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Archive for January, 2017

Trump and Trade

Like Mexico, Canada is in the North American Free Trade Agreement, which Donald Trump has described as “the worst trade deal…ever signed in this country.” Unlike Mexico, Canada thinks that Trump is not planning to hurt it. But no good deed goes unpunished, so Canada’s Prime Minister Justin Trudeau should be very careful.

Canadians felt good when Trudeau responded to Trump’s ban on Syrian refugees by tweeting: “To those fleeing persecution, terror and war, Canadians will welcome you, regardless of your faith. Diversity is our strength. Welcome to Canada.” Feeling morally superior to Americans is one of Canadians’ favourite pastimes, and in this case it is self-evidently true.

The United States took in 12,587 Syrian refugees last year; Canada, with one-ninth of America’s population, accepted almost 40,000. Yet there have been only two “lone wolf” Islamist attacks in Canada in this century, each killing one person and neither carried out by an immigrant. Terrorists have just murdered six Canadian Muslims in Quebec City, but Muslim immigrants pose no appreciable danger to non-Muslim Canadians.

In reality, there is no significant danger from Muslim immigrants to America either. Most of the 28 major massacres in the United States since 9/11 were carried out by white right-wing extremists, and those that did involve Muslims were almost all committed by native-born Americans.

But Trump’s “executive orders” are not just driven by ignorance and panic. He is consciously manipulating public opinion, and Canada’s response to his ban on Muslim immigrants undermines the script he is working from.

If Trump’s domestic opponents use the Canadian example to discredit Trump’s story about the mortal danger posed by Muslim immigrants, the man might claim that lax Canadian immigration policy is a threat to the United States and apply “extreme vetting” measures to Muslim Canadians who want to cross the border.

He might even ban Muslim Canadians from the United States entirely, or require visas for all Canadians. That would impose huge inconvenience and cost on Canadians, but Donald Trump can basically do whatever he wants to his next-door neighbours. So Justin Trudeau would be wiser to do good by stealth and not attract too much attention in the US.

Mexico’s President Enrique Peña Nieto has a much bigger problem. He was well aware of Trump’s campaign promise to build an “impenetrable, physical, tall, powerful, beautiful, southern border wall” to keep out illegal Mexican immigrants, and to make Mexico pay for it. But like most people, he couldn’t believe that Trump meant it literally.

After all, who in their right mind would want to build a 10-metre high concrete wall, also extending a couple of metres underground, along more than half of the 3,100-km US-Mexican border? (The rest is mountains and rivers.) It would cost between $10 billion (Trump’s estimate) and $30 billion plus (construction consultants Gleeds Worldwide).

Building the wall isn’t going to stop the estimated 45 percent of illegal Mexican immigrants who arrive quite legally by car, bus or plane, but overstay their visas. It isn’t exactly urgent either, given that the net flow is now southward: since 2014 more Mexicans have been going home each year than arriving in the US.

The wall is really just symbolic, a demonstration of political will, but Trump has promised to build it and he will. Can he also make Mexico pay for it? Actually, he probably can.

Last Thursday Mexican officials were in Washington preparing for President Peña Nieto’s visit when Trump suddenly tweeted: “If Mexico is unwilling to pay for the badly needed wall, then it would be better to cancel the upcoming meeting.” Peña Nieto, deeply humiliated, did cancel the meeting. He had no choice.

But on Friday, the two presidents had an hour-long phone call that the joint statement described as “productive and constructive”. There were no details, but they did discuss “the current trade deficit the United States has with Mexico,” among other things. “Fixing” that trade deficit is probably how the circle will ultimately be squared.

Mexico’s exports to the US were $271 billion last year; its imports were only $213 billion. Trump wants to change that, and Peña Nieto has no option but to submit. And somewhere in the deal that there will probably be a clause that lets Trump claim Mexico is paying for the wall while Mexico can still deny it.

Canada-US trade is roughly in balance, so Canadians will probably not suffer severe pressure unless Trudeau really irritates The Man. The total volume of US-China trade is about the same, but China sells the US four times more than it buys from it.

That can’t be “fixed”, and Trump cannot be persuaded to let it ride. There will be tears before bedtime.
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To shorten to 725 words, omit paragraph 9. (“After…Worldwide”)

Making China Great Again

“Passing the TPP (Trans-Pacific Partnership) is as important to me as another aircraft carrier,” said former US defence secretary Ashton Carter two years ago, as the negotiations on the huge new free trade organisation were nearing completion.

Given that the United States already has twice as many aircraft carriers as all the rest of the world put together, that comment could be taken several ways, but Carter actually did mean that the TPP was strategically important in his eyes. As it was for ex-president Barack Obama, who saw the TPP as America’s main tool for containing China’s growing influence in Asia.

China, deliberately excluded from the 12-member club, saw it that way too. The official Hsinhua news agency regularly referred to the TPP as “the economic arm of the Obama administration’s geopolitical strategy to make sure that Washington rules supreme in the region.”

But the Obama administration is gone, and Donald Trump has just cut off that arm. “A great thing for the American worker, we just did,” Trump said after signing a document withdrawing US support for the TPP on Tuesday.

In fact, quitting the TPP is unlikely to do American workers much good economically, but it may not do them much harm either. Most analyses have concluded that the deal wouldn’t have had much effect either way on US wages and jobs – but leaving the TPP will certainly have a big impact on US power and influence in the world.

Xinhua was right: for Obama, the TPP was always more about the strategic rivalry with China than it was about economics. It still is, but Donald Trump’s electoral strategy has obliged him to declare war on free trade.

The voters that Trump targeted most heavily were working-class Americans who felt betrayed and abandoned as the well-paying jobs in manufacturing disappeared. However, there was no point in telling them that automation was destroying their jobs (which it is), because he could not plausibly promise to stop automation.

But if he claimed that the real problem was free trade, which allowed the Chinese and Mexicans and other sneaky foreigners to steal American jobs…well, he could certainly promise to stop that. He would build walls, cancel free-trade deals, even launch trade wars. It all sounded pretty credible, if you didn’t know that the vast majority of the lost jobs were really being stolen by robots.

So once he was in office, Trump was obliged to “unsign” the TPP deal, even though its main purpose, from Washington’s point of view, had been to perpetuate American economic and strategic dominance in Asia and freeze China out. In the eyes of Trump’s supporters (and maybe even in his own), he was slaying a dragon.

It looks different through the eyes of America’s erstwhile partners. As Singapore’s Prime Minister Lee Hsien Loong said in August, eleven other countries had to make big and politically painful concessions in return for access to the huge US market. “If at the end, waiting at the altar, the bride doesn’t arrive, I think that people are going to be very hurt.” And hurt feelings do matter, even in diplomatic circles.

The biggest cost to the United States is the fact that America’s defection from the TPP doesn’t automatically kill the notion of an Asian free-trade bloc. Australia is already talking about keeping the TPP going without the United States, but the likelier outcome is that the Asian members start trying to link up with China, Indonesia and even India in China’s proposed Regional Comprehensive Economic Partnership.

In that case, the United States could end up excluded from a free-trading bloc that includes half of the world economy. The dominant economy in that bloc would be China’s, so the main practical effect of Trump’s action would be to give a major boost to China’s power and influence in the world.

This pattern is likely to be duplicated in other areas where Trump is pledged to abandon long-standing US diplomatic commitments. It is already happening in the domain of climate change, where Trump’s decision to “unsign” the 2015 Paris treaty to curb global warming has opened the door to a leadership role for China instead.

At the World Economic Forum’s annual meeting in Davos earlier this month, China’s President Xi Jinping said that “all signatories must stick to” the Paris deal: “walking away” from the pact would endanger future generations. And while Trump is slashing US spending on climate change, Xi has pledged to invest $360 billion in renewable energy in the next four years to reduce China’s greenhouse gas emissions.

It’s easy to look good in the eyes of the rest of the world when the standard of comparison is Donald Trump’s administration. He is making China great again, even if that is not quite what he intended.
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To shorten to 725 words, omit paragraph 10. (“It looks…circles”)

Gambia and the 1999 Protocol

As military interventions go, it was practically flawless.
Last month Gambia’s long-ruling dictator, President Yahya Jammeh, lost an election that turned out to be a little freer than he had planned. After first conceding defeat and even phoning up the victor, property developer Adama Barrow, to congratulate him, Jammeh changed his mind and decided to stay in power.
Within days the Economic Community of West African States (ECOWAS) had condemned Jammeh’s action and ordered him to hand over power to Barrow. Within weeks the organisation was organising a military force to make him do so, while the presidents and prime ministers of other ECOWAS countries shuttled back and forth trying to persuade Jammeh to see reason.
On 19 January (last Thursday), with Jammeh still clinging to power, the United Nations Security Council passed a resolution supporting ECOWAS but asking it to use “political means first.” Typically, however, it did not endorse military action at all. It was the usual Security Council compromise, saying the right thing but not demanding decisive action for fear of triggering a veto.
So ECOWAS just went ahead anyway. On Friday a multinational force of 7,000 troops from five West African countries crossed the border from Senegal into Gambia. Barrow, who had fled to Senegal to avoid arrest or worse, was sworn in as president and immediately ordered the Gambian army not to resist. And with very few exceptions, it didn’t.
Most of Saturday was taken up with a series of missed deadlines for Jammeh to hand over power and leave the country. However, that evening he boarded a plane and left for Guinea, en route to his permanent place in exile in Equatorial Guinea, a country so isolated and obscure that it makes Gambia seem positively metropolitan.
The likely reason for the delay was revealed on Sunday, when Mai Ahmad Fatty, one of President Barrow’s advisers, reported that $11.3 million was missing from the Gambian government’s coffers, which were nearly empty.
Yahya Jammeh did not spend his 22 years in power stealing the country’s money and hiding it abroad like any normal dictator. As a full-time megalomaniac, he simply didn’t believe he could ever lose power. But when reality finally came crashing in, he quickly understood that maintaining his lifestyle in exile would require lots of money, so he grabbed whatever was available on his way out.
Good riddance – and not a single life was lost in the whole operation. Gambia has seen the first legal transfer of power since its independence in 1965, and ECOWAS has once again shown that it is the most effective regional security organisation on the planet.
You will never see the Association of South-East Asian Nations (ASEAN) or the Arab League intervening militarily to defend democracy. The Organisation of American States doesn’t do military interventions at all, and one doubts that the European Union would actually resort to force to stop a dictator from coming to power in one of its Balkan members.
The African Union does a bit better (e.g. the interventions in Somalia and South Sudan), but its huge membership of 54 countries makes decision-making a lengthy and tortuous process. Whereas ECOWAS’s fifteen countries have repeatedly and successfully intervened to defend or restore democratic governments in its member states, most recently in Côte d’Ivoire (2010), Guinea-Bissau (2012), and Mali (2012).
ECOWAS was founded in 1975, and its members first committed themselves to respect human rights and to promote democratic systems of government in 1991 (when a number of them were actually still dictatorships). But the key year was 1999, when they all signed up to the Protocol relating to the Mechanism for Conflict Prevention, Management, Resolution, Peace-Keeping, and Security (Protocol-Mechanism).
It could be compared to the UN Security Council in the sense that it has the right to order military interventions in sovereign states to stop wars, but it goes further in two important ways: it can also intervene to thwart unconstitutional attacks on democracy – and there is no veto. Even giant Nigeria, which has half of ECOWAS’s total population, has to accept majority decisions.
Decisions to intervene are taken by a two-thirds majority on the Mediation and Security Council, a nine-member body with a rotating membership. Nigeria obviously has huge influence, which it regularly wields in favour of democracy, but it is sometimes not even sitting on the MSC when it takes its decisions.
The Southern African Development Community and the African Union (with responsibility for the whole continent) have subsequently followed ECOWAS’s lead and adopted similar rules for intervention, but this kind of tough international protection for human rights and democracy is non-existent outside Africa.
You could argue, of course, that it’s Africa that needs it most, and you would be right. But the point is a) that Africa does have it, and b) that several other regions of the world would benefit from similar institutions.
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To shorten to 725 words, omit paragraphs 7 and 8. (“The likely…out”)

Davos: The Rich Are Worried

“I can’t wait to see how the incoming administration deals with AI (artificial intelligence),” said US Secretary of State John Kerry, in a less-than-gracious reference to the fact that the Trump team hasn’t got a clue about the real driving force in the changing world economy.

What was striking was that Kerry didn’t have to clarify his remark for the 2,000 “global leaders” – politicians, bureaucrats, business representatives and public intellectuals – who are in the Swiss alpine town of Davos for the annual World Economic Forum (WEF). They all know what he’s talking about.

This year’s Davos gathering is actually focused on the rise of populism and simple-minded attacks on globalisation (Donald Trump, Brexit et al.). That’s only to be expected, since the world’s ultra-rich are potentially threatened by that sort of thing. But they didn’t get rich by being stupid, and they have a fairly sophisticated analysis of what’s causing it.

The headline event on the first day of Davos was an hour-long speech by China’s President Xi Jinping in which he laid claim to the leadership role on free trade, globalisation and the struggle to contain climate change that is being abandoned by the United States under Trump. His main concern was to fight the rise of protectionism: “No one will emerge as a winner in a trade war,” he said.

But Xi didn’t go into the sources of the anger that fuels the populist revolt (for China is not a democratic country, and it hasn’t happened there yet). John Kerry did get into it, and he went well beyond the usual platitudes about rising unemployment and under-employment, stagnating wages, and the widening gulf between the rich and the rest. “Trade is not to blame for job losses,” he said. Automation is.

Quite a few American manufacturing jobs did go abroad in the early stages of globalisation, in the 1980s and 1990s, but that’s old news. Eighty-five percent of the almost 6 million American manufacturing jobs that disappeared between 2000 and 2010 did not go anywhere; they just evaporated. The workers were replaced by tireless, uncomplaining machines that could do their jobs more cheaply.

Although Kerry did not mention it, the same thing is now happening in China: relatively cheap Chinese labour is still more expensive than the automation that replaces it. Even in India, where wages are lower still, there is now talk of “premature deindustrialisation”.

It’s a misleading phrase, because it suggests that India will never become fully industrialised. It probably will – but perhaps without ever creating a huge industrial working class with reasonably good and steady wages. Further industrial growth is likely to come mainly through automation, and employment in manufacturing may be peaking right now.

So Donald Trump is barking up the wrong tree, as are the other populists emerging all across Europe, and their emulators who are beginning to appear in the developing world. Why do they all persist in blaming free trade and globalisation instead of automation? Because you can’t do anything about automation.

It’s like the old story about the man looking for his car-keys under the street-light. “Where did you lose them?” “Over there.” “Then why are you looking for them here?” “The light’s better here.”

If you are a politician, then it’s better to blame globalisation because you can do something about that. You can build walls, impose tariffs, make all sorts of impressive gestures to stop the free trade that is allegedly destroying the good jobs. Or more precisely, you can win political power by claiming that you will do those things and thereby solve the problem.

Whereas nobody will believe you if you say that automation is what is really changing the economy, and so you are going to stop the automation. That’s Luddism, and everybody (or at least, everybody at Davos) knows that that doesn’t work. So the rich and the powerful are way out ahead of the pack in accepting that growing automation really is going to destroy large numbers of jobs.

A recent Citibank research note forecasts that automation will eliminate 57 percent of all existing jobs in the developed countries within the next 20 years. In China, 77 percent of manufacturing jobs are at risk over the same period. And the notion that the economy will create other, better jobs to replace them is just a comforting myth. Most of the new jobs that are being created are MacJobs.

If more than half the workforce ends up unemployed – and therefore humiliated and broke – then their anger will be so great that it could sweep away the comfortable world of the ultra-rich. Which is why there are sessions at Davos this year considering radical ideas like a “Universal Basic Income”.

To stop the populism, first you have to deal with the anger.
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To shorten to 725 words, omit paragraphs 8 and 10. (“It’s…now”; and “It’s…here”)