Day: June 29, 2018

U.S. President Donald Trump touted the Republican tax cut plan Friday, six months after he signed it into law, saying it was strengthening the U.S. economy and helping average Americans by increasing investment, jobs and wages.

“It is my great honor to welcome you back to the White House to celebrate six months of new jobs, bigger paychecks and keeping more of your hard-earned money where it belongs: in your pocket or wherever else you want to spend it,” he said.

A recent report by the nonpartisan Congressional Budget Office, however, projects a gloomy fiscal outlook in the U.S., which is experiencing rising debt under the Trump administration.

The CBO report predicts the country’s debt burden will double in 30 years, exceeding even the U.S. debt load during World War II.

The tax law, officially titled the Tax Cuts and Jobs Act, was the largest overhaul of the country’s complex tax laws in three decades. It cut the corporate tax rate, which was among the highest in the industrialized world, from 35 to 21 percent. It trimmed rates for millions of individual taxpayers as well, with the biggest cuts mostly benefiting the wealthiest earners, although some taxpayers saw bigger tax bills because of various changes in the tax regulations.

The CBO report, which cautioned the high debt levels also increase chances of a fiscal crisis, projects the tax cuts could spur short-term economic growth, but it quickly would fall back to a long-term average of 1.9 percent.

While most of the rising debt is due to increasing entitlement spending and other problems that existed before Trump’s 2016 election, the report said the new tax law is contributing to the short-term debt by cutting government revenue. Spending increases approved by both Republicans and Democrats are also raising deficits.

The Republicans’ $1.5 trillion in tax cuts and $1.3 trillion in spending enacted earlier this year have already helped push the CBO’s debt projections higher through 2041, the report said.

Some analysts say the country’s fiscal health is quickly deteriorating because of higher spending for entitlement programs such as Social Security, insufficient government revenue and spiraling interest payments on debt.

“The massive deficits caused by policymakers’ recent tax and budget decisions have drastically worsened the country’s long-term finances,” said Bipartisan Policy Center economic policy director Shai Akabas. 

The Brookings Institution’s Tax Policy Center concluded in a June 13 report that “the new tax law will raise deficits and make the distribution of after-tax income more unequal.”

Former Federal Reserve Bank chair Janet Yellen, a Democratic appointee whom Trump replaced with Republican Jerome Powell, said Thursday that the tax cuts would probably provide only a meager boost to the growth of the U.S. economy.

“The calculations that I’ve seen and seem reasonable to me suggest that the payoff is likely to be in tenths of a percent, which in growth is a lot, but may not be what some people are hoping for,” she said.

Tariffs

Any benefits for individuals and corporations from the tax cuts may be undermined by Trump’s imposition of tariffs on foreign countries.

Tariffs have already been announced on Chinese products, foreign aluminum and steel imports from Canada, Mexico and the European Union, and on solar panels and washing machines and Canadian lumber and paper. Trump has also threatened tariffs on automobile imports and on other foreign products and materials.

“Tariffs on steel and aluminum imports are a tax hike on Americans and will have damaging consequences for consumers, manufacturers and workers,” Senate Finance Committee Chairman Orrin Hatch, a Republican, said May 31.

The Republican chairman of the House Ways and Means Committee, Kevin Brady of Texas, said last month that the tariffs “hurt our efforts to create good-paying jobs by selling more ‘Made in America’ products to customers in these countries.”

Retaliatory tariffs imposed by Canada, China, the EU and Mexico could hinder the ability of U.S. companies to sell products to other countries, which could in turn kill American jobs and suppress wages.
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President Donald Trump is denying any immediate plan to withdraw the United States from the World Trade Organization (WTO).

“We have been treated very badly by the WTO,” Trump said to reporters on Air Force One during a short Friday afternoon flight from Maryland to New Jersey.

But asked if he intends to pull the United States from the only global international organization dealing with the rules of trade between nations, Trump replied, “Not at this point, but they have to treat us fairly.”

The remarks come as Trump appears increasingly intent on confrontation, rather than cooperation, with the European Union, the Group of Seven (G-7) nations, the North Atlantic Treaty Organization and the WTO. He has repeatedly suggested the United States would be better off pursuing trade and strategic deals with nations one on one.

“Rather than playing the U.S. president’s traditional role as leader of the free world, Trump looks like he is declaring war on the international rules-based order: undermining the G-7 and WTO, raising doubts about continued U.S. support for a strong NATO to counter Russia, and falsely declaring that the European Union was invented to take advantage of the United States,” Alexander Vershbow, a distinguished fellow at the Atlantic Council’s Scowcroft Center for Strategy and Security and a former NATO deputy secretary general, tells VOA News.

Trump, in less than two weeks, heads to Europe for the annual NATO summit before separate meetings in Britain with Prime Minister Theresa May and then, in neutral Finland, with Russian President Vladimir Putin.

“Putin couldn’t have scripted this better himself. And the Helsinki meeting could cement a new partnership between Trump and Putin at our allies’ expense,” adds Vershbow, who also has been a U.S. ambassador to Russia, South Korea and NATO.

Trump, on Friday’s Air Force One flight, said he would raise with Putin the issue of Russian election meddling, as well as differences between Washington and Moscow about Ukraine and Syria.

Macron mum

French President Emmanuel Macron was asked Friday if it was true that Trump had suggested to him that France should leave the EU.

“What was said in the room stays in that room,” replied Macron about his private meeting with the U.S. president at the White House in April.

Trump, at the annual G-7 leaders’ meeting in Canada early this month, clashed with some of Washington’s closest allies and advocated readmitting Russia, which was suspended from the group in 2014 for annexing Ukraine’s Crimean Peninsula.

NATO

The president, according to the online Axios news site, said to the other G-7 leaders, “NATO is as bad as NAFTA (the North American Free Trade Agreement that Trump wants renegotiated). It’s much too costly for the U.S.”

Asked about NATO on Air Force One, Trump on Friday said Germany, Spain and France have to spend more money on the defense alliance. 

“It’s not fair what they’ve done to the United States,” the president said. 

Trump, last year, told The New York Times that the United States would only come to the aid of its NATO allies if they “fulfill their obligations to us,” a reference to required spending by members of 2 percent of their gross domestic production on defense, a promise not kept by many NATO states.

Article 5 of the NATO treaty declares that an attack on one member is an attack on all. That is a cornerstone of the 1949 pact, the first peacetime military alliance the United States entered outside the Western Hemisphere.

According to Secretary of State Mike Pompeo, speaking last week to the Wall Street Journal, Trump is attempting to “reset” the liberal world order, not wreck it.

“The president is committed to both American leadership and American sovereignty. The president is willing to question the usefulness of rules that disadvantage American interests and American workers,” a National Security Council spokesman told VOA News on condition of not being named. “When rules have outlived their usefulness and are no longer fair and equitable, the president is willing to stand up for Americans and advocate for reform.”

The official adds “American leadership means we will continue to meet our global commitments, and in return we expect our allies to shoulder their fair share of our common defense burden and to do more in areas that most affect them. American leadership also means the President can no longer tolerate chronic trade abuses, and the United States will promote free, fair and reciprocal economic relationships.”

That does not reassure globalists, such as former White House and State Department official Harry Blaney.

“The harsh truth today is that there is a wide consensus among foreign affairs experts on all sides of the ideological spectrum of fear and skepticism about the outcome of the NATO and Putin meetings,” Blaney told VOA.

“There is a clear sense of foreboding,” Trump is making an effort to undermine both the defense alliance and the EU, said Blaney, who was a key U.S. official for decades dealing with the EU and NATO.

“The sad fact is that these actions together spell for, not just the developed world, but for the entire global community a period of high risk and uncertainty for its economies, security, and brings a high level of risk for everyone,” Blaney predicted.

“What we don’t have, and everyone is asking, is why is he (Trump) doing this?” Blaney said.
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After a sharp sell-off, China’s yuan and stock markets attempted a modest recovery Friday, yet investors were grappling with some of their worst losses in years as a bitter Sino-U.S. trade row threatened to ruffle the world’s second-biggest economy.

The yuan was set for its biggest monthly fall on record. Chinese stocks, on a downward spiral since late January, were also poised for their largest monthly slide since January 2016.

The downturn highlighted the anxiety among investors as Washington and Beijing showed no signs of backing down from their tariff dispute.

The worry is that an extended selloff in stocks and the yuan could spark a bout of capital outflows, putting further strain on the economy and complicating policy making as authorities put up defenses against the trade battle with the United States.

Down 3 percent in month

The yuan has shed more than 3 percent of its value against the dollar in June, its biggest fall since the market exchange rate was unified in 1994. On Friday, it fell to its lowest since mid-November 2017, but pulled up to 6.6139 per dollar by 0600 GMT for a modest bounce of about 0.16 percent on the day.

Offshore, where the yuan trades more freely, the unit was up by about a quarter of a percent, at 6.6224 per dollar.

In equities, the benchmark CSI300 Index rebounded more than 2 percent, while the Shanghai Composite Index gained around 2 percent, though they were both down around 9 percent for the month. In Hong Kong, the benchmark Hang Seng Index was also up more than 1 percent.

Trump and trade

U.S. President Donald Trump has shaken the world trade order by seeking to renegotiate the terms of some of the United States’ trading relationships, in particular with China.

The U.S. is targeting $34 billion of Chinese goods for tariffs to take effect July 6, and has threatened tens of billions of dollars more for similar duties.

Chinese 10-year treasury futures for September delivery, the most traded contract, leapt 0.34 percent. A fixed income portfolio manager said the sharp rise was a result of central bank promises of “ample” liquidity.

“The central bank is expected to step up efforts to calm investors and slow the pace of the yuan depreciation that has sparked risk aversion across regional markets, including a possible reintroduction of the counter-cyclical factor,” Gao Qi, FX strategist at Scotiabank in Singapore, wrote in a note Friday.

He expected “strong resistance” at 6.70 yuan per dollar.

Hard-hit areas

Sectors and stocks that were exposed to the depreciating yuan have been hit hard this month.

Real estate was down 5.7 percent and poised for its fifth straight month of losses. The transport sector index, whose components include many leading airlines, tumbled 9.4 percent this month and was set for its steepest monthly drop since January 2016.

A trader at a regional bank in Shanghai who declined to be named said there had been some “filtering” of the midpoint fixing, which is set by the central bank each morning, in an apparent bid to keep the yuan from falling too sharply.

“It is too early to say whether the counter-cyclical factor has been revived. If market sentiment could recover by itself, there is no need to use the factor. Market still needs some time to digest,” the trader said.
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Minnesota regulators on Thursday approved Enbridge Energy’s proposal to replace its aging Line 3 oil pipeline across the northern part of the state.

All five members of the Public Utilities Commission backed the project, though some cited heavy trepidation, and a narrow majority later approved the company’s preferred route despite opposition from American Indian tribes and climate change activists.

In discussion before the vote, several commissioners cited the deteriorating condition of the existing line , which was built in the 1960s, as a major factor in their decision.

“It’s irrefutable that that pipeline is an accident waiting to happen,” Commissioner Dan Lipschultz said ahead of the vote. “It feels like a gun to our head … All I can say is the gun is real and it’s loaded.”

Some pipeline opponents reacted angrily when it became clear commissioners would approve the project. Tania Aubid, a member of the Mille Lacs Band of Ojibwe, stood and shouted, “You have just declared war on the Ojibwe!” Brent Murcia, of the group Youth Climate Intervenors, added: “We will not let this stand.”

Opponents argue that the pipeline risks spills in pristine areas in northern Minnesota, including where American Indians harvest wild rice. Ojibwe Indians, or Anishinaabe, consider wild rice sacred and central to their culture.

Winona LaDuke, founder of Honor the Earth, said opponents would use every regulatory means possible to stop the project — and threatened mass protests if necessary.

“They have gotten their Standing Rock,” she said, referring to protests that drew thousands of people to neighboring North Dakota to rally against the Dakota Access pipeline. 

Others welcomed Thursday’s vote, including Bob Schoneberger, founder of Minnesotans for Line 3. He said Minnesota needs the line now “and will need it even more into the future.”

After commissioners agreed the pipeline upgrade was needed, the commission voted 3-2 in favor of Enbridge’s preferred route, which departs from the existing pipeline to largely avoid two American Indian reservations currently crossed.

The approved route does clip a portion of the Fond du Lac Band of Chippewa’s land, and commissioners said they would adjust the route if the Fond du Lac don’t agree. Tribal leaders had reluctantly backed a route that went much farther south as the least objectionable option.

After the commission’s work is formalized in the next few weeks, opponents may file motions asking it to reconsider. After that, they can appeal the decision to the state Court of Appeals. 

Several commissioners said the overall issue posed a difficult decision. Chairwoman Nancy Lange choked up and took off her glasses to wipe her eyes as she described her reasoning for approving the project. Another commissioner, Katie Sieben, said it was “so tough because there is no good outcome.”

The pipeline currently runs from Alberta, Canada, across North Dakota and Minnesota to Enbridge’s terminal in Superior, Wisconsin. Enbridge has said it needs to replace the pipeline because it’s increasingly subject to corrosion and cracking, and that it would continue to run Line 3 if regulators rejected its proposal.

Much of the debate has focused on whether Minnesota and Midwest refineries need the extra oil. Enbridge currently runs Line 3 at about half its original capacity of 760,000 barrels per day for safety reasons, and currently uses it only to carry light crude. 

The project’s opponents, including the Minnesota Department of Commerce, have argued that the refineries don’t need it because demand for oil and petroleum products will fall in the coming years as people switch to electric cars and renewable energy sources. Opposition groups also argue that much of the additional oil would eventually flow to overseas buyers.

Enbridge and its customers strongly dispute the lack of need in the region. They said Line 3’s reduced capacity is already forcing the company to severely ration space on its pipeline network, and that failure to restore its capacity would force oil shippers to rely more on trains and trucks, which are more expensive and less safe. Business and labor groups support the proposal for the jobs and economic stimulus. 

The Public Utilities Commission’s decision likely won’t be the final word in a long, contentious process that has included numerous public hearings and the filings of thousands of pages of documents since 2015. Lange said earlier this year that the dispute was likely to end up in court, regardless of what the commission decides.

Opponents have threatened a repeat of the protests on the Standing Rock Reservation against the Dakota Access pipeline, in which Enbridge owns a stake. Those protests in 2016 and 2017 resulted in sometimes violent skirmishes with law enforcement and more than 700 arrests. 

Similar concerns over the role of tar sands oil in climate change, indigenous rights and the risk of spills has fueled opposition to other pipelines out of Alberta’s oil sands region. Opponents of TransCanada’s Keystone XL pipeline to Nebraska are still fighting that project in court. The Canadian government agreed last month to buy Kinder Morgan’s Trans Mountain pipeline across Canadian soil to the Pacific Coast for $4.5 billion Canadian (US$3.4 billion) to ensure completion of the company’s plan to triple the line’s capacity. 

Enbridge has already replaced the short segment of Line 3 in Wisconsin and put it into service. Construction is underway on the short segment that crosses northeastern North Dakota and on the longer section from Alberta to the U.S. border, and Enbridge plans to continue that work. Enbridge has estimated the overall cost of the project at $7.5 billion, including $2.6 billion for the U.S. segment.

 
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