NAFTA

Oregonians to Play Key Role in Congressional USMCA Review

Oregon Congressman Earl Blumenauer and Congresswoman Suzanne Bonamici will play pivotal roles on drug pricing and environmental issues as part of the House review of the US-Mexico-Canada trade agreement negotiated by the Trump administration.

Oregon Congressman Earl Blumenauer and Congresswoman Suzanne Bonamici will play pivotal roles on drug pricing and environmental issues as part of the House review of the US-Mexico-Canada trade agreement negotiated by the Trump administration.

Next to immigration, US trade policy is one of the top priorities of President Trump. Winning congressional approval of the US-Mexico-Canada trade agreement (USMCA), which his administration negotiated, is a key plank of Trump’s 2020 presidential election agenda.

House Democrats, led by Speaker Nancy Pelosi, are the major obstacle for Trump’s ambition. Pelosi took steps this week to begin negotiations with Trump’s trade advisers and she put two members of the Oregon congressional delegation in pivotal leadership positions. She also signaled support for a labor enforcement proposal championed by Oregon Senator Ron Wyden.

Oregon Congressman Earl Blumenauer will co-chair a team focused on drug pricing, while Oregon Congresswoman Suzanne Bonamici will co-chair the team examining environmental issues.

Pelosi hasn’t committed to a House floor vote on the USMCA until changes are made, which would require further negotiations with Mexico and Canada. Without House Democratic votes, the trade deal cannot move. Trump has indicated he would like USMCA approved before Congress adjourns for its August recess. Ways and Means Chairman Richard Neal, D-Mass, expressed hope that negotiations with House work groups could wrap up in as little as 30 days. 

The delicate negotiations come in the shadow of Trump’s threats to impose escalating tariffs on all Mexican exports to the United States if the country doesn’t do more to stem the flow of migrants from Central America. Trump pulled back from imposing the tariffs after what appears to be a provisional deal was struck with Mexican leaders. He also has pulled back tariffs on steel and aluminum.

Stalemated negotiations and a continuing trade war with China also muddy the congressional water for USMCA. Even in its current form, the USMCA isn’t a slam dunk to pass the legislatures in Mexico and Canada.

The USMCA is effectively an update of NAFTA (the North American Free Trade Agreement), including provisions relating to the digital economy that didn’t exist a quarter century ago. During his presidential campaign and early in his term, Trump threatened to talk away from NAFTA. However, strong business opposition dissuaded that drastic move, which would have disrupted supply chains of US manufacturing and imperiled US agricultural markets in Mexico and Canada.

Since the USMCA was unveiled last fall, congressional Democrats and US labor leaders signaled disappointment with enforcement procedures for labor provisions aimed at closing the pay gap between Mexican and US manufacturing workers. Wyden and Ohio Democrat Sherrod Brown have proposed tougher enforcement provisions. A bipartisan, bicameral delegation of congressional trade staffers returned from a fact-finding mission in Mexico with suggestions for beefing up enforcement. They include new ways to enforce labor provisions auditing 700,000 collective bargaining agreements in Mexico, which could take years to complete.

Provisions related to drugs and environmental issues are other areas that Democrats want to bolster in the USMCA and which Blumenauer and Bonamici will influence.

US Trade Representative Robert Lighthizer and business groups representing major US exporters are lobbying for approval now. Influential Congresswoman Debbie Dingell, D-Mich, told Bloomberg News, “I talked to Ambassador Lighthizer and everyone understands the things that need to be fixed. There are a number of us who want to get a trade bill. We need a new NAFTA. People are working toward a good bill.”

 

NAFTA with a New Name

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Trump administration successfully negotiated an updated North American Free Trade Agreement with modernized provisions, concessions of value to farmers and automakers and, of course, a new name. However, politics could still undermine the deal when it goes to Congress and consternation remains among trading partners with continuing Trump tariffs on steel and aluminum.

The Canadians agreed to final terms for a $1.2 trillion North American free trade agreement that gave President Trump a political triumph and NAFTA a new name. However, the deal doesn’t end a simmering trade war sparked by US tariffs on steel and aluminum and still faces a treacherous political road to passage.

Trade experts gave credit to the Trump administration for completing a three-way deal to update the 25-year-old trade that candidate Trump derided as terrible. Trump critics note the new trade pact is largely the same car with a rebranded nameplate to appease Trump. Peter Navarro, Trump’s trade adviser, said the foundation remains, but the superstructure is superior. 

The United States-Mexico-Canada Agreement (USMCA) still must be approved by Congress, which seems more likely after cliffhanger negotiations with Canada prevented Trump from submitting just a bilateral agreement with Mexico. The agreement also must be ratified by the respective legislative bodies in Canada and Mexico.

Most everybody agreed NAFTA needed a refresher, if for no other reason to account for a phalanx of digital industries and e-commerce that didn’t exist when it was signed. There also was a push to strengthen intellectual property protections, the underlying issue that has sparked a Trump-inspired trade war with China. There are reportedly 63 pages worth of provisions that address patents and trademarks, including two additional years of protection for biologic drugs, which Trump hailed as a key to US medical innovation.

A major sticking point was Canada’s barrier that prevents US dairy farmers from penetrating their market. The Canadians traded some of that protection to retain a trade dispute resolution provision that Trump wanted to scrap. Somewhat ironically, Canadians had agreed to a similar sized dairy concession in the Trans-Pacific Partnership, which Trump abandoned when he took office.

Domestic car manufacturing was a core reason why Trump pushed for a better North American trade agreement. The agreement reached earlier with Mexico increases the North American auto content requirements and requires more content from higher paid autoworkers to qualify for duty-free treatment. AFL-CIO leaders withheld their support for the change, saying they doubted the higher wages and better working conditions in Mexico can be enforced. The USMCA effectively requires unionization of Mexican autoworkers, which runs counter to state-level right-to-work laws, which political conservatives have pushed for in the United States.

Economists fret that higher wages will make North American vehicles more expensive and less competitive against vehicles imported from overseas, which face a nominal tariff. Trump is pledging to address the import tariff and potentially replace it with quotas. There also is a side letter to the agreement that preserves Trump’s ability to impose tariffs on automobiles assembled in Mexico or Canada. 

Trump sought a 5-year sunset clause on the deal. In the final agreement, the USMCA has a 16-year life span, with a review after six years.

A key element of the deal for the incoming Mexican president is a clause that restates Mexico’s claim of ownership of all hydrocarbons in its subsoil. The provision doesn’t prevent foreign companies from producing oil in Mexico.

While agreement on NAFTA modernization brought sighs of relief, there is still consternation over steel and aluminum tariffs – and their rationale: protecting US national security. The pretense for the tariffs has irked Canadians who don’t view themselves as security risks to the United States.

Looming elections that could flip control of the House to Democrats might complicate approval of the USMCA. Democrats may not want to bless a Trump achievement before the 2020 presidential election and Republicans may decide to poke the eye of unions, which have been a major force behind revamping NAFTA. That could leave the USMCA an agreement without a country and further muddy the waters on US trade policy.

 

Big News Comes Under Small Headlines

An unremarkable resolution promoting breastfeeding provoked a stunningly aggressive action by a US delegation to throttle it, at least until the Russians stepped in to salvage the resolution.

An unremarkable resolution promoting breastfeeding provoked a stunningly aggressive action by a US delegation to throttle it, at least until the Russians stepped in to salvage the resolution.

Sometimes the most revealing stories are the ones with small headlines reporting on events occurring in the shadows. Such as the stories reporting the United States aggressively sought to block a global resolution backing breast-feeding and deleting language favoring soda taxes to reduce obesity.

In both cases, the US position appeared in alignment with positions advocated by infant formula manufacturers and soda producers. Perhaps ironically, Russian delegates stepped in to preserve the global resolution backing breast-feeding. The delegates said they based their decision on “principle.”

Research solidly supports breast feeding, which makes the US position at the World Health Assembly in Geneva all the more puzzling and stunning to delegates from around the world, according to The New York Times

This wasn’t a friendly disagreement. Ecuador offered the resolution and the American delegation threatened to “unleash punishing trade measures and withdraw crucial military aid,” the Times reported. Ecuador capitulated.

“The showdown over the issue was recounted by more than a dozen participants from several countries, many of whom requested anonymity because they feared retaliation from the United States,” the Times said. Other nations balked at requests to offer a substitute resolution in the wake of the US action. At least until Russia stepped in. The US delegates didn’t threaten the Russians.

Delegates were reportedly stunned by the “intensity” of the Trump administration’s opposition. They pointed to the $70 billion global baby food industry lurking in the shadows of the assembly. They also noted the Trump team’s position was diametrically opposed to the position expressed by the Obama administration.

“We were shocked because we didn’t understand how such a small matter like breast-feeding could provoke such a dramatic response,” an Ecuadorean official, who asked not to be identified because she was afraid of losing her job, told the Times.

At the same assembly, US officials successfully throttled a statement supporting soda taxes. That position squares with a Trump effort in NAFTA negotiations to limit Mexico’s and Canada’s ability to require labels on sugary beverages.

“The [US] delegation’s actions in Geneva are in keeping with the tactics of an administration that has been upending alliances and long-established practices across a range of multilateral organizations, from the Paris climate accord to the Iran nuclear deal to NAFTA,” the Times summarized.

The Trump administration has threatened to cut its $845 million contribution to the World Health Organization, which represents 15 percent of the group’s total budget.

“It’s making everyone very nervous, because if you can’t agree on health multilateralism, what kind of multilateralism can you agree on?” said Ilona Kickbusch, director of Global Health Center.

 

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.

Yet Another Unbelievable, Wacky Week in Washington, DC

As weeks go in Washington, DC, this has to be one of the wackiest as President Trump plots an attack on Syria, Facebook is accused of being a monopoly and former FBI Director James Comey’s memoir says the White House is run like a forest fire. And that doesn’t include the retirement announcement of House Speaker Paul Ryan and former Speaker John Boehner’s decision to advocate for legal medical marijuana.

As weeks go in Washington, DC, this has to be one of the wackiest as President Trump plots an attack on Syria, Facebook is accused of being a monopoly and former FBI Director James Comey’s memoir says the White House is run like a forest fire. And that doesn’t include the retirement announcement of House Speaker Paul Ryan and former Speaker John Boehner’s decision to advocate for legal medical marijuana.

You can’t say nothing is happening in the nation’s capital. You just can’t believe what’s happening.

President Trump is preparing to respond to a poison gas attack of civilians in Syria, signaled a reversal on the Trans-Pacific Partnership trade deal and had a tweet tirade over a raid of the home and office of his personal attorney, Michael Cohen. Trump said the raid was “disgraceful.” Cohen’s attorneys said it was “unnecessary and inappropriate.” Cohen said the agents who carried out the raid were “polite and respectful.” Media reports suggested the purpose of the raid may have been to seize recordings Cohen made of his conversations, including with Trump.

GOP House Speaker Paul Ryan announced he is retiring at the end of his term, fueling speculation of an impending GOP shellacking in the mid-term elections this fall. Meanwhile, Ryan’s Republican predecessor, John Boehner, announced his views on cannabis have “evolved” and he will advocate for legalization of medical marijuana.

Former FBI Director James Comey’s tell-all memoir is leaked that delivers scathing criticism of Trump as “unethical and untethered to the truth” and more like a mob boss than the leader of the free world. Trump responded on Twitter by calling Comey an “untruthful slime ball” and a “leaker” of classified information. Somewhere in the West Wing, former strategic advisor Steve Bannon was trying to convince Trump aides to go gonzo.

Secretary of State nominee Mike Pompeo underwent confirmation hearings where some of the most heated questions centered on what he says to Trump in their private conversations. Meanwhile, the Senate moved forward the nomination of a former coal industry lobbyist as the top deputy at the Environmental Protection Agency.

Senate and House committees, including the House Energy and Commerce Committee chaired by Oregon Congressman Greg Walden, grilled Facebook founder and CEO Mark Zuckerberg about failures to protect user privacy. Questioning zeroed in on whether Facebook is a monopoly and should be regulated.

The Congressional Budget Office issued an updated analysis of the GOP tax cut indicating it will result in a $1.9 trillion deficit and 80 percent of the benefit will accrue to foreigners, which complicates Republican campaign plans to tout the tax cut as a major achievement. Retiring Tennessee Senator Bob Corker told reporters voting for the GOP-backed tax cut may have been his biggest blunder in office. Trump dismissed the CBO findings.

Despite promising a swift response with “new, smart missiles,” Trump and his national security team were still debating how and when to respond to Syria’s renewed used of chemical weapons in light of Russia’s threat to defend Syrian military installations if attacked by US missiles or armed forces.

Trump’s tariff talk, which rattled stock markets, angered farmers and drew reciprocal tariffs, cooled off after Chinese President Xi Jinping gave what observers viewed as a conciliatory speech on trade relationships and included a reference to protection of intellectual property of foreign companies. Despite tough talk on the campaign trail and quick action when in office to dump US participation in the Trans-Pacific Partnership, Trump suddenly recognized the continued efforts of the other 11 Pacific Rim partners to write fair trade rules as a possible source of leverage on China.

Trump chose to stay in Washington, DC instead of attending a Latin American summit focusing on trade, including apparently stalled talks on revisions to the North American Free Trade Agreement. Vice President Mike Pence, who is filling in for Trump, is expected to hear pushback from Latin American leaders about Trump’s comments and actions toward Latino immigrants. Aides to Pence said his individual meetings with leaders are intended to “soften the edges” of US foreign policy and immigration views.

The week provided a lot for Trump to fume about, prompting stories about the President’s renewed consideration of firing Deputy Attorney General Rod Rosenstein and Special Counsel Robert Mueller. Previous musings about such firings have been dismissed by the White House, Trump’s lawyers and Republican leaders on the Hill. However, this week Senate Judiciary Chair Charles Grassley sought expedited consideration of bipartisan legislation to insulate the Mueller investigation from any adverse action by Trump.

Toward the end of the week, Trump pardoned Lewis “Scooter” Libby, the former chief of staff for Vice President Dick Cheney, who was convicted in 2007 of perjury and obstruction of justice involving the leak of a CIA officer’s identity. Libby’s sentence was commuted by President George W. Bush, but not pardoned. The timing of Trump’s pardon seemed like a signal that he would protect those who protect him.

The beehive in Washington, DC this week didn’t include any mention of or tweets about North Korea. The leaders of North and South Korea are scheduled to meet April 27 and a face-to-face meeting between Kim Jong-un and Trump is anticipated in either May or June.

 

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.”

 

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 Wonder and Worry Surrounding Washington, DC

The nation’s capital is preparing for Christmas, but there isn’t much cheer on Capitol Hill as lawmakers narrowly avert a government shutdown, try to unsnarl problems in tax-cut legislation and muddle through sexual misconduct scandals

The nation’s capital is preparing for Christmas, but there isn’t much cheer on Capitol Hill as lawmakers narrowly avert a government shutdown, try to unsnarl problems in tax-cut legislation and muddle through sexual misconduct scandals

Congress temporarily averted a pre-Christmas federal government shutdown by approving a two-week spending resolutionHouse and Senate conferees are trying to work out differences, including an apparent $287 billion math error, in a $1.4 trillion tax-cut measure. House Speaker Paul Ryan foreshadowed entitlement spending cuts next year to curb a ballooning federal budget deficit.

A prominent Democratic House member and senator have resigned amid sexual misconduct scandals. An Arizona GOP congressman is quitting after discussing surrogacy with two staff members. Alabama is likely to send a new senator to Washington, DC who has been accused of dating teenage girls, denies any wrongdoing and says he would bring Alabama values to Capitol Hill.

President Trump announced he will send his long-promised infrastructure funding package to Congress in January without mentioning that private activity bonds, a key financing tool for transportation and affordable housing projects, may be eviscerated beforehand in tax legislation he has championed.

Trump efforts to rewrite the North American Free Trade Agreement are faltering amid concerns by many business sectors that what Trump wants in a new deal would hurt existing trade and endanger US manufacturing jobs. The United States has walked away from a trade deal with its Pacific Rim neighbors, but the deal is not dead. Japan is leading continuing talks, which could lead to provisions less favorable to the United States and, eventually a seat at the table for China.

Ignoring warnings by top Cabinet officials, Trump recognized Jerusalem as Israel’s capital while urging progress on stalled peace talks between Israelis and Palestinians. Two days later, Palestinian leaders refused to meet with Vice President Mike Pence.

Revelations in the Russian election meddling investigation continue to roll out, inflamed by a Trump tweet, a whistleblower’s account and Donald Trump Jr. who said what he told his dad after the infamous meeting with Russians last summer was protected by attorney-client privilege.

People abroad might be excused for wondering and worrying what is happening in the United States. People who live in the United States are wondering and worrying, too.

The President goes out of his way to stir the pot – retweeting inflammatory videos, pulling the rug out from under his GOP Capitol Hill colleagues and amping up rhetoric aimed at North Korea. Congress has failed to deliver a major legislative victory to Trump in his first year in office and is still fumbling with the last-chance tax bill. A late addition to the Senate version that would retain the corporate alternative minimum tax has caused corporate leaders – putatively the biggest winners in the measure – to voice concern. Polling indicates the tax bill is unpopular, including with many Republicans.

Democrats and Republicans are growing even more polarized. After a Trump tweet, the House and Senate Democratic leaders refused to join a White House pow-wow on spending and debt ceiling legislation. Their GOP counterparts called the snub rude. Trump said Democrats were putting border security at risk.

The parties have been split over cultural issues for a long time, but sexual misconduct scandals have turned litmus tests into flash points. The resignations of Democratic Congressman John Conyers and Senator Al Franken, which were accelerated by a collective shove in their backs by fellow Democrats, put the party on presumably higher moral ground to denounce Alabama senatorial candidate Roy Moore and Trump, each of whom has been accused by multiple women for sexual misconduct. Arizona Congressman Trent Franks apparently got the message.

Ryan’s prediction that action will be needed next year to stem the budget deficit could push Congress onto third-rail political issues such as Social Security and Medicare, as well as Medicaid. Conservative GOP members want to boost military spending while trimming spending and the deficit. Democrats are pressing for more domestic spending and to keep hands off Social Security and Medicare.

It is not a pretty picture, with a bruising holiday mash-up looming between now and December 22 over a longer spending measure and an increase in the debt ceiling.

 

So Much Work, So Little Time

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

The congressional agenda is chock-full. The congressional calendar is rapidly dwindling. Tax cuts, a spending measure and a debt ceiling increase are pending priorities, with a government shutdown looming as a possibility.

With only a dozen or so working days before the holiday break and the end of the year, Congress faces a daunting agenda that keeps growing longer and more challenging.

Based on published schedules, the Senate has 15 and the House 12 working days left in 2017. In that time, GOP congressional leaders want to pass tax-cut legislation and need to take action on a spending and debt ceiling bill to prevent a government shutdown.

Mixed in the politics of all that is the Dreamer’s Act and extension of funding for the Children’s Health Insurance Program (CHIP) that expired September 30, which has created a budgetary challenge for states trying to keep the popular insurance in place until Congress acts.

Then there are the series of subplots that fill headlines and color the policies and politics on Capitol Hill:

  • The intensifying investigation into Russian election meddling;
  • The Roy Moore scandal and Senate race in Alabama;
  • Unfolding disclosures about sexual behavior by Members of Congress;
  • An attempt by the Senate to repeal the Obamacare individual health care mandate as part of tax legislation; and
  • The Federal Communication Commission’s decision to end net neutrality.

Lurking in the wings are stalled talks over revisions to the North American Free Trade Agreement (NAFTA), continuing tensions over North Korea’s nuclear capabilities and the hope for an infrastructure investment package.

Dealing with all that is more like a year’s agenda, not one for a short month.

Egged on by President Trump, Republicans want to deliver tax legislation to the White House before heading home for Christmas. While GOP leaders continue to sell the tax cut as a boon for the middle class, the push to pass it quickly is aimed at satisfying the expectations of Republican donors.

When the Senate returns to work this week, it will try to pass its version of tax legislation under special rules that prevent a Democratic filibuster. It can only lose two Republican votes. It also will vote on the bill under a cloud of criticism from economists across the ideological spectrum who say it will do little for the middle class and compromise the nation’s ability to deal with an economic downturn by sharply increasing the federal budget deficit.

If the Senate passes a tax measure, it then faces a House-Senate conference committee to iron out differences, which could highlight contentious and regionally divisive issues such as home mortgage and state and local tax deductibility.

Even though Republicans are trying to pass their tax legislation without any Democratic support, they need Democratic votes to pass a spending measure and increase the debt ceiling. The tight time frames before the holiday break amplify Democratic leverage. CHIP funding, which provides coverage for 9 million children, is one enticement the GOP is trying to use. The Dreamer’s Act could be another, but it could backfire and drive away some conservative GOP votes.

The troubled Moore Senate campaign to fill the seat formerly held by Jeff Sessions comes at an especially awkward political moment on December 12. If Moore, who faces accusations of sexual misconduct with minors, loses to Democrat Doug Jones, it will make GOP control of the Senate razor thin, which could be a factor if tax legislation gets pushed into next year.

Congress is also getting some pushback on the tax plan from corporations that have become more concerned about Trump objectives in NAFTA negotiations. A fifth round of talks among Canada, Mexico and the United States failed to produce agreement, which leaves open the possibility that Trump may unilaterally pull out of the trade deal. A business coalition led by the U.S. Chamber of Commerce has lobbied Capitol Hill in opposition to radical changes to NAFTA, warning they could lead to US job losses and ironically lead to more US manufacturing moved offshore.

The special prosecutor investigation into Russian election meddling and possible collusion by the Trump campaign has taken another ominous turn. Former National Security Advisor Michael Flynn has broken off contact with the Trump defense team, signaling a possible plea deal that involves cooperating with the special prosecutor on other targets. There have been signs Special Prosecutor Robert Mueller and his team have expanded their scope to include financial dealings by the Trump Organization with Russian oligarchs associated with money laundering.

The FCC decision to end net neutrality has stirred up a wide range of opponents who fear it will hand too much power to telecommunications companies. Supporters downplay that concern, saying it will lead to more investment in digital technology. But this isn’t just a garden-variety policy issue. Net neutrality supporters have taken to social media to voice their concerns, galvanizing many people who ordinarily shun politics. Those activated voters could make a difference in the looming 2018 mid-term election.

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.