Articles in Category: Public Policy

Among the ideas that the Trump administration has mentioned as a way to pay for the planned southern border wall is a 20% tax on all goods coming in from Mexico. Press Secretary Sean Spicer and other administration insiders were quick to point out that this is just one of many ideas (including taxing remittances sent to municipalities from nationals working in the U.S.) being considered for how to get Mexico to pay for the wall that it certainly doesn’t want.

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If President Donald Trump makes good on threats to gut NAFTA and impose stiff tariffs on Mexican goods, economists say he risks a trade war that could lead to the very thing he is hoping to avoid — a huge surge in Mexican migration here to the U.S.

A stiff tariff policy and a wall could very well be catastrophic for the Mexican economy. Recession, a dramatic weakening of the peso, soaring inflation, interest rates and unemployment would only be the start of it.

“Mexico is smaller than the U.S. and can be harmed by conflict more than the U.S. would be,” said Adam Posen to the Associated Press. Posen is president of the Peterson Institute for International Economics, a Washington think tank that supports free trade.

Still, it’s hard to argue that Trump’s talk couldn’t conceivably leave U.S. manufacturers with a better deal with Mexico, precisely because the one they have right now is so, so bad. According to the Office of the U.S. Trade Representative, the U.S. goods and services trade deficit with Mexico was -$49.2 billion in 2015.Mexico is currently our third-largest goods trading partner with $531 billion in total (two way) goods trade in that year, the last for which full figures are available. Goods exports totaled $236 billion; goods imports totaled $295 billion. Is that -$49.2 billion an opportunity? Possibly for both the U.S. and Mexico?

A Mexico-U.S. Deal That Targets China?

Bank of America Corp. chief Mexico and Canada economist, Carlos Capistran, pointed out in a recent report that 90% of the U.S. trade deficit lies outside North America. Bringing together more resources from Mexico and Canada within the NAFTA free-trade zone could help make everyone more competitive and narrow that gap.

It’s not a crazy idea, really, at all. China has played a greater role boosting the U.S. trade deficit than Mexico over time, even without a free-trade agreement. From 1993 to 2015, the gap with China grew by $361 billion versus Mexico’s roughly $49.2 billion. Mexico also buys about twice as much from the U.S. as China does. A Bloomberg article points out that deterring imports from Mexico, in some future negotiation, could give way to mutual export growth for both countries, spurred “by helping to create larger and more innovative companies.”

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Of course, after President Enrique Pena Nieto canceled a trip to Washington to discuss new trade terms after President Trump’s executive order asking for the aforementioned wall… we’re not heading in that direction right now. The best that either side can hope for is that the Trump at the negotiating table is far different than the Trump in campaign mode. As a businessman and a politician it can’t be lost on him that the trade deficit numbers with China are far worse than those with Mexico… and we just might need each other yet.

President Donald Trump has formed a manufacturing jobs initiative, one that will include executives from Ford Motor Co., Dow Chemical, U.S. Steel Corp. and others.

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Part of Trump’s overall jobs creation agenda, the project will involve ongoing meetings between the president and business leaders to “share their experiences and gain their insights.” According to a press release, Trump will call on the executives listed for perspectives on “how to best promote job growth and get Americans back to work again.”

Many of the executives listed as part of the initiative met with Trump on his first full day in office on Monday: Dow’s Andrew Liveris, Dell Computer‘s Michael Dell, Under Armour‘s Kevin Plank, Tesla Motors‘ Elon Musk Lockheed Martin‘s Marillyn Hewson, Klaus Kleinfeld of Arconic, Inc. and Nucor Corp.‘s John Ferriola. Scott Paul, President of the trade association the Alliance for American Manufacturing and union leaders Richard Trumka and Thea Lee, both executives in the leadership of the AFL-CIO, are also in initiative.

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Press Secretary Sean Spicer said at a press briefing on Monday that the group will meet next month and then going forward on a quarterly basis.

Here’s the full list of Trump’s manufacturing jobs initiative members:

  • Andrew Liveris, The Dow Chemical Company
  • Bill Brown, Harris Corporation
  • Michael Dell, Dell Technologies
  • John Ferriola, Nucor Corporation
  • Jeff Fettig, Whirlpool Corporation
  • Mark Fields, Ford Motor Company
  • Ken Frazier, Merck & Co., Inc.
  • Alex Gorsky, Johnson & Johnson
  • Greg Hayes, United Technologies Corp.
  • Marilynn Hewson, Lockheed Martin Corporation
  • Jeff Immelt, General Electric
  • Jim Kamsickas, Dana Inc.
  • Klaus Kleinfeld, Arconic
  • Brian Krzanich, Intel Corporation
  • Rich Kyle, The Timken Company
  • Thea Lee, AFL-CIO
  • Mario Longhi, U.S. Steel
  • Denise Morrison, Campbell Soup Company
  • Dennis Muilenburg, Boeing
  • Elon Musk, Tesla
  • Doug Oberhelman, Caterpillar
  • Scott Paul, Alliance for American Manufacturing
  • Kevin Plank, Under Armour
  • Mchael Polk, Newell Brands
  • Mark Sutton, International Paper
  • Inge Thulin, 3M
  • Richard Trumka, AFL-CIO
  • Wendell Weeks, Corning

After ordering, yesterday, that the Keystone XL and Dakota Access pipelines be moved forward, President Donald Trump issued another executive order that required them, and all pipeline projects, to use only American-made steel.

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According to Trump’s memo, steel produced in the U.S. must be used “for all new, expanded or retrofitted pipelines in the United States.”

It further defined “produced in the United States” to:

  1. With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
  2. Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
  3. Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.

This definition differs a bit from the existing Buy American Act of 1933, which required the federal government to prefer U.S.-made products in its purchases. The Hoover administration-signed act was essentially extended to procurement for federal surface transportation products with the similarly named Buy America Act of 1983 during the Reagan administration.

Will President Trump’s “American-made” definition mean a boom for U.S. steel pipe manufacturers? Source: Adobe Stock/Pavelyudin.

Shortly thereafter, Miller extended those Reagan-era beliefs and standards to beer production.

Buy American… If You Can

All kidding aside, according to the Buy American Act, in certain government procurement situations, the requirement to purchase U.S.-made steel may be waived by the contracting officer or the head of the contracting activity under certain conditions: If the domestic cost is 25% or more expensive than if foreign-sourced, if the product is not available domestically in sufficient quantity or quality, or “if doing so is in the public interest,” a virtual elastic clause that has allowed substitution on federal projects for decades.

That 25% can be a high hurdle. For Department of Transportation projects, the cost of the American component must be so high as to increase the entire project contract cost by 25%, not just the cost of the specific item. For example, in a bridge project, the cost of a U.S. girder would have to be so high as to increase the whole bridge project cost by 25%, something that rarely if ever happens.

On non-DOT construction projects under the Buy American Act, the Federal Acquisition Regulations (FAR) specify adding a 6% cost differential in comparing bids. The relevant section (48 CFR 25.204 section b) reads “Unless the head of the agency specifies a higher percentage, the contracting officer must add to the offered price 6% of the cost of any foreign construction material proposed for exception from the requirements of the Buy American statute based on the unreasonable cost of domestic construction materials…”

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President Donald Trump is expected, today, to order the construction of a wall between the U.S. and its southern border with Mexico, the first in a series of actions this week to crack down on illegal immigration and bolster national security.

Trump’s executive order is expected to direct the department of Homeland Security to begin the process for designing and building the wall with possible involvement from the General Services Administration. Trump is also expected to ask the Congress to fund the wall’s construction.

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The immigration moves are also expected to include slashing the number of refugees who can resettle in the U.S. and temporarily blocking Syrians and others from war-torn nations from entering, at least temporarily, until a vetting process can be set up to make sure refugees or other immigrants are not linked to terrorist radical movements.

Other executive orders today are expected to seek to end sanctuary cities and the practice of releasing undocumented immigrants detained by federal officials before trial.

Dow Breaks 20,000

U.S. equities rose to all-time highs in early trading today after the series of executive orders from Trump in the first few days of this week increased bullish sentiment on Wall Street.

The Dow Jones Industrial Average broke above 20,000 for the first time, rising 150 points as Boeing and IBM contributed the most gains.

Well, President Donald Trump certainly hit the ground running this week.

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On his first day in the Oval office he signed 3 executive orders, the most significant of which is probably the one withdrawing the U.S. from the Trans-Pacific Partnership trade deal — TPP. The TPP is a giant free trade agreement forged by the Obama administration with the aim to cut taxes and develop trade with 11 other Pacific Rim nations from emerging markets to mature economies like Australia. Trump has been consistent throughout his campaign and since that TPP was bad for American jobs so his statement on signing the executive order as “a great thing to the American worker,” comes as no surprise.

What Does No Deal Mean for the US?

Critics have argued that backing out of TPP would reduce America’s strategic position in the Asia-Pacific region and leave the door open for China to take the lead as the champion of free-trade. According to Fox News, U.S. Sen. John McCain (R-Ariz.) called the withdrawal a “serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.” Read more

In addition to executive orders essentially reviving the Keystone XL and Dakota Access pipelines this morning, President Donald Trump signed a memorandum that will require the secretary of Commerce (his nominee, Wilbur Ross, still awaits confirmation) to come up with a plan to mandate American-made steel for all new, expanded or retrofitted pipelines in the U.S. The plan is due in six months.

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“Going to put a lot of workers, a lot of steelworkers, back to work,” Trump said after signing the memo. According to the memo, “produced in the United States” shall mean:

  1. With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
  2. Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
  3. Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.

Trump also urged the chief executives of the Big Three U.S. automakers to build more cars in the U.S., pressing his pledge to bring jobs to America and discourage Ford Motor Company, General Motors and Fiat-Chrysler Automobiles from investing in Mexico.

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Trump has threatened to impose 35% tariffs on imported vehicles and opened the White House meeting with General Motors CEO Mary Barra, Ford CEO Mark Fields and Fiat Chrysler Automobiles NV CEO Sergio Marchionne saying he wants to see more auto plants in the U.S.

In his first full workday as President of the United States, Donald Trump didn’t waste any time in implementing his ambitious trade and manufacturing agenda.

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He signed an executive order pulling the U.S. out of the Trans-Pacific Partnership, a 12-member free-trade agreement advocated by the Obama administration. TPP aimed to deepen economic ties between the U.S. and 11 Pacific Rim nations, cut taxes and foster trade to, hopefully, boost economic growth in the process.

Trump’s action makes the deal — at least with the U.S. involved — essentially over. It’s really been essentially dead since last summer when Trump’s republican party began to tack more populist — which it has been doing since Trump started winning primaries by appealing to working class voters — and the GOP abandoning its traditional belief in free trade doomed the partnership which never really enjoyed that much support among democrats beyond former President Barack Obama and his administration. Senator Bernie Sanders (I.- Vt.), who is in the democratic leadership despite not identifying as one, was a particularly vocal critic of TPP during his run for the democratic nomination last year.

GOP Shift

Trump shows no signs of warming up to free trade deals and now leads a political party that looks like it’s following in lock step behind him (with some notable exceptions, of course). Trump took another step that flies in the face of traditional republican orthodoxy and met with building trades and manufacturing unions on his first working day. Watch the leaders applaud Trump as he describes “terminating” TPP. Read more

Meeting at the White House’s Roosevelt Room this morning with 10 senior American business executives, lawmakers and the press, President Donald Trump repeated his campaign pledge to roll back corporate rules, arguing that they have “gotten out of control.”

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Trump told the business leaders he would cut regulations “by 75%, maybe more.” Read more

This is part two of a two-part series on recent trade developments in the U.K.’s pending divorce with the European Union, read part one here if you missed it.

British Prime Minister Theresa May appears more wedded to a policy of not extending Brexit past the two-year deadline that was dictated by the outcome of the referendum. Possibly due to her years in office as Home Secretary, May seems desperate to reclaim control of the U.K.’s borders and to reject the jurisdiction of European courts, regardless of the economic consequences of taking such a hard-line position.

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Committed Brexit supporters have championed the establishment of free trade agreements with countries outside the European Union, almost as an extension of their rejection of Europe. But the reality is geography will dictate that the E.U. is likely to remain the U.K.’s biggest export market after Brexit whatever Brexiters’ global ambitions may be.

Who Loses More Post-Brexit?

According to a Financial Times article last November, U.K. exports to fellow E.U. countries accounted for 48% of total exports and, in the 18 months before that, the figure ranged from 38% to 51%. The U.S., by comparison, was just 22% and few beyond the hardliners give any credence to the benefits of a President Donald Trump-inspired U.S.-U.K. Free Trade deal, knowing that in Britain’s desperation for an alternative to Europe such a deal would likely be very one-sided in favor of the U.S. Read more

After filing for chapter 11 bankruptcy protection last year and subsequently being declared “hopelessly insolvent” by a judge, U.S. energy giant SunEdison Inc. is winding down its operations in India.

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SunEdison is exiting its India business by selling 1.7 gigawatts of wind and solar farms to Greenko Energies Pvt.

Foreign Investment

Greenko is backed by the sovereign wealth funds of Abu Dhabi and Singapore. The two sites include one with 440 megawatts of capacity already operating and another 1,200 mw of projects still under development including a 500 mw solar project. Reports pegged the projects total assets value at about $500 million. Read more