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Donald Trump expresses a degree of admiration for — and thinks he can cut deals with — China’s Xi Jinping and Russia’s Vladimir Putin, in particular to pursue the war on Jihadists.  However, in a curious twist, the United States’ major allies and trading partners draw vehement criticism from the Republican Party’s would-be nominee for the presidency.  South Korea, Western Europe and Japan would be asked to pay for ‘sheltering’ under US military protection.  In general, Trump believes the US gets a raw deal from the liberal global trading system and is opposed to free trade.

Mr. Trump believes in restoring the United States’ absolute military primacy as the basis for his foreign policy.  In constant US dollar terms the US is already spending substantially more on defense than during the Cold War.  (In fact, depending on whose numbers one relies upon, the US spends anywhere from as much as the next 8 to the next 20 countries combined.)  Additional spending is unlikely to improve the US defense posture nor will such help win the sort of expeditionary wars against low-tech adversaries that can be expected to continue.  Winning wars these days does not seem to be a matter of financial muscle or technical superiority.  The US wars in Iraq and Afghanistan cost in the order of US$ 1 trillion and the US did not unambiguously win either. Nor have they been able to fully extricate themselves from continued involvement in either country.

Under NORAD, Canada is the continental defence partner of the US.  According to Donald Trump’s way of thinking Canada could expect to be asked to pay for the privilege of a presence under Cheyenne Mountain.

Bilateral Canada/US trade amounted to about US$ 631 billion in the period January to November, 2015.  The major Canadian export sectors were: energy; cars and car parts; and metals and minerals.  In this diversified and mature bilateral commercial relationship, Canada enjoyed a trade surplus of US$12.6 billion, anathema for Mr. Trump.

A) Economic Policy

“I’m going to be bringing back jobs from China, from Japan, from India, from Brazil.  This is going on at a level that you have never seen before.  We now have corporate inversions, where companies are moving out of the United States.  And they will be moving out in big numbers if we don’t do something quickly.  And my plan stops all of that.”

“And I want to bring back trillions of dollars that is stuck in other countries that we won’t let back in because we don’t have intelligent people running our country.”

“Mortgage interest deduction would stay, absolutely.  Carried interest, though, would not stay.  One of the ways that the hedge fund guys who make a lot of money pay very little tax, the carried interest deduction.  I’m knocking that out.”

Source: CBS Face the Nation 2015 interview by Bob Schieffer , Nov 8, 2015

“We’re going to make a dynamic economy from what we have right now.  We’re going to bring jobs back from Japan, we’re going to bring jobs back from China, we’re going to bring, frankly, jobs back from Mexico where, as you probably saw, Nabisco is leaving Chicago with one of their biggest plants, and they’re moving it to Mexico.  We’re going to bring jobs and manufacturing back.  We’re going to cut costs.  We’re going to save Social Security, and we’re going to save Medicare.”

Source: GOP “Your Money/Your Vote” 2015 CNBC 1st-tier debate , Oct 28, 2015

Beating up the corporations is always good politics and, from either a left- or right-wing perspective, doing away with corporate inversions and carried interest are also good things from the standpoint of fiscal prudence.  But how exactly will Donald Trump bring back the jobs (or the corporations) that have been off-shored?

It seems to me that, at the least, policies penalizing off-shore production and foreign tax domiciles would encourage even more corporate flight to more helpful business environments.  And, what about wages?  What would these re-shored jobs pay?  Even at US current minimum wage rates, T-shirts at Wal-Mart would cost several multiples of their price today.  The likelihood of a trade war on several fronts would rise appreciably.

Most important, Donald Trump is indulging in nostalgia.  The days when the US could merely command are long gone, if they ever really existed in other than editorialists’ fantasies.  He is harking back to a time when the US bestrode the world stage and the American Dream was real, confirmed by inter-generational progress and rising standards of living.

Now, however, we live in a multi-polar, highly inter-connected world characterized by manifold mutual dependencies.  Supply-chains for the production of almost any good link dozens of producers in as many countries.  For example, Boeing, a quintessential American company, has 544 major parts suppliers and thousands of subsidiary suppliers on three continents.  Below is a graphic illustrating the distribution, by country, of the main suppliers for Apple’s iPhone.

Sven - iPhone Suppliers

 

If iPhones were produced in the US, Apple would add US $600 million to its wage bill, which works out to about US$4 extra per phone.  But Apple’s manufacturing strategy is based less on cost than on scalability and supply chain risk.  (Source)

Money does, however, come into the equation: US production would draw a 35% tax on profits rather than the 2% Apple currently pays on off-shore production. (Note: Trump promises a 0% corporate tax rate … see below.)

The huge political and economic cost of unravelling Apple’s complex skein of suppliers is not captured by the graphic or through any analysis of the impact of differential tax regimes.  Furthermore, it is questionable whether US firms could produce all of the iPhone’s parts on-shore, either for technical reasons or economic cost.  Besides, in October 2014 the Chinese held US $1252.7 billion in United States T-bills and Japan held US$ 1222.4 billion and the sums are in secular increase in both cases.

Bluster is cheap; action against fundamental Chinese and Japanese economic interests could be very expensive indeed were either China or Japan to dump several tens of billions in T-bills.  For completeness sake, Canada held US$62.5 billion.  (Source US Treasury)  So, Canada also has skin in this game and, as current developments indicate, the C$ is particularly vulnerable.

Trump proposes to roll-back globalization.  Even were he to succeed, which is very doubtful, the costs would be enormous.  The benefits to the people he is trying to help, the US’ much depleted manufacturing labour force, are likely to be negative: increased employment and the wages such supplies are likely to be canceled out by higher costs on consumer goods.  The resultant trade wars would further increase costs dramatically and the consequences for the subsidiaries of US corporations abroad cannot be described in positive terms.

From the Canadian perspective, implementation of even part of Mr. Trump’s trade agenda would be hugely disruptive globally with negative consequences for our bilateral trade with both European and Asian partners.  Our trade dependence on the US make Canada especially vulnerable.  Autarky, which is really what Trump is proposing as a national goal, is not possible now without enormous costs, if at all.  The economic history of India makes useful reading in this regard.

B) Energy and the Environment

“Well, there could be some [climate change that is] manmade, too.  I mean, I’m not saying there’s zero, but not nearly to the extent [others say].  When Obama gets up and said it’s the number one problem of our country — and, if it is, why is it that we have to do our and clean up our factories now, and China doesn’t have to do it for another 30 or 35 years in their wonderful agreement, you know, our wonderful negotiators?”

Source: CNN SOTU 2015 interview series: 2016 presidential hopefuls , Jun 28, 2015

“Remember Cap-and-Tax (or as they called it Cap and Trade)?  [In 2008], Obama outright admitted that his plan to tax businesses on carbon emissions that exceeded his arbitrary cap would drive energy prices sky high.  Here’s what he said:

‘Under my plan of a cap and trade system, electricity rates would necessarily skyrocket, even regardless of what I say about coal, because I’m capping greenhouse gases.  Whatever the plants were, they would have to retrofit their operations.  That will cost money.  They will pass that on to consumers.’

“Most of us shake our heads in disbelief at this stuff.

“Until we get this country’s lifeblood — oil — back down to reasonable rates, America’s economy will continue to slump, jobs won’t get created, and American consumers will face ever-increasing prices.”

Source: Time to Get Tough, by Donald Trump, p. 15-16 , Dec 5, 2011

“Qadaffi is dead and gone.  So what?  We have spent more than $1 billion on the Libya operation.  And what are we getting in return?  A huge bill, that’s what.  It’s incredible how foolish the Obama administration is.  Libya has enormous oil reserves.  When the so-called “rebels” came to NATO (which is really the U.S.) and asked for help to defeat Qadaffi, we should have said, “Sure, we don’t like the guy either.  We will help you take out Qadaffi.  But in exchange, you give us 50 percent of your oil for the next twenty-five years to pay for our military support and to say thank you for the United States doing what you could never have done on your own.”  The “rebels” would have jumped at the offer and said yes.”

“Imagine the amount of oil we could have secured for America.  Our policy should be: no oil, no military support.”

Source: Time to Get Tough, by Donald Trump, p.102 , Dec 5, 2011

It is also worth noting that PBS in its Candidate Stands series reported on 16 June, 2015 that Donald Trump does not believe that climate change is real.  In a 2012 Twitter post which is no longer accessible, Trump charged that the concept of climate change was created by the Chinese to suppress the U.S. economy.

Under a Trump Administration, the gains recently made at the COP21 in Paris would be a dead letter.

Mr. Trump proposes to increase US energy production by thorough-going regulatory reform, removing most barriers to production.  Needless to say, US energy prices for oil and gas (and therefore production) are set by world supply and demand.  The regulatory framework has little consequence as the rapid rise (and more recently decline) of the oil and gas fracking sector indicates.  Saudi Arabia remains the global oil swing producer and price setter.  Given its massive oil reserves and very low cost of production that status is unlikely to change, no matter what Donald Trump does or says.

Canada is now the United States’ main oil and gas supplier.  In Q3 of 2015, Canada exported to the US 3.01 million BBL/day.  Natural gas net exports in 2014, mostly to the US amounted to 54.4 billion m3 and electrical net exports in the same period were 45.6 TW.h.  To this can be added substantial amounts of NLGs and petroleum products.  One can suppose that Trump would treat Canada like Libya.  His recent demand for a 25% share in the profits of the Keystone XL pipeline in return for approval is a case in point.  He is reported as having said that he is unhappy that any Canadian oil at all is imported. 

C) Trade

“The TPP is a horrible deal.  It is a deal that is going to lead to nothing but trouble.  It’s a deal that was designed for China to come in, as they always do, through the back door and totally take advantage of everyone.  It’s 5,600 pages long, so complex that nobody’s read it.  This is one of the worst trade deals.  And I would, yes, rather not have it.  We’re losing now over $500 billion in terms of imbalance with China, $75 billion a year imbalance with Japan.”

“Well, the currency manipulation they don’t discuss in the agreement, which is a disaster.  If you look at the way China in particular takes advantage of the US — it’s through currency manipulation.  It’s not even discussed in the almost 6,000-page agreement.”

N.B. The better briefed Senator Rand Paul noted ” Hey, you know, we might want to point out China is not part of this deal”.

Source: Fox Business/WSJ First Tier debate , Nov 10, 2015

“I am all for free trade, but it’s got to be fair.  When Ford moves their massive plants to Mexico, we get nothing.  I want them to stay in Michigan.” (Note: Mr. Trump has proposed a 35% tariff on Ford vehicles produced in Mexico.)

“I just ordered 4,000 television sets from South Korea.  I don’t want to order them from South Korea.  I don’t think anybody makes television sets in the United States anymore.  I talk about it all the time.  We don’t make anything anymore.  Now you look at Boeing.  Boeing’s going over to China.  They’re going to build a massive plant because China’s demanding it in order to order airplanes from Boeing.”  (Note: the Trump Collection clothing line is largely produced in Mexico and China.)

“If we want jobs in America, we need to enact my 5-part tax policy: kill the death tax; lower the tax rates on capital gains and dividends; eliminate corporate taxes in order to create more American jobs; mandate a 15% tax for outsourcing jobs and a 20% tax for importing goods, and enact the 1-5-10-15 income tax plan [four brackets with a top rate of 15%]”.

“Government needs to stop pick-pocketing your wallet.  Every time it does, it slows growth and kills jobs.  It’s also immoral.”

Source: Time to Get Tough, by Donald Trump, p. 65 , Dec 5, 2011

Well, that’s clear.  Under Trump, NAFTA is a dead letter and Canadian exports to the US would be throttled.  It is also clear that  Donald Trump is a hypocrite.  Killing the “death tax” and lowering tax rates on dividends and capital gains would hugely benefit Trump himself, as well as others in the 1%.

Eliminating corporate taxes will benefit bottom lines much more than employment or wage rates.  As matters stand, the US has effective full employment so the impact of lower taxes will disadvantage discretionary government spending while fueling inflation.  A 20% import duty is illegal under WTO rules and would roll back the gains made in all multilateral and bilateral trade arrangements to which the US has committed.  The inflationary impact would be massive and devastating, as would the slop-over effects on Canada.  The 15% tax on out-sourcing jobs would encourage even more US corporations to move their head office operations and legal domicile to more economically rational administrations.  Such a development could benefit Canada as Burger King’s corporate relationship with Tim Horton’s has already demonstrated.

US corporations are unhappy with the current 35% tax rate under which they say they suffer.  Corporate inversion is one consequence.  However, given their huge international exposure, the rest of the Trump fiscal and trade policy package must cause them jitters.

Trump has also proposed a one-time 14.5% wealth tax to begin to pay off the US national debt.  Most main-stream economists believe that such a measure would prompt the 1% to re-domicile their assets. Again, as a safe and reasonably well-run state, Canada could benefit.

D) Gender Relations

“You could see there was blood coming out of her eyes, blood coming out of her wherever.”  Trump speaking of Fox News host Megyn Kelly’s performance as moderator of the GOP debate in Cleveland.

Source: Atlanta Journal-Constitution on 2015 GOP RedState Gathering , Aug 8, 2015

“As of this moment, I would say no and no” to gay marriage and civil benefits.”

Source: New York Daily News, “Offends gay activist” , Mar 7, 2011

“One thing about me, I’m a very honourable guy.  I’m pro-life, but I changed my view a number of years ago.  One of the primary reasons I changed [was] a friend of mine’s wife was pregnant, and he didn’t really want the baby.  He was crying as he was telling me the story.  He ends up having the baby and the baby is the apple of his eye.  It’s the greatest thing that’s ever happened to him.  And you know here’s a baby that wasn’t going to be let into life.  And I heard this, and some other stories, and I am pro-life.”

Source: David Brody interview on CBN.com , Apr 8, 2011

No comment needed.

E) “Black Lives Matter”

“It’s a massive crisis.  It’s a double crisis.  I look at these things, I see them on television.  And some horrible mistakes are made.  But at the same time, we have to give power back to the police because crime is rampant.  I believe very strongly that we need police…Cities need strong police protection.  But officers’ jobs are being taken away from them.”

Source: Meet the Press 2015 interviews of 2016 presidential hopefuls , Aug 2, 2015

“I can’t believe that executing criminals doesn’t have a deterrent effect.  To point out the extreme, 100% of the people who are executed never commit another crime.  And it seems self-evident (we can’t put numbers to this) that a lot of people who might otherwise commit a capital crime are convinced not to because they know there’s a chance they could die for it.”

“Young male murderers, we are constantly told, are led astray by violent music and violent movies.  Fair enough.  I believe that people are affected by what they read, see, hear, and experience.  Only a fool believes otherwise.  So you can’t say on one hand that a kid is affected by music and movies and then turn around and say he is absolutely not affected when he turns on the evening news and sees that a criminal has gone to the chair for killing a child.  Obviously capital punishment isn’t going to deter everyone.  But how can it not put the fear of death into many would-be killers?”

Source: The America We Deserve, by Donald Trump, p.102-4 , Jul 2, 2000

Contrary to what Donald Trump so confidently asserts, crime is not rampant in the United States.  In point of fact, the FBI reports much reduced rates of criminality in recent years.  It also would not have been too much for Mr. Trump to have noted that the police, too, should obey the law.  Also contrary to Mr. Trump’s assertions, US police forces have already seen a significant increase in manpower in recent years.  Some observers have attributed police excesses to the militarization of the police and the collapse of police/community relations.  A Trump Administration would preside over significantly worse race relations in the US and pose a challenge to Canadian (and others’) human rights policies.

F) Refugee Affairs and Immigration Policy

“… total and complete shutdown of Muslims entering the United States until our country’s representatives can figure out what is going on.”

“Until we are able to determine and understand this problem and the dangerous threat it poses, our country cannot be the victims [sic] of horrendous attacks by people that believe only in Jihad, and have no sense of reason or respect for human life.”

Source: The Atlantic, December 2915

“When Mexico sends its people, they’re not sending the best.  They’re not sending you, they’re sending people that have lots of problems and they’re bringing those problems,” Trump said in a speech at Trump Tower in New York.  “They’re bringing drugs, they’re bringing crime.  They’re rapists and some, I assume, are good people, but I speak to border guards and they’re telling us what we’re getting.”

“I would build a Great Wall, and nobody builds walls better than me, believe me, and I’ll build them very inexpensively.  I will build a great, great wall on our southern border and I will have Mexico pay for that wall, mark my words,”

Source: NBC News

Trump is a Jihadist propaganda god-send.  Al Shabaab has already used Trump footage in its recruitment effort, no doubt to good effect.  Trump has cited President Eisenhower’s expulsion of millions of illegal Mexican immigrants in the 1950s by way of precedent for the deportation of illegal Mexican immigrants.  Howls of outrage from agricultural producers put an end to Eisenhower’s policy and the flow of illegals across the Rio Grande resumed.  Today, the economic sectors dependent on cheap and often exploited Mexican labor include not just farmers but also meat processors, construction, fishing, forestry and mining … not to speak of child care and lawn and pool care for wealthy working couples.  To be sure, there are many illegals but, given they lack access to the state’s social benefits, most are probably gainfully employed.  It is worth noting, however, that only half of illegal immigrants in the US are Mexican and the improvement in Mexico’s economy has served to reduce their number.

Mexican Unauthorized Immigrant Population Declines Since 2007 Peak

Mexican Unauthorized Immigrant Population Declines Since 2007 Peak

 

It would not be illegal to kick any or all them out.  But, given that the US has arguably reached full employment, expulsion would likely trigger significant wage-driven inflation as a consequence of labour-shortages in key sectors.

Similarly, it is not illegal to exclude refugees from the Middle East or anywhere else.  But the legality of such an exclusion is neither a measure of its justness nor its political acumen.  Indeed, the incarceration of Japanese-Americans and Japanese-Canadians during World War II was legal as was, in Canada, the disposition of their property at auction.  The turning back of Jewish refugee ships during the same period was also within the legal ambit of state power.  And, it must be said, the Holocaust was legal in terms of the German law of the day.  What this means is that Mr. Trump’s proposed ban of refugees from the Middle East must be assessed in other ways.

Do refugee in-flows pose an unacceptable security risk?

Since 9/11, every terrorist attack in the US (and Canada) has been carried out by bona fide citizens.  Refugees have not figured in any.  In Canada, the 25 deaths from school shootings since 1989 far out-number those killed by terrorists – two.  The proportions are similar in the US.  There were about 30,000 deaths from gun-violence per year in the US versus about 80 in terrorist attacks in the period 2004-2013 (see: The national Consortium for the Study of Terrorism and Responses to Terrorism – START).  The chances of experiencing a terrorist attack or dying in one are nugatory:

” …. in the last five years, [an American’s] chances of being killed by a terrorist are about one in 20 million.  This compares to annual risk of dying in a car accident of 1 in 19,000; drowning in a bathtub at 1 in 800,000; dying in a building fire at 1 in 99,000; or being struck by lightning at 1 in 5,500,000.  In other words, in the last five years you were four times more likely to be struck by lightning than killed by a terrorist.

Ohio State University political scientist John Mueller and Mark Stewart, an engineering professor at University of Newcastle in Australia, recently estimated that the U.S. has spent $1 trillion on anti-terrorism security measures since 2001 (this figure does not include the costs of the wars in Iraq and Afghanistan).  Assuming that 2,300 Americans might have been killed by terrorists inside the United States, this implies a cost of more that $400 million dollars per life saved.  Typically when evaluating the costs of protective regulations, federal government agencies set the value of a life at about $9 million.”

Source: Reason.com, How Scared of Terrorism Should You Be?

Plainly, Trump and fear-mongers like him are catering to and inflaming irrational fears among Americans for political purposes.  This is demagoguery.

In the current election campaign to date, facts do not seem to matter.  Trump has been called to task, to no obvious effect, for his assertions that Mexicans are rapists and carry disease, and that New Jersey Muslims celebrated after 9/11.  Nor is he the only candidate to resort to falsehoods.  Carly Fiorina spoke of her horror at viewing (non-existent) tapes of aborted fetuses flailing arms and legs on operating tables.  Ted Cruz’s father was not a dangerous, anti-Castro rebel; he sprayed graffiti on walls.  Ben Carson was never offered a scholarship to West Point.  Trump over-states his wealth by several magnitudes; fails to mention the financial boost his father gave him when he was starting out; and down-plays his four bankruptcies.  Then again, all politicians lie, don’t they?

Though not a single terrorist incident in the US has had any sort of Canadian provenance, Canada is periodically accused of being the insecure back door to the US.  The Governor of Wisconsin, a border state once considered of like liberal mind to Canada, has even called for the construction of a wall along the border.  That Canada is Wisconsin’s main export partner with 47% of total state exports and that Wisconsin enjoys a C$625 million bilateral trade surplus was no protection for Canada.  At the time, Governor Scott Walker was being touted as a candidate for the Republican Presidential nomination and it can be surmised that Walker’s call for a wall was made for electoral purposes.

A dangerous isolationism is infecting the US.  Trump is fanning those fears and logic, fact or economic advantage play no role in his thinking.  Canada should not expect gentle treatment from a Trump Administration with regard to border security or anything else.  Our relative openness to Syrian refugees would be another stick for Donald Trump to beat us with.

 

Sven Jurschewsky has had postings to New Delhi, Zagreb, Vienna, Lagos, Bonn and Berlin. In 1999, while posted to Beijing as Head of the Political Section he was tasked to effect Canada’s recognition of the DPRK (in support of President Clinton’s “soft landing policy”). He has led or participated in security initiatives in crisis areas including, among others, Bosnia, Chechnya, Nagorno-Karabakh, the Baltic States and Slovakia. He has also at various times been assigned to handle OSCE, IAEA and UN affairs.  During his time at DFAIT’s Lester B Pearson building, he has served in a number of roles, including: preparations for the Rio Earth Summit; preparation of NAFTA feasibility studies; participation in Paris Club debt re-schedulings; Head of both the West and East German Desks, as well as the desks for Australia, New Zealand and the Pacific Island States. He headed the headquarters unit responsible for current intelligence assessment, the Global Security Reporting Program, liaison with Five Eyes Partners and related matters. In non-proliferation and arms control he played a significant role in the 1995 NPT Extension Conference. Before joining Canada’s foreign service, he taught philosophy at the University of Toronto.

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