CyberBulling, Real Estate Scrooge — Global Affairs & National Security — The Next Four Years.

                         trump-cyberbullied

    Trump has engaged in cyber shaming and this should be held up as a model. As a model for all school children of what never to do.

     Trump’s soul is one of the architype scrooge in real estate. Bluster, don’t pay your contractors, nor investors, and then file bankruptcy while deducting other people’s losses resulting in no tax liability for years.

     How will this play out in the world of diplomacy, international affairs and National Security?

   There is no doubt in my mind it will be disastrous. Why?

     For example, real estate negotiations to purchase property is essentially a zero sum game. As a buyer you get a lower purchase price and the seller gets less. You save money, the seller loses money. That winner-take-all approach is not going to work in a world where there are so many variables to consider. There is a multitude of national interests and power positions to assess as well as a global networking effect that magnifies unilateral actions.

     What about bluster and fear?

     I can tell you that historically even if a country gets its way initially as to an international agreement, as soon as circumstances change, the agreement will be repudiated and thrown out. Such unequal agreements are often the seeds of a newer and fiercer confrontation.

     Just look at what happened after the Versailles Peace Treaty that ended World War One. This treaty led in great part to the rise of the Nazis in Germany, to the overthrow of the Weimar Republic, and in a few short years to World War II. China is still unhappy about a wide-range of colonial era and other agreements imposed upon it from the Indian border to the Russian border.

   By the way Hitler was democratically elected and then appointed as Chancellor of Germany. To a great extent this resulted from the immense  resentment to the grossly one-sided peace treaty and grave economic stress caused by a U.S.-inspired trade war and the Great Depression.

     What’s my conclusion concerning Trump’s foreign policy over the next four years? Buckle up. We’re in for a ride. It may not be good.

 

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TRUMP, TRADE & STATE ECONOMIC DEVELOPMENT — Chaos Ahead?

Trump and Trade
Full working paper at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2876655

                               INTRODUCTION.

     The founding of the Virginia Colony in the New World by the Virginia Company reflected the British Empire’s notion that enlightenment would come through trade. By the post-World War II era this notion was unequivocally adopted by U.S. policymakers.

     This belief in the linkage between trade and the spread of liberal values has been the cornerstone of U.S. foreign policy for over 75 years. It was the underpinning of the architecture of the United States’ international trade and investment rules-based system that has evolved since the adoption of the Bretton Woods system, the General Agreement on Tariffs and Trade and subsequently, by the World Trade Organization (WTO). It resulted in the historical growth of liberal democracy in the United States and elsewhere globally. Donald Trump was elected, in large part, by those who now felt marginalized by globalization. Globalization and the liberal economic order is now under challenge by him and his trade policy pronouncements.[1]

     Now what?

TRUMP AND U.S. TRADE POLICY.

     The election of Donald Trump as a protectionist president proclaiming “America First” jeopardizes this post-war historical development of a firmly grounded international political system. He won the election by appealing to those harmed by globalization and his war against globalization.[2] He lost the nation’s global cities to rural voters and the Rust Belt. Now state, national, and international economic development is at stake.

     The recent failure of Trans-Pacific Partnership (TPP) to even come up for a vote in Congress and Trump’s recent vow to walk away from the TPP his first day in office[3] not only weakens the economic leadership of the U.S., but also the national security and foreign policy of the U.S. in Asia and the larger global system. This weaponing of trade ignores the strategic role of global trade in U.S. diplomacy. It represents a new age of deglobalization.[4] Most of all, it provides openings for other countries, namely China, to compete more effectively geopolitically and economically against the U.S. and to write newer rules governing global trade.[5] It puts US firms and industries at significant risk.[6]

     The TPP would have reduced some 18,000 tariffs for U.S. firms, strengthen intellectual property rights, impose restrictions on government-owned corporations, provide other advantages and protections for U.S. firms abroad.

     Indeed, China’s President Xi Jinping declared at the recent Asian-Pacific Economic Cooperation summit in Peru, given this new “hinge moment” in China-U.S. relationship, China is now the emerging leader in international commerce. That China will be broadening its own Asian regional trade arrangement, the Regional Comprehensive Economic Partnership, with fewer disciplines on trade than TPP, with newer members, perhaps including Singapore, Vietnam, Japan and Australia, among others.[7]

     Of course, Trump also has his sights on NAFTA and the WTO. Both those organizations contain withdrawal provisions. However, under the U.S. Constitution presidents have the authority to terminate international agreements at any time whether or not this would violate U.S. international legal obligations. If this would happen global legal matters would become much worse.

VIRGINIA IN THE GLOBAL TRADING SYSTEM.

     Before concluding, here a few comments concerning the significance of global trade for Virginia.

     First and foremost global trade is the critical core of Governor McAuliffe’s focus on developing a “New Virginia Economy.” His administration has conducted over 20 foreign trade missions to promote Virginia exports and foreign direct investment into the Commonwealth. Virginia has trade and related offices throughout the world. Governor McAuliffe’s trade policies can be traced directly back to those of Governor Baliles up through Governors Warner, Kaine and McDonnell.

     Here are some basic facts concerning global trade and economic development that the Virginia Economic Development Partnership provides on its websites.[8]

 

  • In the last five years foreign companies have created more than 15,000 new jobs and $4.6 billion in direct investment in the Commonwealth.
  • More than 700 foreign companies have operating subsidiaries or affiliates within Virginia.
  • Small and midsize companies can become major competitors through exporting, especially with the utilization of the Internet, websites, and digital ecommerce.
  • 95% of consumer demand is outside of the U.S.
  • Companies have increased 8-14% productivity due to export sales and competition.
  • 60% of small and midsize companies do business in more than six countries.
  • Workers at companies that export earn 15% more than workers at domestic-only companies.

 

     Here are some additional facts provided by the Port of Virginia on its website.[9]

 

  • 374,000 jobs, or 9.4% of Virginia resident workforce, work in port-related jobs.
  • Over $1.6 billion of total merchandise is received in the Port of Virginia’s Foreign Trade Zone.
  • The Port of Virginia’s Foreign Trade Zone produces over $430 million in exports annually.
  • $1.2 billion is invested in port-related economic development.
  • The Virginia Inland Port has generated investments totaling more than $620 million.

 

     While there is a recent report[10] by the Joint Legislative Audit and Review Commission questioning efficacy of specific foreign investment activities and state economic incentives there is overall realization that export trade activities have been outstanding and are essential to the well-being of Virginia in today’s global economy. Indeed, the General Assembly authorized the establishment of the new Virginia World Trade Corporation to promote exports and global trade that is to commence operation in 2017.[11] Thus, the General Assembly is attempting to keep Virginia in the forefront of global activities, ahead of many other states competing in the global system.

     While the focus on global trade has almost always been on the role of the federal government, it is states that have the principal responsibility of providing for the well-being of its citizens. Virginia has been very aggressive in promoting trade and investment for many years as a means of economic development in all areas of the Commonwealth, from the most rural to the most urbanized.

   But Virginia and other states are obviously subject to all of the crosswinds of laws, politics, and policies emanating from Washington. From trade agreements to trade sanctions and to reactions by foreign governments. It is the Congress that has exclusive authority to regulate international commerce and the federal government that has exclusive authority over states concerning trade under the Supremacy Clause (Article VI) of the U.S. Constitution. Presidents have great delegated authority and some inherent authority in trade as part of their general foreign affairs powers. Nevertheless, states have a very real and significant role in engaging in global trade.[12] This involves export and investment promotion activities as well as issues of state taxation.[13] A recent example is Virginia concluding a sister-state understanding on cyber development with Victoria, Australia.[14]

     Put very simply, the failure by the new administration in Washington, D.C., to protect and promote global commerce would have more than a trickle-down effect on Virginia and other states. From perhaps higher foreign tariffs to outright restrictions on new foreign investment. This is terrible for state economies still struggling from the 2008 financial crisis and consistent budgetary restrictions from Washington that impact Virginia from its defense industries to high-tech firms to agricultural exports and to almost everything else.

   Keep in mind that of all developed countries the United States has one of the lowest level of engagement with global trade as evidenced by the low ratio of foreign trade to overall GDP – 28% in 2015[15] and U.S. trade accounts for only 11% of global trade volumes. This should not be looked at as a problem but as an incentive to grow trade significantly.

Now returning to Trump’s trade policies.

CONCLUSION.

     With respect to U.S. domestic policy over the past eight years, the United States has incomprehensibly failed to provide effective legislation and policies directly aimed at those left behind in this new era of hyper-globalization.

     That was a terrible blunder, indeed. Instead of focusing on interest rates day after day the Congress and the President should have specifically targeted jobs. Those endangered by globalization, new global supply chains, technological developments in communications, robotics, digital commerce, among others. Unfortunately, we can’t go back. We can’t have a do-over. Trade is developing in many different ways regardless of trade policy.

     But to formulate trade policies primarily to protect rural and unemployed manufacturing workers is a grave mistake. It is global cities and states connected to the global economy that are the drivers of economic development and global prosperity, such cities contribute 80% of global gross domestic product.[16]

      Many other countries are facing this same political dynamics and policy choices including the UK, France and Turkey, among others. This is what has been called the rise of populist nationalism.[17] The rise of such corrosive nationalism led to nothing good in the 1930s, where it was nurtured by a mercantilist zero-sum view of global trade, unemployment, persecution of numerous populations, protectionism and extreme nationalism.[18]

      The challenge now is for the U.S. to put in place immediately a broad range of domestic policies regarding trade adjustment assistance, public and private reinvestment into infrastructure, and global tax reform to recapture the billions of offshore dollars being hoarded by U.S. multinationals.

     Both federal and state governments, with a broad outward-looking mindset, need to aggressively engage collectively the global system. This entails having complimentary domestic social and economic policies ensuring a competitive home front.

     Blustering away at globalization, walking away from the TPP, withdrawing from NAFTA or the WTO, and from leadership in the global trading system are not good for developing viable U.S. policies for trade, geostrategic relations or promoting state economic development.

     It’s certainly not too late to start over.

 * Stuart S. Malawer, J.D., Ph.D., Diploma (Hague Academy of International Law), is the Distinguished Service Professor of Law and International Trade at George Mason University (Schar School of Policy and Government). Dr. Malawer is a former Chairman of the International Practice Section of the Virginia State Bar, a recipient of its Hardy Cross Dillard Award, and formerly Special Editor of the Virginia Lawyer’s International Practice issue for many years. He recently served on the Board of Directors of the Virginia Economic Development Partnership (2008-2012). He is the author of recent books including Global Trade and International Law (Hein and Co., 2012), U.S. National Security Law (Hein and Co., 2009) and WTO Law, Litigation and Policy (Hein and Co., 2007). Dr. Malawer can be contacted at StuartMalawer@msn.com. His website is http://www.GlobalTradeRelations.net. An earlier version of this article appeared as an Op-Ed, Malawer “On the Importance of International Trade in the Era of Trump.” RICHMOND TIMES-DISPATCH (November 27, 2016).

 

[1] Editorial. “Donald Trump’s Victory Challenges the Global Liberal Order.” FINANCIAL TIMES (November 10, 2016).

[2] Chandy and Selde, ”Donald Trump and the Future of Globalization.” BROOKINGS UP FRONT (November 21, 2016) at https://www.brookings.edu/blog/up-front/2016/11/18/donald-trump-and-the-future-of-globalization/?utm_campaign=Brookings+Brief&utm_source=hs_email&utm_medium=email&utm_content=38230996 (Accessed November 26, 2016).

[3] Announced on a You Tube video on November 22, 2016. https://www.youtube.com/watch?v=8W84i3aeo60 (Accessed November 23, 2016).

[4] Sharma, “When Border Closes.” NEW YORK TIMES (November 13, 2016).

[5] Donnan and Schipani, “China Manoeuvres to Fill US Free-Trade Role.” FINANIAL TIMES (November 21, 2016); Editorial Board, “A Retreat from TPP Would Empower China.” NEW YORK TIMES (November 21, 2016).

[6] Porter, “A Trade War against China Might Be a Fight Trump Couldn’t Win.” NEW YORK TIMES (November 23, 2016).

[7] “China Touts its Own Trade Pact as U.S. Backed One Withers.” WALL STREET JOURNAL (November 22, 2016).

[8] http://yesvirginia.org/; http://exportvirginia.org/ (Accessed November 23, 2016).

[9] http://www.portofvirginia.com/ (Accessed November 23, 2016).

[10] Joint Legislative Audit and Revie Commission, MANAGEMENT AND ACCOUNTABILITY OF THE VIRGINIA ECONOMIMIC DEVELOPMENT PARTNERSHIP.” (Draft Report) (November 2016) at http://jlarc.virginia.gov/pdfs/reports/Rpt488.pdf

[11] HB 858 “Virginia World Trade Corporation.” (2016 Session of the Virginia General Assembly). Losi, “Virginia Doubles Down on its Commitment to Trade.” VIRGINIA BUSINESS (June 2, 2016) at http://www.virginiabusiness.com/opinion/article/virginia-doubles-down-on-its-commitment-to-international-trade; Malawer, “Virginia Needs Aggressive Trade Authority,” RICHMOND TIMES-DISPATCH (Letter-to-the Editor) (February 8, 2016).

[12] Bradsher,” In China-U.S. Trade War, Trump Would Have Weapons.” NEW YORK TIMES (November 10, 2016).

[13] See generally, “Globalism & States: International Trade & State Policies,” 16 VIRGINIA BAR ASSOCIATION JOURNAL 5 (No. 1, Winter 1990); Malawer, “‘States’ & International Transactions: Federalism & Foreign Affairs,” 37 VIRGINIA LAWYER 11 (No. 11, May 1989).

[14] “MOU between VEDP and Victoria, Australia.” GOVERNOR’S PRESS RELEASE (November 21, 2016) at https://governor.virginia.gov/newsroom/newsarticle?articleId=18349 (Accessed November 26, 2016).

[15] WORLD BANK NATIONAL ACCOUNTS DATA, AND OECD NATIONAL ACCOUNTS DATA FILES. http://data.worldbank.org/indicator/NE.TRD.GNFS.ZS (Accessed November 23, 2016).

[16] “About the Global Cities Initiative of the Brookings Institution.” https://www.brookings.edu/about-the-global-cities-initiative/ (Accessed November 24, 2016). See also, “Cities of the West are Bulwarks against Right-Wing Nationalism, Experts Say.” WASHINGTON POST (November 24, 2016).

[17] Fukuyama, “US against the World? Trump’s America and the New Global Order.” FINANCIAL TIMES (November 12, 2016).

[18] Editorial, “Donald Trump’s Dangerous Delusions on Trade.” FINANCIAL TIMES (November 14, 2016).

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Trump & TPP Withdrawal — Now What? — Domestic Crumps & Global Tsunamis? Most Likely.

tpp-flag

 

     Trump now promises to withdraw from the TPP on his first day in office. Great. This is the start of Protectionism Part II — Continuation from the Depression and Smoot-Hawley of the 1930s. This New Protectionism 2.0 is a disgrace for U.S. diplomacy and trade policy.

    It’s contrary to U.S. national interests, geopolitical strategy in Asia, and global trade relations generally. It also raises serious national security considerations and those of global competitiveness of the U.S. and its firms. Of course fostering higher prices for goods purchased by every American.

      Clearly this withdrawal plays into China’s hands. Helping them to trade more within their own region (the Regional Comprehensive Economic Partnership or the RCEP).  Helping China to develop their own trading bloc with our friends. It also opens the gates to allowing China to write the new rules-of-the road for global trade and its newer issues.

    What was Trump thinking? Really! Probably not much at all. Real estate deals are not the same as diplomacy. They are not zero sum games that maximizes profits and cash flow for one party and commissions to a third party. Obviously, withdrawal from TPP is throwing a bread crumb to the Rust Belt and to its unemployed workers with outdated skills.

     The problem is not trade but technology and long-term demographic changes, among others.. It is also the failure of public and corporate policy to reinvest funds into infrastructure of all types and thus create widespread employment. This would help those suffering from the harshness of globalization, technological changes as well as demographic changes.  

     Withdrawal from TPP is not going to help anyone.  It will only cause an avalanche of international political and economic tsunamis for the U.S.  Just wait.

 

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TRUMP & TRADE — BACK TO THE FUTURE?

                                 Trump and Trade
     The founding of the Virginia colonies in the New World by the Virginia Company reflected the notion of the British Empire that through trade would come enlightenment. By the post-war era this was unequivocally adopted by U.S. policymakers.
     This belief in the linkage between trade and the spread of liberal values has been the cornerstone of U.S. foreign policy for over 75 years. It was the underpinning of the U.S. architecture of a rules-based system of international trade and investment that has evolved since the adoption of the Bretton Woods system, the GATT and subsequently by the WTO. It resulted in historical U.S  and global  growth and of liberal democracy.
     Now what?
     The election of Donald Trump as a protectionist president proclaiming “America First” jeopardizes this post-war historical development of a firmly  grounded international political system. But also state, national, and international economic development is at stake.
     Today’s failure of TPP to even come up for a vote in Congress, not only impairs the economic leadership of the U.S., but also the national security and foreign policy of the US. In both Asia and the larger global system. It provides openings for other countries to compete more effectively against the US politically and economically. It puts US firms and industries at risk.
     The incomprehensible failure of US domestic policy over the last eight years was its failure to provide effective legislation and policies directly aimed at those left behind in this new era of hyper-globalization.
     Yes. That was a terrible blunder. Instead of focusing on interest rates day-after-day we should have  specifically targeted jobs. Period. Too bad. We can’t go back.  No, we can’t have a do over.
      By the way many other countries are facing this same failure including the UK, France and Turkey, among others. This is what has been called the rise of ‘populist nationalism.’ It led to nothing good in the 1930s where it was nurtured by unemployment, persecution of populations, protectionism and extreme nationalism.
      But the challenge is now for the U.S. to put in place immediately a broad range of domestic policies of trade adjustment assistance, public and private reinvestment into infrastructure, and global tax reform to recapture the billions of offshore dollars being hoarded by US multinationals, among others. This is a start. To do otherwise is crack thinking that would unfortunately reflect our national opioid scourge. One scourge is enough.
     It’s certainly not too late to start over. No one wants a replay of the 1930s or the end of the last era of globalization that was ended by a single gun shot in Sarajevo.
                            trump-and-wto
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Global Mergers & State Economic Development — Any National Security Concerns?

                  mergers

     Here’s several recent headlines concerning US mergers, Chinese acquisitions globally, and state economic development in the US:

… US mergers have skyrocketed this month to make October the busiest month ever for mergers;

… Chinese acquisitions and investment globally have a skyrocketed  —  raising national security concerns in a range of nations from Germany to the US  to Australia;

… Chinese investment into various American states recently, for example, Ohio and Virginia (Genworth) , are looked upon by state officials as being vital to state economic development.

     What’s my take on this?

     Mergers within the US by US firms are increasing significantly because corporations have a lot of cash and are trying to position themselves for an even more hyper-competitive environment. Chinese firms also have a great deal of cash and are also trying to  position themselves for an even more hyper-competitive global environment. States want Chinese investment to assist in their economic development to counter the harshness of the global economy and stagnant state revenues.

    Much of this activity raises various issues including growing concerns over national security as more domestic industries fall to foreign (Chinese) ownership.

     To focus on just one aspect of this scenario, that is not discussed generally, is the growing tension between foreign investment and state economic development.

     While such investment previously involved mainly European investments that was not much of a problem. But as this investment is now more-and-more Chinese newer concerns have arisen. Not only in the US but also abroad. That is the tension between foreign investment for economic development and the national security concerns of the nation.

    There is no simple answer to this. However, the broad answer is that foreign investment is essential to state economic development in the US. This is an obvious development given the globalization of trade, investments and global supply chains.

    But it is also clear that there may be some justifiable national security concerns on the national level that preempt state concerns. The challenge is to make sure that the national security rationale doesn’t merely provide a convenient cover for protectionist policies.

     The integration of global finance and business are the essential forces driving future state economic development. Good state and national policies are needed to promote such local development.

 

…. “New Record for US Mergers.” Wall Street Journal (Oct.28, 2016). 
…. “A View of the Road Ahead.” Washington Post (October 27, 2016).
…. “Resistance to China’s Acquisition Spree Stiffens.” Financial Times (October 26, 2016).
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Democrats, Republicans and Globalization — Convergence on Anti-Trade?

Trump and Trade

There is a sense that the politics of globalization has caused the Democratic Party and the Republican Party to change position on global trade. That opposition to trade is now a safe policy. This has happened before. Before this era of globalization. This is not the first time that these parties have changed their positions on global trade.

At the end of the 19th century the Republicans were the protectors of the monopolizing trusts of the Gilded Age. They of course through Harding and Hoover accelerated the Great Depression during the interwar-period. It was only after World War Two they became free trade supporters.

Likewise, the Democratic Party under FDR and Cordell Hull ushered in policies of free trade in the 1930s with the passage of the Reciprocal Trade Agreements Acts in 1934, at the depth of the depression. This remained pretty much the position of the Democratic Party until recently. Opposition to free trade increased throughout the 1990s and came full blown the last few years, even though President Clinton and President Obama were able to hold back this tide …. until now.

What’s my conclusion? The major parties have changed their positions on trade over the last 100 years or so. This is not a unique development. But it is  unfortunate that the position of both candidates for the oval office now represent a similar anti-trade position.

Globalization has certainly been a cause of this convergence. But other factors are at work. The best public policy as we go forward this to formulate domestic polices addressing the inequality that has developed because of the uneven benefits that stem from increased global trade.

This has not been done. For example, such policies include, better trade adjustment assistance, greater reinvestment into infrastructure by both the private and public sectors, and a better and a more positive attitude towards trade and the global system.

You can’t build a dike to hold back these developments. We need better policies by both the corporate and public sectors to engage more thoughtfully in the global system today, at all levels. Hopefully, the political parties will change their trade policies once again.

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Aggressive Engagement with the Global Economy.

        obama-and-trade-deal

President Obama in a recent piece for THE ECONOMIST discussed globalization, technology, change & their impact on multilateral institutions, trade agreements, and immigration. He proposed various major structural changes.

    His description of the problem was particularly interesting and added one new element not heard before — the role of culture.

     He argued that global anxiety is caused by globalization & this shapes negative attitudes towards trade agreements and multilateral institutions. He then focused on the role on culture that has contributed to this general ever-growing anxiety.

    In particular, as manufacturing jobs disappeared so did a host of support systems, ranging from unions, local charities and church groups. This contributed to the failure to support those most of need  of support. He then concluded that we must address in a positive manner these issues. But not turn back to the many forms of protectionism.

     A number of other articles have discussed all of this with reference to Donald Trump, growing income inequality, and implications for the passage of the TPP. All of these issues were touched upon by President Obama either explicitly or implicitly.

     What is my take on the President’s article and the general tenor of the recent comments on the rise of trade as the premiere issue in this presidential election? The president is correct. This is truly a historical moment. Trade has never been the pivotal issue in presidential elections.

     The policy remedy is to recognize generally the changes brought about by globalization. But the answer, in particular, is aggressive engagement with the global economy at all levels of government and society. Not building walls of protectionism.

    What do they say? The best defense is a good offensive. There is no alternative. History has proven this proposition. 

 

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