Covid-19, Why Aren’t We Prepared?

Following the Ebola epidemic of 2014 President Obama established the National Security Council Directorate for Global Health Security and Biodefense “to do everything possible within the vast powers and resources of the U.S. government to prepare for the next disease outbreak and prevent it from becoming an epidemic or pandemic.” “NSC-pandemic-office-trump-closed”.  This unit was “disbanded under a reorganization by national security adviser John Bolton” in May 2018.

America’s disorganized and late starting response to the spread of Covid-19 in our country can be attributed in part to this act. What was obviously a mistake with the benefit of hindsight, however, was a more difficult judgement at the time. Two classes of judgements were involved: a) what organizational structure would service the country’s interests best (for Bolton, everything always seemed focused on the preparation for war), and b) how many and what resources should be devoted to events that might never occur?

The government’s role in disaster management is spread between a number of agencies, from FEMA (Federal Emergency Management Agency), the Department of Homeland Security, the Department of Health and Human Services (HHS), Food and Drug Administration (FDA), and the Center for Disease Control and Prevention (CDC), to state and local health services, fire departments etc. I have no idea if each potential disaster is managed by the most appropriate agency but coordination between them is often very important. That requires designated leadership.

Assigning resources to prepare for dealing with possible future epidemics means not assigning them to something also of value. What are the tradeoffs? We keep emergency reserves of many things: oil, medicine, face masks, excess capacity at hospitals, etc. What is the right amount? We keep a large military in case of war that we hope will never occur (unfortunately we have very foolishly used them unnecessarily too often and in too many places). What is the right size of the military given that every additional soldier is one fewer of whatever else she might have done?  Keeping a military reserve that can be called up in the case of war is one of the approaches we have taken in dealing with this question.

It is hard to impossible to know for sure the best answer.  Devoting resources to being prepared for an event that never occurs might seem (increasingly) wasteful. But so might an insurance policy for something we hope never happens, and we are generally wise to have it. Not taking the time and resources to be prepared can be extremely costly if the disaster occurs.  Large banks are now required to test the resilience of their balance sheets against financial shocks of one sort or another (stress tests) and to prepare living wills for how they would be liquidated if they became insolvent. These are costly exercises but well worth the cost if it helps avoid bank failures and/or makes the orderly liquidation of an insolvent large bank feasible, thus making market discipline of excessive bank risk taking credible. https://wcoats.blog/2012/06/29/spains-financial-crisis-first-principles/

There are rumors that the HHS blocked the use of foreign tests for the Coronavirus to preserve business for American pharmaceutical companies and that President Trump exempted the UK and Ireland from his initial European travel ban because he owns golf courses in Scotland and Ireland may or may not be true. https://wcoats.blog/?s=crony+capitalism.  Fortunately, we still have a free press, which is likely to get to the bottom of that.

Where the stakes are high, we should pay the cost of reasonable preparations for disasters of one sort or another. The lives of tens of thousands of citizens are at stake. Getting the balance right, as in so many other areas of governance is not easy. But the United States today is neither well organized nor properly prepared to mitigate the damage of the epidemic now about to sweep over us.  We will pay a much larger cost for this than we should have.

However, it is not only the country’s lack of preparedness that is a major problem in this national crisis. The President himself appears unprepared to handle facts or rely on his medical experts and convey confidence to the public by making accurate statements about what is being done and what the public should expect. His recent oval office statements about an all-encompassing Europe travel ban including the banning of cargo coming from Europe and the availability of free tests and treatments was basically wrong. Each claim had to be corrected and re-explained in an already confusing and panic-induced environment. The White House has not presented a clear, coherent plan for containing the damage of covid-19 that the Trump’s own administration understands or is behind.  Along with starting late to address the challenge, the Trump administration has been and remains incoherently organized to move forward from here. Stay tuned for the next tweet.

The Basis of American World Leadership

Since the end of World War II, the United States has played a disproportionately large role in guiding world affairs. It has unquestionably been the most powerful nation on earth. Its dominance reflects a number of factors including economic and military strength. But in addition to these, most countries have been happy, or at least willing, to accept American leadership because it was largely seen as guided by broad principles of fair play and the rule of law.  American leadership was the least of evils. The United States has benefited a great deal from this good will.

But as the old saying goes: power tends to corrupt, etc.  Being able often to bend other countries to our will (as long as others still saw us as driven by widely shared principles of fair play), the U.S. increasingly exploited this influence to encompass policies or actions others were not so happy to comply with.  To take a fairly recent example, the wisdom of President Trump’s withdrawal from the Joint Comprehensive Plan of Action (JCPOA or the Iran Deal) to stop Iran’s development of its nuclear capabilities for at least ten years was not shared by the other parties to the agreement (the P5+1–the permanent members of the UN Security Council: the United States, the United Kingdom, Russia, France, and China, plus Germany–and the European Union).  All signers of the agreement except the United States continued to abide by it. But the U.S. dollar is the primary currency used for international payments and the U.S. threatened to punish (cut off from the use of the dollar and trade with the U.S.) any country that did not observe its unilateral trade sanctions on Iran. The non-U.S. signers attempted to set up alternative ways for paying for trade with Iran that did not use the dollar but found the reach of American threats hard to avoid. On January 5, 2020 Iran announced that it would stop complying with the agreement and resume its nuclear development program. It is not clear why Trump considers this better for American security than the (at least) ten-year suspension in the Iran Deal he tore up.  See: Economic-Sanction

President Trump has also used up a lot of “good will capital” with his Trade wars. He began by withdrawing the U.S. from the 12-member Trans-Pacific Partnership or TPP (Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam, and the United States). The TPP further reduced tariff and non-tariff restrictions on trade, while expanding and modernizing coverage for the digital world. As, or perhaps more, importantly, the TPP provided a model and positive encouragement to China to adopt Western trading rules as a condition of joining the TPP in the future.  The remaining signatories went forward with a Comprehensive and Progressive Agreement for Trans-Pacific Partnership, which went into effect a year ago with the U.S.

But Trump’s counterproductive trade strategies didn’t stop there by a long shot. In addition to economically harmful tariff protection of inefficient American industries (e.g. steel, washing machines, etc.), Trump has angered many of our friends in Europe, Japan and elsewhere by threatening tariffs in situations that do not seem to be justified by the World Trade Organization’s rules. In the process he is ignoring and weakening the WTO, which has played such an important role in the gradual trade liberalization that has dramatically lifted living standards around the world following WWII. He even tore up the North American Free Trade Agreement (NAFTA) and replaced with a new agreement that is not unambiguously better.  See: The-shriveling-of-US-influence

But once bullies taste their power, their appetites tend to grow. While elected with promises to end our forever wars and reduce our military commitments around the world, Trump has done neither.  This is not the occasion for exploring why (I don’t doubt Trump’s sincere desire to achieve both of those goals, but his ignorance of history seems to have made him vulnerable to flipflopping in the face of pressure from the neocons, such as Secretary of State Pompeo, he has surrounded himself with). Rather it is to review his rapid descent into a major bully, to the detriment of American influence and security.

On January 3, President Trump ordered the assassination of Maj. Gen. Qassem Soleimani, the leader of Iran’s paramilitary Quds Force in retaliation for an attack a week earlier on an Iraqi air base in Kirkuk that killed a U.S. civilian contractor and injured four U.S. soldiers and two Iraqis.

The drone that launched two missiles that killed Gen. Soleimani at the Baghdad International Airport also killed the Iraqi leader of the PMU, Abu Mahdi al-Muhandis, a close Soleimani associate, and eight other Iraqis.  According to the Pentagon, “General Soleimani was actively developing plans to attack American diplomats and service members in Iraq and throughout the region,”  According to Adil Abdul-Mahdi, Prime Minister of Iraq, Soleimani was on his way to see the PM in order to discuss moves being made to ease the confrontation between Shia Iran and Sunni Saudi Arabia.

The White House stressed that Soleimani’s planned attack was “imminent” thus justifying it without having to first inform Congress. Bruce Ackerman argues that Trump’s failure to obtain Congressional authorization for the attack justifies a third article of impeachment.  See: Trump-war-against-Iran-impeachable-offense  Iraqi PM Mahdi claimed that the attack on Iraqi soil was a violation of Iraqi sovereignty and a violation of the agreement between the U.S. and Iraq for stationing American forces in Iraq. Though Congress was not informed in advance, the Israeli government was told of the planned attack, according to some reports. In these circumstances, it is very difficult to know which reports are authentic and which are deliberate (or sometimes inadvertent) fake news.

In order to assess the likely impact of all this on our standing and support in the rest of the world, I like to evaluate American actions from how they might seem standing in someone else’s shoes. How would Americans react, for example, if our government had invited, say, French troops for training in the U.S., and the French Army blew up a Russian general on his way to meetings at the UN (or reverse the roles between the French and the Russians) without our permission?

But this note is not about whether this assassination was legal or good policy. For that see the following article from The Economist: Was-Americas-assassination-of-Qassem-Suleimani-justified?  It’s about the rise of American bullying in the world and its impact on our standing and ability to influence friends and enemies in ways that serve our national interest. What followed in the days after Soleimani’s assassination is mind boggling.

Keep in mind that following America’s invasion of Iraq that started on March 20, 2003, the U.S. and its coalition partners returned sovereignty to the Iraqi government at the end of June 2004. I was there as part of the Coalition Provisional Authority (I was the Senior Monetary Policy Advisor to the Central Bank of Iraq reporting to the U.S. Treasury). As we boarded helicopters to waiting planes at the Baghdad International Airport (of recent fame) many of us recalled images of the last American helicopter lifting off the roof of the American Embassy in Saigon when the U.S. ended its participation in the Vietnam War. Over the next seven years American and coalition troops remained in Iraq under terms agreed to in a Status of Forces agreement with the Iraqi government.  Following the ups and downs of troop surges and draw downs American forces were kicked out after Blackwater security contractors killed 17 Iraqis in Nisour Square in 2010.

With the rise of the Islamic State (ISIS) American troops were invited back under new, less formal terms. “Instead, the current military presence is based on an arrangement dating from 2014 that’s less formal and ultimately based on the consent of the Iraqi government, which asked the parliament on Sunday to pass urgent measures to usher out foreign troops…. ‘If the prime minister rescinds the invitation, the U.S. military must leave, unless it wants to maintain what would be an illegal occupation in a hostile environment,’” said Ramzy Mardini, an Iraq scholar at the U.S. Institute of Peace.  Getting-us-troops-out-of-iraq-might-not-be-that-hard-say-experts

And how did POTUS, the great negotiator, respond to the Iraqi Parliament’s vote: “President Donald Trump threatened to impose deep sanctions on Iraq if it moves to expel U.S. troops…. ‘We’ve spent a lot of money in Iraq,’ Trump told reporters aboard Air Force One as he returned to Washington after spending the holidays at his Florida resort, Mar-a-Lago. ‘We have a very extraordinarily expensive air base that’s there. It cost billions of dollars to build. … We’re not leaving unless they pay us back for it.’” Trump-threatens-iraq-sanctions-expel-us-troops

However, the Pentagon promptly announced that it was repositioning its troops in preparation for withdrawing them. Reuters released a copy of a letter on US Department of Defense letterhead addressed to the Iraqi Defense Ministry by US Marine Corps Brigadier General William H. Seely III, the commanding general of Task Force Iraq, which read in relevant part: “In deference to the sovereignty of the Republic of Iraq, and as requested by the Iraqi Parliament and the Prime Minister, CITF-OIR will be repositioning forces over the course of the coming days and weeks to prepare for onward movement…. We respect your sovereign decision to order our departure.”  reuters.com/article/

Within hours, the Pentagon stated that no decisions had been taken and that the letter had been sent by mistake. “U.S. Army General Mark Milley, chairman of the Joint Chiefs of Staff, said on Monday that a leaked letter from the U.S. military to Iraq that created impressions of an imminent U.S. withdrawal was a poorly worded draft document meant only to underscore an increased movement of forces.”  Iraq-security-pm  Or maybe they forgot to consult POTUS or maybe he changed his mind.  Are you confused yet? See: Amid-confusion-and-contradictions-Trump-white-house-stumbles-in-initial-public-response-to-Soleimanis-killing

In response to Iran’s threat to retaliate for killing General Soleimani “Trump tweeted on Saturday that the United States has targeted 52 sites for possible retaliation, including “some at a very high level & important to Iran & the Iranian culture.” The outcry over this clear war crime was immediate. “Secretary of Defense Mark Esper… put himself at odds with President Trump on Monday night by definitively telling reporters that the U.S. military will not target cultural sites inside Iran on his watch, even if hostilities continue to escalate in the wake of the U.S. drone strike that killed Maj. Gen. Qasem Soleimani at the Baghdad airport last week. ‘We will follow the laws of armed conflict….’” See: Esper’s-split-with-trump-over-targeting-iranian-cultural-sites-is-a-nod-to-the-laws-of-armed-conflict  Trump quickly backed down. Perhaps discussing these decisions with his staff before twitting them would be a good idea.

These are but a few examples of a bully on the loose. “Foreign Minister Mohammed Javad Zarif told NPR that he was scheduled to deliver an address when the U.N. Security Council meets Thursday [Jan 9] but that he was told the State Department had informed the U.N. that there was not enough time to process his request for a visa, which he said he first submitted 25 days ago.” Iran-foreign-minster-javad-zarif-denied-visa   Under the 1947 U.N. headquarters agreement, “the United States is generally required to allow access to the United Nations for foreign diplomats.”  Once again, we are violating our commitments. Iran is demanding that all future meetings of international bodies be held outside the US.  The IMF and World Bank are also headquartered in the U.S.

The American and coalition partners now in Iraq are there to support its fight against ISIS. This benefits us, our partners, and Iraq. The traditional tools of diplomacy (persuasion), rather than the threats of a bully, would ultimately be more effective.  The respectful consideration traditionally given to the views and positions of the United States in international bodies –such as global satellite spectrum allocation–global warming agreements–security agreements–or any other multilateral agreement in which we have an interest, is rapidly vanishing.  Assuming that the Trump administration can de-escalate the current tensions with Iran, something quite possible with sufficient diplomatic skill–see: The-soleimani-killing-could-draw-the-us-deeper-into-the-mideast-but-it-doesnt-have-to–our general loss of good will is the real cost of excessive bullying and it will hurt us considerably.

 

A Letter to the Republican Party

As a no doubt futile outlet for my frustration with the Republican Party, I have been enclosing the following letter in the return envelops they keep sending me with the request for financial support.

Dear Members of the Republican National Committee,

The Trump administration has had some positive achievements domestically (tax reform, regulatory reforms and court appointments). However, its continued increase in government spending (annual deficits of one trillion or more when the economy is at a cyclical peak) is wrong and unthinkable for Republicans. President Trump’s weakening of America’s support for and role in international organizations, abandonment of the Iran Deal and anti-nuclear proliferation treatises, and war on trade, are bad for America and the world we live in.  President Trump’s divisive language is unbecoming of the leader of a great nation, a nation of immigrants. The Republican Party has failed to stand up for these principles and to criticize the President for these offenses.

Even more concerning is your acquiescence to President Trump’s lying, immorality, and corruption. His clearly documented attempted bribery of the President of Ukraine for personal gain is damaging American security interests. His obstruction of Congress’s execution of its constitutional duties is very concerning. These and other acts cross the sadly low bar of acceptable behavior.

For the sake of our deeply divided country, the Senate owes us all an impeachment trial that any honest person will consider fair. President Trump must have every opportunity to explain and defend his behavior and those challenging it must have every opportunity to make their case. President Trump obstructed the House’s efforts to obtain firsthand evidence of the President’s attempt to use his executive authority for personal gain. It is essential that the Senate permit the testimony of those blocked in the House by the President (Bolton, Mulvaney, Mike Duffey).

With your silence you have abandoned me and my continued commitment to limited and sound government.  I cannot continue to support the party until you stand up and again defend our principles.

Sincerely,

Warren Coats

To whom or to what am I loyal?

I am an American. I believe strongly and am loyal to the principles of individual freedom and limited government embedded in the American Constitution. I have also been a Republican all of my life because I judged that the Republican Party best reflected the above principles. But in 2016 I changed my party registration to Libertarian because I no longer believed that the Republican Party remained faithful to my political beliefs.

I have followed the testimony in the Impeachment hearings investigating high crimes and misdemeanors by President Trump. Generally, I have relied on press summaries but I watched the live full testimony of Lt. Col. Alexander Vindman, Jenniffer Williams, Ambassador Gordon Sondland, David Holmes and Fiona Hill.  Ambassador Sondland was a large contributor to the Trump campaign and was rewarded with the appointment as Ambassador to the European Union, an assignment that included Ukraine.  Amb. Sondland has no foreign policy experience. His testimony, however, set a high standard for frankness and openness. He came across as very bright and (now) well informed. In his testimony, however, he obviously wished to justify the role he played in attempting to persuade the Ukrainian President to agree to Trump’s request for a “favor.”

The testimony of Ambassador Sondland and the others (including Bill Taylor, George Kent, and Kurt Volker) left no doubt whatsoever that President Trump, operating through Rudy Giuliani, tried to bribe Ukraine’s new anticorruption President, Volodymyr Zelensky, to publicly announce an investigation of Ukraine’s alleged interference in the 2016 U.S. presidential election and of the Biden’s involvement with the Ukrainian energy company Burisma.  Hunter Biden–former Vice President and current Democratic Party presidential candidate Joe Biden’s son–served on the board of Burisma Holdings, a Ukrainian energy company, from 2014 to 2019.  “Secretary of State Mike Pompeo, Vice President Pence and acting White House chief of staff Mick Mulvaney were among those whom Ambassador Gordon Sondland said were aware of the pressure on Ukraine for probes that could damage President Trump’s political opponents” Sondland said there was a quid-pro-quo

It is common for our foreign policy relations and aid to be based on quid pro quos. That is to say that we provide aid when conditions are met that we think service American interests.  What is involved here, however, is President Trump using American tax payers money and the powers and influence of his office for his personal political advantage.  In fact, his actions toward Ukraine are quite contrary to our American interests (which is a stronger, less corrupt Ukraine on the border of Russia).  In my opinion the now well known facts of Trump’s behavior visa vie Ukraine is impeachable.

For a while I still held out hope that there would be Republicans on the House Intelligence Committee who would honestly seek the truth of Trump’s behavior. I was sadly disappointed. Congressman Devin Nunes couldn’t get beyond repeating old discredited claims and his demand that the whistleblower testify. The idea that the secondhand claims by the whistleblower of impropriety by Trump would add anything to the firsthand testimony we have now heard doesn’t pass the laugh test. The council leading the questioning for the Republicans is pathetic–a real embarrassment. He seemed to only strengthen the case against Trump.

In my opinion many of the policies being advanced by many of the Democrat presidential candidates need to be effectively countered. I am losing hope that the Republican party is still capable of doing that.

 

 

 

Is Trump killing his own re-election?

The Fed (Federal Open Market Committee) is meeting this week to review and set or reset monetary policy.  I don’t know whether it should increase its policy rate, leave it the same or reduce it. https://www.adamsmith.org/blog/returning-to-currencies-with-hard-anchors  The market expects a one quarter percent reduction in the rate.  President Trump is quoted yesterday as saying it should be reduced more than that. WSJ: the confusing Fed

There are several problems with Trump’s statement. One is that if the Fed reduces the rate, its claim to be reacting to the data and its mandate is undercut by the President’s interference. Is the Fed doing what seems best or responding to political pressure?

But if the U.S. economy is heading South, as it may be, it is probably because of the damaging effects on the U.S. and world economies of Trump’s trade wars with almost everyone but especially with China. Trump’s tariffs have imposed significant costs on the American consumers who pay them with higher prices for targeted imports. More importantly, his trade wars have injected significant uncertainty into the continued viability of the global supply chains that have helped lower costs here and abroad and increased world output.  Their retrenchment is lowering world income and pushing many economies, including potentially the U.S. economy into recession. A U.S. recession a year from now will seriously damage Trump’s chances of reelection.

Trump’s wars on trade seem to be motivated by his mistaken belief that the U.S. trade deficit with China, Germany and others reflects unfair trade practices on their part. His misuse of a national security concern to impose protectionist tariffs and restrictions on foreign competitors (protecting inefficient U.S. industries we would be better off allowing competition to shrink) seems motivated by vote buying. https://wcoats.blog/2018/09/28/trade-protection-and-corruption/  The result is a reduction in our income and potentially his electoral defeat. Our trade deficits largely reflect the use of the U.S. dollar in international reserves (which require a deficit to supply them) and our large and growing fiscal deficits (much of which is being financed by China and other trade surplus countries). Trump’s abandonment of government spending restraint is the cause of those twin deficits https://nationalinterest.org/feature/who-pays-uncle-sams-deficits-26417

It’s not that we don’t have real issues with some of China’s trade related practices, but Trump’s approach to addressing them is not productive. Rather than working with the EU and Japan and others who share our concerns to confront China together, he is attacking all of them with threats of more tariffs. Rather than strengthening the WTO, he is weakening it. Rather than using the Trans Pacific Partnership (a significant advance in modern trade agreements) to encourage China to adopt its rules, Trump withdrew the U.S. from the agreement– a huge mistake. The real question is how much more damage will Trump inflict on the world economy before he surrenders and declares victory or is voted out of office. https://wcoats.blog/2019/06/07/the-sources-of-prosperity/

The Sources of Prosperity

I am an economist so I can’t help writing about the virtues of trade in the (futile?) hope that what is obvious to economists might be better understood and appreciated by the general public. https://wcoats.blog/2016/12/22/save-trade/https://wcoats.blog/2017/01/06/the-liberal-international-order/,   https://wcoats.blog/2018/03/03/econ-101-trade-in-very-simple-terms/, https://wcoats.blog/2017/01/06/the-liberal-international-order/, https://wcoats.blog/2019/02/09/tariff-abuse/

So please bear with me one more time. If you join with ten, or a hundred, or a thousand others to cooperatively produce things, you can jointly produce much more than ten times, or one hundred or one thousand times as much as you could all produce individually as one person factories. But that huge increase in productivity and output is not possible unless you can sell your joint output to others for the many other things you need and want to consume that they produce. In short, none of this is possible without trade. The wider the area over which we can trade the greater are the possible gains in productivity from the specialization of labor and capital that a larger market makes possible. The American constitution recognized this when it prohibited restraints on trade between the states (across state lines).  The ultimate limit in the size of the market is given by the world itself.

But markets—the “places” or the arrangements through which trade deals (purchase and sales agreements) occur—require trust that deals will be honored.  The rule of law, which protects private property and the enforcement of contracts, provides the certainty needed for a manufacturer or other service provider to invest in the productive capacity and facilities needed to generate the promised supply of products that is the foundation of our relative affluence. When trade extends beyond national boundaries the rule of law takes the form of international agreements to rules of the game.  Bilateral, multilateral and global trade agreements establish the rule of law within their domains.  The World Trade Organization (WTO) was created to oversee this process. The astonishing skyrocketing of the standard of living of the average (even the poorest) earthling rest on, i.e. would not have been possible without, trade.

The uneven but persistent history of trade has seen the protection of less efficient and uncompetitive firms and industries reduced over time via trade agreements that reciprocally reduced the taxation of imports (i.e. tariffs).  Starting with President Trump’s misguided withdrawal from the Trans Pacific Partnership (TPP) trade liberalization has been thrown into reverse. Trump vs Adam Smith  TPP modernized and further liberalized existing trade agreements between the U.S. and a number of Pacific countries.  The agreement was to be between 12 Asian Pacific countries until the U.S. withdrew.  It would have provided a strong magnet to further draw China into the global system of rules for increasingly free trade. It was ultimately signed by 11 countries without the U.S. and renamed the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The US withdrawal from the agreement was a serious mistake.

The United States as well as much of the rest of the world is beginning to pay the costs of Trump’s trade wars. In January of this year Deutsche Bank estimated that Trump’s trade wars have cost the U.S. stock market $5 trillion in forgone returns so far. Costs of trade war  “Bloomberg economists Dan Hanson and Tom Orlik have… concluded: If tariffs expand to cover all U.S.-China trade, and markets slump in response, global GDP will take a $600 billion hit in 2021, the year of peak impact.” US China trade war-economic fallout  “The import tariffs proposed by President Trump could wipe out the income gains provided by the Republican tax cuts for low- and middle-income earners, Jim Tankersley of The New York Times reported Monday.”  ”Trump-Tariffs-Could-Wipe-Out-Tax-Cuts-Most-Americans”

Are Trump’s import taxes old fashioned protectionism (protecting relatively inefficient domestic industries from foreign competition), a legitimate response to national security concerns, or a reflection of Trump’s “famed” negotiating style?

Protectionism

For starters Trump’s steel and aluminum tariffs of 25% and 10% respectively (following his earlier imposition of tariffs on solar panels of 30% and washing machines of 50%) are clearly protectionist and reflect an alarming over reach of executive authority. Using the “authority” given the President under Section 232 of the Trade Expansion Act of 1962, U.S. Department of Commerce found that imports of steel and aluminum “threaten to impair the national security” of the United States.  Canadian Prime Minister Justin Trudeau called the claim that reliance on Canadian steel could be considered a national security risk “absurd”.  Trump removed these tariffs on Canada and Mexico last month, but they remain in effect on our other friends (e.g., EU) and enemies. On several occasions Trump has threatened to raise tariffs on car’s imported from Europe on the same phony national security grounds.

The patters of trade that minimize costs of production and maximize labor productivity can be complex. While protecting a few inefficient American steel producers and their related jobs might be good for those few firms, it is bad for American consumers and the economy at large. Workers in less productive protected industries are thus not available to work in more productive activities. Moreover, more jobs were lost than saved as the result of high prices and lost sales by steel importing manufactures.  One study estimated that these tariffs could result in the loss of 146,000 jobs.[1]

Peterson Institute for International Economics study estimated that American businesses and consumers paid more than $900,000 a year for each job that was created or saved as a result of the Trump administration’s tariffs on steel and aluminum. The cost for each job saved as a result of the administration’s tariffs on washing machines was $815,000.[2]

National Security

The distinction between legitimate security concerns and protectionism is not always obvious. Trump’s approach is often more protectionist and bargaining chips than concerns for security.  An early indication of this was the U.S.’s treatment of ZTE Corp, China’s second largest telecoms gear maker.  In April 2018 the U.S. band U.S. companies from selling their products to ZTE in connection with its violation on U.S. restrictions on trade with Iran, Sudan, North Korea, Syria and Cuba.  “That means no Qualcomm chips or Android software for its phones, and no American chips or other components for its cellular gear.” NYT The company was effectively shut down and heading for bankruptcy when in early June of 2018 Trump ordered these restrictions lifted to save Chinese jobs!!  According to the NYT: “The Trump administration is pressuring China to make trade concessions. It may also need Beijing’s help to strike a deal with North Korea as Washington and Pyongyang plan a high-profile meeting on June 12 in Singapore.  Mr. Trump appears to be using ZTE’s punishment as a bargaining chip in negotiations with China, rather than a matter of law enforcement.” What is ZTE–A Chinese Geopolitical Pawn

Trump’s more recent banishment of Huawei, a Chinese tech company leading the world in 5G development, from the American market and efforts to convinces our once British and EU friends to do the same provides another example. In some applications security concerns when dealing with a Chinese company may be justified, but these areas are limited and Huawei has gone to great lengths to allay those concerns. “Google has been arguing that by stopping it from dealing with Huawei, the US risks creating two kinds of Android operating system: the genuine version and a hybrid one. The hybrid one is likely to have more bugs in it than the Google one, and so could put Huawei phones more at risk of being hacked, not least by China.”  “Google warns of US national security risk of Huawei ban” FT June 6, 2019

The Trump administration has expressed its anger with the refusal of many other countries to follow its lead thus incurring a diplomatic cost as well as the economic one of restricting access to the best and/or most cost-effective products. The dangers and potential damage of using trade threats for other objections are clearly express by seven former US Ambassadors to Mexico in a joint letter published June 5: Ex US Mexico Ambassadors-Tariffs would destroy partnership we built

Moreover, the US’s exploitation of the importance of the dollar as a reserve and payment currency in forcing its political agenda on the rest of the world has incentivized the EU, Russian, China and others to look for alternatives. As another example of the growing risks of relying on American markets, Alibaba, China’s national champion internet giant whose share are currently only listed on the New York Stock Exchange, will raise its next round of capital on the Hong Kong exchange.

Bargaining

But some of Trump’s threats of tariffs no doubt reflect his approach to a trade negotiation. While it is not the usual approach to a trade negotiation, in which the parties should be looking for win-win reductions in tariffs and other impediments to freer trade, it could occasionally work to achieve greater concessions from the other side than otherwise. There is really little evidence that it has, however. The renegotiated NAFTA, given the new name United States-Mexico-Canada Agreement or USMCA, is no better than a normal review and updating of the existing NAFTA would have been expected to produce. It incorporates most of the updated provisions of the TPP, as was expected. But Trump started the NAFT review and update, by tearing up the old agreement and threatening to revert to the bad old days. Trump’s threated 5% tariff on imports from Mexico if it doesn’t do more to reduce or deal with the flow of refugees across the US Mexican border seems to be a counter example of a threat that worked.

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Donald J. Trump‏Verified account @realDonaldTrump

FollowFollow @realDonaldTrump

On June 10th, the United States will impose a 5% Tariff on all goods coming into our Country from Mexico, until such time as illegal migrants coming through Mexico, and into our Country, STOP. The Tariff will gradually increase until the Illegal Immigration problem is remedied,..

4:30 PM – 30 May 2019

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What if Trump doesn’t back down as China matches each of Trump’s escalations with new tariff increases of their own? Such a true trade war was not a necessary approach to the negotiations and could be terribly detrimental to both economies as well as those of our trading partners. Some of China’s behavior should be challenged. Its theft of intellectual property, state aid to some of its companies, and restrictions on foreign companies operating in China violate the spirit of the competitive deployment of resources to their most productive uses. But these criticisms are shared by most other countries (UK, EU, Japan, Korea, India, etc.). The US should negotiate with China together with these allies. It should use and strengthen the mechanisms of the World Trade Organization rather than ignoring and weakening it.

Even if Trump does backdown, as he generally has in the past, considerable damage has already been done that could take years to undo. The development of the cost saving, productivity enhancing global supply chains took time and were built with confidence in the rules that would apply—the rule of law. These very much included the maximum taxes (tariffs) and other regulations that would apply. The trust in that framework of rules has now been badly damaged.

Supply chains are already being restructured to reduce the risks of US policy shifts. While new arrangements may avoid or reduce these risks, they do so at the cost of efficiency.  Refusing to buy Russian booster rockets or Chinese semiconductors because of concerns that the Chinese or Russian government might exploit their companies’ products militarily or to steal our trade secrets, forces us into more expensive and/or inferior products and thus keeps us and the world poorer than otherwise. We had better be sure that the costs are necessary.

[1]  Timmons, Heather (March 5, 2018). “Five US jobs will be lost for every new one created by Trump’s steel tariffs”Quartz (publication).

[2] Long, Heather (2019). “Trump’s steel tariffs cost U.S. consumers $900,000 for every job created, experts say”The Washington Post.

Oslo: the Play

IMG_2150Yessar Arafat and Warren Coats in the PLO office in Gaza in February 1996.

Last night I saw the Round House Theater’s magnificent production of Oslo, the story of the secret meetings in Norway that led to the establishment of the Palestinian Authority.  It was a moving (heart wrenching) and balanced recounting of how these meetings achieved agreement between Israel and the Palestinian Liberation Organization on “land for peace” as it was called at the time after many years of failed official negotiations. I urge you to see it.

We heard the PLO negotiators lay out the Israeli theft of their homes and killings of their people and we heard the Israeli negotiators lay out the Palestinian attacks on Israelis and on the efforts of Jews to establish and secure an Israeli homeland.  For perspective, since the second intifada (between September 29, 2000 and January 31, 2018) at least 9,560 Palestinians have been killed by Israelis and 1,248 Israelis have been killed by Palestinians.  “The View from the West Bank”

The play focused on the unusual approach of these negotiations, which built on the development of trust and respect between the opposing negotiators and the agreement on achievable steps one step at a time. Between their long negotiating sessions in an isolated room near Oslo, they dinned, drank and bonded together. Unfortunately, the play fails to provide us with an overview of the resulting agreement, which applied the same step by step confidence building approach to the incremental establishment of a Palestinian government (the Palestinian Authority) and withdrawal of Israeli troops from the West Bank and Gaza. The PA was given governance authority for a limited number of functions in order—step by step—to build both institutional capacity and trust.

One of those functions was the establishment of the monetary authority (central bank). I led the IMF team that helped establish the Palestinian Monetary Authority and have many stories to tell of my many visits to Israel and the West Bank and Gaza in 1995-6 plus a number of visits in later years (most recently in December, 2011).

The PMA has developed into a well-run organization of which Palestinians (and those Israelis who see a successful Palestine government as important and necessary for their own security) can be proud.  It helped a great deal that the Bank of Israel and PMA developed good relations. Stanley Fischer was the governor of the BoI from 2005-13 and George Abed was governor of the PMA from 2005-7. They had both previously been colleagues at the IMF. “Jerusalem in August 2006”

It is with a broken heart that I watch Israel’s Prime Minister, Benjamin Netanyahu, with help from American President Donald Trump, increasingly abandon the two state solution of the Oslo Agreement for an apartheid single state regime in which “democratic” Jewish control is preserved by denying what would become the majority Palestinian residents their right to vote. “The Future of Israel and Palestine”

 

Attorney General Barr’s News Conference

I, and everyone I know, want to know the facts of any collusion between Trump and his associates and Russia. I am confident that the Mueller investigation provides them as well as we could expect. Attorney General Barr’s news conference this morning summarizing that report was clear and transparent. He did an exemplary and impressive job. The complaints from some Democrats on the Hill that Barr should not have held this press conference until after they had read Mueller’s report were unfounded and frankly embarrassing. Please let’s move on.

My assessment of Trump’s administration today, which is what we should be debating, is very mixed. Adjusting and lightening the regulatory burdens that have been holding our economy back is largely good in my view (though each must be judged individually) as are the tax reforms making the system simpler and fairer. While the tax reforms did not go far enough, they were a big improvement over the existing tax law.

Trump’s attitude toward trade and the protection of inefficient American firms is ill informed and damaging to American’s economy as a whole (as opposed to coal and steel producers). His bullying and unilateral approach is clumsy, amateurish, and counterproductive. The EU, Canada, Japan and others would be happy to join us in confronting China’s bad trade behavior, if Trump were willing to work together and not busy attacking them as well.

I supported Trump’s campaign promises of restraint in deploying American troops around the world, but he has not delivered. His message to the Senate accompanying his veto of the bill passed by both houses of Congress (54-46 in the Senate and 247-175 in the House) a few weeks ago invoking the War Powers Resolution to end U.S. support of Saudi Arabia’s war in Yemen reflects a truly shocking affront to our Constitution: “This resolution is an unnecessary, dangerous attempt to weaken my constitutional authorities, endangering the lives of American citizens and brave service members, both today and in the future.”  The truth is just the opposite. The constitution gives the power to declare war to Congress and the almost blank check congress gave Presidents following 9/11 cannot meaningfully be stretched to include what we are doing in Yemen.

Trump continues to undercut and weaken American leadership in the international organizations and agreements that have contributed so much to post WWII peace and prosperity. This will be increasingly harmful to our and the world’s legitimate interests.

In his spare time, the President thoughtfully advised the French on fighting the fire in Notre Dame. What an embarrassment and fire experts say that his advice was wrong.

Please, let’s fight the real battles and stop wasting time on the phony ones.

Is Rep Ilhan Omar anti-Semitic?

U.S. Congresswoman Ilhan Omar, a Muslim Somalian immigrant, has been insisting that we need to publicly condemn Israel’s mistreatment of Palestinians in the West Bank and Gaza as well as in Israel itself. This mistreatment includes illegally occupying Palestinian land on which Jewish Israeli’s build so called “settlements,” excessive use of force against Palestinians protesting their treatment (since 2000 Israeli soldiers have killed 9 Palestinian, including women and children, for every Israeli killed by a Palestinian), and legally restricting the citizen rights of Israeli Arabs (i.e. imposing apartheid on Palestinians living in Israel) in an effort to keep Israel both democratic and Jewish with a “one state solution” that would make Jews a minority). All of my Jewish friends, including some Israeli Jews, also condemn these horrible acts. The issue is well summarized by Andrew Sullivan: http://nymag.com/intelligencer/2019/03/how-should-we-talk-about-the-israel-lobbys-power.html?utm_source=fb&fbclid=IwAR1B12R8xQ0PTQhRO3u2f0nPO2ssSPmdZCEbbYbnvWNByClY2zuNgXaV9TE

So why is Ms. Omar being condemned as an anti-Semite by some (those who, in my opinion, are simply diverting the conversation away from Israel’s bad behavior)? It seems to arise from her complaints that “‘I am told everyday that I am anti-American if I am not pro-Israel,’ Omar tweeted March 3 in response to critics. ‘I find that to be problematic and I am not alone.’” Washington Post 3/11/2019 https://wapo.st/2TEMzt9. More specifically, and this is where critics have focused, she has complained that the so-called Israel Lobby has blinded American’s to Israel’s bad behavior. “On Feb. 27, Omar told an audience at a town hall event in Washington, D.C., that accusations of anti-Semitism were meant to silence her criticism of Israel and the American Israel Public Affairs Committee.”  Ibid. In my opinion the charges of anti-Semitism reported in the above Post article, prove her point.

Some people were particularly offended by her reference to the “Dual loyalty” of many Americans (Jewish and non-Jewish) to both our own country and to Israel.  I do not respect anyone who uncritically agrees with anything and everything their hero says or does whether it is Trump, Putin, or Bibi (I like some of Trump’s policies and dislike others, but disrespect the man). The same goes for governments. Given the strong reaction (claims of anti-Semitism) of any criticism of Israel in earlier years in the U.S. (we now see a regression to those days) I was pleasantly surprised on my many visits to Israel that a critical public discussion of Israeli policies and behavior was far more open and honest there. We should not be surprised or concerned that organizations such as American Israel Public Affairs Committee champion a particular point of view. That is what they exist for (just as the Log Cabin Republican’s and other policy oriented groups exist to propagate a point of view). What is unusual is the amazing influence that AIPAC has had on American foreign policy, often against America’s best interest. If you are not aware of this read John Mearsheimer and Stephen Walt’s “The Israel Lobby and U.S. Foreign Policy.”

It is natural and usual for any of us with origins in another country (that would be most of us) to retain sympathies for the fatherland even when condemning bad things it might do. My Russian American friends, for example, can’t help smarting a bit at criticisms of Putin even when they fully agree with them. The country that gave us some of the world’s greatest literature and music has also given us the gulag, etc. But no one, at least no one I know, would dream of calling me anti-Russian when I condemn Putin.

I have not read every word from Rep Omar, but I have not read anything that suggests she is anti-Semitic. She has raised important points about the policies and behavior of the Israeli government.  President Trump’s, and for that matter his predecessors for many years, uncritical acceptance of Israel’s outrageous treatment of the Palestinians in their charge, should be challenged. Those diverting the discussion by labeling those of us who condemn Israel’s behavior as anti-Semitic are exploiting America’s very understandable sympathies for the horrors of the holocaust and a long history of anti-Semitism. But such charges and diversion are dishonest and a disservice to the best interests of the United States (and I would say of Israel as well).