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September 22, 2016 | US-EU Trade War Looms (Don’t Just Blame Trump); Spotlight on Hillary’s Global “Trade Prosecutor”

Mike 'Mish' Shedlock

Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.

A WTO ruling today, against Airbus, is bound to throw fat on the protectionist fire, no matter who wins the election.

If you think Hillary scores better than Trump on trade issues, you are mistaken. They are equally bad.

Please consider WTO Gives Boeing Lift With Airbus Ruling.

The EU has failed to eliminate billions of dollars in illegal aid to Airbus, according to the World Trade Organisation, handing US rival Boeing one of the biggest triumphs on the global stage in its 12-year battle with the European aircraft maker.

The WTO also found Airbus’s newest passenger jet, its popular A350 which competes head to head with Boeing’s 787 Dreamliner, would never have flown without the “direct and indirect effects” of past EU subsidies.

Washington, which claims the WTO ruling applies to some $22bn in illegal aid, hailed the findings as a “sweeping victory” that would redress years of damage to the US aerospace industry from wrongful European subsidies.

The row has long been one of the most contentious battles in the global trade system. The dispute reached a head in 2010 and 2011 when the WTO ruled both Boeing — which won government money through contracts for defence and space business — and Airbus — which received aid to launch many aircraft repayable only if they were profitable — had collected billions in unlawful assistance.

Thursday’s ruling determined the EU failed to comply with the 2011 order to unwind the illegal assistance within six months. If the ruling stands, the US would have the right to impose tariffs on any goods imported from the EU; Washington has threatened levies totaling $10bn.

Thursday’s ruling is expected to be followed next year by a similar determination over whether the US has unwound its aid to Boeing. The WTO is also weighing the EU’s claim against tax breaks granted Boeing by Washington state.

The WTO ruling comes as tensions between the EU and US have already hit one of their highest levels following Brussels’ order for Apple to pay up to €13bn in back taxes to Ireland, plus interest. Deep divisions over a transatlantic trade deal have added to the strain in EU-US relations, with little prospect that they will strike a deal this year as planned.

Subsidies? Sure

Undoubtedly the WTO ruling on subsidies is correct. Undoubtedly the US is guilty as well, and in more ways than one: tax breaks are obvious.

But what about constant warmongering that leads to bigger and bigger defense contracts. What about the fact that trillions of dollars of spending vanishes without a clue where it went?

For details, please see 16,000 Files Vanish: Inspector General Says Army Has No Idea How It Spent $6.5 Trillion.

Where did the money go? No one knows precisely, but we do know a bit about cost overruns.

For example: Boeing Racks Up Another $393M In Cost Overruns On KC-46 Program.

In theory, Boeing is supposed to eat those cost overruns? Do they? What about $640 toilet seats? That story goes back to 1985, but the pentagon made headlines with of $640 toilet seats, $660 ashtrays, $7,600 coffee-makers, and $74,000 ladders.

In 2011, Boeing charged the Army $1,678 apiece for rubber cargo-loading rollers that actually cost $7 each.

In 2012, Sen. Tom Coburn (R-Okla.) slammed $68 billion in frivolous Pentagon spending: “Using defense dollars to run microbreweries, study Twitter slang, create beef jerky, or examine Star Trek does nothing to defend our nation,” said Coburn.

In 2013, The military and VA are found to have spent $1.3 billion on a failed health records system for vets. That’s after the Pentagon already spent $2 billion on an unsuccessful upgrade of its electronic medical records system.

Those items are from a 2013 report called The Long, Expensive History of Defense Rip-Offs.

Subsidies, Direct and Indirect

So there are subsidies, and there are hidden subsidies in the form of waste and graft and lies and theft (with the Pentagon purposely turning a blind eye). Competitive bidding? Hah!

The EU-US bickering is a classic example of the pot calling the kettle black.

What to Do About It?

The ideal solution is not tit-for tat tariffs, but the end the graft, end the waste, and end the subsidies. Free trade will benefit the first nation that tries it, regardless of what any other nation does.

Unfortunately, the most likely thing is a destructive round of counterproductive tariffs by the US on the EU, then the EU on the US.

You can already see the start of tit-for-tat responses with EU tax rulings against Apple, partially in response to US fines on Volkswagen.

For my take on Apple, please see Apple Grab: How Should Ireland and US Respond to EU €13 Billion Ruling Against Apple?

Clinton Proposed Trade Prosecutor

trade-prosecutor

For all the fearmongering against Trump’s trade policies, there is every indication that Clinton would be just as damaging.

On August 11, Clinton Pledged a Tougher Line on Trade.

In her address, Clinton promised to create a new position of trade prosecutor and to triple the number of enforcers as she responded to Mr Trump’s hard line agenda on trade and his claims that countries such as China and Mexico have gained an unfair advantage over the US.

Can You Tell Trump, Clinton, Sanders Apart?

Inquiring minds may wish to consider Hillary Sounding Suspiciously Like Trump On Trade.

Finally, please consider my previous quiz of the day: Donald Trump, Bernie Sanders, Hillary Clinton – Who Said It?.

When it comes to trade, don’t just blame Trump. They are all wrong, and to similar degrees.

Mike “Mish” Shedlock

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September 22nd, 2016

Posted In: Mish Talk

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