United States

Trump’s tariff setback – and what it means for Europe

Donald Trump likes to call himself “Tariff Man” and even “king”. But on 20 February, the US Supreme Court ruled that his use of particular emergency powers to “unilaterally impose tariffs of unlimited amount, duration and scope” on all and sundry was illegal.

That setback throws much of Trump’s trade strategy into chaos, deprives him of his favourite form of geopolitical leverage and constrains his freedom of action going forward. He is not, after all, an absolute monarch when it comes to commerce.

The justices’ ruling also casts doubt on the many trade agreements that are premised on Trump’s unilateral tariffs – not least his one-sided deal with the EU that was struck at his Turnberry golf course in Scotland last August.

But while the Supreme Court’s willingness to stand up to Trump is good news – not least for Americans worried about their country’s accelerated slide into authoritarianism – it does not prevent Trump achieving his protectionist aims by other means. Indeed, if it prompts Trump to lash out and other countries to retaliate, it might even end up making matters worse.

Read my article for Brussels Times.

Europe needs independence from Trump’s America

The storm over Greenland may have abated for now, but Europe’s relations with Donald Trump remain grim.

Europeans need to face facts: they cannot rely on the mercurial US president to protect them from Russia; indeed, he too poses a threat.

Now, then, is the time to accelerate plans to reduce Europe’s military, economic and technological dependence on Trump’s America and to build new partnerships with like-minded powers.

Read my latest Brussels Times column.

Nonsense on wheels

The FT has published my letter demolishing the nonsense argument by Jason Cummins and the Trump administration that EU VAT gives European exporters an unfair trade advantage.

Cummins claims that it is unfair that BMW does not pay EU VAT on its exports to the US, whereas General Motors must pay VAT on its exports to the EU.

But BMW cars sold in Europe face exactly the same VAT rate as GM ones exported from the US.

Similarly, BMWs and Cadillacs sold in the US face identical state and local sales taxes, and neither pay EU VAT on their US sales.

Cummins ignores the true lack of reciprocity: that the EU levies a 10 per cent tariff on car imports whereas the US levies 2.5 per cent on cars and 25 per cent on light trucks. Equalising all of those at 2.5 per cent would make sense.

Regrettably, Trump has instead announced a 25 per cent tariff on all car imports from April 3. That is “unfair” and “discriminatory”, not EU VAT.

America’s Stab in the Back

“There’s a new sheriff in town,” declared US Vice President J.D. Vance at this year’s Munich Security Conference. With his boss, “Sheriff” Donald Trump, openly disparaging America’s longstanding security commitments and actively undermining European security, the United States can no longer be trusted, and it is up to Europe’s leaders to bolster the continent’s defense capacity – and fast.

Read this Project Syndicate Big Picture, with a contribution from me.

How to overcome the politics of pessimism

A big reason why Western politics is in such disarray is voters’ pessimism about the future. 60% of Westerners believe today’s children will be “worse off financially than their parents”. Europeans are particularly gloomy. To paraphrase Hobbes, they expect youngsters’ lives to be solitary, poor, nasty, brutish – and long.

When people doubt that progress is possible, they tend to fear change of any kind. Rather than focusing on opportunities, they see threats everywhere and hold on tighter to what they have. Distributional cleavages come to the fore – toxically so when overlaid with identity clashes.

Western politics can become rosier again, but only if politicians first address the root causes of the gloom. My latest column for Project Syndicate explains what needs to be done.

Trump’s refugee and Muslim ban isn’t just morally wrong, it’s also bad for the economy

Refugees are a tiny proportion of the U.S. population — some 3.3 million have been admitted since 1975 — but they have had an outsized impact. Google co-founder Sergey Brin was a child refugee from the Soviet Union; Google’s parent company, Alphabet, is now America’s second-most valuable firm, with a market capitalization of $553 billion. WhatsApp co-founder Jan Koum and PayPal co-founder Max Levchin were refugees from Ukraine. The late Andy Grove, who helped start and was later CEO of Intel, fled from communist Hungary. So, too, did hedge-fund manager and philanthropist George Soros; Thomas Peterffy, the founder of Interactive Brokers Group; and Steven Udvar-Hazy, the founder of Air Lease Corp.

People originating from the seven countries on Trump’s blacklist already have contributed a lot to America. eBay was founded by an Iranian-American, Pierre Omidyar. Its market capitalization of $36.1 billion dwarfs the value of Trump’s unlisted business holdings, while Omidyar’s self-made $8.2 billion fortune is more than twice as big as Trump’s partly inherited one. Oracle Corp., a software giant worth $162.2 billion, was co-founded by the late Bob Miner, who was also Iranian-American. While the communities from the other countries are much smaller and generally more recent, one notable Somali-American is author and activist Ayaan Hirsi Ali, an outspoken critic of both Islamic extremism and Trump’s anti-Muslim policies.

Read my piece for Foreign Policy

Hur flexibla är Washington och Bryssel?

Europa och Amerika har glidit isär. Med ett uppåtstigande Kina och när kalla kriget blivit ett avlägset minne har USA flyttat sitt fokus till Asien. Därför är Barack Obamas besök i Stockholm den 4 september anmärkningsvärt på två sätt. Han är inte bara den förste sittande amerikanske president som gör ett bilateralt besök i Sverige. Det är dessutom hans första resa till Europa efter de i juni inledda förhandlingarna om ett transatlantiskt ekonomiskt samarbete som skulle kunna föra Västvärldens länder närmare varandra i en global ekonomi som alltmer lutar åt öst.

Det bästa är alltid att öppna sina marknader för alla. Men när samtalen inom världshandelsorganisationen WTO om en världsomspännande frihandel inte kommer någon vart och det inte finns några regler alls om utländska investeringar, skyndar sig länder att träffa hundratals bilaterala och regionala avtal. USA förhandlar om ett samarbete kring Stilla havet (Trans-Pacific Partnership) som skulle föra samman så skilda länder som Australien, Kanada, Japan, Mexiko och Vietnam. Samtidigt förhandlar EU med Indien, Japan, Kanada, Vietnam och många andra.

Men ett avtal mellan USA och EU skulle vara någonting helt annat. De två står tillsammans fortfarande för 45 procent av världsekonomin och för nästan en tredjedel av världshandeln, samtidigt som amerikanska och europeiska företag har investerat över 2,8 biljoner dollar i varandras ekonomier. I en tid när tillväxten är svag och det är ont om jobb skulle ett lyckat avtal kunna betyda en kraftig ekonomisk injektion.

För en liten ekonomi som Sveriges, vars framgång är beroende av utrikeshandel och internationella investeringar, är detta särskilt viktigt. Under de senaste decennierna har svenska företag blivit globala och nu investerar de mer i USA än i något annat land. Och det är trafik i båda riktningarna. Amerikanska Nasdaq äger Stockholmsbörsen samtidigt som Manpower, General Electric, IBM och ytterligare omkring 1300 USA-företag som etablerat sig i Sverige, tillsammans har fler anställda i Sverige än några andra utländska företag.

Förhandlarna siktar på snabba resultat, möjligen redan nästa år. Men det finns gott om hinder. Bidragsbönder är en mäktig påtryckargrupp både i Bryssel och i Washington. Amerikaner accepterar genmodifierade grödor, européer vill inte ha dem. Frankrike vill skydda sina filmer mot Hollywood. Skandalen med NSA:s spioneri gör européerna särskilt angelägna att skydda sina personuppgifter. Mer allmänt sett har Amerika och Europa olika regleringar och standarder på allt från att godkänna nya mediciner till att avgöra om en kemikalie är säker – och båda tycker naturligtvis att deras eget system är bäst. Amerikanska företag skulle bli mycket missnöjda om de fick se fler hindrande EU-regleringar smita in bakvägen medan européerna oroar sig för de förment lägre kraven i USA.

Det stora problemet med alla handelsförhandlingar är att regeringar ofta är bakbundna av protektionistiska lobbygrupper som övertalar dem att ett större urval av billigare importprodukter är ett hot snarare än en fördel. Under det kalla kriget hade den amerikanska regeringen ett bredare perspektiv till följd av den övergripande prioriteringen att hålla samman Västalliansen. Kan en sådan logik möjligen än en gång förmå Washington och Bryssel att vara flexibla? Trots allt skulle en överenskommelse inte bara föra Europa och USA närmare varandra. Det är också en chans att etablera långsiktigt hållbara, globala regler och förhoppningsvis kickstarta en utveckling mot en friare världshandel.

La reforma inmigratoria, una posible solución al sistema en EU

La reforma inmigratoria está finalmente de vuelta en la agenda en Washington, D.C. Eso es algo para celebrar: un sistema que deja desprotegidos a 11 millones de personas mientras niega las oportunidades de empleo a trabajadores y empresas es claramente disfuncional.

Pero si bien es muy bueno que haya una posibilidad real de sacar de la clandestinidad a las personas que carecen de documentación adecuada, hasta ahora no hay ningún debate acerca de la reforma integral que Estados Unidos necesita realmente.

Consideremos lo absurdo del sistema actual; pensemos qué sucedería si cada estado de los Estados Unidos tratara de regular el flujo de personas como lo hace la federación. Los ciudadanos de Minnesota necesitarían visa para estudiar en Massachusetts.

Las compañías de internet en California podrían reclutar solo a un puñado de graduados de Colorado que deberán cubrir una serie de complicados requisitos. Si la mano de obra escaseara a causa de un auge en la explotación de petróleo y gas en Dakota del Norte, las leyes locales no permitirían que las personas ajenas al estado cubrieran esas necesidades legalmente. Y así sucesivamente.

Claramente, bajo tal sistema casi todos estarían peor. A las personas se les negaría la oportunidad de estudiar o trabajar en otros estados, de la misma manera en que se negaría a sus posibles compañeros de clase y colegas la oportunidad de enriquecer su pensamiento y su vida a través de la interacción con ellos.

Las universidades y negocios estarían privados del talento y por lo tanto tendrían menos posibilidades de crecer y crear empleos para los ciudadanos locales.

Todos los pequeños comercios en Dakota del Norte que podrían haber florecido para satisfacer las necesidades locales no podrían hacerlo. Las personas estarían viviendo y trabajando fuera de la ley.

En general, cada ciudadano sufriría por la falta de respeto a la ley, como ocurrió cuando la Prohibición socavó la ley y el orden más que el consumo de alcohol. Si retrocedemos un poco y pensamos en las consecuencias de que los estados limiten la movilidad de esta manera, quedará claro por qué el sistema de inmigración no funciona y el manipular un sistema intrínsecamente defectuoso no hará mucho por mejorar las cosas.

Desde un punto de vista económico y moral, lo mejor sería que todos pudiéramos movernos libremente, como sucedía en el siglo XIX, cuando Estados Unidos tenía fronteras más o menos accesibles. Eso puede parecer una fantasía peligrosa; sin embargo, la reciente experiencia en Europa indica lo contrario.

Ahora las personas pueden moverse libremente a través de los 27 estados miembros de la Unión Europea, desde Lituania hasta Leipzig, Londres y Lisboa. Lejos de causar que las sociedades europeas se derrumben, esta nueva movilidad ha logrado que la gente encuentre empleos más adecuados, ha dado vigor a las comunidades locales y un impulso a los nuevos negocios.

Entonces ¿por qué no hacer lo mismo entre Estados Unidos, Canadá y México? Por temor a que todos los mexicanos se muden a Estados Unidos, pero la experiencia en Europa indica otra cosa.

A lo largo de la Unión Europea, solo una pequeña fracción de los habitantes de los países más pobres se ha mudado a los más ricos para trabajar y la mayoría de ellos lo hace temporalmente. Además, como la diferencia de salarios en Estados Unidos y México es menor que la que hay entre Suecia y Rumania, ¿por qué tendrían que ser diferentes los resultados en América del Norte? De hecho, las personas que se mueven hacia el sur, hacia México, ahora superan en número a los que se mudan al norte, a Estados Unidos.

El permitir que las personas se muevan libremente no es políticamente posible por ahora; Estados Unidos aún podría mejorar su sistema de inmigración haciéndolo menos complicado, arbitrario y discriminador.

¿Por qué no reemplazar las diferentes clases de visas de trabajo, con sus arbitrarias limitaciones y criterios de elegibilidad terriblemente complicados, por un sistema más sencillo y más sensato como el de Suecia? Ahí, los comercios de todo tipo pueden contratar con visas renovables cada dos años a obreros de todas las capacidades, procedentes de todo el mundo, si no logran contratar personas locales adecuadas. Ese tipo de reformas favorables para los mercados serían más beneficiosas que la manipulación de los controles burocráticos.

El rígido sistema de inmigración de Estados Unidos necesita adaptarse a la nueva economía global en el que las personas se mueven cada vez más en todas direcciones, hacia el este y el oeste, hacia el sur y hacia el norte; donde quienes tienen la posibilidad de hacerlo se mueven repetidamente.

A menudo, las oportunidades se encuentran fuera de Estados Unidos; para los estadounidenses (y los africanos) que se dirigen a Shanghai para buscar la riqueza, el sueño chino es más seductor que el sueño americano.

Conforme Asia crece, los emprendedores que pudieron haber ido a Silicon Valley ahora se dirigen a Bangalore o a Beijing. Para competir en este nuevo mundo, el sistema de inmigración de Estados Unidos necesita ser mucho más flexible, enfocarse en facilitar la movilidad de las personas y hacer que la gente valiosa se sienta dispuesta a quedarse, en lugar de tratar de evitar que la gente entre.

How America can fix its immigration system

Immigration reform is finally back on the agenda in Washington, DC. That is something to celebrate: a system that traps 11 million people outside the protections of the law while denying businesses the workers they need to grow is clearly dysfunctional. But while it’s great that there is a real prospect of bringing people who lack proper documents out of the shadows, there is so far no debate about the root-and-branch reform America really needs.

To grasp the absurdity of the current system, consider what would happen if each U.S. state tried to regulate people flows in the way that the 50 states do collectively. Minnesotans would need a visa to study in Massachusetts. Internet companies in California could recruit only a handful of Coloradan graduates among those who met an elaborate set of bureaucratic criteria. If an oil-and-gas boom in North Dakota led to a shortage of all sorts of workers, local laws would prevent people from out of state from filling those needs legally. And so on.

Clearly, under such a system pretty much everyone would be worse off. The people denied opportunities to study or work across state lines, as well as their would-be classmates and colleagues whose thinking and lives would have been enriched by interacting with them. The universities and businesses deprived of talent and therefore less able to grow and create jobs for local people. All the small businesses in North Dakota that might have sprung up to satisfy local needs, but couldn’t. The people living and working outside the law. More generally, every citizen would suffer from the decline in respect for the rule of law, just as Prohibition did far more to undermine law and order than drinking booze ever has. If you step back a little and think through the consequences of each state restricting mobility in this way, it ought to be clearer why America’s immigration system doesn’t work – and why tinkering with an intrinsically flawed system will go only a little way toward making things better.

More from GPS: What America can learn from Britain

From an economic – and a moral – point of view, it would be best if everybody could move freely, as they could in the 19th century, when the United States had more or less open borders. That may seem like a dangerous fantasy, yet recent experience in Europe suggests otherwise. People can now move freely across the 27 member states of the European Union – from Lithuania to Leipzig and on to London and Lisbon. Far from causing European societies to collapse, this new mobility has better matched people to jobs, reinvigorated local communities and sparked dynamic new businesses.

So why not do the same in North America – between the United States, Canada and Mexico? Contrary to the fear that everyone in Mexico would move to the U.S. if they could, experience in Europe suggests otherwise. Across the EU, only a small fraction of the population from poorer countries has moved to richer ones – mostly temporarily, to work. And since the difference in income levels between the U.S. and Mexico is smaller than that between Sweden and Romania, why should things turn out differently in North America? In fact, people moving south to Mexico now outnumber those moving north to the United States.

Insofar as allowing people to move freely is not politically possible for now, America could still greatly improve its immigration system by making this less complicated, arbitrary and discriminatory. Why not replace all the different classes of work visas, with their arbitrary numerical limits and devilishly complicated eligibility criteria, with a simpler and more sensible system like Sweden has? There, businesses of all kinds can hire workers of all skill levels from around the world on two-year renewable visas if they can’t find suitable local recruits. Market-friendly reforms like that would do far more good than fiddling with bureaucratic controls.

America’s hidebound immigration system needs to adapt to a new global economy where people are increasingly on the move in all directions, east as well as west, south as well as north – and where those who have a choice often move repeatedly.

Often, opportunities now lie outside America; for Americans (and Africans) heading to Shanghai to try to strike it rich, the Chinese dream is more alluring than the American one. As Asia rises, entrepreneurs who might have gone to Silicon Valley are heading for Bangalore or Beijing. To compete in this new world, America’s immigration system needs to be much more flexible, focusing on making it easy for people to come and go and attractive for valued people to stay, rather than trying to keep people out.

America’s economic policy mix is a threat to the world

Countless column inches are devoted to the supposed wickedness of China’s currency policy (Bergsten 2010, Krugman 2010, Wolf 2010, Yiping 2010). But the biggest threat to the world economy comes from the US. Its policy mix – fiscally passive, monetarily aggressive – is ineffective domestically and dangerous for everyone.

Seen from Washington or London, the economy remains weak. But from a global perspective, it is advancing by some 4% a year – almost as fast as before the crisis. China and other emerging economies account for the bulk of this growth. In effect, Chinese investment has taken over from US consumption as the locomotive of global growth (Reisen 2010).

Yet because it has a current-account surplus, China is widely perceived to be a drag on the global economy. This is misleadingly simplistic.

  • Its imports grew by 24% in the 12 months to September, creating jobs and growth elsewhere.
  • Its trade surplus is shrinking.
  • And, lest critics forget, even Chinese exports have their benefits. Assembled from parts made in other countries, they provide cheap inputs for businesses everywhere. They spur companies outside China to innovate and become more competitive. And they increase consumers’ welfare – why else would people buy them?

Basing conclusions on accounting identities can obscure the more complex, dynamic economic relationships that underlie them (Legrain 2010).

Put simply, if China were to vanish overnight, the world would be in much worse shape. And while it may be desirable for China’s currency to appreciate gradually to accommodate and accelerate a shift towards higher-end production and greater domestic consumption, a higher renminbi is unlikely to do wonders for the US economy (Auerbach and Obstfeld 2010).

For the most part, the alternative to cheap Chinese imports is not goods “made in the USA” but goods made in other emerging economies. Reshaping the US economy to cater more to the needs of emerging economies would do far more to boost US exports. Above all, trying to force the renminbi up with protectionist threats – as the US Congress demands and many respectable and ostensibly liberal commentators now seem to advocate – is to invite a trade war that would beggar us all.

Instead of threatening others, the US should put its own house in order. The Federal Reserve helped cause the mess we are in and is now sowing the seeds for the next crisis. Having wrecked the US economy by encouraging a huge debt-fuelled bubble to inflate, the Fed now finds itself unable to ensure recovery. Even with near-zero interest rates, indebted consumers don’t want to borrow and fragile banks don’t want to lend. Businesses that could generate growth are either starved of credit or too uncertain about the future to invest. As the Fed pumps out ever more money, banks invest it in higher-yielding Treasuries, pocketing easy profits and paying out ill-deserved bonuses, while much of it leaks out overseas. The net result? Hardly any additional US growth.

Since the monetary transmission mechanism is broken, injecting ever more money into the system does not get the wheels of the economy spinning faster. It floods the engine. A better way to stimulate the US economy would be fiscal measures that promote its restructuring and enhance its productive potential – for instance, investment in its dilapidated infrastructure, cuts in payroll tax and retraining subsidies to get people into work and, in the absence of a carbon tax, measures to promote venture capital in the clean-tech industries of the future.

Current US policy is not just ineffectual, it is also dangerous. Banks that ought to fold are kept on life support. Homeowners who ought to default and move to where the jobs are cling on to their depreciated houses in depressed areas. Bubble-prone investors believe in a Bernanke put. Money gushes out of the US and into emerging economies that don’t need it and can’t cope with it. This is economic vandalism.

The strategic rationale for printing money – sorry, “quantitative easing” – may be to force Beijing’s hand on the renminbi. Yet protected by capital controls, adept at sterilising monetary inflows and loath to give in to US pressure, China is unlikely to move much. Carrots – such as a bigger role at the IMF and the opportunity to convert some of its dollar reserves into special drawing rights (SDRs) – might work better than sticks. The victims are instead the Eurozone, Japan, Australia and other advanced economies whose currencies are soaring, as well as emerging economies such as Brazil and Thailand that cannot do much to stem the tide of US cash.

Do Barack Obama and Ben Bernanke really want a repeat of the 1997/98 Asian financial crisis, this time writ-large across emerging economies that account for half the world economy and most of its growth potential? Do they want to pick up the pieces for US investors and financial institutions? Do they not worry that investors might eventually lose all confidence in the devalued dollar and depreciated not-so-safe US Treasuries? Or are they so narrowly focused on the here and now, so blind to alternative policies, and so reckless in abusing American monetary power that they don’t care?

References

Auerbach, Alan J and Obstfeld, Maurice (2010), “Too much focus on the yuan?”, VoxEU.org, 23 October.
Bergsten, C Fred (2010), “China’s currency and the US economy”, VoxEU.org, 1 November.
Krugman, Paul (2010), “Taking on China”, New York Times, 1 October.
Legrain, Philippe (2010), Aftershock: Reshaping the World Economy After the Crisis.
Reisen, Helmut (2010), “Global imbalances, the renminbi, and poor-country growth”, VoxEU.org, 1 November.
Wolf, Martin (2010), “How to fight the currency wars with stubborn China?”, Financial Times, 5 October.
Yiping, Huang (2010), “A currency war the US cannot win”, VoxEU.org, 19 October.