Fixing Problems by Expanding Markets

Prospects for higher US wages and business earnings depend on some initiatives that we can steer.  One smart step forward would be a reduction in federal tax rates matched against the elimination of some loopholes for businesses and consumers.  A second step forward would be to encourage repatriation of trillions in earnings that businesses parked offshore to protect their profits from excessive US taxation.  A third, more tedious step would be to clear away regulations that government bureaucrats use to pick winners and losers in the private sector, a common abuse in the telecom industry. 

Where there is no substantial risk to public health, regulations should not preclude opportunities that US workers and businesses can pursue to increase their incomes.   Nevertheless, federal agencies often shutter opportunities in mining, energy and agribusiness.   Likewise, there are tariffs and non-tariff regulations that shrink our exports to the European Union and reduce jobs for US workers who make those exports.  The financial benefit of increased exports does not flow uniformly to all employees and those left out are vocal.  Additional bilateral trade could increase US exports to the EU by 8% or $254 billion and increase exports to the US by $233 billion per year.  This increase in economic activity would be a welcomed companion to tax reductions and regulation removals.

The time to repair the tariff impediments to US exports is right now because financial and political frictions within the EU whet its appetite for increased trade with the US.  German Chancellor Merkel is headed for a September 24th election, although her immigration policy undermined her support and many Germans feel their nest eggs are being raided to support immigrants and profligate spenders in the EU.  We could be a welcomed offset to the trade losses due to Britain’s exit from the EU.

Greece is again calling for bailout funds that the EU agreed to when Greece achieves measured progress in social policy and budgetary restraint.  That progress has fallen short, so the IMF and Germany are reluctant to provide the next tranche of Greek bailout.  If this disagreement cannot be sorted out, a new “Grexit” may follow.  The tension will increase by July when Greece faces a balloon payment on its earlier bailout loans. 

In France, Marine Le Pen, the right wing’s candidate for president, has a 40% chance of winning on April 23rd 2017.  Her biggest rival, Marcon, is a socialist and has a better chance, but public concerns are growing over his supposed allegiance to US banking interests.  That “scandal” may be fake news from Russia, but if the dirt sticks, it would throw the Presidency to Le Pen on May 7th.   Le Pen indicated she will run a poll on whether to exit the EU, possibly setting up a “Frexit” after her victory.

Britain’s negotiations to exit the EU alliance starts in May 2017.  The EU has presented a surprisingly large “bill” (more than $60 billion) they expect Britain to pay before the exit.  The bill is a starting position for negotiating the remainder of a 7-year budget Britain agreed to, plus pension contributions for EU employees and other “ballast” meant to slow Britain’s progress.  

In Dec 2016, Britain’s exports were $8.5 billion in total to Germany, France and Switzerland, and Britain imported $9 billion from those countries.  In that same month, Britain exported $3.2 billion to the US and imported $4.0 billion from the US. 

The eroding commitment to the EU voiced in Britain, France and Greece is causing leaders to wonder about the future of the alliance.  The growing nationalist sentiment in Netherlands, France, Italy, and Germany leave the Eurocentric politicians in France and Germany looking for some positive news they can reference while they try to sell a victory at the polls based on EU-optimism. 

Britain’s exit from the EU will reduce exports and therefore employment and incomes.  The EU and Britain will each suffer a loss of more than $100 billion per year.  If Germany and France can negotiate a low or no-tariff deal with the US, it could restore the trade they lose with Britain.  The political and economic value of such a deal could be huge on both sides of the Atlantic.

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