The Rise of the Trump Doctrine

We’re seeing a strong return to the realpolitik world of the Cold War however now it is trade that is the weapon. China, Russia and the USA are clearly asserting their dominance through soft and hard power. Britain has too enacted those principles via Brexit and recently by deploying a craft to the South-China Sea and dismissing of Russian diplomats from their shores. Russia has replied in kind, and these tit for tat actions may not end there. However these actions are coupled with trade considerations.

 It’s a much different world to a decade ago were one might argue that the world was brought together by the GFS begun by irresponsible banking practices. Admittedly, in the decade since, the strengthening off banking practices and in consequence making the government institutions bigger and more pronounced.

However currently the same institutions have been blamed for the slowness of recovery and feared for the ostensibly high excessive amount of power that they now hold. For instance when President Trump signed a number of tariffs recently the Federal Reserve called it a negative step and the markets reacted, however briefly, to the news.

In his defence Trump was merely responding to the negative trade balance between US and China. As countries scampered for dispensations, USA was clearly seen as holding the trump card. The last time America had a trade balance positive was nearly fifty years ago. You can’t blame Trump for moving to change that, it was of course one of his election promises. He wants to American industry and jobs to be protected. Quite frankly I am not surprised.

The counter-narrative of this protectionism is that a trade war will ensue. This is of course a fatalistic proposition one that does not take into account all the checks and balances in place in the world economy. That is the agreements already in place that relate to international trading, such as unilateral and others and the necessity of trade such as in the case of steel and aluminum products. For instance China buys a huge amount of iron ore and metals in general but produces fridges, microwaves, watching machines and the like and sell those to America as value added products. The cost of labor is cheaper in China so it makes sense for the world economy that China is where those metal goods are produced. It also makes sense that regardless of the tariffs USA purchases those goods, as the cost of manufacturing is higher there. A tariff may lower amount of metal good purchased by America and China may respond by buying iron ore from someone else, but the US may turn to other emerging economies for metal products thus stumping China in the process. Trump says: it takes two to play the game and if you won’t follow the rules, tough luck.

 China had it coming, quite frankly, and I would not be surprised if this is only the start of US trade actions again it. For years the Chinese have broken every conceivable trading rule under the sun, yet the liberal media and central banks attack the US. They have made copyright infringements, pegged their currency to the dollar, and were involved in trade piracy. Other countries are dependent on cheap Chinese imports. However that is about to change. And it’s a good thing.

Soon many developed countries will source their products from other developing economies such as India, Bangladesh, Vietnam and Indonesia. Just to mention the Asian Chinese competitors. It is high time that the developed economies lowered their heavy reliance on China and spread their trading amongst other partners, including Africa. This will naturally lead to a lowering of the importance of the Chinese producers. It is the countries that heavily depend on China who have expressed the greatest concern to Trump’s measures. However the status quo can’t prevail and Trump’s way is the right way.

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Public Housing as State elections draw near.

I’d like to write a few words on public housing in Sydney and other centres. Not only as the New South Wales State elections are coming up in March this year more importantly that there is a need to provide housing assistance, the priority being the nearly 60 thousand people on the waiting list. Currently the chance of being placed on priority listing is minimal while the alternative being a ten year plus wait to be housed. The people placed on the priority housing list face up to a two year wait to get housed. However it is only ten percent of applicants who are in this privileged situation. Most, including the mentally and physically ill can look forward to years of unstable living conditions and an elevation of their illness. That is unless they meet stringent conditions governed to gain priority listing.

My main question with the status quo is that there isn’t enough housing being provided. Put on the market as it were. In a society that prides itself on egalitarian values there is as per usual a group of citizens that is left behind. What’s concerning is the hardships that these people are facing. These are not being met by the State Government in any way, shape or form. I mean if those people were a part of a lobby group the powers that be would take notice.

What could happen in this instance is involvement of private institutions. Homelessness is a problem that is prevalent across society thereby it should be solved by a concerted effort. In this respect I envisage private-public partnerships in building, fixing and providing accommodation. I am not calling for a privatization of the service, it’s a scary thought being an untested proposition. As public housing should remain just that. However corporate Australia should help out in providing and maintaining this essential service.

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Increase the minimum wage increase the GDP??

One of the of the ideas that I’ve been pondering about during the week is the idea that an increase by increasing the median wage through for instance increasing the minimum wage. Ostensibly it is a possiblity as spending has been linked to increased economic activity and thereby increasing one of the factors contributiong to the GDP. Such may’ve been the logic at play for the thousand dollar payment to every Australian taxpayer in 2009. However what about if we do a little comparison to find out if increasing the minimum wage would increase the GDP?

Poland recorded some of the greatest increases in GDP growth over the 1990 to 2007 period. In fact according to the IMF, Poland’s annualised GDP per capita growth between that period is fourth highest in the world at 11.64 per cent per annum. OK so China and Vietnam are doing better but one is in good company. Moreover Poland was the only of the European economies not to dip into recession during the economic crisis. That’s from over 50 economies. It is also worth noting that the Poland’s current GDP  (PPP) per capita is 20,137 US dollars per annum. This is on par with ostensibly more afluent countries such as Portugal: 23,205 US dollars. However at just over 50 per cent of Germany’s figure: 37,936 US dollars. Concurrently if we compare gross average monthly wages between these three countries we see larger differences. Poland’s average wage is 759 US dollars per month, Portugal’s is 1079 US dollars whilst Germany 2865 US dollars. In terms of percentages Portugal and Germany have GDP (PPP) per capita annual rates respetively 15 and 88 per cent higher than Poland. However with respect to monthly incomes Portugal’s median wage is 42 per cent higher than Poland. Whilst Germany’s figure is 377 per cent higher than Poland.  Although I do not want suggest that there is a causality between the levels of GDP and a median wage, one has to ask the question why is there such a difference between the two figures?

Without considering the economics increasing the minimum wage leads to a more satisfied workforce. This in itself creates an economic benefit in productivity of the workforce. However if one has worked hard one’s wages should surely increase not only as an incentive but as a reward.

The fact that there is such a difference between performance and benefit in this instance is important as it shows that all the benefits of a roubust economy are not transfering to Poland’s labour market. One can also argue that this is a hiderance and a weakness in the distribution of income. By weakness I understand the lower incomes, especially ones that osillate around the poverty line contribute to the formation of an underclass, which in itself is a hinderence. It can be argued that increasing the minimal wage will not only aid in elevating poverty but will also have a positive effect on GDP growths as there will be substantially more funds fueling the economy. However there needs to be enough political will for this to take place. What is important is a holistic picture for an overall heathy economy. Building an underclass by keeping wages low is not what I would consider healthy.

Would this result in investor flight and unemployemnt? I do not thinks so. Firstly increased spending that would follow on from increases in incomes would directly stimulate the economy, this economy would have more participants in it and flow on benefits for all sectors. Would investors shy away from investing in Poland. I do not think so. One reason is that much of the investment in this 40 million dollar market is direct, via for example Poland being a host to a foreign company’s operations. The amount of FDI that Poland receives is on par with Japan and India, increasing minimum wages to 1000USD per month will still afford substantial economies of scale for these producers.

I guess the real question should be would increasing the minimum wage negatively impact GDP growth. I think I presented enough arguements here to show that this is not the case. A gradual increase to a minimum wage of say 1000 USD in Poland should be viewed as an investment in the health of the economy and the its people.

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So we’ve reached another end of the year. Personally its been a good year, for one the world didn’t end on the 21st of December. It also has hasn’t ended because of the Fiscal Cliff nor any other misandventure. As we enter the fifth, yes 5th, year of GFC, its become apparent that the GFC as horrid as it is will also not end the world. After a brief, in terms of economic history, flirt with free market economics. Most have returned to the sound basics of Keynesian principles. What will 2013 hold? I dare to suggest the R word, that is Recovery. If the last 4 years have thought policy-makers it would be how to exaust their abilities for little reward. That said however, I am optimistic that in 2012 we have turned the corner. Bring on 2013!

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