Brexit

Brexit, Border Wall Throttle Leading Democracies, Delighting Putin

Britain’s inability to negotiate an exit from the European Union and President Trump’s inability to win funding for his promised border wall have left the world’s two largest democracies in political limbo, to the apparent delight of Russian President Vladimir Putin. Despite enormous economic consequences, a smooth Brexit and an early end of the partial US government shutdown seem out of reach.

Britain’s inability to negotiate an exit from the European Union and President Trump’s inability to win funding for his promised border wall have left the world’s two largest democracies in political limbo, to the apparent delight of Russian President Vladimir Putin. Despite enormous economic consequences, a smooth Brexit and an early end of the partial US government shutdown seem out of reach.

Maybe it is coincidence or a case of bad karma extending across the pond as the United States and United Kingdom find themselves in shutdown mode – with seemingly no clue how to escape, despite enormous economic consequences.

The partial federal government shutdown is simple to understand. President Trump wants $5.7 billion for a border barrier and Democrats refuse, calling it wasteful spending on an ineffective deterrent to illegal immigration.

Trump has said the budget stalemate could be resolved in 15 minutes, which is true. The Democrat-led House has passed a nearly identical spending bill to what the Senate approved unanimously last year after Trump signaled his support. Then Trump changed his mind and demanded border wall money. He has refused to budge, other than to acquiesce to a steel instead of concrete barrier.

Federal employees and contractors caught in the cross-hairs of the border wall fight have been furloughed, forced to work without pay, not paid or encouraged to find new jobs. National parks have closed, airport security lines have lengthened and farmers haven’t gotten their subsidies to compensate for losses they incurred from the Trump trade war. Pre-season forest thinning and hurricane forecasting has been disrupted. A workplace training session for Oregon lawmakers was postponed. Federal income tax refunds could be delayed. 

As bad as all that is, it may pale in comparison to Britain’s predicament. The British Parliament on Tuesday rejected the Brexit deal that took Prime Minister Theresa May two years to negotiate with her reticent European Union counterparts. The 432-202 parliamentary defeat of the May Brexit plan is the most lopsided loss for a sitting government in British history.

Britain faces a March 29 deadline to withdraw from the EU. May, who survived a no-confidence vote by her own Conservative Party last year and faces another one by an opposition party, was given until next Monday to come up with a plan.

Unlike the US government shutdown that is stuck on a single issue, the UK is trying to disengage from an alliance. It is similar to a state like California trying to secede from the United States.

May faces a Rubix Cube of options, none of which is very promising. EU leaders have shown little inclination to grant further concessions to Britain. Asking the British people to vote a second time on Brexit risks having a second vote in favor of the pullout, with no more clarity on how to achieve it. Extending the deadline for the EU exit without a consensus game plan would be like a prisoner asking for more torture.  

That leaves Britain with the somber prospect of slipping out of the EU without a deal and without substitute bilateral trade deals with key trading partners such as the United States. The plan-less exit also would pose serious internal problems, such as how to manage the border between Ireland, which would still be in the EU, and Northern Ireland, which wouldn’t. This is a border that has a troubled history as a true humanitarian crisis. Many worry it could return to that troubled history.

From a wider angle, this is an awkward time for the world’s two leading democracies to indulge in self-inflicted combat. As one veteran traveler told a news reporter, this is bad time to visit either the United States or Britain because both appear to be in the middle of civil wars. Add to that the yellow vest protests that have rocked France and what you see is not a pretty picture of economic, social or political stability.

British unrest stems from a nationalist drive to maintain Britain’s sovereignty. French discontent pivots on restive attitudes about persistent income inequality. The US stand-off centers on an unmet campaign promise.

The US political stalemate would seem the easiest to resolve, but has been elevated to a larger political battlefield. Supporters have warned Trump, who brags about his deal-making prowess, that his presidency could effectively end if he fails to get money for the border wall. The newly elected Democratic majority in the House is disinclined to toll over to Trump demands. Trump’s threat of a presidential declaration of emergency that would go around Congress to find the money to build the border wall could trigger a constitutional crisis.

What seems missing in the United States and Britain is a sense of the bigger picture – a more aggressive Russia, China’s ascendancy as a world power and the rise of right-wing authoritarian governments. Any one of these could be the tinder box that sparks a major conflict engulfing the bickering and compromised democratic powers. It has happened before when there have been voids in international leadership.

Commentators are beginning to point to Russia as a culprit in both seasons of discontent. Sowing division among the major world democracies is a much cheaper foreign policy than a military build-up, and perhaps a defter strategy to undermine NATO, a major objective for Russian President Vladimir Putin. The shadow of Russia will grow longer as Special Counsel Robert Mueller moves to wrap up his investigation into Russian election meddling and potential collusion with the Trump campaign in 2016.

Whatever the reasons, there is no doubt Brexit and the border wall stalemates are causing economic pain, with little relief in sight.

 

Dark Corners, New Lights Loom for Nation’s Capital

As the new year nears, darker economic possibilities lurk as a result of President Trump’s trade war with China, his threats to shut down the US-Mexican border and his kneecapping of Prime Minister Theresa May’s attempt to negotiate an exit from the European Union. The new year means Democrats regain control of the House, but a new bright light from Queens is already causing a stir in the nation’s capital as she pushes her agenda, fends off critics and waits for the keys to her congressional office.

As the new year nears, darker economic possibilities lurk as a result of President Trump’s trade war with China, his threats to shut down the US-Mexican border and his kneecapping of Prime Minister Theresa May’s attempt to negotiate an exit from the European Union. The new year means Democrats regain control of the House, but a new bright light from Queens is already causing a stir in the nation’s capital as she pushes her agenda, fends off critics and waits for the keys to her congressional office.

Congress returned for its lame duck session and faces a December 7 deadline to pass a spending bill to avoid a partial federal government shutdown. However, deeper economic rumblings presage more difficult times ahead, and there is a new tweeter in town.

General Motors stunned its workforce – and the White House – with a pre-holiday announcement that more than 14,000 employees will be laid off and five factories (four in the United States and one in Canada) will be shuttered. The news undermines President Trump’s boast that his economic policies will bring manufacturing jobs back to America. GM said it was restructuring as Americans abandon passenger cars and Trump’s tariffs eat into profitability.

Trump is threatening to shut down the US-Mexican border over continuing attempts by thousands of migrants to enter the United States and seek asylum. Even though US law permits migrants to enter the nation legally at ports of entry and apply for asylum, Trump is trying to prevent them from gaining entry, including use of force such as tear gas. A complete shutdown of the border would have severe economic consequences on the daily $1.7 billion movement of goods between the two countries.

A longer-term threat involves the United Kingdom’s unexecuted exit from the European Union. Prime Minister Theresa May has negotiated a complex pull-out deal that still must be approved next month by the British Parliament, which is not a foregone conclusion. Trump weighed in and undercut May’s bargaining position by raising doubt the agreement with the EU would permit a US-British bilateral trade deal, something the prime minister has touted as a positive payoff for Brexit. British officials deny the EU-exit agreement bars Britain from entering into bilateral trade deals.

Congresswoman-elect Alexandria Ocasio-Cortez hasn’t waited for the keys to her congressional office to stir the waters in DC with forceful advocacy of her progressive agenda and a savvy pushback to conservatives who seem mesmerized by her growing national prominence as a symbol of the new wave of women and more diverse political representatives.

Congresswoman-elect Alexandria Ocasio-Cortez hasn’t waited for the keys to her congressional office to stir the waters in DC with forceful advocacy of her progressive agenda and a savvy pushback to conservatives who seem mesmerized by her growing national prominence as a symbol of the new wave of women and more diverse political representatives.

The United States is still on a glide path to impose even more tariffs on Chinese goods on January 1, which would likely result in reciprocal tariffs on US exports to China. Trump trade officials insist China must act to end what amounts to an escalating trade war. Ahead of a summit this week, Trump’s officials also poured cold water on a suggestion that the G20 group of industrialized nations could play a role in resolving the dispute. For its part, China says it is opening up key markets such as banks, automobiles, aircraft, telecommunications and medical. It calls many US demands “unrealistic.”

While no one is exactly predicting an economic downturn, there are some cracks surfacing in the current economic boom. The US stock market has plunged from its dizzying record heights. There has been a slight uptick in unemployment filing. Interest rates continue to inch up, which could cool hot housing markets. Millennial trends away from car and homebuying are beginning to disrupt traditional industries and their extensive supply chains. In addition, China’s economy may be weaker than most economists thought. All of which suggests the international economy may be fragile and capable of slowing US economic growth.

Another drag on the US economy is higher-than-promised national deficits, mostly attributable to the GOP-backed tax cut. The beneficial effects of the tax cut may be mostly used up as the country heads into a new year.

In January, Democrats regain control of the House, which may add more complications to charting an economic path to avoid a downturn.

Then there is Congresswoman-elect Alexandria Ocasio-Cortez, who as the youngest member of the new Congress is already stirring the DC pot with Twitter posts about Medicare-for-All, a Green New Deal, immigration and reducing student college loan debt. She has fended off criticism from conservatives, who have singled her out because of her potential political stardom. She has tried to avoid irking Democratic leaders while still extoling her more left-leaning positions (she announced she will vote for Nancy Pelosi as Speaker). She has traded tweets with Senator Lindsey Graham and the tweeter-in-chief. 

Ocasio-Cortez, who started the year working bar in New York, is part of a wave of more diverse congressional newcomers, but her quick rise to political prominence – matched by her quick wit and knowledge of social media – make her a force beyond her years, experience or congressional seniority.

 

The Unintended Legacy of the GOP Tax Cut

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Congressional Republicans are on the precipice of passing a major tax cut that modestly boosts US economic growth while achieving a lasting legacy of helping US corporations integrate even more into the global economy by keeping earnings offshore and shifting profits to tax havens.

Lost in the hoopla over the GOP-backed tax bill that Congress passed and sent to President Trump are statistics showing a steadily expanding global economy.

While tax bill backers promise a domestic economic boom and Trump rails against unfair trade deals, the International Money Fund reports the global economy has grown this year by 4.2 percent. That doesn’t square with all the talk of protectionism. It also suggests that the United States may not be the only kid on the block.

One reading is that the world has become more economically integrated, regardless whether political leaders like it or not. That explains why many US corporations have lobbied against major changes proposed by Trump in the North American Free Trade Agreement or why the 11 other nations that signed the Trans-Pacific Partnership are still pushing ahead even though the United States pulled out.

PwC, a British economic consultancy firm, predicts 2018 will see another expansion of the global economy that is broad-based. One exception noted by PwC will be Britain, which is facing economic headwinds as it tries to negotiate its way out of the European Union following the Brexit vote.

The statistics don’t reflect the damage to regional economies and local communities caused by globalization. But they do reflect what appears like an irreversible force toward more globalization in trade for goods and services and in capital flows.

Conservative-leaning think tanks predict the GOP tax-cut bill will promote economic growth. The Heritage Foundation projects corporate tax cuts will add to US capital stock, but also lower the numbers of hours worked, presumably because of increased investment in automation. The Tax Foundation model, a reliably aggressive pro-growth calculator, predicts tax cuts will boost US Gross Domestic Product in 2018 from 2.01 percent to 2.45 percent, far less than Republican architects of the legislation predicted and not enough to offset the increase in the federal deficit.

U-Penn's Penn-Wharton model, run by a former Bush administration economist, forecasts the GOP tax bill will increase national debt by $1.9-$2.2-trillion by 2027 – after incorporating "dynamic" estimates of economic growth effects.

Amid skepticism the tax bill will stimulate domestic economic growth, many tax advisers think the legislation’s corporate alternative minimum tax provision will encourage more, not less offshore manufacturing. The deferral of tax on foreign income will provide an incentive to keep earnings from foreign operations offshore and to shift profits to offshore tax havens. Ironically, these provisions may bolster US-benefitted global economics.

In his national security speech this week, Trump warned of intensifying economic competition in the world. His solution: To look inward. The data suggests that’s old school. Obsessing about our border security and overlooking the very economic competition he called out in his speech is a strange brew and a broken policy.

When the tax-cut legislation finally passes this week, as expected, there will be a lot of high-fives and political backslaps. Congressional Republicans will have handed Trump his first significant presidential victory and kept a promise to GOP donors.

What may follow is a political uprising over the decidedly non-populist bent of the tax bill and, eventually, an even greater gasp when the tax legislation’s greatest advance is to speed automation and engage in even greater global economic integration. Ironically, that might turn out to be the legislation’s most lasting, if unintended legacy.

 

The Brexit Message for America

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

Britain’s vote to exit the European Union generated a huge drop in the British pound and shock waves for global stock markets. It should jolt American policymakers to discuss how to cope with the side effects of globalization, not flee from them.

The Brexit vote sent shock waves throughout the world and raised questions about whether simmering anger over the effects of globalization could lead to Donald Trump winning the White House this fall.

The plummeting British pound and sagging worldwide stock markets provided an immediate warning sign of the portentous moment caused by the vote to leave the European Union. Prime Minister David Cameron’s decision to step down and allow someone else from his Conservative Party to navigate the departure confirmed the vote has clear political consequences.

But the anxieties reflected in Britain don’t exactly equate to those in the United States. While older, white Britons voted to leave, younger Brits voted to remain in the EU. Trump has won the hearts of older, white Americans, younger voters gravitated to Democrat Bernie Sanders.

A weekend editorial in the New York Times offered an explanation. Economically stressed working class voters blame their plight on trade deals that have profited corporations and banks, but cost them good-paying jobs and economic security. Younger voters feel the same stress and anger over income inequality resulting from a global capitalism, but see value in “economic integration, mobility and diversity.” They favor political action to fix, not flee from, economic dislocation.

There are material differences in the makeup and diversity of British and American voters that make analogies to the Brexit vote and the 2016 presidential election tricky at best. But the real lesson from Brexit may be the sharp distinction between how older alienated voters and younger anxious voters want to face the future. “Leave” voters in Briton yearned to a return when they fared better. “Remain” voters acknowledged problems, but seek forward-looking solutions.

Trump, who praised the Brexit victory while in Scotland to promote his golf course, is clearly pointing back in time to when “America was great.” The question is how Hillary Clinton can carve her message to resonate with those who want change, but not reversion to the past. The litmus test of her success will be how well she wins over the young voters who flocked to Sanders’ candidacy.

“The lesson for American voters,” the New York Times editorialized, “is to see their economic problems clearly, lest they be manipulated into voting against their own and their nation’s interests.”

Who wins the presidential race in November could come down to, as it has so often, a handful of swing states, several of which are in the Rust Belt, which have borne the brunt of the effects of globalization combined with technological changes and moves to reduce greenhouse gas emissions. Trump and Sanders have blasted previous trade agreements and strongly opposed the Trans Pacific Partnership negotiated by the Obama administration. Clinton, whose presidential husband steered through NAFTA, initially favored the TPP, but during the campaign dropped her support.

Opposing trade deals may appease older, alienated voters, but it may not be enough for younger, anxious voters. Opposing the TPP won’t stop trade, any more than Britain departing the EU will halt trade, even if new tariff barriers are erected. So the forward-looking question may be how to take into account and address the inevitable dislocations from globalization.

This question will be of consuming interest to voters in Ohio and Pennsylvania, but it should be a top priority for the entire country because economic dislocation knows no boundary. In Oregon, many rural communities remain in economic distress because of changing policies on timberland management.

The nation would benefit from a robust, candid conversation about how to cope with the side effects of globalization, not hide from them.

Gary Conkling is president and co-founder of CFM Strategic Communications, and he leads the firm's PR practice, specializing in crisis communications. He is a former journalist, who later worked on Capitol Hill and represented a major Oregon company. But most importantly, he’s a die-hard Ducks fan. You can reach Gary at  garyc@cfmpdx.com and you can follow him on Twitter at @GaryConkling.