Donald Trump has stated that he may just invoke the withdrawal clause of the North American Free Trade Agreement (NAFTA). Something he said he would do during the 2016 US elections.
That has frightened more than a few of the ruling class in this country. They have not begun to preach doom and gloom about it because doing so will not swing Donald Trump one way or another. It would be different if someone in Canada was making these statements.
So, would the ending of the NAFTA really be that big of a deal? Probably not.
Free trade existed between our countries before the NAFTA and it will continue to exist after it is gone. At the time the NAFTA was ratified in North America over 85% of the trade between Canada and the United States occurred without any government interference. The NAFTA and the previous Free Trade Agreement were designed to create free trade for the remaining 15%. Since then the amount of trade that now takes place without any government interference is greater, although not as much as the NAFTA proponents would have us believe. It is now around 90%.
In other words the impact of the NAFTA on the Canadian economy has not been that great and its demise would not be such a disaster for the Canadian economy. Certainly, those sectors of the economy that are most vulnerable to American protectionism would suffer somewhat but over all things would proceed pretty much as business as usual.
In fact, there might even be some hidden benefits to the end of the NAFTA. With the NAFTA, an individual company can sue the Canadian government if it believes that a government is pursuing policies or laws that interfere with the ability of that company to sell its goods or services in Canada. In effect, that has hamstrung Canadian governments when they might have wanted to pass more strigent environmental, labour, health and safety laws and regulations. Further, the more conservative elements of our society have been slowly eroding our single payer health care system and the more progressive elements of our society have not been able to reverse them because once a part of the health care system was privatized it became subject to the NAFTA. So, reversing the privatization was impossible because American or Mexican firms could sue a government, under the NAFTA, to prevent it.
Without the NAFTA progressives in this country would have more freedom to reverse some of economic policies and laws pursued by conservatives without having to worry about running afoul of the treaty.
Which brings me to one of the reasons why the ruling class in this country is so frightend of the end of the NAFTA. I am certain they realize that the actual negative impacts on the Canadian economy would be manageable. What really frightens them is some progressive government may just decide to use its new found freedom in ways that they would not like.
Monday, January 15, 2018
Friday, January 12, 2018
The Republican Tax Plan and the Western Position in the World
Just before Christmas the Republicans in the US Congress passed a tax plan that by all accounts was grossly unfair to ordinary Americans by taking money from them and giving it to corporations and the wealthy in the form of huge tax cuts.
They did this despite the fact that all accounts also indicate that the plan was hugely unpopular, not just with Democrats but with Republicans as well. Some would ask why they did this as it would seem to be political suicide. However, I would point to the fact that Roy Moore only lost his election bid by 22,000 votes even though the final few weeks of that campaign occurred at the height of the debate about the Republican tax plan. In other words Republican voters in Alabama knew what was coming but they still voted for the Republican candidate in droves. If Mr. Moore had not had accusations of being a sexual predator hanging over his head the would have won in a walk despite the fact that his voters would have been voting to screw themselves.
The deeper question I have is why the Republicans decided to head in this direction at all? It seems very mean spirited and shortsighted. I think a clue to a reason why can be found in a previous post of mine here.
I have argued in this space before that a change is coming to the economic pecking order in the international community. China is slowly but steadily gaining on the US economy and it is on track to overtake it within the next decade or so. It was slowed by a recent recession but that was only a temporary delay in progress and not a permanent slowdown. Further the actions of the American government and business are only accelerating the change.
I have further argued that once China overtakes the US as the largest economy in the world things are going to change drastically in world politics. There have been many changes in which country has dominated the world economy over the last five to six centuries but the one thing that they all had in common was the change was always from one Western country to another. That is, countries with similar outlooks with regard to religion and philosophy took over from each other. Hell, the last changeover was from Great Britain to the United States, two countries that were similar in many ways including speaking the same language.
The next change is going to be from a Western country to an Eastern country, which has totally different outlooks on the world and world history. As well, there is a history of the West abusing China in the not too distant past that I am certain is on the minds of a few leaders in China.
For this reason I believe as China gains power it will change the way the world economy and world politics works and it will change them in ways that will be detrimental to Western countries. It will not be vindictive it will just be China centric and since it will increasingly be in a position to call the economic and political shots there will be very little that the Western countries will be able to do about the Chinese approach.
The ability of the Western world to generate wealth at its current rate will probably be greatly reduced and many of these Western countries will fall out of the top tier of economies in the world. I believe the US is one of those countries. Certainly it will remain the largest economy in the Western world but it will not have the heft it has now in the broader world economy. In other words, the Western countries are poised to become 2nd world countries.
As a reminder of what that means I will explain. Since the end of the Second World War the big Western economies were the First world countries. They called the economic shots and established (imposed) the Bretton-Woods system on the world economy.
The Second world economies were relatively wealthy countries within the world economy but they were completely beholden to the First World for that wealth. It was only through the liberal trade practices of the First World that the Second World countries could maintain their wealth generating capability for they had no power to affect the world economy in their favour on their own. That is the direction the West is currently heading. In the not to distant future they will no longer be in a position to impact the world economy to the same extent they now can.
There were two things that were very common about 2nd world countries in the past. The first is that, although they were relatively wealthy that wealth was heavily concentrated in the hands of a very small political and economic elite. The ordinary citizens of these countries tended to be poor, often desperately so. The second feature of these countries is they tended to have authoritarian political systems were these very same elites used the power of government to continually concentrate what wealth their countries generated into their hands.
That appears to be the direction the West, in general, and the US, in particular, are headed. The political and economic elites are taking steps in the US to contentrate power and wealth into their hands at a prodigious rate. They are not even trying to disguise it anymore. As well, authoritarianism is becoming more rampant in the US and it is spreading from the top down. It was not surprising to see a teacher being hauled away in handcuffs for questioning the salary of a school superintentant when it should have been. It should be noted however that this is not just a US phenomenon. We are seeing it happening in other Western countries, just not as enthusiastically as in the United States.
A big change is coming in the economic and political pecking order in the international community. A change whose magnitude has probably not been seen in centuries. It is going to have a profound negative impact on the wealth generation abilities of many of the countries that are currently on the top rung of the world economy and it is likely going to knock them off of that top rung. In other words the economic pie is going to become much smaller in these countries which means there will be much less to go around. I believe some in the West have already seen this and they are taking steps to be certain that they will have a much bigger portion of that pie once it begins to shrink. That might explain the actions of the Republican Party in the United States.
They did this despite the fact that all accounts also indicate that the plan was hugely unpopular, not just with Democrats but with Republicans as well. Some would ask why they did this as it would seem to be political suicide. However, I would point to the fact that Roy Moore only lost his election bid by 22,000 votes even though the final few weeks of that campaign occurred at the height of the debate about the Republican tax plan. In other words Republican voters in Alabama knew what was coming but they still voted for the Republican candidate in droves. If Mr. Moore had not had accusations of being a sexual predator hanging over his head the would have won in a walk despite the fact that his voters would have been voting to screw themselves.
The deeper question I have is why the Republicans decided to head in this direction at all? It seems very mean spirited and shortsighted. I think a clue to a reason why can be found in a previous post of mine here.
I have argued in this space before that a change is coming to the economic pecking order in the international community. China is slowly but steadily gaining on the US economy and it is on track to overtake it within the next decade or so. It was slowed by a recent recession but that was only a temporary delay in progress and not a permanent slowdown. Further the actions of the American government and business are only accelerating the change.
I have further argued that once China overtakes the US as the largest economy in the world things are going to change drastically in world politics. There have been many changes in which country has dominated the world economy over the last five to six centuries but the one thing that they all had in common was the change was always from one Western country to another. That is, countries with similar outlooks with regard to religion and philosophy took over from each other. Hell, the last changeover was from Great Britain to the United States, two countries that were similar in many ways including speaking the same language.
The next change is going to be from a Western country to an Eastern country, which has totally different outlooks on the world and world history. As well, there is a history of the West abusing China in the not too distant past that I am certain is on the minds of a few leaders in China.
For this reason I believe as China gains power it will change the way the world economy and world politics works and it will change them in ways that will be detrimental to Western countries. It will not be vindictive it will just be China centric and since it will increasingly be in a position to call the economic and political shots there will be very little that the Western countries will be able to do about the Chinese approach.
The ability of the Western world to generate wealth at its current rate will probably be greatly reduced and many of these Western countries will fall out of the top tier of economies in the world. I believe the US is one of those countries. Certainly it will remain the largest economy in the Western world but it will not have the heft it has now in the broader world economy. In other words, the Western countries are poised to become 2nd world countries.
As a reminder of what that means I will explain. Since the end of the Second World War the big Western economies were the First world countries. They called the economic shots and established (imposed) the Bretton-Woods system on the world economy.
The Second world economies were relatively wealthy countries within the world economy but they were completely beholden to the First World for that wealth. It was only through the liberal trade practices of the First World that the Second World countries could maintain their wealth generating capability for they had no power to affect the world economy in their favour on their own. That is the direction the West is currently heading. In the not to distant future they will no longer be in a position to impact the world economy to the same extent they now can.
There were two things that were very common about 2nd world countries in the past. The first is that, although they were relatively wealthy that wealth was heavily concentrated in the hands of a very small political and economic elite. The ordinary citizens of these countries tended to be poor, often desperately so. The second feature of these countries is they tended to have authoritarian political systems were these very same elites used the power of government to continually concentrate what wealth their countries generated into their hands.
That appears to be the direction the West, in general, and the US, in particular, are headed. The political and economic elites are taking steps in the US to contentrate power and wealth into their hands at a prodigious rate. They are not even trying to disguise it anymore. As well, authoritarianism is becoming more rampant in the US and it is spreading from the top down. It was not surprising to see a teacher being hauled away in handcuffs for questioning the salary of a school superintentant when it should have been. It should be noted however that this is not just a US phenomenon. We are seeing it happening in other Western countries, just not as enthusiastically as in the United States.
A big change is coming in the economic and political pecking order in the international community. A change whose magnitude has probably not been seen in centuries. It is going to have a profound negative impact on the wealth generation abilities of many of the countries that are currently on the top rung of the world economy and it is likely going to knock them off of that top rung. In other words the economic pie is going to become much smaller in these countries which means there will be much less to go around. I believe some in the West have already seen this and they are taking steps to be certain that they will have a much bigger portion of that pie once it begins to shrink. That might explain the actions of the Republican Party in the United States.
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