How to turn around a failing economy.

Posted by Pointman on February 9, 2018 · 54 Comments 

I watched a TV program a few years back, which had Barack Obama standing up before a live studio audience of thirty or so people and answering any questions they might care to throw at him. It was more than obvious the audience were hand-picked not to ask anything awkward, and judging by the slick facility with which he answered every question, and bearing in mind he doesn’t have a great reputation for thinking quickly on his feet, he’d obviously been fed the questions beforehand and answered without all his usual long pauses when asked anything unexpected.

Despite the stage-managed phoniness of the whole thing, I was struck by one member of the audience who stood up and told the president he’d just lost his job because the factory he’d worked in for years had closed. He was neatly turned out, a working man with that steady look of a family man dressed by JCPenney, the next stop nearly on him was forty, and his question to Obama was actually quite simple – what was the president going to do for men in his position?

Obama warbled on for a moment with vague mentions of retraining and courses and but finally gave him what was supposed to be the truth straight on the chin. Take it like a man and sit back down. Such manufacturing jobs were gone and they wouldn’t be coming back either, he told him. It was just an inevitable side-effect of globalisation, he explained. Basically, there was nothing that could be done. You could read the reaction in the man’s face – there’s no way I could retrain to dick around with computers or flog house insurance to my neighbours who’ve got no money anyway, and just to add to my golden employment prospects, I’m black.

Just before he sat down, there was a measured pause where he stared at the president and his smouldering thoughts were easy to read. Is that all you’re going to do, you glib polished bastard, just say prosperity has moved offshore and I’ll never have another full-time job again? Is that it Mr. President? Is that really all you can say? All you can do? Well, thanks for nothing, or stronger thoughts to that effect.

I could understand his anger, his sense of abandonment and his frustration at supposedly being at the complete mercy of massive global economic trends that had stripped him and his family of their modest prosperity, and there seemed to be nothing that could ease, never mind stop, such carnage happening to thousands of other working men like him and the families who depended on them.

But what he was being told was wrong.

Despite what he’d been given to understand, it wasn’t globalisation that destroyed his livelihood and reduced the manufacturing heart of America to something referred to dismissively as the rust belt, but the totally foreseeable end result of decades of disastrous international trade agreements that had the effect of tearing down American factories that were then immediately rebuilt in foreign countries, while American workers moved onto a lifetime of welfare support and food stamps. The goods they’d formerly made were now manufactured abroad and imported back into America for sale.

That whole process of the industrial destruction of the American manufacturing base juddered to a complete stop within 24 hours of Trump’s inauguration. He did two things immediately. The first was he reminded manufacturers of his campaign promise. They were free to shutter factories in America and produce their goods cheaper offshore. However, he was equally free to slap on punitive import tariffs of their goods as they came into America, which he left them in no doubt he’d do no matter how big they were.

The other thing he did that first day, was to withdraw America from negotiations to be a member of the Trans-Pacific Partnership (TPP) trade agreement, the details of which were still being thrashed out between various countries on the Asia-Pacific rim. It was obvious where any such agreement would lead – America was to become an import tariff free zone which would therefore get flooded with cheap goods that would further damage its industrial capacity, which was great for everybody except America. It would be in all but name the finish of American manufacturing.

Quite literally, within a month or two of Trump grabbing the reins of the economy, thousands of jobs were saved as plans by various companies to move production offshore were no longer economically viable in the light of the tariffs Trump would stick them with if they tried to repatriate either the goods or profits back into America.

People who were going to build manufacturing capacity outside America and enjoy flooding it with cheap tariff-free goods were confronted with a stark decision to make about their long-term plans; either manufacture abroad and accept the import tariffs Trump would undoubtedly levy on their goods, or manufacture in America. Most, quite sensibly, are opting for the latter option, and yet again it’s the ordinary American worker who’s the big winner and fuck Obama’s supposedly unavoidable side-effects of globalisation.

He also implemented a crackdown on illegal immigration, which was providing a steady stream of cheap cash-in-hand labour that was pricing the American worker out of the lower end of the jobs market. Leaving aside the liberal howls of righteous indignation, it’s the poorest Americans who’re hardest hit by illegal immigration, never mind the accompanying third-world crime wave that seems to overwhelm the poorer neighbourhoods they both live in.

The organisation which is the biggest consumer of goods and services in America is the government. With that sort of buying power, you get to call the shots, so Trump simply put in place a federal policy of buying American goods, produced in America and by American workers. Goods with any other provenance would not be bought unless they were unobtainable within America.

With these policies, combined with others on a smaller scale to get America back to work, it’s estimated that he’s created over two million jobs in the past year, and I sincerely hope the man who posed that question to Obama is one of them. The signs are very encouraging on that particular front – unemployment among black and Hispanic American workers has fallen to a historic low never before recorded.

The next thing on his agenda, and every man and his dog knows it’s coming, especially after him junking TPP, is America’s complete withdrawal from the North American Free Trade Agreement (NAFTA). Like a lot of nice sounding trade agreements where everybody is theoretically supposed to benefit, America, because of abuse of it by other parties, has suffered grievous damage because of its involvement in it. The abuse is quite is quite blatant too. It was designed as a tripartite agreement between America, Canada and Mexico. Goods were supposed to flow freely between all three countries, but the reality was quite different.

The US is by far the biggest consumer economy of the three, so most of the flow of cheap goods were anyway going to be directed into it, and because of cheap labour and a host of tax breaks to build new factories to produce those goods, both Mexican and Canadian manufacturing flourished while American production capacity shrank and factory after factory closed. To compound the problem, people like the Chinese saw the obvious loophole to get tariff-free access to the American market.

They simply financed, with a host of local grants and tax breaks of course, the building of factories in Mexico and Canada. The factories produced essentially Chinese goods, made incidentally with Chinese materials shipped in, and then proceeded to flood the American market with the eminently predictable destructive effect.

This strategy also leads to what’s called dumping in trade circles. You simply flood a foreign market with goods which are distinctly cheaper than the ones made locally, because they’re either subsidised, directly or indirectly, or just lost leaders, and keep doing so until the local factories making that product go under. With them gone, you’re then free to raise prices as much as you like, because by that time, you’re the only game left in town.

The Japanese pioneered dumping to grow abroad, but eventually the penny dropped with other countries, and from then on any goods from Japan attracted a hefty import tariff to both equalise the price and to protect domestic manufacturing. By the way, that’s the reason the Japanese economy has been more or less stagnant for decades. They’ve nowhere to expand into without getting crucified by tariffs. In the end, chickens do come home to roost.

Early on in his administration, Trump made an example of such practices with Canada, which was dumping cheap timber onto the American market. He gave them fair warning which they ignored as usual, then slapped a 30% import tariff on Canadian timber imports, and back dated it three months for good measure. Suddenly, the American timber industry has stopped contracting, even starting to show some modest growth as it plugs the gap left by reduced Canadian imports.

Pretty boy Justin screeched a bit but eventually bit down hard into his pillow and decided to move onto some other crisis he could actually handle, like mansplaining to a questioner they shouldn’t use the word “mankind”, but rather talk about personkind. With muscular leadership like that, it’s no wonder everybody is legging over Canada these days.

Trump will pull out of NAFTA this year or next, and the only, and obvious, way for Mexico and Canada to go forward is to negotiate bilateral trade deals with the USA. Any other course would deliver a shattering blow to their economies, especially Mexico’s. Given that they’ve got nowhere else to export their goods into, I imagine the terms of the trade deals to be struck will first and foremost protect American industry and workers. What happens in Mexico and Canada as a result is simply not his problem.

Mexico has gone very quiet about NAFTA, probably because they have a sneaking suspicion any deal they reach with Trump will perhaps be contingent on paying for a certain wall along the US border which will be just as strong as the one they currently have on their southern border to keep illegal immigrants out.

Canada, under the redoubtable Justin’s leadership is threatening to strike out on a much bolder path and unilaterally withdraw from NAFTA. I’m sure this course has much to recommend it in some alternative but deranged universe where all the Canadian industrial production that used to go over the border into the States, can now be dynamically redirected to such fast-growing consumer hot spots as Albania or Turkmenistan, but I must say I’ve my doubts about that one.

Once Trudeau has got over his usual attack of piss, wind and posturing, the inevitable deal with America will be struck, with the only question being how many arms and legs Trump decides to hacksaw off him if Trudeau is let anywhere near the negotiations. The art of the deal does include an element of grownups playing hardball. Trudeau has some sort of fantasy about striking a bilateral trade deal with China, if only as leverage in NAFTA horse trading, but doesn’t realise trading with China is always a one-way street with them. Once you let them in, they’ll flood you out with cheap goods, which would inevitably decimate Canadian manufacturing.

Trump will never allow Chinese manufactured goods to be indirectly funneled into America via Canada, even if that means slamming the border closed. Never going to happen.

Obama and Clinton, are supposedly globalists but to my way of thinking, they’re venal creatures of a much simpler kind – just greedy corrupt little politicians with their hands out collecting so-called donations from every big corporate sponsor. Obama was handsomely paid not to resurrect the financial legislation Bill Clinton took off the statute books which would have prevented the financial melt down of 2008, and Clinton slammed the doors of her Foundation the week after she lost the presidential election, because she knew it wouldn’t be getting another penny from any “donors”. The last thing they ever had any concern about was the American worker. It was always about the money.

Trump, on the other hand, has totally different priorities. Number one is America and the welfare of its people – anything else is a distant second. He is going to bring American manufacturing back from its near-death experience and get the workers off the unemployment lines and back into full-time jobs. He knows everything flows from there and he’s been remarkably successful over the last year. Pulling the plug on NAFTA will seal that part of his broad economic objective, putting America back on a path to strong growth.

You see, once you decide on the simple policy of putting America first, rather than last, all those wealth destroying things about which nothing can supposedly be done, get fixed real quick, and the economy responds almost immediately.

©Pointman

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Filed under Article · Tagged with Economics, NAFTA