European Union

Trump Trade Initiatives Face Stronger Headwinds

Regions like the Pacific Northwest rely heavily on international trade to bolster their economies. Concerns are growing the US economy may suffer because Trump administration trade initiatives such as the new NAFTA are foundering.

Regions like the Pacific Northwest rely heavily on international trade to bolster their economies. Concerns are growing the US economy may suffer because Trump administration trade initiatives such as the new NAFTA are foundering.

Trump administration trade talks with China remain in limbo and negotiations with the European Union have flatlined. Now Trump’s new NAFTA trade agreement is faltering in Congress. The absence of agreements and the continuation of tariffs are piling more stress on manufacturers and farmers. 

No one expected trade talks with China would be a cake walk. Bruised relationships with European political leaders may contribute to stalled negotiations with the EU over agricultural products. But Trump trumpeted his success in maneuvering Mexico and China into a trade deal only to see the agreement flounder amid bipartisan complaints.

The early onset of the 2020 presidential election only complicates the situation with trade policies morphing into trade politics.

Trump’s protectionism has begun to chafe with traditionally free-trade Republicans, many of whom represent agricultural interests that are paying the price of a trade war with lost sales and the prospect of lost markets.

Republican Senate Finance Chair Charles Grassley has flatly told Trump he won’t move the new NAFTA trade deal until Trump lifts steel and aluminum tariffs on Mexico and Canada. Canada has strongly objected to the continuing tariffs, which has become an issue in its upcoming elections. Trump trade officials believe Chinese steel producers are evading the tariffs by shipping through Mexico.

“The tariffs are going to come off because the president has a good agreement,” Grassley told The Washington Post. “It’s just a matter of his realizing that nothing’s going to happen until the tariffs go off. And so the tariffs come off if he wants to get a win.” Grassley said Trump has refused because he feels the tariffs have revived the domestic steel industry and is insisting on quotas as a fallback when tariffs are lifted.

The AFL-CIO has refused to endorse the trade agreement until the Mexican parliament approves promised labor reforms. House Democrats aren’t on board, either. Speaker Nancy Pelosi said she won’t put the agreement on the House floor until she sees proof of tougher, effective enforcement provisions. 

Liberal Democrats say the deal is a nonstarter because of provisions they say codify exclusive 10-year rights to biologics, which they view as a “total giveaway to Big Pharma.”

Trump officials remain optimistic. Treasury Secretary Steven Mnuchin posed for pictures late last week after a bargaining session with his Chinese counterparts that he deemed “productive,” even as several deadlines have come and gone. The International Trade Commission’s analysis of new NAFTA won’t be completed until mid-April, which starts the congressional clock on approval.

However, negotiations face a political clock as leading Democratic presidential contenders oppose the new NAFTA, heartland farmers grow restive as they see hard-earned global markets evaporate, the US economy begins to show signs of stalling and trade deficits keep climbing.

 

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.

 

Populism, Youth Stoke Moves Toward Direct Democracy

With a contentious confirmation process just ended, it’s time to take a break and consider experiments around the globe with direct democracy and citizen engagement using online platforms to define public problems, suggest legislation and elect political leaders.

With a contentious confirmation process just ended, it’s time to take a break and consider experiments around the globe with direct democracy and citizen engagement using online platforms to define public problems, suggest legislation and elect political leaders.

With Brett Kavanaugh sitting on the Supreme Court and political ads flooding the airwaves before the November 6 midterm election, it’s time to take a deep breath and consider innovation in government, including the direct democracy experiment underway in Italy. It could be the next disruptive idea to invade our own political landscape.

Understanding the Italian political scene is not easy or obvious. At the moment, Italy’s ruling coalition government is led by a group of parliamentarians nominated and elected online under the political slogan, “Participate, don’t delegate.”  They are members of the Five-Star Movement (M5S), a political party started in 2009 by a comedian, a blogger and a web strategist.

In March elections this year, M5S won the largest share of votes (38 percent) because of its populist appeal and attraction to young voters. It is reportedly the first time an Internet-based movement has gained political power. Its success wouldn’t have been conceivable without the advance of technology

One of the new government’s first moves was to appoint Riccardo Fraccaro as perhaps the world’s first minister of direct democracy. As reported in the Washington Post, Fraccaro said, “Citizens must be granted the same possibility to actively intervene in the process of managing and administrating public goods as normally carried out by their elected representatives.” In a partyocracy, he added, elected officials hoard decision-making at the expense of the “public will.” 

Through referenda, public petitions and initiatives, Fraccaro sees direct democracy guiding policymaking alongside representative government “to give real, authentic sovereignty to the citizens.” The Five-Star Movement exists on an online platform called Rousseau, an Enlightenment-era philosopher who influenced the French Revolution and believed in citizen involvement in politics as a wedge against tyranny.

The Five-Star Movement appears to be more than a protest of governmental process, as reflected by its coalition partner, the right-wing League party, best known for its anti-immigration positions. The Five-Star Movement leader is Luigi Di Maio, who is 32 years old and the son of a member of the neo-fascist Italian Social Movement.

The early months of the coalition’s time in power have unsettled more traditional political players with calls for both a tax cut and universal basic income for Italians, despite Italy’s long-term debt that stands at 130 percent of its GDP. However, the direct democracy experiment has spurred the European Union to reduce the signature threshold for citizen-proposed legislation. The next step would be to institutionalize a role for citizen engagement, possibly a Citizens’ Assembly with a role in reviewing what is passed by the European Parliament.

Nathan Gardels, editor of The World Post, notes other direct democracy experiments around the world. One is crowdlaw, an intelligence gathering platform intended to help government officials engage with citizens in use in diverse countries such as Iceland and India.

Taiwan has employed an online platform to form citizen working groups that define public problems and identify possible solutions. “In more than 80 percent of cases, publicly defined issues have led to government action. So far, 26 national issues, including the regulation of Uber, telemedicine and online education, have been discussed with more than 200,000 participants.”

Steps toward direct democracy would undoubtedly alarm another Enlightenment-era political thinker, James Madison. He believed populist passions could overwhelm the cool restraint of deliberative reason. “In all very numerous assemblies, of whatever characters composed, passion never fails to wrest the scepter from reason,” Madison wrote in one of the Federalist Papers. “A pure democracy, by which I mean a society consisting of a small number of citizens, who assemble and administer the government in person, can admit of no cure for the mischiefs of faction.”

Madison and other Founding Fathers lived in a time before telecommunications, jet airplanes and the internet, which have altered perceptions about representative government and direct democracy. The hot-plate Kavanaugh confirmation process, whether you view it as a circus or a sham, is likely to kindle more thoughts about the role of citizens in a government, of which George Washington once described the “senatorial saucer” to cool the passions of the directly elected members of the House. 

 

‘America First’ Policies Raise Questions about US Leadership

President Trump’s ‘America First’ policies have played well with his political base, but not so well with global leaders as tensions are growing over the specter of spiraling trade war with consumers at home and abroad likely to pay the price.

President Trump’s ‘America First’ policies have played well with his political base, but not so well with global leaders as tensions are growing over the specter of spiraling trade war with consumers at home and abroad likely to pay the price.

One of the unintended successes of President Trump’s ‘America First’ policies has been to galvanize the European Union, Japan and China to preserve and bolster multilateral trade, regulatory and security arrangements Trump disdains.

“After months of denialangerbargaining and depression, Europe and other parts of the world have accepted that Mr. Trump and his mission of disruption are not going away,” reports The New York Times.

Accounts suggest foreign leaders are stunned by Trump’s continuing attacks on traditional allies, cozy relations with Russian President Vladimir Putin and seeming disavowal of America’s role as the leading advocate of a liberal world order.

EU leaders are especially astonished at being referred to as “foes.” In June, 29 EU ambassadors to the United States sent an open letter to Trump in defense of free trade and investment policies.

“Together, the US and EU have created the largest and wealthiest market in the world. The transatlantic economy accounts for half of the global gross domestic product by value, which directly supports more than 15 million high-quality jobs and $5.5 trillion in commercial sales. And nearly one-third of the world’s trade in goods occurs between the EU and United States alone,” the letter said. The ambassadors added that EU investment in the United States exceeds US investment in Europe.

EU leaders, despite qualms about Chinese trade practices that mirror Trump’s, have met with Chinese leaders without US involvement. According to the Times, the “summit meeting produced an unusual joint declaration and a common commitment to keep the global system strong.”

The EU then signed what has been described as the largest free-trade agreement in history with Japan, again with no US involvement.

Now, the EU is preparing “whopping tariffs” in response to proposed Trump tariffs on items such as German-made cars, noting that 45 out of 50 US states export more goods and services to Europe than China, totaling around $500 billion in 2016.

GOP Senator Ben Sasse from Nebraska may have spoken for the wave of critics who think Trump’s tariffs are undermining US exports that have taken years to cultivate and who believe his proposed $12 billion package of one-time financial aid to farmers won’t come close to co vering the long-term damage done by the tariffs.

GOP Senator Ben Sasse from Nebraska may have spoken for the wave of critics who think Trump’s tariffs are undermining US exports that have taken years to cultivate and who believe his proposed $12 billion package of one-time financial aid to farmers won’t come close to co vering the long-term damage done by the tariffs.

On the regulatory front, the EU fined Google $5.1 billion for antitrust behavior, which drew a sharp rebuke from Trump. Google plans to appeal the EU ruling, but it may be forced to reckon with it in the marketplace in the meantime.

Interestingly, the basis for the fine echoed an unusually American-sounding rationale. “Google has used Android as a vehicle to cement the dominance of its search engine,” Margrethe Vestager, Europe’s antitrust chief, told the Times. “These practices have denied rivals the chance to innovate and compete on the merits. They have denied European consumers the benefits of effective competition in the important mobile sphere.” 

European Commission President Jean-Claude Juncker travels to DC this week to discuss the deteriorating EU trading relationship with Trump officials.

Meanwhile, the impact of tariffs is beginning to be felt. The Associated Press carried a story last week about the stress felt by US soybean farmers, who are a target of retaliatory Chinese tariffs. One soybean farmer said he already has lost $250,000 in value for his current crop. Soybeans on the Chicago Board of trade have dropped $2 per bushel in value. Farmers interviewed say they still support Trump, but want to know what the end game is.

The Oregonian posted a story last week listing five Oregon exports at risk in a spiraling trade war with China. Noting Oregon exported $3.5 billion worth of goods to China in 2017, the article said the most vulnerable are:

  • Computer and electronic products ($2.1 billion)
  • Machinery ($435 million)
  • Chemicals ($363 million)
  • Transportation equipment ($262 million)
  • Agricultural products ($235 million)

Oregonian reporter Mike Rogoway provided a more comprehensive look at Oregon exports in a piece published in June. Among the interesting statistics Rogoway uncovered: 87,000 Fords produced in the United States were exported through the Port of Portland, 90 percent of which headed to China.

US business interests also remain frustrated at Trump efforts to negotiate changes in the North American Free Trade Agreement, which appear to have stalled and made more difficult by the election of a leftist president in Mexico.

Global tensions are growing over the budding trade war, as reflected by a statement coming out of the G20 meeting held in Argentina over the weekend. US Treasury Secretary Steven Mnuchin attended the meeting and agreed to sign the joint statement.

Mnuchin acknowledged what he called “micro impacts” caused by the Trump tariffs, but defended them as a pathway to freer trade that is fair to the United States. News reports said Mnuchin and Chinese finance officials conversed during the 2-day meeting, but only engaged in “chitchat,” not serious negotiations.

There are harsher judgments of Trump’s policies. WorldPost editor Nathan Gardels. wrote, “The ‘American First’ president who denigrates democratic allies as foes is no longer the leader of the free world….Trump appears to be not even the leader of the United States.”

 

Zig-Zagging Trump Trade Policies Put Northwest on Edge

Trump trade policies seem destined to trigger a global trade war, which could have a serious economic impact on the Pacific Northwest that relies heavily on export of airplanes, machinery, technology, agricultural products and services. Disrupted trade also could harm  manufacturers with supply chains throughout the Pacific Rim.

Trump trade policies seem destined to trigger a global trade war, which could have a serious economic impact on the Pacific Northwest that relies heavily on export of airplanes, machinery, technology, agricultural products and services. Disrupted trade also could harm  manufacturers with supply chains throughout the Pacific Rim.

The Pacific Northwest is especially dependent on international trade and the threat of a global trade war has many business leaders on edge. Perhaps none more so than at Daimler Trucks in Portland that employees more than 2,000 workers who are mostly engineers.

Despite some mixed signals, President Trump has moved ahead to impose a 25 percent tariff on imported steel and a 10 percent on imported aluminum. He also has singled out Mercedes-Benz for an outright ban on imports, citing national security and his personal angst at seeing New York’s Fifth Avenue clogged with the popular German luxury car.

Mercedes-Benz manufactures SUVs, GLE coupes and C-class cars at its Tuscaloosa, Alabama plantBMW manufactures luxury cars in Spartanburg, South Carolina, which the company says produces 1,900 vehicles per day, the highest daily output of any BMW car plant in the world. Spartanburg is the exclusive manufacturing site for BMW’s X-class vehicles, which are exported worldwide.

For Oregonians, a greater concern would be the impact of Trump’s tariffs on Daimler Trucks, which maintains its North American headquarters in Portland. Much of the company’s truck manufacturing has been shifted to the Southeast and Mexico. What largely remains in Portland are corporate teams and engineers “designing the future of commercial vehicles.”

Daimler Group is the corporate parent for Mercedes-Benz Cars and Daimler Trucks.

President Trump has singled out German car manufacturer Mercedes-Benz, which is a sister company to Daimler Trucks that manufactures and designs commercial vehicles at its North American Headquarters in Portland

President Trump has singled out German car manufacturer Mercedes-Benz, which is a sister company to Daimler Trucks that manufactures and designs commercial vehicles at its North American Headquarters in Portland

Officials at Daimler aren’t alone in fretting about fallout from a potential trade war. The Seattle Times quoted officials from the aluminum and agricultural sectors, as well as union officials, raising alarms about impacts from tariffs on multi-country supply chains, direct exports and price increases that could affect everything from Boeing airplanes to new housing. A Seattle homebuilding official said higher tariffs on steel could increase the price of a new house by up to $5,000.

Depending on how China and the European Union impose reciprocal tariffs, emerging markets pursued by Northwest exporters such as winemakers could be squeezed. Tariffs slapped on by Mexico and Canada also could have disruptive effects.

In addition to the tariffs, what baffles and irks US trading partners is the unpredictability of Trump's trade policy, if it can be called a trade policy. Negotiations occur, agreements are reached and then Trump goes in a different direction, as he did with the bilateral trade deal struck with South Korea and with the Chinese talks two weeks ago.

Trump’s trade steps also raise hackles on Capitol Hill. Many Trump supporters were stunned when he agreed to back off punishment that the Chinese said could force the collapse of ZTE, a huge telecom company facing charges of ignoring US export sanctions imposed on North Korea and Iran. A Texas court fined ZTE $1 billion and ordered it could not receive any US-made components and software for seven years.

EU officials, who share US concerns about restrictive Chinese industrial policy and alleged intellectual property theft, have urged the Trump administration to form a united front on policies and negotiations aimed at winning major concessions from the Chinese.

However, Trump’s mistrust of multilateral arrangements appears to drive his actions. Despite warnings from economists, Trump has put trading relations with Canada, Mexico, China, South Korea, Japan and the European Union in a state of flux. Reciprocal tariffs are being imposed and talks about updating existing trade deals have stalled.

Trump’s nationalist trade policy may win applause in steel-producing states, but could trigger discontent and growing fears of an economic slowdown in the rest of the country as crucial midterms approach this fall that will determine who controls Congress for the next two years.

Perspective on Multilateral Trade Deals and Trade Wars

President Trump’s intention to impose tariffs on imported steel and aluminum caused ripples on Wall Street, outcries from companies that depend on global supply chains and warnings from economists who cited the cost of trade wars.

President Trump’s intention to impose tariffs on imported steel and aluminum caused ripples on Wall Street, outcries from companies that depend on global supply chains and warnings from economists who cited the cost of trade wars.

President Trump’s threat to impose a 25 percent tariff on steel imports and 10 percent on aluminum imports stunned Wall Street, infuriated US international trading partners and confounded economists.

Trump defended his proposed tariffs as campaign promises he intends to keep. More fundamentally, they reflect his view that bilateral trade deals that his administration would negotiate would be better for Americans than multilateral trade pacts, which he has deplored as unfair to US workers. So far, few nations have shown much interest in bilateral trade deals. The United States and a post-Brexit United Kingdom will need to work out bilateral trade arrangements, but that can’t occur until the UK is officially out of the European Union.

Stunned Wall Street investors worry about the ripple effects of a trade war on the broader US economy. International trading partners are contemplating retaliation. Economists point to the unpleasant history of trade wars. Trump says trade wars can be good and winnable.

Like immigrant bans and border walls, unilateral tariffs have gone out of favor in the globalized economy. Since tariffs levied as a cure to the Great Depression, which in actuality deepened and lengthened the depression, industrialized nations have moved toward multilateral military, diplomatic and trade arrangements. NATO, the United Nations, the European Union and the North American Free Trade Agreement are prime examples.

The motivation for multilateral arrangements is to provide for greater security and enhanced economic opportunity at the expense of some domestic industries and workers. The underlying macroeconomic theory is that allowing countries to realize their competitive advantages on a greater scale will create more prosperity than protecting domestic markets. The winners tend to be consumers and global companies that have clear rules to follow for their international supply chains. The losers are industries and economic sectors that can’t compete globally.

The losses are not insignificant and can be enormously destructive in regional or state economies such as the Rust Belt. Politicians and organized labor have responded to abandoned factories, displaced workers and failing farms by blaming “free trade” and taking aim at NAFTA and the proposed Trans-Pacific Partnership, which was intended to connect US economic interests into an Asian Pacific trading community.

Even though Trump withdrew from the TPP, the other 11 nations involved have continued to pursue a trade pact among themselves, for among other reasons self-protection against China’s growing economic power and its interest in pursuing separate trade deals with Japan, Indian and South Korea. European nations created an economic union, including a common currency, to leverage their collective market in the face of a dominating US economy, which now boasts a $17 trillion annual gross domestic product.

Along the way, the globalization of finance overwhelmed global trade in goods. Capital sloshes across national borders thanks to creative finance and the advent of shell companies, almost without regard to national banking regulations or tax policy.

One of the largest ironies in the current trade dispute is that China’s excess capacity in steel and aluminum production has driven down prices globally, as China has until recently encouraged its corporations and wealthy individuals to invest billions in overseas businesses and real estate. Lower prices and a stream of investment capital have fueled economic growth from Africa to America.

The United Kingdom’s vote in 2016 to exit the European Union a year from now has revealed how difficult it is to depart from a multinational economic arrangement. Currency exchange restrictions, foreign worker status, border crossings and trade are complex issues and, depending on final Brexit agreements, could crimp international investment in the UK, discourage immigrant labor and require a hard border with Ireland.

Trump officials say US steel and aluminum producers need protection because they are vital to American security interests, which is akin to developing countries defending tariffs to protect their infant industries. One challenge with selective tariffs is they have a habit of spreading. For example, Trump threatened to impose tariffs on European autos if the EU retaliated to his steel and aluminum exports.

Former US trade officials say the Trump tariffs violate international trade agreements and lead to litigation before the World Trade Organization. Trump might consider withdrawing from the 160-member WTO, but trade officials warn that could risk unraveling the global economic order, which dates back to the 1994 General Agreement on Tariffs and Trade. One of the GATT principles is preventing countries with excess capacity in a commodity from dumping products on the international market at below cost. Some have argued the United States should pursue an anti-dumping case against China. U.S. Steel argued for that approach as far back as 2016.

Trump’s call for tariffs surprised Republican leaders on Capitol Hill. Over the weekend on Face the Nation, South Carolina GOP Senator Lindsey Graham said Trump should reconsider imposing tariffs because they raise consumer prices and “let China off the hook.” “China wins when we fight with Europe. China wins when the American consumer has higher prices because of tariffs that don't affect Chinese behavior. If you want to affect China get back in the Trans-Pacific Partnership, be present in Asia, hit them on intellectual property theft, hit them on currency manipulation, hit them about steel dumping. China is winning and we're losing with this tariff regime.”

 

Fumbling Away Home Field Advantage

Sports teams know the value of a home field advantage. They do everything they can to preserve it. The U.S. Congress appears on the verge of making an unforced turnover that could surrender our advantage as the global reserve currency.

Even though a handful of conservative lawmakers believe defaulting on the national debt is no big deal, financial leaders around the world think it is. They are beginning to question the stability of the mighty U.S. dollar.

Not waiting to find out if Congress can manage an 11th-hour deal to avoid debt default, the Chinese called for replacing the dollar as the world's reserve currency, citing the "pernicious impasse" on Capitol Hill.

The European Union has sounded alarm bells about the financial crisis that could occur if the United States falls into a technical default later this week. Its central bankers also seized on the occasion to return the lectures American officials gave them during the EU's most recent financial difficulties, saying the United States needs to "get its act together."

The British, our best friends in Europe, haven't been as snarky as other Europeans, but just cut a deal to serve as the main offshore hub for trading China's currency. It is step toward the Chinese yuan taking its place as a world currency. According to a Reuters report, London and Beijing also agreed to allow the yuan to be traded against sterling directly, rather than through the dollar, thereby reducing transaction costs. 

Economists say there is no real alternative to the dollar as the world's gold standard. But the conversation going on around the globe about "de-Americanizing" the world economy should be sobering to Americans.

Like sports team, there are definite advantages to being the world's reserve currency. One of the biggest is reduced transaction costs when an export or import is made with dollars in or dollars out. There also is less risk of currency valuation fluctuations that easily can turn a profit into a loss. Of course, the most significant benefit is attracting investment from around the world, which comes in handy when running domestic fiscal deficits and foreign trade imbalances.

The Digital Divide

Recent events reveal a digital divide between preserving Internet freedom and protecting individual privacy.Digital freedom and privacy are surging onto political platforms, legislative agendas and court dockets, with sometimes overlapping impacts.

In the wake of a massive online protest against the Stop Online Piracy Act (SOPA) and the Protect IP Act (PIPA) last week, U.S. congressional leaders shoved the "online piracy" legislation favored by traditional media interests into a broom closet. Protecting the intellectual property of movie makers and book publishers was trumped by cries for Internet freedom.

Meanwhile, many of the same online giants who backed last week's Internet blackout protest may be looking at tougher online user privacy legislation in the European Union. The New York Times reports the EU will introduce a measure requiring Amazon, Facebook, Google and others to obtain explicit approval from their users before sharing personal data with advertisers. They also must scrub personal data permanently from their databases at a user request or face heavy fines in what one EU official called a move toward "online transparency."