Effects of the trade war

 

Finally a beautiful and sunny spring Sunday! 

With regards to the ongoing trade war, yesterday I have heard that many EU and China politicians and economics experts warned about higher tariffs that will likely add to inflaction. Actually, I know that liquor and wine sold at restaurants, which are located in the United States, is mainly imported from Europe. This means that American restaurants' owners will not have enough margin of profit due to Trump's trade war. I also think many Amercan farmers will face the same problem because of rising price of ferlitizers, which are imported from Canada and Saudi Arabia and Qatar. 

In my humble opinion, retailers have to contact their customers about the impact of new tariffs. Not to mention of the sharp stock markets sell-off triggered by Trump's aggressive tariff rollout.

Happy Sunday everyone 🌼☀🌺

Stability into China-US relations

Since the US government took office, more than a month ago, International public opinion has been believing that Washington-Beijing communication has lost momentum. At the moment many signals show the ambivalence in Washington about China-US relation. On the one hand, the US continue to spread the “China threat” rhetoric. On the other hand, the relevant information just proves the importance of stable Washington-Beijing economic and trade relations to the United States.

The US administration knows that the tariff war would not bring tangible benefit to American consumers. Not to mention of the effect  related to the stock market, as it is no coincidence that since late January S&P 500 index has decreased by 3%. According to data, during the previous trade war launched by the US in 2018, most of Washington’s costs from tariffs on China hit American businesses and concumers.

The importance of maintaining stability between Washington and Beijing is related to the fact that trade war and tariff war have no winners. That’s an undeniable fact, as injecting new vitality into China-US relations would contribute to global stability. 

Trump-China relationship

It seems Trump have recently mellowed a little on China. The strongest economic and military power in East Asia is central to the business interests of the uncoming US President's friend, billionaire Elon Musk. The latter will also have a role in the administration as soon as Trump takes office.

                                                   (Photo courtesy by Stefano Gazzano)

In the meanwhile, two weeks before Biden leaves office, The US State Department has informed Congress of a planned $ 8 billion weapons sale to Israel. The weapons package would add to a record of at least $ 17.9 in military aid that the US has provided Israel since the beginning of the war in Gaza on the 7th October, 2023. 

Last year Professor Emeritus of political sociology at Sonoma State University, Peter Phillips, wrote: "It is in the self-interest of the weapons makers to lobby their governments for the continuation of high level of military spending on weapons, using deterrence as a false rationale". 

Ghost villages

There are many old villages in Central Italy that have been left deserted due to migration, as working-age populations are moving to urban areas. 

Last week I heard the silence and the atmosphere of some old villages, which are experiencing a period of gradual depopulation. They are mainly located close in the regions of Tuscany, Umbria and Lazio (Central Italy).  

The main problem, which is stricly related to this demographic phenomenon, is that everyone leaving their homevillage does so not to come back again. 

I've found an article about the Italian demographic phenomenon above mentioned. It was published in 2021 by Anna-Leena Korpijärvi. She wrote that a falling birth rate is also responsible for this gradual depopulation. In addition, these villages sometimes lack services, as there are no supermarkets, banks or pharmacies. And the close hospital is one hour away.  

In my opinion, lower local taxes may be an action to be implemented in old villages affected by depopulation. 

Have a nice month of October  🍁🍄🌰🍂 

Blunting the edge of fiscal paradises

Two weeks ago leaders of world's 20 richest countries gathered for summit in Rome with the aim of adopting corporate tax rules. The agreement is aimed at "blunting the edge of fiscal paradises". As it is known, multinational companies make money in one country and move their profits to another.

In this contexts, about 14 countries representing more than 90% of global economic output endorsed the agreement which aims to raise more revenue for most governments and offer stability to international businesses. Consequently, profits of big companies will face tax at least 15% under pact approved at the 2021 Rome's G20 summit.  In addition to this, companies have to be taxed in territories where they sell their products and services, rather than where they are headquartered. But four countries (Pakistan, Nigeria, Sri Lanka, and Kenia) rejected the deal, as they said it will not be sustainable. 

I hope the agreement will be useful to end decades of competition between countries to attract foreign investments.

The 1st picture above shows the neighborhood of Rome where the G20 summit was held in late October. The tall white building in the picture, which was designed in 1938, is an example of the Italian Rationalism (someone would like to call it as fascist architecture). The style resembles that of the ancient Rome. This neighborhood is a business district, nowadays. And the building is known in everyday speech as "Swiss cheese" or "Square Colosseum".

Low-taxes havens

As it is known, after many governments around the world had declared a state of emergency, citizens were encouraged to stay at home. As a consequence, since March 2020 an increasing number of people have been buying what they need online. And it seems unavoidable that many stores will permanently shut down. Unfortunately, the more big tech companies sell their products and services online, the more retailers shut down their businesses. The picture below shows an old shop whose owner had been selling olive oil and wine for decades. Since early march 2020 it has been shut down. 

The main problem is that big tech companies, such as Amazon and Google, shift their profits to low-taxes havens. And countries where revenues are earned haven't been allowed to tax big tech multinationals. That's why big tech companies can be very competitive and so able to destroy retailers around the world. In other words, they're destroying the middle class slowly and gradually.

In this perspective, two days ago in Venice, finance chiefs of the G20 large economies have just endorsed the first step of a plan to stop multinationals shifting profits to low-taxes havens. The deal would establish a global minimum corporate tax of at least 15%, as big tech companies would be taxed on where they sell products and services, rather than on the location of their headquarters.  

The more epidemic spreads, the more people need unemployment benefits

We all want to be rid of the coronavirus, of course, although EU's media are still talking about a third wave. Furthermore, another partial lockdown may continue to destroy small businesses, such as restaurants, cafés, clothes retailers, and other small businesses, while Wall Street’s analysts are still busy finding the stocks that are primed for gains in the next 12 months. As a matter of fact, since April 2020 we have already seen a sharply rise of some companies listed on the stock market, such as of pharmaceutical, electrical car makers, and biotech. 

In this cloudy perspective, there is a great talk about rising tax with the aim of increasing public services and unemployment benefits, considering that since March 2020 many people have been loosing their job. Some countries in Northern Europe, such as Sweden, Iceland, and Denmark, are known as having a high standard of living and social security, which their taxes help to pay for. Those countries  have a progressive tax system, meaning that people with a higher income pay a higher percentage of taxes than people with a lower income. Therefore, a large proportion of tax money goes into education, health care, parental support, unemployment benefits, etc.   

The good thing is that people who live in those countries don't even think about how much taxes they pay, because they say their tax system works very well. Clearly, those resources are going to be used by everyone in the population. On the contrary, cut taxes measures could have an impact on the society, as most people trust the public sector is able to do good things with their money. 

The four pictures below were taken in 2019 by a friend of mine, Stefano, who went in Sweden for job.

 

Italy is compelled to generate 23 Billion by increasing taxes

This week Italy's Interior Minister, Mr. Salvini, is calling for early elections, while other parties are afraid of going to go to elections and loosing influence. From a political point of view, it is not time for elections in Italy, as the country needs to do an agreement with the EU and rebuild its political agenda. But it is also true that if a new government is not formed, Italian Parliament will be likely dissolved.  

The mainly problem of this political crisis is that many companies and strong economic powers, which have always backed Mr. Salvini from North-East Italy, now claim to be better heard from the government. Salvini's economic idea  is for growth of national product and measures which should encourage enterprises' productivity. But this couldn't be done without solving the problem at the moment of Italy's public debt, which is double than Germany and one fourth higher than France. Italy travels around 132% in terms of public debt/GDP ratio, and Salvini said this is not a problem. 

Salvini is the typical strong man that far right movements would like to see in power. Unfortunately, he is backed by economic powers which are interested in Federalism and Flat tax, and the Italian Prime Minister, Mr. Conte disagrees with these two points just mentioned. Flat tax means more money to the 10% richer and less money to the public budget. Consequently, Italian people would get less public services, such as healthcare, education, public transport, ect.  

Meanwhile, in order to comply with EU's deficit rules, Italy has vowed to the European Commission that it will be generating € 23 Billion by increasing sales taxes from the start of next year. There are no doubts that Italy needs a new stable government with the aim of helping to raise economic growth rate, create more jobs, and decrease public debt.

The Single Market is vital to Scottish companies

Since June 2016 most Irish people have been thinking what happens if Scotland remains in the EU by leaving the UK. Like Scotland, the majority in Northern Ireland voted to remain in the EU. Not surprisingly, Northern Ireland may become an independent state of the EU in its own right, considering that its territory is larger than some existing EU members states, such as Luxembourg and Malta. 
With regards to Scotland, three out of four its international trading markets are in the EU (Germany, France, Netherlands, etc.). On June 23, 2016, Scotland voted "Remain" by 62% to 38%, while 55.8 in Northern Ireland voted to stay in the E.U. and 44.2 % "Leave". People who live in those peripheral countries of the UK disagree with the exit from the custom union, as traders fear Brexit will see Scotland and Northern Ireland lose access to the EU Single Market.

With food and drink exports reaching £ 5 billion, Scotland's products are in demand in the world over. As a matter of fact, Scotland is the third largest producer of farmed salmon in the world. Scotch whisky accounts for almost 80% of Scotland's food and beverages export market, not to mention Scottish sales of oil, gas and refined products to the rest of the world.

Scotland voted to stay in the UK in 2014, but against Brexit in 2016, and will probably be driven out of the EU against it will. Of course, most Scottish people think the European association of countries trading with each other without restrictions or tariffs is vital to Scottish economy. For this reason, Scotland should hold another referendum to leave the UK.

As already mentioned by many experts, as soon as the UK leave the EU, British economy will slow sharply, as the country will pay tariffs on goods and services it will export into the EU. For this reason, since June 2016 British business leaders have been afraid the UK will not be an attractive place to do business. According to figures, almost half of UK's exports are to the EU, therefore it's easy to know the impact of Brexit on the UK's economy. For instance, British car makers, who are the UK's biggest exporters, have warned that the UK's departure from the EU Single Market poses the "biggest threat in a generation".

European policy makers have been underlining that whoever decides to leave the European association of countries, which are trading with each other without restrictions or tariffs, cannot expect all obligations to be omitted while keeping its privileges. According to the domino theory, other Members States would follow the UK with the aim to leave the EU. Not surprisingly, things in the EU may get a little out of hand, considering that many anti-europeanism leaders face important elections in the course of this year. Meanwhile, after the House of Commons had rejected the withdrawal agreement, the European Council proposed a one-year flexible extension, with the aim to allow the UK to exit as soon as possible.  

Three Brexit scenarios

As it's  known, the UK is going to leave the  EU  on 29  March  2019, thanks to 52  percent  of  people  who  voted  in favour of leaving the common  market. And  if  the  UK  and  EU were not  to  reach  a  deal  before  March  2019, consumers and businesses  in England, Scotland, Wales  and Northern Ireland would have to pay more for goods and services.

In other words, a no-deal Brexit would be related to slower processing times for payments between the UK and EU, and custom duties would be paid for goods going to and coming from the European single market. 

At the moment most experts argue there are three possible scenarios:

1. If Mrs May's deal is rejected by the Parliament, the UK would be plunged into crisis.
2. The UK and EU could reach a good deal. In this case little would be likely to change when the UK leaves the EU.
3. According to opinion polls, British society remains deeply divided over Brexit. That's why a second referendum may be "on the table".

With regard to the third scenario above mentioned, we should consider that on 23 June 2016 about 12,000,000 registered voters didn't vote the EU Membership Referendum. We don't know how they would answer the following question: Should the United Kingdom leave the European Union ? And although in June 2016 Leave's margin of victory was 1,269,501 votes, Northern Ireland, Scotland and London voted to remain. 

World richest people's economic agenda

It seems that one of the most important topic at World Economic Forum, last week in Davos, was the trend of increasing disparity on the job front, and the need to provide a fair work environment for women and minorities. The political leaders, who gathered at World Economic Forum in Davos, also focused on  jobs in danger of being displaced by technology, but they didn't mention the very big disparities in global wealth and global income. 

In a report published last week, an international confederation of twenty NGO  working to end the injustices that cause poverty, Oxfam International (www.oxfam.org), said that the 82% of the global wealth generated in 2017 went in the most wealthy 1% of the population. Although the World Economic Forum participants announced a target of one million workers over the next three years, we have no choice but to raise tax on richest people in the aim to finance job transition opportunities, new tech-reskilling, education, healthcare, transport services, and so on. What we need to be done, first of all, is to ensure that the richest 1% of world population stop using the global political establishment to further advance its own economic agenda.
A few years ago a French economist, Thomas Piketty, said in his book that as long as the return on capital is bigger than the economy's growth, we will continue to claim that wealth disparity is on the rise. In this prerspective,  an apparently small gap between the return on capital and rate of growth can on the long run have powerful and destabilizing effects on the structure and dynamics of social inequality.

So, if global political leaders  shared the need to reform the financial system, the new wealth wouldn't continue to go to the pockets of the richest 1% of world population. Actually, a progressive tax on capital and income would be a good response to the problem of private capital and its return. A progressive levy on individual wealth would reassert control over capitalism in the name of the general interest while relying on the forces of private property and competition.
Unfortunately, with election of President Trump we have heard very clearly that the US will go backwards on all regulations, all rules, and all tax policies: if richest people become richer, the middle class will disappear. And When super-riches grow unchecked, no one wins, not even the super-rich themselves, in the long run. 

P.S.: according to global inequality report, Jeff Besoz is the world's richest man with a fortune of $ 100 Billion, and only one out of ten of the world's billionaires are women. 

The most prosperous EU's regions claim the right to form a new state

With regard to Catalonia's independence declaration, which was passed by the Parliament of Catalonia on 27 October, most experts say there's no doubt that, on the long term, an independent Catalonia may be a good thing in terms of competition and regulation. Actually, Catalonia is one of the most prosperous of EU's regions.

Catalans only accounts for about 16% of the Spanish population, and 19% of Spain economy comes from Catalonia, which contributes $ 263 Billion a year to the overall Spanish economy.

Although Catalonia is bigger than many EU Member States, a very important condition for independence, to be an economic success, is that it happens peacefully. Unfortunately, Spanish government does not agree with Catalonia independence, and from a political point of view this is very different from the Scottish case, where the British Prime Minister said Scotland would hold a legal referendum. As it is known, in 2014 Scottish people voted to stay in the UK, but against Brexit in 2016. That's why Scotland should hold another referendum in order to leave the UK.

Catalans are not alone in the desire to form a new independent state and there are longstanding independence claims in other EU's regions, such as Wallonia, South Tyrol and Silesia, where people want more flexibility.  

This shows why populist movements in Europe are able to give an answer to the feel people are losing control of their own fate. As we have seen, during the last twenty-five years some countries grew enormously after they had become independent. Take for example the huge economic development of Slovakia, which split from Czech Republic in 1993.

In this perspective, Switzerland political system, in the hearth of Europe and outside the European economic area, may be a model: the Confoederatio Helvetica's decentralised entities, the Cantons, are allowed to be flexible in terms of taxation. Actually, Switzerland's federal legislation leaves a respectable amount of self-determination to the 26 Cantons, which may collect income taxes to finance their affairs, such as education system, universities, armed police forces and hospitals. And this helps to keep the country togheter.  

View of a pedestrian area in Barcelona (Catalonia)

U.S. stock markets' Record highs

I still don't understand why the U.S. stock markets keep smashing records. The all-time high, which Dow Jones, S & P 500 and Nasdaq have hit since Trump victory, may be related to President's promises of tax reform, deregulation and infrastructure spending. Moreover, European economy has started to gather momentum.

From another point of view, with an unemployment rate of at 4%, low interest rates and steady economic growth, the U.S. stock markets managed record highs. Moreover, European Union has started to gather momentum, and reports about the second quarter 2017 may elicit solid number better than expected.

As a result, We may find that we don't really need to listen to all those  analysts  and columnists who like to explain why the markets did what they did during the last nine months. A former technical analyst for CNBC, John J. Murphy, reminds us that a lot of experts didn't see the housing bubble bursting in 2007 until it was too late. That's why it's better looking at the markets instead of listening to the experts. All that really matters is what the markets are actually doing.   

More pipelines, and no carbon tax

This year China's annual GDP has dropped below 7% for the first time since the 2008 financial crisis. As it is known, China is still playing the most important  role in determining the health of our global economy, and it's slowing demand, especially when it comes from some commodities such as oil and gas, may affect developing economies which supply their resources to China. As a result, some experts think that the world should prepare for a great deal of volatility in emerging countries: Brazil, Indonesia, Chile, and South Africa to name a few.  

Nevertheless, although the consensus is now that the U.S. is still the world top economy, many countries believe China has already replaced  U.S. as the global superpower. indeed, President Trump declared, in his victory speech last week, that he will root his efforts to make America's economy great again. He also expect:

• American oil and gas production to surge;
• there will be no chance of a federal carbon tax;
• President Obama's Clean Power Plan is likely history;
• the U.S. will not ratify the Paris climate accord, and will not regulate its internal carbon dioxide emissions.

In addition, President Trump said that tax cut and pro-business policies will result in million of new jobs.  Unfortunately, tax cuts from the late 1970s to the early 2000s have always been focused on the reduction of income taxes at the top of the income scale: on rates paid not by ordinary working people but by the extremely rich. On the contrary, a progressive tax on high incomes and capital gains would favor business enterprises, rather than the individuals who control them, and would increase employment. As argued by J.K Galbraith, "resources are needed, and  could be used, for larger pressing purposes that meet greater needs".  I think that a tax cut policy wouldn't create new jobs. It would increase the flow of income to the pocket's of the 10 percent very rich people.

Economic policy doesn't combat inequality anymore

Why policy makers don't understand the importance of an economic policy based on progressive redistribution? Flat taxation can't raise living standards and doesn't help economic growth.

As it is know, since the late 1980s the incomes of the very rich have been boosting. Consequently, the big problem for the bottom 90% of  Western countries workers  has been the rise inequality.

An interesting interview with the economist Joshua Bivens (https://www.washingtonpost.com) shows that fighting inequality may increase the rate of overall growth in the economy. 

Destroying the social state

One of  the most striking problems that social states everywhere must face in the twenty-first century is related to the achievement of social rights, such as education, health and retirement. This challenge may mark an immense step forward in historical terms. And those topics are strictly related to taxation and its choices between progressive, flat and regressive system.

Unfortunately, it's easy to see that economy is still working for billionaires, considering that:

• high managers and billionaires pay lower taxes than nurses or construction workers;
• the biggest banks around the world are bigger now than they were before the 2008 financial crisis;
• the richest 1% has captured 90% of all income growth since the recovery began.