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   Vol. 16 No. 23
Wednesday March 8, 2017

Trump Effect - USA Readies Reset

Trump Effect USA Readies Resets

      After 145 years, Ringling Brothers and Barnum & Bailey Circus will close at the end of this season because animal welfare activists have successfully complained about the mistreatment of their elephants. 
      This circus has been called the “Greatest Show On Earth.” 
      Now President Trump’s Trump Effect—led by the Republican Party, whose branding symbol is an elephant—has been labeled “The Greatest Show On Earth” by the New York Post


FlyingTypers Set The Tone

      One personal note: I must commend Geoffrey Arend and his wife, Sabiha, for creating the headline The Trump Effect.
      Trump Effect is now being used globally when describing the actions and effects of President Trump’s administration, but those words appeared in FlyingTypers first.  
      Unfortunately, Geoffrey and Sabiha are not getting the credit they deserve for coming up with this headline.
      But I am happy to report that being the true professional journalists that they are, both seem too busy covering air cargo worldwide to care much about taking a bow.

Donald Trump So Far

      My message should not be considered political, but rather as an effort to look at the possible effects of the actions being proposed by the Trump administration on the airline industry. I have purposely not said what actions I would take, as that is a decision each airline needs to carefully consider. 
      As I said in past articles, President Trump has said he is committed to 3 major items, which was voiced again in his recent speech before the joint session of congress. These are the security of the U.S., a fair balance of trade to grow jobs in the U.S. fueled by tax, regulatory, health care and education reform to make U.S. products globally competitive, and the rebuilding of U.S. infrastructure.
      All these policies will affect the airline industry in one way or another, and if President Trump accomplishes his agenda the big question is whether global economies will benefit.


The Promise & The Hope

      The promise of President Trump to eliminate terrorism and stop nations and organizations bent on attacking neighbors who don’t conform with their ideology will increase U.S. business and the U.S. airlines CRAF flights over the short term, but in the long term, if successful, it will reduce the funds channeled into those military and protective areas. My personal hope is that this money will go towards manufacturing improvements to help humanity and funding research to cure diseases and not just “treat” them. 
      Both outcomes will increase business for the airline industry.
      On a personal note, I hope President Trump accomplishes this goal not just through military action, but also through humanitarian and nation building efforts, and as he said in his speech before congress, that the U.S. keeps its word with those people who risked everything to gain peace.  
      If the President accomplishes this, the winner will be all of us who live on planet earth. Hopefully world peace, improved education, and medical care will lead to prosperity for all of humanity. 
      As Shakespeare’s Hamlet said “To die, to sleep – to sleep, perchance to dream – ay, there's the rub, for in this sleep of death what dreams may come…”


To Grow U.S. Economy

      The second goal of President Trump is to grow the U.S. economy and to restore it to its previous post war levels. This will have many parts to it. 
      The Trump Effect will attempt to pass legislation to encourage more products made in the U.S. be sold in the U.S. The strategy is to create more jobs, less unemployment, more disposable income, and increased consumer spending. 
      But can all the components for these manufactured goods be made in the U.S.? I think not. 
      That may be why President Trump is concentrating on bilateral trade agreements so that the flow of goods in and out of the U.S. by selective tariffs can be better controlled and countries that put high tariffs on U.S. goods can be treated the same on their imports into the U.S. 
      At the same time, Investment Tax Credits may be given to increase the efficiencies and quality of U.S. manufactured items, and then retrain the workforce for these more skilled higher paying jobs. 
      Coupled with the promise of significant tax cuts and lower health care costs, more disposable income could be created to buy these goods.


Stock Market At 30,000

      With the predicted increase of the U.S. dollar and the NY stock market growth to what some experts say will hit 30,000, The Trump plan would lead to manufacturing growth and a significant increase in the flow of air cargo goods to and from the U.S. to those bilateral trade partner countries, establishing increased trade flows between the other countries.


Imagine A New World

      If President Trump can do all this and lower the cost of U.S.-manufactured finished goods to be competitive through tax reductions and economy of scale with a focus on quality and the expansion of new technically advanced manufactured items, the Trump Effect could very well create a large global market for U.S. manufactured goods and parts carried by air.


Trading Partners

      Now, who will those trading partners be? As I said in earlier articles, the airlines that predict the Trump Effect right and adjust their schedules and tariffs accordingly will be huge winners.


About The Deficit

      The trade deficit in the United States was USD 502.25 billion in 2016, at the highest annual level since 2012 and a 0.4 percent increase from 2015’s gap of USD 500.36 billion. Exports rose 2.7 percent, boosted by higher sales of U.S. civilian airplanes and aircraft engines. Imports were up 1.5 percent, including a rise in car imports.
      The deficit with Mexico rose 4.2 percent to USD 63.2 billion in 2016, which is a five-year high.
      The deficit with China totaled USD 347 billion, more than three-fifths of the overall U.S. deficit. China and Mexico combined equal about 70 percent of the U.S. balance deficit in world trade.
      Balancing of world trade for the U.S. is therefore highly dependent on these two countries.


Reality Focus & Things To Come

      So, let’s look at the signs the Trump administration has put out.  
      President Trump is looking closely at The North American Free Trade Agreement (NAFTA), which is an agreement between the United States, Canada, and Mexico designed to remove tariff barriers among the three countries and increase trade between them. 
      The President stated recently that the name should be changed to The North American Free and Fair Trade Agreement (NAFFTA) and has met with the Prime Minister of Canada and sent a trade delegation to Mexico on this subject. 
      Don't concentrate on the back and forth chatter on paying to build a wall between Mexico and the U.S. as that will happen for other reasons and is a distraction from the real goal, which is balanced fair (and POTUS said free) trade. 


Checking Numbers

      The balance of trade between the U.S. and Canada is about USD 11.9 billion. 
      Exports to the U.S. were $337.3 billion and imports were $325.4 billion.
      Canada is currently the U.S.’s second largest goods trading partner with $575 billion in total (two-way) goods trade during 2015; obviously, NAFTA is working there.  
      So, President Trump must focus on Mexico for a fairer balance of trade. 
      Mexico is the United States' second largest export market and the third largest supplier of imports.


China Is The Big Kahuna

      But the larger target of President Trump’s effort for balanced trade to improve the U.S. economy must be China, where the U.S. has a USD 347 billion trade deficit. 
      Results with China will not be achieved quickly as negotiations are very critical between these two world super powers.
      However, NAFFTA (Mexico & Canada) could become a more reliable source for goods now being produced in China.
      While China might ponder that point, a rebooted manufacturing scenario could afford Mexico and Canada some negotiating power.


Other Players

      The United States has been running consistent trade deficits since 1976 due to high imports of oil and consumer products.  
      In recent years, as I mentioned earlier, the biggest trade deficits were recorded with China and Mexico, but Japan and Germany were also among the leaders.  
      Japan and Germany are U.S. allies and President Trump has not mentioned them. 
      On the plus side, the United States has trade surpluses with Netherlands, United Arab Emirates, and Australia, which are strategic partners President Trump has also not mentioned.


Countervailing Tariffs

      One of the tactics that President Trump has voiced is imposing countervailing tariffs not just on China, but on any American trade partner that cheats on its trade deals using practices such as currency manipulation and illegal export subsidies.
      Such tariffs are not protectionist but rather defensive, and consistent with actions taken by American Presidents from George Washington to Ronald Reagan. Indeed, one of the first bills George Washington signed was a tariff, which Alexander Hamilton justified as a necessary defense against a mercantilist Europe.
      When Japan flooded global markets with underpriced computer chips in the late 1980s, President Reagan slapped a 100 percent tariff on semiconductors, plus high-end computers and TVs.
      The total tariffs were based on the economic injury suffered by the U.S. semiconductor industry because of Japan’s cheating on a trade agreement.
      This is the kind of flexible case-by-case approach that a Trump White House, Treasury Department, Department of Commerce, and U.S. trade representative may likely use in their bilateral trade negotiations.


The China Case

      China’s state-run industries significantly undercut foreign manufacturers and NAFTA.  
      Studies show that China’s lower labor costs accounted for about 40 percent of China’s price advantage.
      China is the culprit of five other trade practices that can be labeled as unfair—illegal export subsidies, currency manipulation, intellectual property theft, and lax worker safety and environmental regulations. 
      For example, China’s central bank keeps the yuan undervalued, thereby over-stimulating their exports while discouraging foreign exports into China.
      Such blatant currency manipulation contributed significantly to the USD 347-billion trade deficit last year.
      Similarly, when China simply steals the intellectual property behind U.S. and other countries’ technology and avoids incurring substantial research and development costs it gains a huge advantage in key industries like autos, aviation, avionics, biotechnology, and pharmaceuticals.  
      Likewise, when Chinese companies evade the environmental and worker safety costs imposed on American and European industry, made-in-China stuff can become even cheaper. 
      The unfair trade advantages China reaps from lax environmental and health and safety regulations are written in blood. 
      More than 60,000 Chinese workers perished in workplace accidents in 2014 and world health organization studies estimate that up to a half-million people die prematurely because of China’s horrific air pollution. 
      Many experts figure the effects of these practices artificially lower the price of Chinese manufactured goods by about 45 percent, which is the exact amount of President Trump’s suggested China tariffs.


War Undeclared

      China has been waging an undeclared trade war on the U.S. since joining the World Trade Organization in 2001. The reported U.S. casualties alone amount to more than 50,000 American factories shuttered and zero gains in real household median income.
      The U.S. annual GDP growth rate has been cut almost in half since 2001 compared with the last half of the 20th century. 
      President Trump has vowed to restore it to 3% or higher.


The 45% Tariff

      Perhaps most concerning of the possible future action with China, at least to Wall Street, are possible tariffs on goods imported from China into the U.S.  
      The current average tariff on imports from China to the U.S. is about 3 percent, per the U.S. International Trade Commission. 
      Some economists say a 45 percent tariff could slow China’s economy by 3 percentage points, making the direct impact on China’s GDP sizable.
      The value added by exports is about 10 percent of China GDP, and the U.S. accounts for about one-fifth of China exports.
      President Trump will have some strong negotiating power. 
      But the pain would almost certainly spread to U.S.-based multinationals that do business in China as well, unless President Trump comes up with an alternate.  One idea might be expanding the new NAFFTA plan to other Central and South American nations.


Looking Ahead, Stay Tuned

      There are still many other facets of the Trump Effect to be discussed ahead, including what will impact the airline industry (such as Regulatory Reform); finding ways to train more qualified pilots to fuel the growing U.S. airline industry; new technology research on fuel cells; new aircraft design development; free flight; the effect of President Trump’s meeting with the U.S. Airline CEOs; the growth in U.S. infrastructure, etc.
      My future articles will cover these and many more topics impacted by the Trump Effect.
      We invite your comments.
Bill Boesch

Bill BoeschMr. Boesch started his career in global transportation and logistics in 1965 working for Seaboard World Airlines. He later joined Flying Tiger Airlines and Emery Worldwide. Mr. Boesch then left Emery to become Pan American World Airways’ Senior Vice President where he headed both Passenger and Cargo Sales and Operations. He left Pan Am to lead American Airlines’ Cargo operation and retired from AA in 1998. Under his direction American became a world leader in the air cargo and logistics business.
     Mr. Boesch Mr. Boesch was part of the extensive on site planning and support of the Iraq drawdown, involvement with the Afghanistan operations, and has worked on all aspects of the Civil Reserve Air Fleet (CRAF) from both an airline and government standpoint.
     Mr. Boesch has also served as Chairman of the International Air Transport Association (IATA) Cargo Executive Subcommittee in 1996 and 1997, Vice Chairman of IATA’s Cargo Committee. Mr. Boesch served on the Board of Directors of Air Cargo Incorporated, Air Cargo International, The International Air Cargo Association (TIACA), Envirotainer, Cargo Logistics Solutions, Deutsche Post/DHL Global Mail, al Seqir and consulted for major U.S. companies including Flight Safety.
     Mr. Boesch is the recipient of numerous awards including the Lifetime Air Cargo Achievement Award, the Ellis Island Medal of Honor and various awards from the U.S. Department of Defense.
     Mr. Boesch is presently continuing his work for the U.S. Government and heads up The Council For Logistics Research.

To Read Part 1 of This Series, Click Here
To Read Part 2 of This Series, Click Here
To Read Trump Effect—India Walks Softly Carries Big Stick, Click Here
To Read Trump Effect—Implications Of A Trump Trade War, Click Here
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