Month: May 2017

In an interview with The Economist, President Donald Trump whiffed on a batch of economic facts. He got the Canada-U.S. trade balance wrong, misplaced the U.S. in the world ranks of tax burdens and claimed to have coined an economic phrase that’s been familiar to economists for some 80 years.

A look at some of his assertions to the magazine:

U.S. Taxes

TRUMP: “We’re the highest-taxed nation in the world.”

THE FACTS: Trump has repeatedly made variations on this false claim. The overall U.S. tax burden is one of the lowest among the 32 developed and large emerging-market economies tracked by the Organization for Economic Cooperation and Development. Taxes made up 26.4 percent of the total U.S. economy in 2015, according to the OECD. That’s far below Denmark’s tax burden of 46.6 percent, Britain’s 32.5 percent or Germany’s 36.9 percent. Just four OECD countries had a lower tax bite than the U.S.: South Korea, Ireland, Chile and Mexico.

Trump qualified his claim later in the interview by saying the top marginal corporate tax rate, specifically, is higher than in similar industrialized countries. That’s more or less true, although the higher rate is moderated by tax breaks not available in some of those other countries.

Trade deficit with Canada

TRUMP: “Right now the United States has … about a $15 billion trade deficit with Canada.”

THE FACTS: His numbers are upside down. The United States actually ran an $8.1 billion trade surplus with Canada last year, according to the latest numbers available from the Census Bureau. A $24.6 billion U.S. surplus with Canada in the trade of services, including tourism and software, outweighed a $16.5 billion deficit in the trade of goods, including autos and oil.

Trump, who regularly decries the loss of American manufacturing jobs, tends to emphasize trade in goods and ignore trade in services. His comment about Canada came as his administration seeks a renegotiation of the North American Free Trade Agreement with Canada and Mexico.

The U.S. last year ran a deficit of $750 billion in goods with the rest of the world but recorded a $249 billion surplus in services.

‘Prime the pump’

TRUMP: “You understand the expression ‘prime the pump’? … I came up with it a couple of days ago and I thought it was good. It’s what you have to do. We have to prime the pump.”

THE FACTS: He didn’t coin that phrase. It’s a well-worn metaphor for generating faster growth, first made popular as an economic analogy more than 80 years ago during the Great Depression.

The Merriam-Webster dictionary people quickly tweeted that the phrase “priming the pump” has been around since the early 1800s. Literally, it’s about pouring water into a pump to allow it to create suction. The phrase was commonly used by mining publications during the 1920s, but it took on new significance after the economy cratered during the Depression.

By 1933, President Franklin D. Roosevelt had promoted the idea of flushing money into the economy to stimulate stronger growth with his New Deal policies. Such policies rankled Roosevelt’s predecessor, Herbert Hoover.

“One of the ideas in these spendings is to prime the economic pump,” Hoover said in a 1935 post-presidential speech. “We might abandon this idea also, for it dries up the well of enterprise.”

China and currency manipulating

TRUMP, on backing away from his campaign promise to label China a currency manipulator: “They’re actually not a currency (manipulator). You know, since I’ve been talking about currency manipulation with respect to them and other countries, they stopped.”

Treasury Secretary STEVE MNUCHIN, pitching in: “Right, as soon as the president got elected, they went the other way.”

THE FACTS: Trump persists in taking credit for something that happened before he even started running for president. China manipulated its currency, the yuan, lower for years before stopping in mid-2014; Trump’s presidential run began a year later.

A weak yuan helps Chinese exports because it makes them cheaper to buy. It disadvantages goods from the U.S. and other countries because they are more expensive to get in China.

Until 2005, China pegged the yuan to the dollar at a specific level. When it loosened the peg, the yuan began to rise steadily against the dollar. Worried that a strong currency would hurt their exporters, Chinese officials bought dollars to prevent the yuan from rising even faster.

The value of the yuan peaked in early 2014, as the Chinese economy slowed after years of torrid growth. The yuan then began to fall relative to the dollar, but not because Chinese officials were once again intervening to push it down. China was actually doing the opposite: selling dollars and buying yuan to prevent its currency from going into a free fall.
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A sweeping trade agreement, ranging from banking to beef, has been reached between Washington and Beijing, the U.S. Commerce Department announced on Thursday.

“It was pretty much a Herculean accomplishment to get this done,” said U.S. Commerce Secretary Wilbur Ross. “This is more than has been done in the whole history of U.S.-China relations on trade.”

The breakthrough results from an agreement U.S. President Donald Trump and Chinese President Xi Jinping made during their meeting at Trump’s Mar-a-Lago resort in Palm Beach, Florida, on April 6.

Trump “was briefed more or less every single day” as negotiations progressed since then, Ross said.

Beef imports

Following one more round of “technical consultations,” China has agreed to allow U.S. beef imports no later than July 16, consistent with international food and animal safety standards, Ross told reporters at the White House.

The United States Cattlemen’s Association applauded the agreement, saying market access to China is crucial for its members.

“Success in this arena will drive the U.S. cattle market and increase demand for U.S. beef” in China, association president Kenny Graner told VOA.

In exchange, Washington and Beijing are to resolve outstanding issues that would allow imports to the U.S. of cooked poultry from China “as soon as possible,” according to the Commerce Department.

Another significant breakthrough will see American liquefied natural gas (LNG) going to China. Under the agreement Chinese companies will be permitted “at any time to negotiate all types of contractual arrangement with U.S. LNG exporters, including long term contracts,” according to the Commerce Department.

This is “a very big change,” said Ross, noting China is trying to wean itself off coal at a time “it doesn’t produce enough natural gas to meet its needs.”

Financial, other business services

Among other action listed in the 100-Day Action Plan:

* China is to allow, by July 16, “wholly foreign-owned financial services firms” to provide credit ratings services and to begin licensing procedures for credit investigation.

* U.S.-owned suppliers of electronic payment services (EPS) will be able to apply for licensing in China under new guidelines.

* China is to issue bond underwriting and settlement licenses to two qualified U.S. financial institutions by July 16.

* China’s National Biosafety Committee is to meet by the end of this month to conduct science-based evaluations of all eight pending U.S. biotechnology product applications “to assess the safety of the products for their intended use.” Those that pass the tests are to get certificates within 20 working days.

The outcome of the joint dialogue will also see a United States delegation attending China’s Belt and Road Forum in Beijing next week.

A U.S.-China Comprehensive Economic Dialogue will be held this summer, according to the Commerce Department, to deepen engagement on these and other issues.

“There are probably 500 items you could potentially discuss” in the wider one-year plan for bilateral trade, Ross added.
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The head of the U.S. Small Business Administration urged American businessmen and entrepreneurs to enter the global market, telling the United Nations on Thursday that just 1 percent of small businesses are currently exporting overseas.

Linda McMahon said the nearly 29 million small businesses in America “are the engine of our economy” and create two out of three new jobs — but she stressed that exporting is a key component of small business growth.

“Businesses that export are less likely to go out of business and more likely to grow faster,” she told the Small Business Knowledge Summit.

“That’s because 96 percent of all of the world’s consumers and over three-quarters of the world’s purchasing power are outside of the United States,” she said. “Yet right now, only 1 percent of all of America’s small businesses are exporters.”

McMahon conceded that becoming an exporter, especially for small businesses, isn’t easy.

“Small businesses are challenged by access to information, capital and barriers to market entry,” she told several hundred government and business officials and diplomats at the summit organized by the International Council for Small Business.

McMahon said the Trump administration and her agency are committed to ensuring equal access for small businesses to international markets, expanding export opportunities, and reducing or eliminating “trade and investment barriers that disproportionately impact small businesses.”

She said small businesses are hardest hit trying to finance trade deals and by compliance challenges.

“Globally over half of all declined trade finance requests to banks were submitted by small businesses,” McMahon said. “In the United States, over one-third of all of our small businesses find trade finance hard to obtain for foreign sales.”

She said the Small Business Administration works with banks to try to address this challenge and find “tailored, trade finance products” so that small businesses can finance foreign growth when the private sector is unable or unwilling to provide loans.
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As farmers fret over President Donald Trump’s criticism of international trade agreements, Agriculture Secretary Sonny Perdue is trying to reassure them by creating a top post to oversee trade and foreign agricultural affairs.

The new undersecretary position is a sign of Perdue’s efforts to promote the U.S. agricultural industry as Trump has sought to undo trade pacts that benefit it. Perdue made the announcement Thursday in Cincinnati while standing near barges that carry grain on the Ohio River.

“This nation has a great story to tell and we’ve got producers here that produce more than we can consume,” the former Georgia governor said. He said the new position “fits right in line with my goal to be American agriculture’s unapologetic advocate and chief salesman around the world.”

On his second day in office last month, Perdue helped persuade Trump not to withdraw from the North American Free Trade Agreement with Mexico and Canada, arguing that doing so would hurt U.S. farmers. Trump has said he will work to renegotiate the pact instead.

The 2014 farm bill had directed USDA to make a plan for the new position, but the Obama administration never created the post. Perdue said the new undersecretary will work with incoming U.S. Trade Representative Robert Lighthizer and Commerce Secretary Wilbur Ross to “ensure that American producers are well equipped to sell their products and feed the world.”

The Senate confirmed Lighthizer on Thursday. Though he had broad support from both parties, Republican senators John McCain and Ben Sasse said they wouldn’t vote for him because they doubted he would champion agriculture and negotiate trade deals to the benefit of American consumers and the economy.

The departmental reorganization announced by Perdue would also combine farm production and conservation agencies under one undersecretary and move rural development programs to report directly to the secretary. Perdue said that will put more focus on those programs and USDA efforts to revitalize small towns.

While the creation of the trade secretary won widespread praise in farm country, at least one Democrat is criticizing the rural development move. Democratic senator Sherrod Brown of Ohio called it a “downgrade” because there will no longer be an undersecretary for that area.

Brown says his state depends on the program for help with combating opioid abuse, building hospitals and securing loans for businesses.

“Ohio’s rural communities are too often overlooked by Washington as it is, and downgrading USDA Rural Development sends a message that rural Ohio is not a priority for this administration,” Brown said.
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U.S. Commerce Secretary Wilbur Ross sees the U.S. semiconductor industry as still dominant globally but said he is worried that it will be threatened by China’s planned investment binge to build up its own chipmaking industry.

Ross told Reuters in an interview this week that his agency is considering a national security review of semiconductors under a 1962 trade law because of their “huge defense implications” — including their use in military hardware and proliferation in devices throughout the economy. He has launched similar Section 232 reviews of the U.S. steel and aluminum sectors, where a flood of imports especially from China has depressed prices, threatening the industries’ long-term health.

The probes could lead to broad import restrictions on the metals, and the Trump administration could potentially take similar actions based on the findings of a semiconductor investigation.

“Semiconductors are one of our shining industries, but they have gone from substantial surplus to the beginnings of a deficit,” Ross told Reuters. “China has a $150 billion program to take that much further between now and 2025. That is scary.”

The 79-year-old billionaire investor was referring to China’s plans for massive state-directed investments in semiconductor manufacturing capacity under its Made in China 2025 program, which aims to replace mostly imported semiconductors with domestic products.

Ross’ predecessor at Commerce, Penny Pritzker, warned last November about looming market distortions if China builds too much semiconductor capacity.

Ross added that while he understands Beijing’s logic in developing its domestic chip industry, “that’s going to be a struggle” from a U.S. trade standpoint.

Industry view

U.S. semiconductor makers, meanwhile, have other ideas about how to secure their future. Their major trade group, the Semiconductor Industry Association (SIA), advocates open trade and increased access to international markets, which now buy 80 percent of U.S.-made semiconductors. U.S. chipmakers also depend on a complex global supply chain and have nearly half their production capacity located overseas.

“So while we fully support efforts to ensure trade in semiconductors is fair and market-based, we do not believe a Section 232 investigation is the right tool to be applied to our industry” SIA President John Neuffer told Reuters.

One area where there appear to be some differences is how to define the industry’s trade balance.

Commerce Department trade data showed that “semiconductors and related device manufacturing” had a trade deficit of $2.4 billion in 2016, with exports of $43.1 billion and imports of $45.6 billion.

But that category includes rapidly growing imports of non-semiconductor devices including solar cells and light-emitting diodes (LEDs), as well as some raw materials.

In a new submission late on Wednesday to Commerce for a study on trade deficits, SIA said that excluding the non-semiconductor products shows the sector had a $6.4 billion trade surplus last year, with exports of $41.3 billion and imports of $34.9 billion.

Neuffer said the industry was ready to work with the Trump administration to find ways to persuade China to allow its semiconductor industry to develop in a market-driven way and not discriminate against foreign firms.

He added the government could make the United States a more competitive environment for semiconductor output through tax reform that does not penalize overseas earnings, immigration reform that allows the industry to attract new talent, improvements to U.S. education and more spending on basic research.

“The Chinese are determined to build a semiconductor industry,” Neuffer said. “I think the strongest pillar of any strategy going forward has to be our government helping to create an environment where we can pedal faster and stay as far ahead as possible.”
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Bulgaria is seeking private investors to build a nuclear power plant on the Danube River, which was canceled five years ago, Prime Minister Boiko Borisov said during a phone call with Russian President Vladimir Putin on Thursday.

Sofia canceled the Belene project in 2012 after failing to find foreign investors and facing pressure from Brussels and Washington to limit its energy dependence on Russia.

Since then Bulgaria has opened a gas link with neighboring Romania and is working to connect its gas network with neighboring Greece, Turkey and Serbia to diversify its suppliers.

It hopes to privatize the nuclear plant project after it paid more than 600 million euros ($652 million) in compensation to Russia’s state nuclear giant Rosatom when it canceled the 10 billion euro project. Rosatom had agreed to provide the nuclear reactors.

Bulgarian authorities have already said that Belene could be built without state guarantees or obligatory long-term contracts for the government to purchase power from it.

“Prime Minister Boiko Borisov said the government is looking for a strategic private investor to develop the project,” the government’s press office said in a statement.

In December, the Bulgarian government said that Industrial and Commercial Bank of China (ICBC), China’s biggest lender by assets, was ready to finance the Belene nuclear power project. China National Nuclear Corporation (CNNC) has also expressed an interest in investing in the project.

During their phone call, Borisov and Putin also underlined their mutual interest in the construction of the natural gas hub on Bulgarian territory, the government’s press office said.

Plans for a hub at the Black Sea port of Varna, which would store and transport gas from Russia and the Caspian Sea to southeastern and central Europe, follow the cancellation of Russian gas giant Gazprom’s South Stream gas pipeline project, which would have shipped Russian gas under the Black Sea via Bulgaria to central Europe.
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The largest cargo ship ever to visit ports on the U.S. East Coast is so long the Statue of Liberty and Washington Monument could fit end-to-end along its deck and still leave room for Big Ben.

The COSCO Development arrived Thursday at the Port of Savannah after cruising past dozens of onlookers who cheered and took photos of the mammoth vessel from Savannah’s downtown riverfront. Its first East Coast voyage marks a new era for U.S. ports that, despite years spent anticipating the supersized ships, will struggle to accommodate them without major infrastructure improvements.

“It takes up the whole river!” Andrew Evans, who served as a ship’s officer in the 1960s, exclaimed to his wife as the ship slowly lumbered into view, the cargo containers stacked on its deck towering above trees on the shore.

“The largest ships I was on, you could fit 10 of them on that ship,” Evans said. “Maybe more.”

At 1,200 feet (366 meters) bow-to-stern, the COSCO Development is longer than the aircraft carrier USS Gerald R. Ford. It can carry 13,000 cargo containers measuring 20 feet (6 meters) long apiece. That’s 30 percent more capacity than the last record-breaking ship that sailed into Savannah last summer.

The big ship, flagged out of Hong Kong and owned by China-based COSCO Shipping Lines, is also the largest to pass through the Panama Canal following a major expansion last year. Its arrival on the East Coast shows shippers aren’t waiting for the seaports scrambling to deepen their harbors so the larger ships can pass fully loaded at low tide.

The Port of Virginia, where the ship docked earlier this week, is one of only four East Coast ports with the desired 50 feet of depth at low tide. A $973 million deepening of Savannah’s shipping channel started in 2015 but won’t be finished for about five more years. The Port of Charleston, South Carolina, where the big ship will head next before returning to Hong Kong, plans to start its own dredging this fall.

Overall, 15 U.S. seaports on the East and Gulf coasts are seeking $4.6 billion after being authorized by Congress to make room for bigger ships. Only three of those have cleared the permit requirements needed to start digging, said Jim Walker, navigation policy director for the American Association of Port Authorities.

Meanwhile, the largest ships using the Panama Canal must carry lighter loads or wait for higher tides before calling on most U.S. ports on the East Coast.

“Maybe it’s a warning shot that these U.S. ports need to get these improvements finished,” Walker said. “If you’re having to light-load ships for this, it costs more.”

Manuel Benitez, the Panama Canal Authority’s deputy administrator, said the surge in ship traffic between the U.S. East Coast and Asia has exceeded expectations since the canal opened its expanded locks last June. The authority initially thought two or three larger ships would pass through each day, he said, but the daily average has been nearly six.

The COSCO Development had to make its 39-mile (63-kilometer) trip up the Savannah River at high tide Thursday morning to ensure it would fit. Its cargo deck was about 80-percent full, said Griff Lynch, executive director of the Georgia Ports Authority.

Lynch said dockworkers using six cranes planned to load and unload about 5,600 total cargo containers — big metal boxes used to ship goods from consumer electronics to frozen chickens — from the giant ship. That’s more than five times the cargo Savannah handles for a typical ship.

“It’s everything we’ve talked about for years,” Lynch said. “Now what you’re going to see is one after the other. This is going to become more of the norm.”
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