COP21, FLAWED TRADE AGREEMENTS, US COMPETITIVENESS AND WORLD TRADE

Should the US stay with COP21 to reduce CO2 emissions or not. The real issues are about international trade, reducing the US trade deficit, improving the US debtor nation status, bringing manufacturing jobs back to the US, and paying for world peacekeeping. The US would be less competitive in world markets if:

 

- The US invested more in renewable energy systems, such as expensive offshore wind. It would increase its cost structure.

- The US continues to overinvest in defense to maintain world peace. Others continue to underinvest.

 

For decades, the EU, Japan, Korea, etc., have invested to build up the skills of their technical personnel to develop, design and operate complex facilities to manufacture products and systems for their own markets and for export. That is the front end of the A to Z value chain, which is the most profitable part. It pays good profits to owners, good wages and benefits to workers and taxes to home governments. It is the real wealth builder of an economy. Those countries develop, design, build and own the ships to transport products and systems all over the world. Those countries own parts-making and assembly plants all over the world.

 

The assembly of parts and sub-assemblies into end products, such as cars, is the less valuable part of the value chain. Usually it pays good profits to owners, but pays mediocre wages and benefits to workers. Clever transfer pricing avoids paying taxes to local governments.

https://www.theguardian.com/business/2017/jun/05/hopes-of-eu-us-tra...

 

The EU and Bi-Lateral Trade Agreements: The EU is the biggest importer of raw materials and of goods and services, and biggest exporter of goods and services in the world. The EU negotiates trade agreements as a bloc. No EU country is allowed to enter into bilateral trade agreements with a country inside or outside of the EU. A renegotiated NAFTA should include that provision.

 

The EU has at least 50 bilateral trade agreements with other countries. In case of Canada and Mexico, the EU gained privileged access, via NAFTA, to the US market, the second biggest in the world. The EU also has direct access to the US market via the WTO.

 

NOTE: The EU has a bilateral trade agreement with Japan signed in December 2017; it took 4 years of negotiations. The core of the agreement aims to gradually reduce EU market barriers to increase the flow of Japanese cars to the EU and to gradually reduce Japan market barriers to increase the flow of EU highly profitable specialty food items to Japan.

https://en.wikipedia.org/wiki/Japan–European_Union_relations

 

NOTE: The US, which has relatively more open markets compared to the EU and Japan, does not have bilateral agreements with the EU and Japan, and thus has to make do with the much less privileged market access under WTO rules.

 

Negotiating Flawed Trade Agreements: The General Agreement on Tariffs and Trade, GATT, became effective on 1 January 1948, superseded by the World Trade Organization, WTO on 1 January 1986. The average tariff levels for the major GATT participants, about 22% in 1947, were 5% after the Uruguay Round in 1999; averages can be deceiving. Experts attribute part of these tariff changes to GATT and the WTO.

https://en.wikipedia.org/wiki/General_Agreement_on_Tariffs_and_Trade

 

The US had become a new world power after WW-II. The US, as part of building its “Free Enterprise World Leadership versus Communism” structure to contain Russia and China, negotiated a series of generous trade agreements with impoverished allies in the 1950s that set the patterns for later agreements, which ultimately proved to be disastrous for the US economy and grossly beneficial for the economies of others.

 

Primary reasons for the unfavorable outcomes for the US economy were:

 

1) US generosity after WW-II, which was gratefully accepted by “trading partners” and exploited at every opportunity, such as by not paying their fair share for NATO expenses for decades (5 of 29 NATO nations pay 2% of GDP for their OWN defense), and by the US opening its markets to “help them recover”.

- They kept their market more or less closed in one form or another, pleading weakness, hardship and excessive social-economic disruption, as excuses for not making structural changes, i.e., much lip service to reciprocity, but too little effective action of benefit to the US.

- “Trading partners” restricted US access to their markets by claiming “helping to fight Communism” (the EU), “developing nation” status (China), or “ being a reliable ally for Pacific Rim security” (Japan).

 

2) Europe and Japan recovering from WW-II damage much quicker, and becoming more formidable competitors than was understood by the US at the time, largely due to having a trained work force, pro-growth policies, and profitable access to the rich US market, with much fewer regulations, and with several hundred million, relatively well-off people, dedicated to the mass consumption of goods.

 

3) The US “business as usual” approach (which included an isolationist mindset and advertising-hyped consumerism, i.e., too much “borrow and enjoy” and too little “save and invest”).

 

4) By the time the US began to realize what had happened, about the mid 70s, foreign “trading partners” were eating our lunch, extending their technological reach into the US, and buying many large US companies, etc. They found it easy to do business in the US and to make money, whereas, by means of various protectionist rules and regulations and subsidies for domestic companies (“launch“ subsidies for the SST, Airbus 380, etc., are well-known examples), foreign countries were slowly but surely making things more difficult for US companies.

 

5) US trade negotiators:

 

- Likely were lacking the detailed understanding and experience of world trade of foreign negotiators who had acquired that understanding and experience over many centuries.

- Opened US markets, or failed to sufficiently protect them, while foreign negotiators left themselves enough wiggle room to protect their own markets.

- Brought up in the more open, free trade US economy likely were not intimately familiar with the nuances of that wiggle room.

 

The US cannot blame “trading partners” for taking as much advantage as possible to expand their exports to the US, buy US assets and make big money (by now hundreds of billions of dollars each year) on their exports to the US and on their US-held assets.

 

Trump calling for a halt to “business as usual”, and for a more fair and balanced US trade, likely is very upsetting for trading partners. They objected to Trump being elected President. They dug their way to the vault and do not want the vault moved.

 

Consequences of Flawed Trade Agreements:

Trade Deficits: The US went from a $6.8 billion trade surplus in goods in 1964 (the last surplus) to a $752.5 billion deficit in 2016. See URLs. The third URL has additional information.

 

https://www.census.gov/foreign-trade/statistics/historical/index.html

https://www.census.gov/foreign-trade/statistics/historical/goods.pdf

http://www.windtaskforce.org/profiles/blogs/cop-21-world-renewable-...

 

Creditor to Debtor Nation: The US went from the largest creditor nation in the world to the largest debtor nation in the world. The 50 years of growing deficits led to the value of US assets held by foreign entities becoming about $8.3 trillion greater than the value of overseas assets held by US entities by end 2016, a very large percentage of US GDP. The US was a creditor nation from 1910 to 1985. See table 1.

 

Earnings by Foreign Entities:

- Foreign entities earned at least 5% on the $8.3 trillion of assets, about $415 billion in 2016.

- Foreign entities earned at least 10% on that trade deficit, about $75 billion in 2016. See table 2.

- They used the $490 billion to make investments in their home countries, in the US, or elsewhere.

- They also had the benefit of owning and controlling the front end of value chains, the more profitable parts.

 

Table 1

US holdings abroad

Foreign holdings in US

Net Inv. Position

Status

Year

 

 

$billion

 

1981

 

 

140.9

creditor nation

1984

 

 

3.3

creditor nation

1987

 

 

-378.3

debtor nation

1988

 

 

-532.5

debtor nation

2007

 

 

-1200.0

debtor nation

2014

 

 

-7046.1

debtor nation

2015

23352.4

30845.9

-7493.5

debtor nation

2016

23849.4

32167.8

-8318.4

debtor nation

 

https://en.wikipedia.org/wiki/Foreign_trade_of_the_United_States

http://www.aljazeera.com/indepth/opinion/2011/07/2011771074476381.html

https://fas.org/sgp/crs/misc/RL32964.pdf

https://www.commerce.gov/news/opinion-editorials/2017/08/free-trade...

https://bea.gov/newsreleases/international/intinv/intinvnewsrelease...

 

Here are some data of imports, exports and total trade for 2016. Clearly, China, Japan, and Germany are disadvantaging the US and US workers by deliberately not importing more US goods.

 

Table 2

From country

To country

Total trade

US deficit

% of Total trade

2016

$billion

$billion

$billion

$billion

 

China

462

116

578

347

60

Japan

132

63

195

69

35

Germany

114

49

163

65

40

Canada

278

267

545

11

2

Mexico

294

231

525

63

12

 

China, a Particularly Egregious Trading Partner: China has a huge trade surplus with the US (exports to US, 462 b - imports from US, 116 b = surplus $347 b in 2016). Wal-Mart, Best Buy, etc., basically act as sales outlets for East Asian products. US foreign car dealers, which sell over 50% of all new cars in the US, basically act as sales and service outlets for European and East Asian car companies. China has been, and still is, notorious for:

 

- Raising barriers against foreign companies entering and competing in its markets; against WTO rules.

- Forcing technology transfers from foreign companies to Chinese companies; against WTO rules.

- Forcing foreign companies to have Chinese partners; against WTO rules.

- Committing intellectual property theft regarding trade secrets of foreign companies; against WTO rules.

- Committing intellectual property theft regarding the US defense sector; a US national security issue.

- Trying to buy US companies that make critical components for US weapon systems; a US national security issue.

 

Three multilateral agreements contributed to US trade deficits and the US debtor nation status:

 

1) The Trade Expansion Act (“Kennedy Round”), signed by Kennedy in 1962, significantly reduced US import tariffs, opened US markets to a flood of European imports. No wonder Kennedy was much loved in Europe. Subsequent GATT and WTO agreements cemented in place the Kennedy Round standards and extended similar opportunities for East Asia to access the US and European markets. Europe formed a trading bloc, the EU, complete with tariff wall, to protect its markets and jobs.

 

2) NAFTA, signed by Clinton in 1993, allowed the EU and East Asia to have bilateral trade agreements with Mexico and Canada, which, over time, became advantageous to them and disadvantageous to the US. Regarding US manufacturing jobs, Ross Perot called NAFTA “the giant sucking sound”. NAFTA, to its disadvantage, does not act as a trading bloc, unlike the EU.

 

In case of the car industry, NAFTA enabled EU and East Asian global companies to:

1) Build plants for manufacturing car parts,

2) Import parts near-duty-free into Canada and Mexico (per bilateral agreements), and

3) Assemble entire cars in Mexico and Canada for import, duty free, into the US.

 

By design, the US-made parts content of these cars, designed abroad, would be kept minimal to maximize jobs in Europe, East Asia, Mexico and Canada, to the disadvantage of US workers. Any exported US-made car parts, or entire cars, would face European and East Asian tariff and regulation walls. Try importing a Harley Davidson into Italy, or a US car into Korea and Japan.

 

The adversities of NAFTA further increased the US trade deficits in goods from $132.4 billion in 1993 to $752.5 billion in 2016, and reduced well-paying, steady, US manufacturing jobs to lower levels than they could have been.

 

3) China into the WTO, signed by Clinton in 2001, enabled China to have the advantageous status of “developing nation”, i.e., allowed China to restrict its imports, while building up its exports and foreign currency reserves. This further increased the US trade deficits in goods from $422.4 billion in 2001 to $752.5 billion in 2016, and reduced well-paying, steady, US manufacturing jobs to lower levels than they could have been.

 

The US response effectively amounted to near nothing, as it became bogged down in the quagmires of Vietnam, Iraq, Afghanistan, etc., adventures that wasted several trillion dollars, instead of being invested in infrastructures to improve economic and living conditions.

 

History shows, the cumulative result of trade pacts, bilateral and multilateral, led to decades of increasing US trade deficits ever since 1971, the demise of US trade unions, and rustbelt conditions in many urban areas of the US.

 

Trump’s call to renegotiate trade agreements likely will be slow-walked by “trading partners” until he is out of office, as it would upset their present advantageous situation, relative to the US, which is producing lucrative gains.

 

Three world trade examples disadvantageous to the US:

 

1) The Value Chain Regarding Cars: German companies make the materials, and design and build the factories to assemble cars. The design, engineering and testing of a Mercedes car and the parts and subassemblies are all done in Germany. Some cars are sold in Europe, and some are shipped, usually on European ships, to Mercedes-owned distribution centers in the US, and from there to foreign car dealers who sell the cars to end users.

 

The US gets involved at the tail end of the value chain. The real money and skilled jobs are at the front end of the value chain. The German response when pressed to import more US cars: “The US should build better cars”, or, regarding US trade deficits, “it is the natural development of markets”, or some other inane platitude.

 

Mexico has bent over backwards to accommodate car companies of Germany, Japan and Korea, and has big trade surpluses with the US as a result. German car assembly plants in Mexico use parts from the EU, US and elsewhere, to assemble cars, such as the Mercedes models, that are exported to the US duty free, because of NAFTA, and to the EU duty free, because of the bilateral EU/Mexico trade agreement.

 

- If that same car, using the same parts, were assembled in a Mercedes plant in the US, it could not be exported to the EU duty free, because of a lack of bilateral EU/US trade agreement; it would be subject to WTO tariffs.

- If that same car, using the same parts, were assembled in a plant in the EU, and exported to the US, it would be subject to WTO tariffs.

- If the US insists on more US content of imported cars (as part of a revised NAFTA), Daimler-Benz would merely ship an engine assembly plant to the US, send the engines to Mexico, and import cars as before. The US role would remain essentially unchanged, i.e., to sell and service the cars, a low-skill, low-margin part of the value chain.

 

2) Canada and its CSeries Plane Building Program: The CSeries program, started in 2004, $5.4 billion was spent as of February 2015 (likely much more by now), created three planes; the CS100 seats 108 - 133, the CS300 seats 130 - 160, and the CS500 seats 160 - 180, development date not yet determined. The CS 300 and 500 are direct competitors of the Boeing 737 and Airbus A320.

 

Bombardier had received a $3 billion “launch” subsidy from the Canadian government to develop and set up assembly of the CSeries planes in Canada. In the past, Airbus, a French “national champion”, had received similar “launch” subsidies from the French government.

 

Bombardier tried to sell 75 CSeries planes to Delta Airlines at a much larger than usual discount, made possible by the subsidies. Boeing objected. The US Commerce Department agreed with Boeing and imposed a 220% countervailing duty and 80% anti-dumping duty. In retaliation, Canada cancelled a planned F/A-18 fighter plane purchase; the planes were to be built by Boeing. Instead, Canada is buying similar fighter planes from Australia.

 

Airbus comes to the rescue! Airbus has acquired a 50.01% stake in the CSeries program (no money was paid). Bombardier will own 31%, and Investissement Quebec will own 19%. Airbus will provide the program with procurement, sales and marketing and customer support expertise. The agreement brings together Airbus' global reach and scale, and EU-backed political clout with the CSeries planes. Airbus could sell those planes all over the world and avert US tariffs, except may be in the US.

 

After the Airbus takeover of the CSeries program, Delta Airlines, a patriotic company, increased its order to 100 planes, and placed it with Airbus. The takeover, the Delta order, and the contested subsidy remain to be resolved by a US and/or an international court.

https://en.wikipedia.org/wiki/Bombardier_CSeries

 

The CSeries planes will be assembled with parts from Canadian, the EU (wings from Northern Ireland), China and the US (engines from Pratt & Whitney), etc., as before. However, final assembly will be in the Airbus assembly plant in Mobile, Alabama, to enhance US content (relatively low-skill assembly jobs), which likely would facilitate the sale of the CSeries planes to US, Canadian and Mexican airlines without having to pay import duties, an example of the EU, etc., taking advantage of Boeing and NAFTA.

 

This whole episode also is an example of Canada, the EU and Australia ganging up on the US. It would be preposterous for Canada to think Boeing would not object. Canada likely calculated, if push came to shove, the US would cave, as usual.

 

Trump had declared the time of taking advantage of the US is over, i.e., putting the US and US workers first. It should now be obvious why the EU, Canada, Mexico, etc., were so opposed to Trump being elected.

https://www.ft.com/content/d3094604-dc63-11e7-a039-c64b1c09b482

 

3) Massachusetts and Offshore Wind Systems: Massachusetts has a new energy law requiring utilities to procure electricity generated by 1,600 MW of offshore wind turbines (nameplate capacity) by June 30, 2027. The turnkey capital cost of such wind turbine plants, plus wiring to shore, plus onshore grid modifications would be at least $9 billion, and the electricity cost would be at least 18 c/kWh for the first year, escalating at 3.5%/y for 20 years, a gravy train for multi-millionaire owners. See URL.

 

NOTE: New England wholesale prices have averaged about 5 c/kWh for steady, 24/7/365 electricity since about 2008, primarily due to:

 

- Natural gas electricity; 50% of NE generation, low-cost (5 c/kWh), low-CO2 emitting, clean (no particulates), domestic fuel

- Nuclear electricity; 26% of NE generation, low-cost (5 c/kWh), low-CO2 emitting, clean (no particulates), domestic fuel

 

Construction would require huge sea-going tugs, cranes and other specialized vessels to assemble those 600-ft tall wind turbines. Europe has perfected that equipment, but the US does not even have it. Europe offshore wind capacity is 12,600 MW, versus the US 30 MW at end 2016.

 

European companies, such as Vestas and DONG of Denmark, Siemens of Germany, etc., will make big profits. Wall Street banks will make loans, and financial managers will collect fees for managing the tax shelters for the multi-millionaire investors. New England ratepayers will pay for the outrageously high cost of electricity.

 

Just another way for EU, etc., to hamstring the New England and US economy into higher cost structures and make them less competitive, all under the false flag of fighting global warming, and saving the world. See URLs.

 

The US has plenty of domestic low-cost energy. It does not need to build expensive offshore wind systems.

The EU imports most of its energy. It HAS to build expensive offshore wind systems.

The EU likely thinks, if the US does not follow the EU into high-cost renewable energy, the US would have a competitive advantage, and attract energy-intensive businesses, which must be avoided at all costs.

 

https://www.washingtonpost.com/news/energy-environment/wp/2016/08/0...

http://www.windtaskforce.org/profiles/blogs/a-very-expensive-offsho...

 

Recent US Trade Policy Goals: The tax reduction law signed by Trump in December 2017 has provisions to accomplish goals, such as:

 

1) Reduce the outrageously high US trade deficits

2) Have millions more manufacturing jobs in the US

3) Eliminate the incentive for US companies to locate their headquarters abroad for tax reasons

4) Eliminate the incentive for US companies to hold abroad profits earned abroad for tax reasons

5) Attract companies to the US, because of low tax rates on corporate profits.

 

Prospect of EU and Japan Having Bilateral Trade Agreements with the US: The EU and Japan have had major trade surpluses with the US for decades. Bilateral trade agreements likely would reduce their surpluses because that is one of the major goals of US trade policy. The EU and Japan are not interested in bilateral trade agreements with the US, because the new agreements likely would require:

- Increased US-made content percent of US imports.

- Increased manufacturing jobs in the US.

- Move the more valuable front end of the value chain to the US.

 

The EU and International Trade

 

This article describes in detail how US “trading partners” are ganging up on the US, by taking advantage of existing trade agreements and with business-as-usual hardball tactics.

http://www.windtaskforce.org/profiles/blogs/the-eu-and-internationa...

 

The US Leaving COP21, a Rational Decision

 

The article explains in detail why the US needs to renegotiate COP21, as it otherwise would be too great a burden on the US economy relative to Europe, Japan and China, all of which already have big trade surpluses with the US, and already hold trillions of dollars of US assets on which they earn hundreds of billions of dollars each year.

http://www.windtaskforce.org/profiles/blogs/the-us-leaving-cop21-a-...

 

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Hannah Pingree on the Maine expedited wind law

Hannah Pingree - Director of Maine's Office of Innovation and the Future

"Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine."

https://pinetreewatch.org/wind-power-bandwagon-hits-bumps-in-the-road-3/

 

Maine as Third World Country:

CMP Transmission Rate Skyrockets 19.6% Due to Wind Power

 

Click here to read how the Maine ratepayer has been sold down the river by the Angus King cabal.

Maine Center For Public Interest Reporting – Three Part Series: A CRITICAL LOOK AT MAINE’S WIND ACT

******** IF LINKS BELOW DON'T WORK, GOOGLE THEM*********

(excerpts) From Part 1 – On Maine’s Wind Law “Once the committee passed the wind energy bill on to the full House and Senate, lawmakers there didn’t even debate it. They passed it unanimously and with no discussion. House Majority Leader Hannah Pingree, a Democrat from North Haven, says legislators probably didn’t know how many turbines would be constructed in Maine if the law’s goals were met." . – Maine Center for Public Interest Reporting, August 2010 https://www.pinetreewatchdog.org/wind-power-bandwagon-hits-bumps-in-the-road-3/From Part 2 – On Wind and Oil Yet using wind energy doesn’t lower dependence on imported foreign oil. That’s because the majority of imported oil in Maine is used for heating and transportation. And switching our dependence from foreign oil to Maine-produced electricity isn’t likely to happen very soon, says Bartlett. “Right now, people can’t switch to electric cars and heating – if they did, we’d be in trouble.” So was one of the fundamental premises of the task force false, or at least misleading?" https://www.pinetreewatchdog.org/wind-swept-task-force-set-the-rules/From Part 3 – On Wind-Required New Transmission Lines Finally, the building of enormous, high-voltage transmission lines that the regional electricity system operator says are required to move substantial amounts of wind power to markets south of Maine was never even discussed by the task force – an omission that Mills said will come to haunt the state.“If you try to put 2,500 or 3,000 megawatts in northern or eastern Maine – oh, my god, try to build the transmission!” said Mills. “It’s not just the towers, it’s the lines – that’s when I begin to think that the goal is a little farfetched.” https://www.pinetreewatchdog.org/flaws-in-bill-like-skating-with-dull-skates/

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