Bill Owens: Confounding And Confusing Events 6/17/19

Jun 17, 2019

POTUS again surprised us by withdrawing the threat of tariffs, at least temporarily, against Mexico on Friday evening, June 7. The puzzlement of the weekend, it was disclosed, that this agreement had been made many months ago, and raised questions about whether or not POTUS created a crisis in order to appear to have solved it.  It is highly unlikely that POTUS will be satisfied with whatever actions Mexico takes, so this will be an ongoing saga.  Speaking of the migrants, there are now reports that Central Americans are looking to Europe as it is both a safer trip and potentially more welcoming. 

Nature again surprises us.  It appears that crocodiles, although we all know or at least believe that they are related to dinosaurs, have substantially evolved over tens of millions of years as these environments changed.  The long-held assumption that what we see today is what we would have seen 50 million years ago is apparently incorrect, as the creatures of 50 million years ago were apparently larger and potentially warm blooded.  Crocodiles were long thought to be ectotherms (cold blooded reptiles and amphibians), but at one time may have been endotherms (warm blooded mammals and birds).  The distinction being whether they derive heat from their internal metabolism, or need an external force such as the sun which is why we see crocodiles sunbathing.  A quiz, are they ectotherms or endotherms today.

I came across a map recently which shows the sources of imports and exports by country.  As one might expect, a significant number of states receive the greatest dollar value of imports from China, while I suspect there will be some surprise to many that the country with the most states exporting to it is Canada, while for four states China is the country with whom they do the most business for Mexico, its six(6) states, Brazil and the UK one each and the balance—Canada.  So if you are looking for free and fair trade, I suggest you look to Canada. 

The USMCA now has the backing of most Republicans in the House and in the Senate based upon the removal of the most recent tariff threat against Mexico.  Democrats, on the other hand, are awaiting Mexico’s passage of labor reforms, including votes for union representation with a closed ballot, along with the resolution of other doubts about the agreement.  Mrs. Pelosi remains the lynchpin in this process.  There must be another piece to this puzzle that we haven’t yet seen on the Democratic side.

Mr. Trump has decided to double-down on his trade war with China as he continues to describe tariffs as a “beautiful thing."  The Chinese, of course, are reciprocating in a variety of ways, including a clamping down on technology transfers.  Mr. Trump also continues to hold the position that these tariffs are not having an adverse impact on the American economy, including consumers and AG, since the Chinese are paying the tariffs.  As prices are likely to rise in the near term, the latter statements by Mr. Trump may well be tested, not just in the news media, but by consumers and, in particular, by farmers. 

Mr. Trump bragged about his Mexico deal on June 11, in a brief meeting with reporters.  He claims that he has a “bigger” deal than announced last weekend in his coat pocket- literally.  The Mexican President indicates the only deal is what was announced last weekend.  In effect, that the deal is a 90-day deal with two 45-day elements, with Mexico needing to meet certain criteria at the end of each of those elements to stave off the tariffs.  It is hard to imagine irrespective of what resources Mexico deploys, that it will be able to significantly stem the tide of people seeking asylum, and maybe more importantly, to satisfy Mr. Trump who always moves the goal posts. 

In an opinion piece in the New York Times, the issue of pension reform was again raised.  I wrote about this several weeks ago, as I believe these are significant changes that need to be made primarily due to the fact that baby boomers are aging, but more importantly, are living longer, and thus, changes to the IRA/401k withdrawal rules would be very beneficial both to them individually, and to the economy at large.  It appears that a number of Republican Senators, although there is bipartisan support in the Senate for the bill which passed by a large bipartisan majority in the House, are holding up the legislation for what one could only describe as pet projects, or maybe pet peeves, but then again, this is Senator Cruz, I think he enjoys being a difficult human being.  Hopefully, the Senate will pass this before year end, and it will move to the President for signature.  The grinding wheels of government.  

Larry Kudlow, President Trump’s top Economic Advisor, told reporters on June 12 that the USMCA is more important than a deal with China.  Certainly, the combined trade numbers would support that statement between the three member states of the USMCA, however, it’s important to remember that China has two threats that could make the comparison between the USMCA and China shift in favor of China.  The first of course is the significant amount of U.S. Treasuries which they hold, close to a trillion dollars, as well as their control of rare earth metals.  Each of these issues needs to be weighed carefully and my concern of course is that such a process will be avoided by the Administration.

Mr. Mulvaney, the President’s Chief of Staff, says that he sees a better than two-thirds chance that the USMCA will pass in Congress.  We still haven’t heard from the Speaker yet, and she holds the votes.

On June 14, the Wall Street Journal published an article about the debt and the deficit.  The picture in the article was of Bill Clinton and Al Gore in 1999 showing that the Federal Budget Deficit was zero dollars and that the debt had been reduced to virtually zero.  These were DEMOCRATS. The position taken in Washington now is that debt and deficits no longer matter.  This is certainly a reversal of Republican ideology and I wonder if President Trump loses in 2020, will, that ideology return with a vengeance as it did during the Obama Administration when Republicans railed against the debt and deficit.  My guess, the real question is, what ideology!

Mr. Owens is a former member of Congress representing the New York 21st, a partner in Stafford Owens in Plattsburgh, NY and a Senior Advisor to Dentons to Washington, DC.

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