What is the Definition of Fair Trade?

Fair trade is one of the most burning issues dragging economic integration in the world. Achieving fair trade requires that nation agree and enforce what is taking too long to incorporate into the current WTO framework.

· Regional trade blocs like MERCOSUR , ASEAN, OATUU and others need to embrace international standards. UNCATAD is the international agency leading the way for collecting trade data on imposed tariff measures that cover most countries and can be freely disseminated.

· A burning issue in the markets today, is the lack of transparency on trade regulations by country. “Drawer” regulations that are made on the fly at border crossings impose a hidden cost on trade specially, in underdeveloped countries.

· In Africa, many exporters lose sometimes half of their potential export earnings because European Union regulations are different from the international standards set by the International Organization for Standardization. By adopting international standards of global best practices in trade should result in the promotion of sustainable development while decreasing negative impact on the environment.

· Adopting standard rules avoids the burden of red tape imposed by each country’s regulatory regime. The rules and guidelines are already available on the issue and embedded in WTO and OECD rules but the overall application of these set principles is in many cases missing.

· Procedural requirements at border crossing need to have technical assistance and training of law enforcers so that countries join together and accepted the rules of trade in order to streamline each country’s regulatory regimes and thus, reduce procedural obstacles.

Trust issues

Public health and environmental protection, has been the backlash against globalization and a growing influence of elites protecting their own turf to the detriment of everyone else. Moreover, just by simply reducing barriers or reducing restrictions to trade does not have linear correlation specially, when the mix includes influential politicians or well-connected elites. At the end of the day countries must evaluate if non-tariff measures to trade like subsidies are legitimate or be used as trade offs to bring about trade fairness and efficiency. Only then adopting these complementary policies, can individuals and the markets have credibility and fairness and become the vibrant drivers of jobs and incomes.

“The World Economic Forum’s E15 Initiative has emphasized the importance of efficient global trade in fostering economic growth. The scale and complexity of the modern, globalized, system is made clear by visualizations such as these, of global shipping.”

TTIP is a trade agreement currently being negotiated by the US and EU that would bring tariffs and regulatory barriers to minimum levels to transatlantic trade and investment. The goal is that each side of the Atlantic seaboard will give access to their companies to each other markets with standardized regulations and procedures.

It has been reported that the US and EU countries together represent $1 trillion in trade every year. This agreement would cover 45% of global GDP, making the TTIP the world’s largest trade agreement which would include pharmaceuticals, automotive, energy, finance, chemicals, clothing and food and drink among others.

The Internet is taking trade to a new dimension into what is now becoming push button trade in a fast pace environment which requires factories close to the markets and new distribution cyber platforms. The trend is provoking changes in the market and corporations are adapting by using multi-layer global platforms and supply chains. The age of digital transactions is here to stay in a fast economy that in the past tended to centralize for better management and quality control. But cloud computing is changing all that generating new level of cooperation between producers the supply chain and the ultimate consumer.

Big data management is surging not only as a new field in science but in commerce as well as giants like Alibaba, eBay, Amazon and the such apply this new technology not only as a point of sale but also to determine consumer preferences and tastes as new “learning” algorithms enter the market like autonomous driving cars.

This expanding global markets has been aided by the lowering cost of shipping transportation for long distance given new markets access to otherwise unreachable opportunity for smaller manufacturers and cottage industries providing consumers with more choices and prices.

Adapting and retooling is the new rule of global markets, re-engineering the supply chain, big data analysis and Internet cloud platforms are bringing new realities to trade beyond Bretton Woods and WTO. As a result, uninformed politicians like Trump should smell the coffee and bring the US to the new dawn of reality as international trade evolves without the intervention of hard headed and ignorant politicians.

What is meant by data management life cycle in the context of enterprise IT and value chain 

The life cycle of data varies with the needs of a particular enterprise: For instance the analysis of a flight data recorder’s life cycle ends with the one flight. But if a comparative analysis needs to be completed among several flights over a period of time the life cycle becomes flexible. In general, data life cycle management (DLM) is a policy-based for a particular enterprise as it manages the flow of an information system goes through its life cycle starting with recording the data points, classification, analysis and storage for its usefulness until time dictates the data has become obsolete and is deleted.

How is data integrated into the IT value chain is again particular to each enterprise’s needs. In general it can be defined as a series of activities that an enterprise performs in order to deliver its product or service. Either a product or a service must move through a chain of events before is delivered adding value at each step of the process. The value chain framework is designed for each activity in particular but in general is divided in two main categories:

1- Primary actions for production or delivery of goods or services for a business to be and function in a socio-economic environment

2- Supporting activities like logistics or financial needs which assist in providing efficiency of the primary activities as the they move through the value chain.

Quality control over data is increasingly important for organizations that make data driven decisions. However, several measures are essential for these activities as the expansion and management of data flow become challenging.

Presently, many organizations have an increasing demand for high quality data as the bar rises for analysis techniques and the availability of quality data, is demanded in order to comply with new regulations and legislation. However, this demand for quality data also implies quality sourcing not limited to the data residing in the organization’s IT system

High data quality is also demanded for the improvement of organizational performance, logistics support, growth, competitive advantage and compliance with the growing need of data collection regulations.

Various sectors of the economy are subject to stricter regulations like medical devices, financial services, telecommunication, pharmaceutical, consumer markets and others that collect personal information that are the subject of privacy legislation.

Data complexity and growth is also a challenge for an organization where it is unclear the understanding of data quality and that data management is an IT department responsibility rather than a business side responsibility.

Unfamiliarity with collection methods within the organization such as robotic operated processes, especially if data is transported and transformed as it moves through the chain. Particularly when transformations are complex, it can require an IT specialist to determine which data elements belong to one another.

The inherited complexity of tracking data increases in companies with multipolar IT environments caused by many legacy systems that need improvement or replacement from its existing reporting flow. A known factor is that the more computing is required within a flow, the more complicated it is to capture and interpret its meaning

 NAFTA issue? (2019).

Other than replacing NAFTA acronym an unpronounceable letter soup as U.S.M.C.A., Trump only made cosmetic changes in order to put his own stamp of success on the agreement.

But in order to understand the issues address by the NAFTA agreement some economic principles need to be introduced.

1- Labor-intensive mass manufacturing used to be profitable in the U.S., but technological improvements and rising labor productivity combined with higher wages decreases the bottom line of many firms. These firms then adopt capital-intensive production technologies such as robotics or outsourcing jobs to other countries with cheaper labor cost of production.

2- Outsourcing also occurs when manufacturers use obsolete or older technologies that requires finding domestic workers at low wages or make the choice of either go out of business or find a profitable location to move its business.

These are the two burning issues that manufacturers together with policy makers are facing in today’s economic reality and must find a balance among interests. Trying to stop capital from finding safe heaven for profit domestically or abroad is counter-intuitive for a market economy.

Take Trump’s most visited argument against international trade—Trade Deficits—which, he uses as an illusion of the facts that blur the underlying issues.

As a reserve currency the U.S. can purchase goods from the world market simply by printing money or printing treasury obligations that are sold mainly to Asian countries, particularly, China and Japan. This exercise is an exchange of printed paper for goods which are destined to be accounted as trade deficits. However this issue is not new for after the end of the Bretton Woods system, the U.S. surged as stable preferred reserve currency. Financial trade markets as well as in manufactured goods markets begun to show a growing trade deficits that continue today and recognized among other reasons, in the poor saving rates of Americans.

A glance at macroeconomic theory reveals that in simple terms a trade deficit occurs when a country's imports exceeds its exports, in other words, an outflow of domestic currency to foreign markets. Economist use international trade balance among other factors to measure current account surplus or deficit. Net capital outflows are related to net exports, therefore, related to gross domestic production. The equation used to show the relationship between the current account, savings and investment is:

S = I + NX = I + NCO

S = savings

I = domestic investment

NX = net exports

NCO = net capital outflows

“The current account includes net income, such as interest and dividends, and transfers, such as foreign aid, although these components make up only a small percentage of the total current account. The current account represents a country’s foreign transactions and, like the capital account, is a component of a country’s balance of payments.”

The current thinking in trade economics is a choice for a company that has labor intensive manufacturing to either go out of business, or migrate to developing nations in order to shift its comparative advantage.

As a result advance economies like the U.S. experience de-industrialization and enter into a service-oriented welfare state that offers new jobs in technological evolution like healthcare, insurance and financial services that need to adopt advanced information technologies and hire highly skilled workers from a pool of well educated work force.

A trade war with China cannot stop the decline of American manufacturing and employment when it is driven mainly by “rapid technology progress, such as automation, robots and artificial intelligence.” The unintended consequences of such strife with creditor nations may significantly reduce American’s welfare and cause the U.S. to lose its leadership in free trade and its status as reserve currency. The result could mean a sell off by creditor nations or just dump U.S. securities bringing chaos to financial markets.

Walking out of WTO, renaming NAFTA or starting trade wars is not going to change basic economic principles of the financial or manufactured markets but could instead provoked a world recession as insecurity In the money market triggers run away inflation.

What happens with the money collected from the trade tariffs? Is it being used to partially offset the republican tax cut?

Recently, Trump made the absurd claim that the money raised from new import taxes will be used to pay down America's large debt. This is a ludicrous statement considering that the national debt is currently at $21.4 trillion! Tariffs generated a relatively small amount of revenue in 2017, $33.1 billion.

In addition Trump’s outlandish claim on tariffs is that he is taxing foreigners, but the reality is that tariffs are taxes on U.S. companies and consumers. After the end of World War II, US public policy has moved towards free and open trade, and reduced trade barriers. This increase in international trade has led the global community to growth in employment, production, and incomes for the countries involved.

In recent economic history the United States has been the crusade toward free and open trade; nonetheless, the U.S. applies high tariffs on selective categories of goods. Instead of focusing on trade policy to reduce commercial barriers, Trump has been quick to levy new tariffs while at the same time, intimidating trading partners of further trade restrictions if the US does not get the trade concessions it wants.

Data shows that tariffs don’t achieve their intended objectives, and instead have the inverse result in higher prices, lower employment, and slower economic growth. Smart policy makers should not erect barriers to trade but promote free trade and the economic benefits it brings. If a U.S. manufacturer has to pay 10 or 25 percent more to get steel from Canada or from China, that same company has to pay the tariff when it imports that good and the U.S. business has the choice of either absorbing the extra cost or pass it on to consumers as simple as that.

There are already signs that inflation is creeping in because the effect of Trump's tariffs. One simple example is a soft drink makers that has to raise its price because aluminum tariffs are making the aluminum can it uses more expensive.

In terms of Trump's claim that money raised from the tariffs will be used to pay down the debt is false at best. The imposition of tariffs on $85 billion worth of foreign goods so far, would raise about $21 billion, a very small percentage (0.1 percent) of the debt. On the other hand, the money raised from the tariffs does little to counterbalance all the money Trump has added to the debt with his outlandish tax cuts to the wealthy. Additionally, Trump has announced a $12 billion aid package to farmers hurt by the tariffs. This only adds spending that will further reduce the revenue coming from his imposition of tariffs. The indicators as a whole are that the Trump administration has entered a circle of unintended consequences or worse yet, just plain ineptitude and lack of understanding of proven economic principles.

How will the tariffs on American products affect the national budget of Canada?

Trump thinks tariffs are “great” but as his increasing tariffs might sound great to his base of supporters there are international consequences to be aware of.

Improving a domestic economy by taxing imports might sound like a great idea for Trump, it is the equivalent of denying access to the largest economy in the world in order to get concessions from weaker allies who will certainly retaliate. This can have the effect of starting a tit-for-tat trade dispute that can escalate into a full blown trade war with the expectancy that the weaker economy will collapse first. A game of chicken or Russian roulette if one prefers with grave consequences for millions of consumers when in reality the simple issue is: Americans buy foreign products, just as other nations buy American-made products and crops resulting in what is known as international trade. Because of a of largely mechanized agricultural production of massive scale in the US the agricultural community depends on foreign buyers each year. So, retaliation to agricultural tariffs is a losing proposition for this industry.

The Chinese retaliatory tariffs of 25 percent on soybeans, in response to Trump’s $34 billion in tariffs on Chinese products, has shaken the cash market of soybeans as the spot market price tumbled 20 percent so far.

Steel and aluminum is another industry of concern, since Canada is one of the United States’ biggest trading partners, the retaliatory tariffs are certainly something to pay close attention to as Trump’s trade policy wobbles directionless. Canada has taken the initiative of inviting trade ministers from the EU and other countries for a WTO summit in Ottawa, however, Trudeau did not invite the US trade representative for Trump has manifested he wants to do away with this international trade body of trade rules which the US had a major role in founding!

Many American business leaders are legitimately concerned that these unprecedented Trump wobbling positions on trade can negatively affect the entire world of financial markets falling into recession or worse yet, a runaway inflation. Although, many consumer goods such as foods and beverages may have been produced domestically, they require imported steel or aluminum for their packaging. The resulting higher costs of manufacturing will adversely affect profits resulting in higher consumer prices at the grocery store. Analysts like Dan North state that “the roughly 150,000 jobs that could potentially be saved in steel and aluminum industries is dwarfed by the nearly 2 million jobs at risk in industries that use imported steel and aluminum" which again, will be passed on as higher prices for the end consumer ensuing inversely proportional to Trump’s intent!

Should the European Union agree to negotiate a bilateral agreement with the US as proposed by Donald Trump?

Trump does not like multi-lateral trade agreements because countries as a group can exercise muscle during negotiations while in bilateral trade agreements the US has the advantage of economic size to extract disadvantageous concessions from the weaker nation. Case in point is The Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The TPP that was agreed with 11 negotiating partners, including Canada and Mexico. Trump dumped TPP and has shown no interest in the TTIP.

Trump has said that “Tariffs are the Greatest! “may want to be more ambitious by dumping all barriers to trade than the deals or negotiations he inherited and likes to get rid of protectionism in a number of areas, including anti-dumping, countervailing duties, and Jones Act restrictions on shipping to and from American ports, along with agriculture subsidies.

These action would be a remarkable about-face for his current administration policies on trade but it would require an agreement from Congress and these remaining areas of U.S. trade protection have survived years of liberalization attempts and have deep-rooted support from members of Congress.

However, removing these barriers in bilateral negotiations have other issues, if the United States were to drop tariffs on X items for a given country, WTO rules would require the United States do so as well against all other countries. This is one reason why other Presidents have favored multilateral negotiations.

There is an additional set of problems than just dropping subsidies and barriers because they include regulatory issues such as tech companies engaged in anti-competitive behavior. Tech companies and the agricultural sector might want to use the opportunity of a trade deal to lean their weight as leverage due to their bigger size. Nonetheless, these changes would not address the obsession Trump has with trade deficit, since that reflects the difference between savings and investment, not trade policy.

Tackling trade deficits would require heavy government intervention in the economy where the United States would need to stop borrowing from the rest of the world especially, Asia as U.S. borrowing is the mirror image of a trade deficit. This would likely require substantially higher interest rates in the United States, in order to entice the public into higher savings rate.

We are witnessing a recent experience with China, that “one tweet can halt communication between the two parties, and rapidly escalate into the imposition of tariffs" that can lead to a full blown trade war.

While global trade war risks have dominated the agenda of late another red flag is the ongoing flattening of the US yield curve. In addition, financial markets have to contend with dollar reserves being exchange for euros and other currencies as Asian countries strip their dollar reserves to a historical low of 62%.

Current economic condition is forcing central bank policy normalization and higher short-term rates; while longer-term pessimism over the global economy is prompting a financial flight to safety. Trump is terrified of the Feds increase in interest rates because that would put a hole on his bluffing balloon regarding trade and his bloated tax cuts which is adding to a mounting deficit of debt to GDP ratio of 108% in 2018.

Press reports indicate that China’s holdings of US sovereign debt dropped to $1.165 trillion in August, from $1.171 trillion in July. Tokyo cut its holdings of US securities to $1.029 trillion in August, the lowest since October 2011.

Discharging US Treasuries, one of the world's most active reserve financial papers, has recently become a trend among major holders. Russia dumped 84 % of its holdings this year as relations between Moscow and Washington are at their lowest point in decades despite Trump’s election which was favored by the Russians.

Goldman Sachs reports that Turkey and India have followed suit. Like Russia, Turkey has dropped out of the top-30 list of holders of American debt following a conflict with Washington over the attempted military coup in the country two years ago. While India remains among the top-30, the country has cut its US Treasury holdings for the fifth consecutive month, from $157 billion in March to $140 billion in August. Russia, China and Iran, dragged down the dollar’s share of global central-bank reserves and these data is confirmed by the International Monetary Fund.

If Trump economic dominoes start to fall the US economy will suffer unknown consequences as this is entirely new territory the current administration is trekking on.

Are freight charges added to the shipping invoice for calculating the import duty?

International trade most commonly used accounting methods for charging duties at border crossings or ports of entry are:

Free on Board (FOB) and Cost Insurance and Freight (CIF) these two inconspicuous terms refer to the terms of sale commonly used in world commerce and known as X sales point.

1.- FOB point of sale is on board the vessel free of any other charges to the buyer.

2.- CIF point of sale means the seller includes the cost of freight and insurance.

There is however a subset of conditions mainly set by carriers that must be paid by either the seller or the buyer.  In general terms--from the perspective of the carrier-- define which services are provided under the terms of carriage. For example, loading and unloading of the cargo, stowage or trimming and whether materials need to be used to secured cargo on board such as dunnage. The following terms apply to mainly bulk and break bulk cargoes as containers have another sub-set of costs charged by either a cargo consolidator or a freight forwarder but not included the scope of this writing.

FILO (Free In- Liner- Out): Buyer or seller pays for loading and carrier pays for unloading.

FIO (Free- In- Out): Carrier pays for loading and unloading

FIOS (Free- In Out- Stowed): Carrier pays for loading, unloading and stowage of cargo

FIOST (Free In- Out –Stowed- Trimmed): Carrier pays for loading, unloading, stowage and trim of cargo

FIOT (Free In -Out Trimmed): Carrier pays for loading, unloading and trimming of cargo

FLT (Full- Liner- Terms): Carrier pays for loading, trimming and stowage at port of origin and unloading at the port of destination.

LIFO (Liner In- Free Out): Carrier pays for loading at port of origin buyer pays for unloading at destination.

Moreover, it is important to consider total shipment costs when adding duties, taxes, port handling fees and other fees for a particular cargo. Duties are also influenced by the content of the cargo and the destination port. These charges will affect the price the buyer might be willing to pay for a given product known as the "landed" cost of the merchandise.

Besides, most international transactions are subject to the assessment of duties and taxes imposed by the importing country's government. A shipment's duty and tax amount may be assessed by:

·         Product value

·         Trade agreements

·         Country of manufacture

·         Use of the product

·         The product's Harmonized System (HS) code based primarily on three factors:

·         What an item is?

·         What it is made of?

·         What it is used for?

Value-Added Tax (VAT) or Goods and Services Tax (GST)

International commerce also has some exemptions to the taxes and regulations described herein but it can vary within individual country’s policies.

These items are temporarily imported duty free as long as certain conditions are met and procedures are followed.

For instance items destined to:

·         Entre- Port warehousing

·         Tradeshows

·         Conventions

·         Training

·         Assembly

·         Processing

·         Re-export after resale

·         Repair or replacement of damaged goods

Declared Value for Customs duties, taxes or exemption for invoiced items are stated in a Customs official shipment’s declared value along with the description of the goods.

Inaccurate declared value is one of the most prevalent reasons for duty and tax disputes among buyers, sellers and authorities engaged in world commerce.

When do you think the US economy will tank?

The US economy will tank when the false perception of a great economy catches up with the reality of mathematics. Trump predicted economic growth of 4 percent due to his business acumen, success in the real estate market and a “great brain.” However, recent revelations by the New York Times contradicts this assertion by saying that Trump inherited over $400 million dollars using fraudulent schemes to avoid paying taxes and then squandered most of that wealth in bad business decisions only to be rescued by Russian “credit lines” that will become due during his time in office.

Economic forecast for gross domestic product, is that it will rise to 2.4 percent in 2019 according to the Federal Reserve which is 1.6 percent Trump’s wishful prediction. Moreover, the U.S. debt exceeded $21 trillion in 2018 although it had remained stable after sequestration was activated requiring a mandatory 10 percent federal budget cut through 2021. Moreover, Trump might repeal it as tax collections fall below projections from his tax largess for wealthy Americans. Never mind that he promised to reduce the debt as his policies may increase it by $5.6 trillion.

The U.S. debt-to-GDP ratio is forecast to hit 108 percent by the end of 2018, a level that is not a sustainable and well above the 77 percent benchmark that the International Monetary Fund recommends for a healthy economy.

The appointment of Lawrence Kudlow as head of the National Economic Council indicates how firmly Trump and supply-side economics control the republican view of wealth distribution and the how it should take place. However, lowering taxes can create a budget hole that can only be filled by printing new money which many economic researches agree on the notion that new printed money becomes proportional to inflation. These supply-side view ignores that it doesn't work when the maximum tax rate is below 50 percent, according to the Laffer Curve which Kudlow argues as his basis for the economic policy!

On another front China is the world's second-largest economy, behind the U.S. since 2014. Notwithstanding, China's economic growth is slowing from double digits to 7 percent annually but proportionally to its size it will continue to affect the U.S. economy with a higher influence than in the past. One reason is of course the U.S. debt to China which still is larger than to any other country while China continues to accumulate US treasuries for its international trade needs.

Another economic pressure comes from energy price inflation. The International Energy Forum projected, in 2007, that by 2030, oil prices will be $95 a barrel in nominal dollars. “The EIA's Annual Energy Outlook predicts that U.S. shale oil production will level off after that. As a result, oil prices will rise to $114 a barrel by 2050.”

One of the most important functions of the Fed is managing public expectations of inflation for once the public expects inflation, “it becomes a self-fulfilling prophecy.” Confidence in the current economy is Trumpian and the Feds must walk a high rope balancing act managing Trumpian politics with economic reality in order to moderate public behavior. But as the Fed continues to raise interest rates even though at a slow pace, it knows that mortgage rates will rise, and housing prices will drop to offset the higher cost to home buyers. The public on the other hand, thinks the real estate market will crash in the next few years as housing prices rise, combined with raises in interest rates by the Fed. To many observers, it looks simply as an asset bubble that will be followed by a collapse.

Who will benefit the most from the new trade agreement between Mexico, Canada and the US?

NAFTA survived almost intact as the changes made are mostly hot air from Trump and any modifications to the agreement must go for approval by the respective Congress of each country. The underlying reason for the agreement to stand mostly as is arises from the fact that manufactures are dependent on the supply chains they established during the years of the agreement and a sudden cancellation would have brought disastrous economic consequences to all three countries. Disrupt, demolish and then take credit for appeasement or building is the current logo over the Trump's Whitehouse.

Discussions between the United States and Canada had turn sour amid insults from Trump to PM Trudeau. The president said he had rejected a meeting with Mr. Trudeau because he would no buckle under Trump’s “charm”. However, the office of PM Trudeau said no such meeting had ever been requested. Trump also threatened to tax auto exports from Canada to the United States if Canada did not agree to his demands.

In essence the changes trumpeted by Trump are merely text editing and spell check of the entire document but Trump like to take credit for someone else’s work as when he waves to his crowd of supporters with a hat that doesn’t belong to him. In any case, modifications to the agreement must be reviewed by a new Congress expected to be dominated by the democrats who will probably be impeaching Trump if director Mueller’s report is as damming as expected.

What are some key NAFTA problems USMC solves?

NAFTA survived almost intact as the changes made are mostly hot air from Trump and any modifications to the agreement must go for approval by the respective Congress of each country. The underlying reason for the agreement to stand mostly as is arises from the fact that manufactures are dependent on the supply chains they established during the years of the agreement and a sudden cancellation would have brought disastrous economic consequences to all three countries. Disrupt, demolish and then take credit for appeasement or building is the current logo over the Trump's Whitehouse.

Discussions between the United States and Canada had turn sour amid insults from Trump to PM Trudeau. The president said he had rejected a meeting with Mr. Trudeau because he would no buckle under Trump’s “charm”. However, the office of PM Trudeau said no such meeting had ever been requested. Trump also threatened to tax auto exports from Canada to the United States if Canada did not agree to his demands.

In essence the changes trumpeted by Trump are merely text editing and spell check of the entire document but Trump like to take credit for someone else’s work as when he waves to his crowd of supporters with a hat that doesn’t belong to him. In any case, modifications to the agreement must be reviewed by a new Congress expected to be dominated by the democrats who will probably be impeaching Trump if director Mueller’s report is as damming as expected.

NAFTA according to Trump!

Trade disputes have marked Trump’s behavior in such patent way, that when America and Mexico announced they had agreed on changes to the North American Free Trade Agreement the markets and everyone else had a sigh of relief. Nonetheless, the pompous announcement by Trump who is now starving for a win on trade agreed to a NAFTA new deal: Trump will stop saying that Mexico brings drugs and rapists to the US and abolish the law of supply and demand in exchange Mexico will stop making Trump piñatas.

But in all seriousness the relief may be short-lived because of its chaotic nature. If Canada ends up joining the so called modifications, the foundations of NAFTA would remain intact with adjustments to the rules of origin and national content mainly to car manufacturing. Trump wants workers on both side of the border to be paid $16 an hour because the average wage of Mexican manufacturing workers is $2.30 which will remove the benefit for firms to move south of the border and stay at home ignoring supply and demand for labor and capital.

By imposing arbitrary rules above the free market, these changes is a joke of the administration’s supposed opposition to invasive regulation that will not only result in decrease productivity, but higher costs and a less competitive car manufacturing in North America’s free trade area, that has to compete with producers from Europe and Asia bringing uncertainty to the market.

According to Trump, the purpose of trade is to maximize exports and minimize imports when in reality a trade deficit only means that Americans are exchanging printed paper for goods as long as the dollar remains a reserve currency.

America under Trump likes to throw her weight around the world trying to impose new rules of behavior in general and making this new attitude uniquely reckless. In short, Trump has bullied his way to what he perceives as a weaker partner when negotiating with Mexico and Canada. Moreover, he is using the stupid pretext of national security to justify his tariffs on steel and aluminum in order to circumvent the rules of the World Trade Organization which he would prefer to disavow with a stroke of his. In this atmosphere, the rules-based system of global trade, which relies on goodwill between countries, which the US helped write, may prove to be more fragile than expected in our western values doctrine of civil behavior among nations.

Is the new deal between Mexico and the U.S. a better deal than NAFTA? 

Trump said he’s “ending” NAFTA and replacing it with the “largest trade deal ever made.”

The reality is that Trump cannot unilaterally end NAFTA in a constant lying, we now expect from a president who doesn’t understand treaties or could care less about telling the truth.

The fact that NAFTA didn’t address major industries that struggled to existed in the 1990’s it also left out new technologies but additionally ignoring labor and environmental standards.

The Trans-Pacific Partnership negotiated by Obama ultimately addressed these pending NAFTA issues. “The 12-country trade pact included Canada and Mexico among its signatories, it contained detailed language modernizing trade rules including information technology and raising labor and environmental standards. Nevertheless, one of Trump’s first acts was to inexplicably to pull out of TPP perhaps because he had not been involved in the negotiations that Obama had completed. Moreover Trump has now declared war on world trade by imposing tariffs on our allies as well as the Chinese with a consequent damage not only to foreign policy but also harming US businesses.

The fact is that there is still no signed Mexico deal which must also include Canada under the original agreement ratified by Congress which makes NAFTA implementation by statue and that does not give Trump the authority to separate the agreement in two parts.

Trump believes that negotiating bilateral agreements gives him the edge because of the size and power of the US economy thus being able to bully the weaker side and extract concessions, however he is learning that legislative restrictions won’t allow him to play dirty. The bottom line is that no matter what Trump says or wants to do most of NAFTA’s provisions will be active unless Congress passes a new trade law.

Besides, Congress is not the only deterrent to dumping NAFTA in favor of separate bilateral trade agreements. Canada and Mexico have each had to run the process through their respective legislator, therefore, any new trade agreement must involve all three countries. Mexican President Enrique Peña Nieto expressed during his telecom with Trump that he expected Canada to be part of any final agreement.

So, what is Trump talking about hammering “the best trade agreement ever made.”

Based on the scarce details these new requirements more likely than not require enlargement of the administrative state which will result in higher cost of cars and perhaps reduce the number of cars assembled in North America resulting in a negative effect of unintended consequences.

Apparently Trump is a slow learner for he should know by now that he is better served by telling the truth rather than lying and then getting caught on the lie. He did not negotiate a new trade agreement for he has no authority to do so and all three countries must agree to any modifications of the agreement!

Why does President Trump take strong action on trade deficits by imposing tariffs, but completely ignores budget deficits, which are significantly more dangerous to the US economy?

Budget deficits are an enormous can of worms if open for inspection, especially, now days with more heterodox theories, such as Modern Monetary Theory (MMT) influencing policy makers not to tame budget deficits. The argument of MMT is that because modern governments control their own currencies, they can never “run out of money.” (However, the qualifier is as long as said government controls a reserved currency)

Notwithstanding, the effect of deficits and money printing to pay bills has had many national economies collapsed from excessive leveraging. The collapse of Germany in 1930’s is a well-documented case that led to World War ll. In the 1960s, Lyndon Johnson refused to raise taxes to pay for the Vietnam War and his Great Society, when the private sector economy was booming. The result was reflected on rising inflation in the 1970s, which resulted in the election of Ronald Reagan.

To simplify Godley’s theories, modern economics considers two major sectors: the private sector and the public or government sector. “When the government spends more than it taxes, it runs a deficit. And that deficit in the public sector inevitably means a surplus for the private sector.” Basically, the private sector does the work required to achieve the government development goals, for instance if the government pays $100 for work and then taxes back $90, it leaves $10 in the private sector’s hands which results in the government running a deficit or spending more than it receives back in taxes. But the private sector has $10 it didn’t have before.” The theory continues that In order to accumulate money, the private sector needs a government deficit that runs in two cycles. Writers refer to a temporary deficit as a deficit that is related to the business or economic cycle, which, is the period of time it takes for an economy to move from expansion to contraction to expansion and so on. This cycle can last for several months or many years, and it follows an unpredictable random pattern.

The overall government budget balance is determined by the sum of the cyclical deficit and the structural deficit. Therefore, a cyclical surplus could mask an underlying structural deficit, as the overall budget may appear to be in surplus if the cyclical surplus is greater than the structural deficit. Australia was a case in point when its structural deficit was caused by a mining boom leading to extremely high revenues and large surpluses for several consecutive years, which the “Howard Government used to fuel spending and tax cuts, rather than saving or investing them to cover future cyclical downturns.”

Nevertheless, the economic consensus is that a structural or permanent deficit is not the same as a cyclical deficit in that it exists regardless of the point in the business cycle due to an underlying imbalance in government revenues and expenditures as is presently the case in the US economy. It follows that even at the apex of the business cycle when revenues are high the country's economy may still be in deficit. Thus, the total budget deficit is equal to the sum of the structural deficit and the cyclical deficit.

Keynesian economics, dictates that when the government changes the levels of taxation and government spending, in order to influences aggregate demand and the level of economic activity. Changes in the level and composition of taxation and government spending can affect macroeconomic variables that are managed by fiscal and monetary policy.

Fiscal policy deals with taxation and government spending and is often under an executive governed by laws of a legislative branch of government, whereas, monetary policy determines the money supply and interest rates and more often than not it is administered by a central bank. Fiscal policy and monetary policy are the two tools used by the state to achieve its macroeconomic goals. The most commonly used tool is the IS/LM model which is used to depict the effect of policy interactions on aggregate output and interest rates. In market economies fiscal policies have a direct impact on the goods market and monetary policies have a direct impact on the asset markets; since the two markets are connected by the two macro variables-- output and interest rates--the policies interact while influencing output and interest rates. This model, was first published in 1937, and it seeks to explain the relationship between interest rates on one hand and output, in goods and services and money markets, on the other. Hicks’ IS-LM model as an Alfred Marshall and Irving Fisher formalized the quantity theory of money nearly a hundred years ago. The quantity theory of money predicts that an increase in the supply of money will cause a proportional increase in the price level.”

The explanation of our economic condition today lays in the assumption that a floating exchange rate regime is in use, which would indicate the domestic interest rate must be equal to the world real interest rate, in order to bring equilibrium to goods and money market.

The United States debt ceiling is a legislative limit on the amount of national debt that can be incurred by the US Treasury but the new argument is that the executive branch can choose to prioritize interest payments on bonds, which would avoid a default on sovereign debt.

The Washington Post reported that during the debt ceiling crisis of 2011, Treasury Secretary Timothy Geitner argued that prioritization of interest payments would not help since government expenditures would have needed to be cut by an unrealistic 40% if the debt ceiling is not raised. Furthermore, the CBO notes that prioritization would not avoid the technical definition found in Black's Law Dictionary where default is defined as “the failure to make a payment when due.” Therefore, for any type of debt, one cannot simply calculate an absolute amount of debt, but rather the ratio of debt to income capacity or capacity to repay. In economics of finance the measurements come as debt to income ratio— debt to assets ratio— debt to profits ratio—debt to short-term assets ratio, and debt to long-term assets ratio for businesses and corporations. For the government, this is consider— debt to revenue ratio— and debt to GDP ratio. Also, it is important to assess sustainability of debt in the case of a debt-servicing payments as a proportion of income. Financial collapse, is set when debt is so high relative to the size of repayment capacity and all assets are represented in the banking system and to investors. “Modern Monetary Theory” states that in this situation, the debt burden leads to widespread default" however, a heterodox school of monetary policy has emerged to peddle the line that the US can never suffer a debt crisis because the US government can always print more dollars-- which as a as a reserve currency it can-- to cover its budget deficits. In contrast with this policy the financial crisis in Iceland banks were so highly leveraged that it made impossible for a government to rescue them. Venezuela is currently another case in point where and printing money only exacerbates the level of inflation for the Bolivar is not recognized as a reserve currency.

In conclusion the real danger to the US economy is Trump’s drunken sailor spending behavior and giving money away to his cronies and judging from his past business record will probably chose to default on the debt than pay obligations which would be similar than he bankrupted his casino.

Just talking about sovereign default can cause international turmoil and a collapse of world financial markets. Countries like China holding over 2 trillion dollars of US obligations could decide to dump part or all of it in the world financial markets generating a snowballing currency panic. However, Trump might see this as an advantageous opportunity to buy back US obligations at a deeply discounted price. This action would be disastrous to say the least as one derivative of a trade war leading perhaps to another derivative of kinetic war. This might be considered an alarmist scenario but we’ll know for sure when the big guns start firing.

What is the purpose of custom duty?

Functions of Tariffs by Definition

Tariffs are considered to have three primary functions: to serve as a source of revenue, to protect domestic industries, and to remedy trade distortions (punitive function for product dumping). The revenue function income from tariffs provides governments with a source of funding. In the past this was the main function and reason for applying tariffs, but economic development and the creation of systematic domestic for instance it only accounts for about 2% of tax revenue. Nevertheless, revenue may still be an important tariff function in underdeveloped countries. In our time tariffs are more of a trade policy tool to protect domestic industries by altering the conditions under which goods compete. A case in point are “tariff quotas” that are used to strike a balance between market access and protecting domestic industry. Tariff quotas normally work by applying low or no duties to imports up to a certain volume and then higher rates to imports that exceed that the quota level.

The short answer from US Customs:

“Customs Duty is a tariff or tax imposed on goods when transported across international borders. The purpose of Customs Duty is to protect each country's economy, residents, jobs, environment, etc., by controlling the flow of goods, especially restrictive and prohibited goods, into and out of the country.

The Anti-subsidy Duty

The anti-subsidy duty, also known as the countervailing duty, is a kind of import surtax levied to countervail the bonus or subsidy received directly or indirectly at the manufacture, production and output stage of the imported commodities.

Tax-free imports might relate to other things as follows:

· Imports of goods used in the manufacture of other goods for local consumption,

· Imports of goods used in the manufacture of other goods for export,

· Imports of goods which are only temporarily in the country for adjustments, repair, etc which is then re-exported.

· Imports of goods for local consumption

There are vast differences in the rules that apply to each of these refunds and importers will not automatically receive the refunds. Instead importers have to apply for these refunds, preferably before the goods were imported, in order to receive these refunds.”

What effect do tariffs have on a given economy? It depends mainly on two broad issues:

1. Its traded volume

2. Its trade-price

There are however many secondary issues that can effectively affect the performance of a given economy.

· Its protective effect: import duty raises the price of imported goods. This increase in the price of imports reduces imports and increases the demand for domestic goods.

· Its consumption effect: increase in price of the taxed commodity reduces the consumption capacity of the country

· Its distribution effect: an increase in the price of domestically produced goods amounts to redistribution of income between the consumers and producers in favor of the producers.

· Its revenue effect: an import duty means increased revenue of the government

· Its income and substitution effects: the duty may cause a switch over from spending on foreign goods to spending on domestic goods which should result in higher domestic income and employment.

· Its competitive effect: overprotecting the domestic industries from foreign competition may enable the domestic producers to become a monopoly in the domestic industry.

· Its terms of trade effect: in order to maintain previous levels of sales to the duty imposing country exporter will reduce prices making imports to be purchased at a lower price.

· Its balance of payment effect: reducing the volume of imports helps the imposing country improve its balance of payment position.

In conclusion, tariffs can have multiple functions that have marked effect on pricing for any economy which will also affect terms of trade, employment, income, government revenue, balance of payments and so on.