Explainer: 'Yellow vest' crisis exposes limits of French welfare system

FILE PHOTO: A view of the Place de la Republique as protesters wearing yellow vests gather during a national day of protest by the "yellow vests" movement in Paris, France, December 8, 2018. REUTERS/Stephane Mahe/File Photo

Leigh Thomas-JANUARY 18, 2019

PARIS (Reuters) - France’s “yellow vest” protests have exposed a deep-rooted belief that society is not working for large swathes of the French population, especially outside major cities.
Driving the unrest is anger about rising living costs - particularly among low-paid workers - and a perception that President Emmanuel Macron is deaf to their needs as he presses on with reforms seen as favouring the wealthy.

The following graphics look at underlying economic and social indicators in France to try to explain why so many people believe the system is working against them.

IS THE FRENCH WELFARE SYSTEM GENEROUS?

Without welfare transfers, poverty and inequality in France would be among the highest in developed countries belonging to the Organisation for Economic Co-operation and Development www.oecd.org (OECD), the Paris-based group estimates.

While many protesters rail against what they see as a gulf between them and the upper echelons of French society, OECD data suggests that the wealth divide is not as bad as in many other rich countries.

France's extensive welfare system keeps the poverty rate at 14.3 percent tmsnrt.rs/2AGoAPs, below the 18 percent OECD average and on a par with Scandinavian countries known for their egalitarianism.

Without tax and welfare payouts, nearly 42 percent of the population would be living in poverty, the highest rate among OECD countries for which recent data is available.

Likewise, France’s Gini coefficient, a gauge of income inequality, is slightly below the OECD average whereas without welfare transfers it would be among the highest, just behind Italy, Portugal and Greece, according to OECD data.

While a progressive tax system and generous welfare help narrow the wealth gap, it comes at a price as French taxpayers also bear the highest tax burden in the world here

Tax cuts on wealth and financial assets early on in Macron’s five-year term have added to middle-class taxpayers’ frustration and he has been criticised as being a president of the rich.

WHY DO MANY FEEL LEFT BEHIND?

Unlike Scandinavian countries, France’s poor have little hope of improving their lot in life despite the billions of euros the government spends on them, according to OECD data.

The OECD estimates tmsnrt.rs/2Ruv0ef it would take six generations for a person from a low-income family in France to reach an average income compared with only two generations in Denmark and an OECD average of 4.5.

“There are no rungs anymore on France’s social ladder,” Finance Minister Bruno Le Maire, a conservative, said on Monday.

While six generations is on a par with its neighbour Germany, the French have a deep attachment to the idea that state institutions, from schools to courts to government, are supposed to offer the same chance of success to all.

FILE PHOTO: A protester waves a French flag 

But despite income support for those on low incomes, they have little chance of doing better than their parents, according to a study last year by France Strategie www.strategie.gouv.frthink-tank, which is linked to the prime minister's office.

The study found that a person whose father was a senior white-collar worker was 4.5 times more likely to belong to the wealthiest fifth of the population than someone whose father was a manual worker - largely because social origin correlates closely with one’s level of education.

While France is close to the average in international education comparisons, it has a bigger gulf between the scores of the lowest and highest performing upper school students, the OECD’s director of social affairs Stefano Scarpetta said.

WHY DO PEOPLE FEEL UNDER FINANCIAL PRESSURE?

The protests originally erupted in November over higher fuel taxes, that have since been scrapped, and general frustration about the high cost of living, sparking the worst street violence Paris has seen in decades.

With people on low incomes surviving on welfare handouts and the lower middle class squeezed by the tax burden, the French are highly sensitive to pressure on their daily budgets.

That helps explain a national obsession with purchasing power and French politicians are frequently judged on whether people are getting more spare cash.

While protesters largely ignored new tax breaks to boost purchasing power, official data lends credence to their claims that budgets are getting squeezed.

The pressure is increasingly coming from housing costs, which now absorb 23 percent of their budgets tmsnrt.rs/2RuHxhX compared with 10 percent a generation ago, according to the official French statistics agency INSEE.

Meanwhile, a lack of jobs, deindustrialisation and dwindling public services mean that discontent is highest in smaller towns cut off from the economic opportunities of bigger cities.

In towns of 5,000-10,000 people, 21 percent report below average life satisfaction compared to 14 percent in the capital Paris, INSEE said in a study this week.

Is Duterte seeing the beginning of the end?

China's President Xi Jinping (R) and Philippines' President Rodrigo Duterte waves to members of the media after inspecting the honour guard during a welcoming ceremony at the Malacanang palace grounds in Manila on Nov 20, 2018. Source: AFP

By David Camroux | 17th January 2019

A THIRD of the way through his presidency, is Philippine President Rodrigo Duterte already a spent force? He would seem to think so himself. Duterte mused in August and December 2018 of resigning if he could be assured that he would be replaced by Ferdinand ‘Bongbong’ Marcos Jr. — the son of former presidential strongman, Ferdinand Marcos.

In the Philippines the vice president is elected separately, rather than as part of a presidential ticket, and often becomes the central figure in opposition to the incumbent president. This is the case for Vice President Leni Robredo today and why Duterte is hoping that the legal challenge of the 2016 vice presidential runner-up Marcos Jr. will succeed in invalidating Robredo’s election.

While according to the opinion polls Duterte remains overwhelmingly popular (with 80 percent approval in the latest Social Weather Stations survey), this support seems shallow. On social media it is difficult to distinguish between the genuine ‘diehard Duterte supporters’ and his ‘militia’ of paid trollers.

At the elite level, Duterte has helped resuscitate previously discredited political clans, such as that of Gloria Arroyo, Joseph Estrada and Ferdinand Marcos. But their support is transactional, rather than demonstrating ideological commitment or even personal loyalty.

SEE ALSO: Duterte wipes out Filipino Customs top brass over drug shipment 

Unlike most autocrats, Duterte has failed to create a mass-based organisation to perpetuate his regime. Both the Kilusang Pagbabago (Coalition for Change) and the Masa Masid failed to gain any traction. The latter movement’s funding was largely cut off by the Senate with the support of some of Duterte’s allies.

Only one paramilitary organisation of concern has been created since Duterte’s inauguration: the National Citizen Militia, which claimed in September 2017 to have some 25,000 members. Since then it has kept a low profile. Given that it is largely comprised of former military personnel, its principal role may well be to maintain the Armed Forces of the Philippines’ behind-the-scenes centrality in the political system — especially as Duterte’s anti-Americanism goes against the grain of the officer class.

Philippine President Rodrigo Duterte salutes while passing the honour guards upon arrival during the 120th Philippine Navy anniversary in Metro Manila, Philippines May 22, 2018. Source: Reuters/Romeo Ranoco

By ending any attempts at negotiation with the New People’s Army (the armed branch of the Communist Party of the Philippines) and through his pro-capitalist economic policies, Duterte has also alienated what existed of his elite left-wing power base.

Above all, Duterte’s so-called war on drugs — resulting in some 20,000 extra-judicial killings with over 5,000 directly acknowledged by a distrusted police force — overwhelmingly targeted the poorest of the poor in the slums of Manila, a central pillar of Duterte’s electoral constituency.

Their continued support for his presidency seems acquiescent at best given large-scale disenchantment with a dysfunctional democratic system, as a whole, and the lack of ideologically structured political parties to propose an alternative.

The Philippines’ mid-term elections in May 2019 could very possibly announce the beginning of the end for Duterte. There were 152 candidates enrolled at the Electoral Commission’s 17 October 2018 deadline for the 12 seats in the Senate to be contested. Given there is no primary system, their election or re-election is not dependent on their degree of allegiance to the incumbent President. In short, the solidity and local rootedness of Filipino political dynasties are formidable obstacles to Duterte’s continued survival.

This situation may well be exacerbated by Duterte’s proposed constitutional changes to create a federal system after 2022. The House of Representatives, led by Duterte’s ally Gloria Arroyo, voted measures to eliminate term limits in early December 2018 and prohibited Duterte from running again under a new constitution.

Duterte’s assertive ‘bi-aligned’ foreign policy has also had a boomerang effect. His pro-Chinese pivot has brought few tangible investment results outside of Duterte’s own bulwarks in the Visayas and Davao. It allowed the disparate opposition led by Vice President Robredo to take on the mantle of being the true nationalists by appealing to the underlying anti-Chinese sentiment of a proud Filipino people.

Meanwhile the United States, both through the indispensable support provided in the recapturing of Marawi and through the return of the Balangiga bells, has neutered Duterte’s capacity to use an anti-United States mantra as a mobilising trope.

SEE ALSO: Are Filipinos finally done with Rodrigo Duterte? 

Will the putative end of Duterte’s autocratic regime mean an end to the slide into authoritarian rule that he has engendered? Duterte’s daughter, Sara Duterte Carpio, is attempting to set up a coalition of minor regional parties to support her run for the Senate.

With a 39.5 percent approval rating in a September 2018 Pulse Asia poll, she is somewhat of a shoo-in. She has also reached out to Marcos Jr., whose sister Imee seems also virtually assured of re-election, to make sure that her father can leave office without fear of future punishment.

After inveighing against the elite of Imperial Manila, the irony would be that Duterte leaves office having re-established dynastic Filipino politics. But this return to dynastic politics is fraught with difficulties.

Duterte was elected on the grounds that the People Power Revolution of 1986 — carried out in the name of the people, but not by the people — had failed to deliver the public goods to the aspiring lower middle class and the poor who voted for him.

In the most inegalitarian society in Asia, there is a need for democracy to be accompanied by a degree of economic equality by strengthening the role of an impartial, just and redistributive state. Otherwise another strongman saviour may well re-emerge in the future.

David Camroux is Honorary Senior Research Fellow at Sciences Po (CERI) in Paris and Visiting Professor at the Vietnam National University (USSH) in Hanoi. 

This article is republished from East Asia Forum, under a Creative Common license.

Brexit explained: What could no-deal actually mean for you?

17 Jan 2019
Theresa May’s Brexit deal has been defeated by MPs and the UK is creeping closer to leaving the EU without a deal. But how does a no-deal Brexit actually affect you?

US withdrawal from Syria: Fighting may end soon, but causes not addressed

2019-01-18 

ess than a month after United States President Donald Trump declared that the US troops in Syria would be called back, four Americans, including two soldiers, were killed on Wednesday in a suicide blast carried out by ISIS, the very terrorist group he had claimed to have routed.According to reports, Wednesday’s toll matched the largest number of American deaths from hostile fire in a single incident overseas since Trump
became president.

The anticipated US exit from Syria is replete with complexities. It does not appear to be as easy as the US troops’ entry into the Syrian conflict. The announcement prompted Defence Secretary James Mattis to resign. It has put the US and Turkey on a confrontational course, with Ankara planning a major military campaign against the very Kurdish militias with whom the US military had allied to fight ISIS. It is also being seen by Trump’s critics as another Trump move to placate the Russians, while recent reports in the New York Times and the Washington Post gave credence to claims that Trump was working for Russia.
But it must be mentioned that the US military presence in Syria is illegal. Whereas the Iranians, the Russians and the Lebanese militant group Hezbollah entered Syria with invitations from the Syrian government, the US troops had no such invitation. The US boots on the Syrian ground were illegal and in violation of international law.

True, terrorism is a global scourge and should be eliminated, but no international norm or convention allows a nation to go after a terrorist target in another country without obtaining that country’s permission. But powerful states such as the US, Russia and Israel, in pursuit of their national interest goals, have no qualms about violating the sovereignty of other nations.
In the Syrian conflict, the US involvement was initially auxiliary. It played a supporting role in the Saudi-Qatari project to oust the Bashar al-Assad regime. The project was marketed as an Arab Spring uprising aimed at ousting a dictator, though the projects’ authors themselves were averse to democracy and free thought. The schemers thought that just as they got rid of Libyan strongman Muammar Gaddafi, they could easily topple the Assad regime. But Syria was a bigger geostrategic pivot for countries such as mighty Russia, rising regional power Iran and the Middle East’s only nuclear power, Israel.

Beneath the Arab Spring façade of the Syrian conflict are Big Oil and Saudi Arabia’s fears about a rising Iran.  Saudi Arabia and Israel believed if Syria was cut off, Iran would not be able to send supplies to the Lebanese Shiite group Hezbollah, a formidable military force which scored a moral victory resisting Israel during a month-long invasion in 2006.  Then there was a botched Saudi-Qatari bid to build energy pipelines across Syria and Turkey to Europe.  Syria opposed the proposal as it went against the national interest of its ally Russia, which accounts for nearly 60 percent of the European energy market. Russia did not want Middle Eastern oil to glut the market and erode its clout on European nations. This explains Russia’s military involvement in the Syrian conflict. Besides, Russia also has a military
base in Syria.

There is another oil chapter: The oil discovered in the Golan Heights, a Syrian territory occupied by Israel since 1967. Israel is unable to export this oil as international law prohibits it to sell the resources of an occupied territory. Israel wants Assad ousted and set up an Israeli-friendly regime which will cede the Golan Heights to Israel. Then there is the ISIS issue. In hindsight, it now appears that the rise of ISIS was not a coincidence but was part of the project to oust Assad.  The project worked as planned initially, with some Gulf nations providing military and financial support to the rebels. To win international legitimacy, they were called moderate rebels, despite their ISIS and al Qaeda links. The US trained them in camps in Jordan. But the project began to crumble, first with the entry of Iranian revolutionary guards and Hezbollah militia into the Syrian conflict, then with the arrival of the Russian troops and then with ISIS behaving like a Frankenstein’s unruly monster or a brutish evil force. With public opinion in support of a tough military response against ISIS building up in the US and other Western nations, the Barack Obama administration was compelled to act.  

Washington’s war on ISIS began in Iraq. During this campaign, the US found itself on the same side as Iran which was providing military and material support to Iraqi paramilitary groups
fighting ISIS.
After defeating the ISIS in Iraq, the US in late 2015 took the war to Syria, where it teamed up with Syrian Kurdish and a ragtag group of Arab fighters, dubbed the Syrian Democratic Forces. But in Syria, the ISIS rout is not solely an American feat. A bigger portion of the credit is due to the Russians, the Syrian government troops, the Iranians and the Hezbollah.
As Trump agrees to withdraw the 2,000-strong US military force from Syria, the Syrian Kurdish group YPG which allied with the Americans has become a military target for Turkey. This is because the YPG now controls a large swathe of territory bordering Turkey. Ankara sees this as a security threat because the YPG is an ally of the Kurdish separatists in Turkey.  

Reacting angrily to Trump’s National Security Advisor John Bolton’s call that Turkey guarantee the security of the YPG militia, Turkish President Recep Tayyib Erdogan said his government saw no difference between ISIS and the YPG.
As the US-Turkey war of words continued, Trump warned Erdogan that if Turkey dared to attack America’s allies in Syria, he would take measures to devastate Turkey’s economy. This week, the two leaders had a telephone conversation, following which Turkey decided to set up a security zone along the border and defer the military campaign.

It now appears that the US is phasing out the withdrawal from Syria, although Trump has said he is determined that the troops leave sooner rather than later. While Trump has succeeded in cajoling Erdogan to hold fire, the Russians, the Syrians and their Iranian allies are now on the outskirts of Manbij, taking on ISIS remnants. It is only a matter of time before they subdue the YPG, through military means or a surrender deal. The good news is that an end to the Syrian conflict is on the horizon. But the bad news is the conflict’s causes such as the Saudi-Iran rivalry and oil-driven politics remain unaddressed.

US confirms detention of journalist working for Iran's Press TV

Marzieh Hashemi not facing any legal charges herself, but is being detained as material witness, US court documents show

US government accused of abusing 'material witness' statute to detain people without charges (AFP)

Friday 18 January 2019

Authorities in the United States have confirmed the detention of a journalist working for Iranian state television, Reuters reported on Friday.

Marzieh Hashemi, an American citizen who works as an anchor for Iran's English-language Press TV channel, has been held since Sunday, when she tried to leave the US and return to Iran.

According to a US federal court order issued on Friday, Hashemi is not facing any legal charges herself, but is being detained as a material witness to testify in an ongoing criminal case, Reuters said.

US District Judge Beryl Howell issued the order, the first official US confirmation of reports of the arrest, at the request of the Justice Department, the news agency reported.

READ MORE►

Besieged Iran crafts a defence budget for dark times

Hashemi, who is African American, changed her name from Melanie Franklin after converting to Islam. She has worked for Iranian state television for 25 years, according to a report by the Associated Press.

Since news of her detention first broke, rights groups have called on the US government to release details behind the journalist's arrest.

In the years after the 9/11 attacks, the US government was accused of abusing the "material witness" statute to detain people without charges or due process.

Calls for clarification 

The Committee to Protect Journalists, a New York-based watchdog, expressed worry on Friday over Hashemi's case.

"We are concerned by the arrest of a journalist for Iranian state TV, Marzieh Hashemi, and call on the US Department of Justice to immediately disclose the basis for her detention for the past five days," CPJ's North America programme coordinator, Alexandra Ellerbeck, said in a statement.

The Council on American Islamic Relations (CAIR) also called on US government agencies to explain the reasons behind Hashemi's detention.

"Law enforcement officials must clarify why they are holding Ms. Hashemi without formal charges... There can be no justification for denying an American citizen, or any other person, their basic civil and religious rights," CAIR executive director Nihad Awad said in a statement.

The National Iranian American Council (NIAC), an advocacy group that promotes diplomacy with Iran, urged Washington to respect freedom of the press in Hashemi's case.

"NIAC has consistently condemned the Iranian government’s shameful track record of politically motivated detentions – including arbitrarily arresting dual citizens, holding them on spurious charges, subjecting them to cruel conditions, and using them as bargaining chips in negotiations," the group's president, Jamal Abdi, said in a news release on Wednesday. 

"It is absolutely critical that the US government not follow suit and instead observe the core values of freedom of speech and freedom of the press."

Democrats vow aggressive investigations into report that Trump directed Cohen to lie to Congress

President Trump on Nov. 29 said his former personal lawyer Michael Cohen is lying to federal prosecutors about a Trump real estate project in Moscow. (Photo: Jabin Botsford/The Washington Post)

By John Wagner ,Karoun Demirjian and Tim Elfrink-January 18 at 7:52 PM

House Democrats on Friday moved to accelerate their investigations into President Trump’s alleged ties to Russian interests, reacting to an explosive but unconfirmed report that Trump directed his personal attorney, Michael Cohen, to lie to Congress about his push for a Moscow real estate project.

The assertions contained in a BuzzFeed News report landed like a mortar in Washington, where Trump and Democrats are already locked in a weeks-long standoff that has shut down large swaths of the federal government over Trump’s demand that taxpayers provide funding for his promised wall along the U.S.-Mexico border.

Friday evening, BuzzFeed said the special counsel’s office disputed certain claims made in the report. “BuzzFeed’s description of specific statements to the Special Counsel’s Office, and characterization of documents and testimony obtained by this office, regarding Michael Cohen’s Congressional testimony are not accurate,” said the unusual statement from the spokesperson for the special counsel’s office shared by BuzzFeed.

The claims in the news report prompted Democrats, who control the House, to ratchet up their investigation of Russian interference in the 2016 election, including allegations that the Trump campaign cooperated with Russian operatives and that Trump has since sought to obstruct an ongoing probe by special counsel Robert S. Mueller III.

“We know that the President has engaged in a long pattern of obstruction,” Rep. Jerrold Nadler (D-N.Y.), chairman of the House Judiciary Committee,wrote in a tweet promising to “get to the bottom” of the allegations in BuzzFeed’s report.

“Directing a subordinate to lie to Congress,” Nadler added, “is a federal crime.”

Rep. Jerrold Nadler (D-N.Y.). (Jonathan Ernst/Reuters)

Some Democrats on Friday also revived calls for Trump’s impeachment, though House leaders and most Democrats have sought to tamp down talk of moving toward that option.

In the report published late Thursday night, BuzzFeed quoted two unnamed federal law enforcement officials saying that Cohen acknowledged to prosecutors that the president directed him to deceive Congress about key facts linking the president to the proposed Trump Tower project in Moscow. 

BuzzFeed also said Mueller learned about the directive to lie from “interviews with multiple witnesses from the Trump Organization and internal company emails, text messages, and a cache of other documents.”

Cohen pleaded guilty in November to lying under oath to Congress about negotiations over the Moscow project, but there is no indication in public filings or proceedings that he was instructed to lie at Trump’s direction. The Washington Post has not independently verified the BuzzFeed report.

Trump attorney Rudolph W. Giuliani on Friday issued a flat denial of the BuzzFeed report.

“Any suggestion — from any source — that the President counseled Michael Cohen to lie is categorically false,” Giuliani said in a statement. “Today’s claims are just more made-up lies born of Michael Cohen’s malice and desperation, in an effort to reduce his sentence.”

Cohen is due on Capitol Hill in early February to give public testimony before the House Oversight and Government Reform panel. He is also expected to speak around that time with the House and Senate Intelligence Committees behind closed doors, according to top Democrats. Lawmakers anticipate Cohen may refuse to speak about Russia-related issues during his public hearing, as Mueller is continuing to investigate those matters, but hope to glean more information during private testimony. In his guilty plea, Cohen admitted lying to the two intelligence panels.

Most top Democrats on Friday were careful to note that they did not know whether the BuzzFeed allegations were true.

“These allegations may prove unfounded, but, if true, they would constitute both the subornation of perjury as well as obstruction of justice,” Rep. Adam B. Schiff (D-Calif.), chairman of the House Intelligence Committee, said in a statement Friday, adding that the panel “is already working to secure additional witness testimony and documents related to the Trump Tower Moscow deal and other investigative matters.”

[Analysis: BuzzFeed’s Michael Cohen story, if true, looks to be the most damning to date for Trump]

Some rank-and-file Democrats on Friday suggested the allegations should spark serious consideration of impeachment proceedings, despite party leaders’ best efforts to defer such decisions until after Mueller has completed a final report expected in coming months.

“If the @BuzzFeed story is true, President Trump must resign or be impeached,” Rep. Joaquin Castro (D-Tex.), a member of the House Intelligence Committee, tweeted after the story was published.

Former Obama administration attorney general Eric Holder, who is eyeing a 2020 Democratic presidential bid, egged on the impeachment talk Thursday night, calling the BuzzFeed report “a potential inflection point.”

“If true — and proof must be examined — Congress must begin impeachment proceedings,” he wrote, adding that attorney general nominee William P. Barr should “at a minimum” give lawmakers the relevant materials that Mueller has in his possession if he is confirmed by the Senate for the top Justice Department position.

“If Mueller does have multiple sources confirming Trump directed Cohen to lie to Congress, then we need to know this ASAP,” Sen. Chris Murphy (D-Conn.) wrote on Twitter late Thursday. “Mueller shouldn’t end his inquiry, but it’s about time for him to show Congress his cards before it’s too late for us to act.”

A person close to the Trump organization, with knowledge of documents and witness testimony in the ongoing investigation, said he has “seen nothing to corroborate the allegations” in the BuzzFeed article.

“We believe the story is completely false,” said the person, who requested anonymity because he was not authorized to speak on the topic.

In November, Cohen admitted he had falsely told Congress that Trump’s efforts to build a condo tower in Moscow ended in January 2016 when, in reality, those efforts continued through June of that year. Last month, he was sentenced to three years in prison for those lies and various financial crimes.

As Mueller noted, Cohen’s testimony was an attempt to “minimize links between the Moscow Project and Individual 1,” which is how Trump is referred to in the report. Trump had repeatedly insisted on the campaign trail that he had no ongoing business interests in Russia, even as the deal continued to unfold.

In court documents, Cohen admitted that he briefed Trump on his ongoing negotiations with Russian officials about the proposed deal and said that he had consulted with Trump’s team before his false testimony before Congress. But he never said in those documents that Trump played any role in encouraging his false testimony.

In his first public comments on the BuzzFeed report, Trump went on Twitter on Friday morning to quote Fox News reporter Kevin Corke as saying, “Don’t forget, Michael Cohen has already been convicted of perjury and fraud, and as recently as this week, the Wall Street Journal has suggested that he may have stolen tens of thousands of dollars.”

“Lying to reduce his jail time!” Trump added in his own words.

The Journal story in question reported Cohen had hired a technology company to help rig online polls in Trump’s favor ahead of the 2016 presidential election. The report said Cohen sought a larger reimbursement from Trump and his company than what he paid the technology company.

In a statement, Lanny J. Davis, a legal communications adviser to Cohen, said he and Cohen are declining to respond to reporters’ questions “out of respect for Mr. Mueller’s and the Office of Special Counsel’s investigation.”

Congressional Republicans, meanwhile, largely sought to deflect questions about the BuzzFeed report on Friday.

Asked if it would be an impeachable offense for Trump to direct Cohen to lie to Congress, Sen. Rob Portman (R-Ohio) told reporters he was focused on ending the partial government shutdown.

“Honestly, I haven’t even seen the reports. I’m not focused on that right now,” he said, adding that Mueller’s investigation “is the place to sift all this out . . . unimpeded.”

Tom Hamburger and Erica Werner contributed to this report.

U.S. consumer sentiment at two-year low, manufacturing rebounds

FILE PHOTO: Workers weld drawers on the assembly line at Metal Box International toolbox factory in Franklin Park, Illinois, U.S., February 21, 2018. Picture taken February 21, 2018. REUTERS/Timothy Aeppel/File Photo

Lucia Mutikani-JANUARY 18, 2019 

WASHINGTON (Reuters) - U.S. consumer sentiment tumbled in early January to its lowest level since President Donald Trump was elected more than two years ago as an ongoing partial shutdown of the federal government and financial market volatility stoked fears of a sharp deceleration in economic growth.

The drop in confidence reported by the University of Michigan on Friday is the clearest sign yet that the impasse in Washington over Trump’s demands for $5.7 billion to help build a wall on the United States’ border with Mexico was negatively impacting the economy. Trump has touted high consumer confidence as an indication of the good job he is doing on the economy.

While consumer sentiment remains relatively high, the gathering dark clouds over the economy could make households more cautious about spending, leading to slower growth. Consumer spending accounts for more than two-thirds of the U.S. economy.

“This report on consumer sentiment is the first concrete evidence that the economy is going to fall and fall hard if Washington does not end the shutdown,” said Chris Rupkey, chief economist at MUFG in New York. “It is going to be hard to see real GDP growth of more than 1 to 1-1/2 percent in the first quarter if the consumer goes on a buying strike.”

The longest government shutdown in the history of the United States has left some 800,000 government workers without a paycheck. Private contractors working for many government agencies are also without wages.

The University of Michigan said its consumer sentiment index fell 7.7 percent to a reading of 90.7 this month, the lowest reading since October 2016 and the steepest drop since September 2015. Economists had forecast a reading of a 97.0.

 

The survey’s measure of current economic conditions decreased to 110.0 from a reading of 116.1 in December. Its measure of consumer expectations tumbled to a reading of 78.3, the lowest since October 2016, from 87.0 in late December.The University of Michigan attributed the decline in sentiment to “a host of issues including the partial government shutdown, the impact of tariffs, instabilities in financial markets, the global slowdown, and the lack of clarity about monetary policies.”

It said that half of the survey’s respondents “believed that these events would have a negative impact on Trump’s ability to focus on economic growth.”

Economists estimate the partial shutdown of the government, which started on Dec. 22, is subtracting as much as two-tenths of a percentage point from quarterly GDP growth every week.

Other surveys have also shown an ebb in business sentiment.

“Sentiment among both households and businesses has been coming off the sugar highs, which were caused by tax cut hopes at the beginning of the Trump presidency,” said Harm Bandholz, chief U.S. economist at UniCredit in New York.

U.S. financial markets shrugged off the fall in sentiment, with investors focusing on another report on Friday showing manufacturing output surged by the most in 10 months in December and on hopes for progress in the U.S-China trade row.

Stocks on Wall Street rallied, setting the three main indexes on track for their fourth week of gains. The dollar rose against a basket of currencies, while U.S. Treasury prices fell.

FACTORY ACTIVITY ACCELERATES

The broad-based jump in manufacturing output in December reported by the Federal Reserve could allay fears of a sharp slowdown in factory activity.

Manufacturing activity, which accounts for about 12 percent of the economy, is slowing as some of the boost to capital spending from last year’s $1.5 trillion tax cut package fades. In addition, a strong dollar and cooling growth in Europe and China are hurting exports. Lower oil prices are also slowing purchases of equipment for oil and gas well drilling.

Production at factories increased at a 2.3 percent annualised rate in the fourth quarter after expanding at a 3.7 percent pace in the July-September period. It increased 2.4 percent in 2018, the largest gain since 2012, after advancing 1.2 percent in 2017.

“While the manufacturing strength in December is a favourable signal for the economy, we should keep in mind that it came after soft results in earlier months,” said Daniel Silver, an economist at JPMorgan in New York.

“A broad range of manufacturing surveys also have been weakening lately, so the strength in the manufacturing output in December may prove to be short-lived.”

FILE PHOTO: Protestors hold signs during a rally outside a closed federal building in the Manhattan borough of New York City, New York, U.S., January 15, 2019. REUTERS/Carlo Allegri/File Photo

Last month, motor vehicle production surged 4.7 percent after gaining 0.2 percent in November. Excluding motor vehicles and parts, manufacturing advanced a solid 0.8 percent last month after gaining 0.1 percent in November.

December’s 1.1 percent surge in manufacturing output, together with a rise in mining production, offset a weather-related drop in utilities, leading to a 0.3 percent increase in industrial production. Industrial output rose 0.4 percent in November. It increased at a 3.8 percent rate in the fourth quarter after notching a 4.7 percent gain in the third quarter.

Reporting By Lucia Mutikani; Additional reporting by Richard Leong in New York; Editing by Andrea Ricci

No Sweeping Free Trade Deal, Brussels Tells Washington

The EU’s terms for talks could herald another trade setback for Trump.

There will be no talks about farm goods, European Trade Commissioner Cecilia Malmstrom reiterated, scuppering real hopes for a sweeping trade deal, Jan. 18, 2019. (Emmanuel Dunand/AFP/Getty)

BY KEITH JOHNSON

| JANUARY 18, 2019, 4:32 PM
Six months after U.S. President Donald Trump proclaimed he’d already reached a trade deal with the European Union, Brussels has only now laid out its preliminary conditions for talks. And they don’t point to a quick or a comprehensive trade pact, or, more importantly, one that could ever pass muster with the U.S. Congress—adding to two years of Trump administration failures when it comes to trade.

The European Union on Friday released its objectives for trade talks with Washington, which are, by design, focused and narrow. Brussels hopes to slash the existing tariffs on trade in industrial goods between two of the world’s biggest economic blocs, and to harmonize some regulations, but made clear it has zero interest in a full-fledged free trade agreement with the United States.

“We are not—and I want to be very clear—we are not proposing to restart a broad free trade agreement negotiation with the United States,” said EU Trade Commissioner Cecilia Malmstrom at a press conference on Friday.

To drive home the limited nature of the European proposal, Malmstrom underscored that discussion over greater access for U.S. agricultural products in Europe is off the table. The position is at odds with the negotiating objectives released by Trump’s trade team last week and makes it virtually impossible any agreement could win Senate approval.

“We are not proposing any negotiations with the United States to reduce or eliminate tariffs on agricultural products,” Malmstrom said, reiterating the agreement reached in July 2018 by Trump and EU President Jean-Claude Juncker.

The U.S. trade objectives, published earlier this month, call for much greater access to the European market for U.S. agricultural products, which is a big issue for Trump’s base but a non-starter for many powerful EU member states. Europe did highlight its increased imports of soybeans, which were diverted east after China refused to buy any more U.S. beans because of the trade war between Washington and Beijing, but there are no further discussions planned on agricultural access.

The gaping chasm between how Brussels and Washington view the trade negotiations points to trouble, especially because the Trump administration, after two full years in office, has nothing to show for its campaign-trail promises of “quick wins” to deliver new trade deals.

Trump pulled out of the world’s biggest trade pact his first week in office, severely limiting access to Asian markets for U.S. farmers and manufacturers. The slightly renegotiated North American Free Trade Agreement must still win congressional approval, and the House is now in Democratic hands.

 Talks to begin discussions with Japan over a trade deal are now underway, though with plenty of contentious issues to deal with. There is no short-term prospect of any trade agreement with the United Kingdom, which is currently on the verge of leaving the European Union. Trump’s lieutenants did secure one partial success: cosmetic but unimportant changes to the existing free trade deal with South Korea. At the same time, the Trump administration has soured relations with friends and foes alike by levying tariffs on steel, aluminum, and other goods, and threatening steep tariffs on imported cars.

The looming impasse with Europe over trade underscores the difficulties Trump’s trade insurgents have encountered.

“The lack of motion on trade deals in prior administrations wasn’t because of laziness or a lack of imagination. It’s because there were very real constraints,” said Philip Levy, a senior fellow on the economy at the Chicago Council on Global Affairs.

The United States and Europe spent years during the Obama administration hashing out prickly issues with a view to completing the Transatlantic Trade and Investment Partnership, a trade agreement with the entire EU, but the Trump administration quickly iced that when it took office. Last summer, amid rising trade tensions due to Trump’s use of tariffs on EU and NATO allies, leaders signed an apparent truce, agreeing to hold off on further tariffs while trade talks continue. The joint statement made clear that any agreement would be limited and would not address the main U.S. objectives. Trump at the time touted it as a done deal.

Malmstrom, the EU trade commissioner, reiterated Friday that the EU objectives are in line with what the two presidents agreed to last July, and she added that she has made clear to U.S. trade officials and lawmakers that agriculture will not be part of the talks.

More than any other issue—and there are dozens of potential sticking points on everything including the treatment of digital information and phytosanitary inspections—access for U.S. farm goods is the hinge for trade talks between the United States and Europe. U.S. farmers, hammered by two years of uncertainty over NAFTA, the loss of a huge trade deal in Asia, Chinese boycotts, and falling prices, are desperate to line up new markets. But that won’t happen with Europe—which will make it nearly impossible for Congress to sign off on any such accord.

“You can’t get a limited deal through the Senate,” Levy said. Agricultural interests are overrepresented in the upper chamber, and lawmakers such as Iowa Republican Sen. Chuck Grassley have been vocal about opening up new outlets for farmers who’ve seen their export markets shrink.

There won’t be many other chances for U.S. farmers to crack the EU market, either: World Trade Organization talks are moribund, and the proposed Transatlantic Partnership is dead. “If you are a U.S. agricultural exporter hoping to gain access to the EU, and you’re told to wait until next time, when is that?” Levy said.

Hampering all U.S. trade relations is the Trump administration’s insistence on resorting to protectionism to advance its economic goals, even at the cost of alienating close allies. Canada and Mexico, for instance, both still face tariffs on their steel and aluminum exports—even after agreeing to renegotiate NAFTA. Europe also suffers U.S. tariffs on steel and aluminum—and it has made clear those will have to end before any trade agreement is signed—as well as the prospect this spring of hefty tariffs on cars and car parts. Malmstrom made clear that any imposition of auto tariffs would have a “very damaging effect” on talks, instead of forcing Brussels to the table.

That makes many trade analysts wonder if the Trump administration, led by the self-proclaimed “Tariff Man,” isn’t really interested in free trade after all.

“What I am seeing is lots of tariffs and very little trade negotiation,” said Simon Lester, a trade expert at the Cato Institute. “They have tariffs in place, maybe that’s all they really wanted.”

 

Keith Johnson is Foreign Policy’s global geoeconomics correspondent. @KFJ_FP

Asia braces for ‘serious challenges’ of a no-deal Brexit

n anti-Brexit placard on a long stick is seen near the temporary broadcast news studios at College Green outside the Houses of Parliament in central London on December 11, 2018. Source: Oli Scarff/AFP

By Emma Richards | 18th January 2019 | @EmmaRichards85

AS Britain continues to tear itself apart at the seams all in the name of leaving the European Union (EU), the business world is looking on with keen interest as the implications of a no-deal Brexit promise to reach far beyond the borders of the United Kingdom.

After Prime Minister Theresa May’s crushing defeat of her deal in parliament on Tuesday, a no-deal Brexit – in which the UK will leave the European Union without a trade agreement – is looking increasingly likely.

SEE ALSO: UK sets sail for Asia as Brexit storm rages on

In a global economy already cowed by the US-China trade war and China’s slowdown, the uncertainty of Brexit is spooking markets and Asian companies are developing contingency plans if the worst-case scenario is realised.

The implications for Asia will likely be significant. Not only will the UK have to strike a trade deal with individual governments, but Asian companies with operations in the UK will need to rethink investment strategy as they are faced with diminishing UK relevance and the possibility of tariffs.

Britain’s Prime Minister Theresa May (centre left) as she speaks in the House of Commons in London on January 16, 2019, during a debate on a motion of no confidence in her government. Source: Mark Duffy/UK Parliament/AFP

Without a bilateral trade deal with the EU, Britain would be subject to World Trade Organisation (WTO) rules. UK exports would face the same customs checks and tariffs as other countries outside of the EU, putting an end to the frictionless zero-tariff trade arrangement. This will likely increase the price of some goods, lead to shortages, and cause significant delays on both sides of the English Channel.

Asian multinationals with operations in the UK are starting to weigh up their options. Nissan, which runs its largest European plant in the UK, is urging May’s government to come to an agreement before the March 29 deadline.

SEE ALSO: Australia’s Brexit strategy needs less Britpopulism, more Eurovision

“We urge UK and EU negotiators to work collaboratively toward an orderly balanced Brexit that will continue to encourage mutually beneficial trade,” a spokesperson for the Japanese company told Nikkei Asian Review.

Even those with production lines based outside the UK, but still in the EU, will take a hit. Lee Bo-sung, vice president at South Korea’s Hyundai Motor Group, told the Review that Brexit is “definitely a negative factor to us.”

With production lines in Slovakia and the Czech Republic, the automaker will likely face tariffs when trading with the UK going forward. The new tariffs will, however, make them more competitive globally than their counterparts operating in the UK who will be subjected to the new measures.

Anti-Brexit campaigners protest outside Parliament on January 15, 2019 in central London. Parliament is to finally vote today on whether to support or vote against the agreement struck between Prime Minister Theresa May’s government and the European Union. Source: Daniel Leal-Olivas/AFP

Those working across Europe are currently taking advantage of the single market, which ensures no regulatory obstacles to the free movement of goods. When the UK leaves this, as is looking likely, companies could experience hold ups in their supply chain.

As a spokesperson for Honda Motor explains: “New checks at the border could disrupt our just-in-time logistics systems, while the imposition of tariffs on the movement of goods between the EU and UK would have an impact on our competitiveness.”

Honda claim the Brexit process poses “serious challenges” for their European business. In an interview on Radio 5 Liveback in September, Ian Howells, the European boss of Honda, explained just how much extra work and money would be expended if the UK reverts to WTO rules.

SEE ALSO: Jeremy Hunt’s so-called ‘open society’ just indicted an activist for Skyping

“From an administrative point of view, we’d probably be looking at 60,000-odd additional bits of documentation we’d have to provide to get product to and from Europe,” he told the BBC station.

“If we end up with WTO tariffs, we’d have something like 10 percent of costs in addition on products shipped back into Europe and that would certainly run into tens of millions. And likewise, when we’re looking at components coming the other way, again tens of millions in tariffs potentially coming into the UK.”

Given the increased costs, it will make sense for some companies to move their headquarters out of the UK and into a continental capital, such as Paris or Berlin. This allows them to keep access to the single market, avoid paying tariffs imposed on UK-based companies, and ensure the continued smooth running of supply chains and logistics. This could cost the UK economy significantly.

Pro-Europe audience members hold up placards and applaud speakers at a rally for Best for Britain and People’s Vote campaign in London on December 9, 2018, on the eve of the week in which Parliament votes on the Brexit deal.
Source: Daniel Leal-Olivas/AFP

In September, Jaguar Land Rover boss Ralf Speth warned May that the company’s factories faced grinding to a halt and “tens of thousands” of jobs in the sector could be lost if she failed to reach an agreement with Brussels.

The threat is already becoming reality, as the company announced last week that it would cut 4,500 jobs, largely in the UK. The move represents a reduction of more than 10 percent to its roughly 40,000 employees in the country.

SEE ALSO: World economy braces for global trade slowdown in 2019

In a bid to soften the blow, British members of parliament have spent the last year travelling the world, putting out feelers for international trade deals they can make with like-minded countries. Earlier this month, UK Foreign Secretary Jeremy Hunt was in Singapore.

The UK’s Secretary of State for International Trade, Liam Fox, has visited the US, South Korea and Japan, over the last two years, talking of bilateral free-trade deals and the possibility of signing up to the Trans-Pacific Partnership.

To avoid the UK crashing out of Europe with a no-deal Brexit, May now faces the momentous task of getting consensus in parliament to pass an agreement that satisfies all parties. But with the opposition refusing to even come to the negotiating table, and time quickly running out, the odds don’t look good.