaps the Trump administration will explain its position in an ongoing conversation at the United Nations as to why it’s leaving the other institutions first and then quit the United Nations body last as a final snub to the world community.
Although these undertakings haven’t yet come to fruition, signs are forming that President Trump and his supporters may go the entire distance in separating the United States from the Rest of the World — and that’s especially true if he receives a second mandate via the 2018 midterms and a third mandate courtesy of American voters in 2020.
On the Way Out the Door, Grab Everything You Can!
Enroute to leaving every multilateral organization and trade agreement on the planet, Donald Trump the negotiator may tell his people to extract every possible concession, from every possible country, every step of the way.
If you think he won’t… sorry, you’re laughably naive.
Remember, Donald Trump thinks that every country in the world takes advantage of American largesse every day of the year! A team of Harvard lawyers couldn’t convince him otherwise. Therefore, why would he want to stay in any of those political or free trade agreements?
For Mr. Trump, interim negotiations seem nothing more than the necessary steps toward his goal of quitting those institutions completely.
The U.S. Midterm Elections Will Accelerate or Decelerate Trump’s Plans
The U.S. midterm election results will set the course for the next two years as all 435 seats in the United States House of Representatives and 35 of the 100 seats in the United States Senate will be contested and if the Republicans win big, expect Trump’s isolationist plans to accelerate accordingly.
If the Trump team does well, every country that trades with the United States better have a solid ‘Plan B’ ready to implement the day following the U.S. midterm election. A year later just won’t cut it. This President moves fast.
For G7 and G20 countries, this means ramping-up trade with each other in an attempt to replace the great American marketplace where billions of dollars of foreign goods are purchased every day.
For developing countries, not much will change as most of them have only tiny trade links with the United States.
What Can G7 and G20 Countries Do?
Having failed to grasp the full extent of the Trump determination to pull back from the rest of the world, some countries seem uncertain about what to do next, while others think it will simply ‘blow over’ and business will soon return to normal.
But in Donald’s world, if you’re willing to sign an actual trade deal with his country he then feels he’s left too much money on the table and we’re right back to where we started — the world is taking advantage of the United States and America must never sign such an agreement!
Countries that run large trade surpluses with the United States may start to notice curtailed trade with America, therefore every country must plan for changes in that trading relationship, because, like the song says, ‘The times, they are a changin’ and it’s no fun being stuck with tens of billions of dollars of stuff that you can’t export’ — because U.S. tariffs have made your goods too expensive or the U.S. border is closed to your exports.
For countries with a less than $10 billion trade surplus with the United States, you’re probably pretty safe (for now) unless you start waving a red flag at the Commander in Chief. But if you’re a country that runs double-digit or triple-digit trade surpluses with the Americans, it’s officially time to panic.
Strengthen non-U.S. Trading Relationships Now
Perhaps using the recently-signed CETA deal between Canada and the EU as a template, G20 countries could begin to strengthen their trading relationships with each other to the extent that they could survive America severely curtailing their trade. (If it comes to that)
‘Surely that’s an unreachable goal’ some might say, but even if countries miss the ‘unreachable goal’ by 50%, they’re still better off compared to not making the attempt.
Even if it takes the Trump team five years to wrestle trade deficits down to a manageable level (think; $10 billion/yr per country) and even if it takes ten long years for countries to find replacement markets for much of the goods and services they presently sell to the U.S., they’ll still be glad they invested the time and effort.
Countries with double-digit or triple-digit trade surpluses with America that get ahead of the curve are more likely to survive it better, while countries that don’t diversify may find themselves neck-deep in their own exports.
Final thought? As the United States pulls back from the world, countries that double-down on building their Commonwealth/EU/BRICS trade links will rejoice.