Massenbach-Letter. NEWS 16.6.17

Massenbach-Letter. News

  • President Donald J. Trump is dedicating this week to workforce development
  • UAW: Tell the U.S. Trade Representative NAFTA must prioritize working families
  • Capito: Natural gas hub should be ‚critical‘ infrastructure
  • Qatar – A Coalition of the Less-Than-Willing
  • This is the real story behind the economic crisis unfolding in Qatar
  • UK: When Currencies Fall, Export Growth Is Supposed to Follow—Until Now
  • Hajo Schumacher: Es war einmal … eine europäische Idee

Massenbach*President Donald J. Trump is dedicating this week to workforce development,

focusing on steps to make it easier for industries to design, certify, and scale apprenticeship programs.

President Donald J. Trump is dedicating this week to workforce development. Across the United States there exists a skills gap that must be addressed. Americans are unemployed and seeking employment, and companies are struggling to fill vacancies for positions that require varying levels of skill and training. President Trump’s Administration is committed to closing the skills gap and ensuring Americans are trained for the jobs available and the jobs of the future.

https://www.whitehouse.gov/1600daily?utm_source=email&utm_medium=email&utm_content=20170612_ADM_1600-Daily

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Tell the U.S. Trade Representative NAFTA must prioritize working families

Recently, the Trump administration notified Congress that it plans to renegotiate the North American Free Trade Agreement—better known as NAFTA—with powerful corporations and some in the president’s administration saying it simply needs to be “modernized.”

The U.S. Trade Representative’s office is accepting comments from the public until June 12. It’s important that working people speak up for ourselves now, the same as we did with the Trans-Pacific Partnership.

NAFTA—to put it bluntly—was terrible for working families in the United States, as well as our allies to the north and south, Canada and Mexico. The terrible deal triggered job losses, closed auto factories, depressed wages and more power for corporations across all three countries.

Millions of working people stood united to make sure that the Trans-Pacific Partnership didn’t pass once we saw that the agreement left working people out in the cold. We have fought hard for trade policy that works for working folks and now is not the time to let up.

The North American Free Trade Agreement—better known as NAFTA—triggered job losses, depressed wages and more power for corporations. The Trump administration notified Congress that it plans to “modernize” this horrible trade deal. It’s important we speak up now to make sure that working families are a priority in any renegotiated version of NAFTA.

Fill out the comment form on the right to tell the U.S. Trade Representative why working families must be prioritized in future trade deals. We provided talking points below for you to use in crafting your own statement.

· NAFTA has been a disaster for working people.

· Working people want a trade deal that works for everyone, not just corporations.

· Fixing NAFTA will take more than just “tweaks” or “modernization.”

· To make NAFTA work for working people, it must be transformed into an agreement that makes lives better for all in North America.

· NAFTA must raise wages, create high-quality jobs and invest in our people and infrastructure.

· NAFTA must remove its corporate privileges and focus instead on creating an inclusive, sustainable economy that puts people and the planet ahead of profits.

https://actionnetwork.org/petitions/tell-the-us-trade-representative-nafta-must-prioritize-working-families?source=direct_link&&link_id=1&can_id=2cdf26ee080bb89a5fe92c31f2caa537&email_referrer=take-action-tell-the-us-trade-representative-nafta-must-prioritize-working-families&email_subject=take-action-tell-the-us-trade-representative-nafta-must-prioritize-working-families

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Capito: Natural gas hub should be ‚critical‘ infrastructure

Sen. Shelley Moore Capito introduced a bill Monday night that would direct the secretaries of energy and commerce to designate a natural gas energy hub as "critical energy infrastructure."

The "critical" designation would speed up permitting of the proposed fossil fuel facility that the West Virginia Republican’s bill calls for.

The bill is part of a series of measures that her state’s delegation, and other lawmakers from Appalachian states, are supporting in the runup to an expected infrastructure bill.

"The Appalachian Energy and Manufacturing Infrastructure Revitalization Act of 2017 directs the Secretary of Energy and the Secretary of Commerce, in consultation with other relevant federal agencies, to designate an Appalachian regional energy hub as a ‚critical energy infrastructure‘ project, making it eligible for expedited federal permitting," the senator’s office said.

“This important infrastructure project would help create much-needed jobs for West Virginians and grow our state’s economy in meaningful ways," Capito said. "By reducing regulatory burdens, the Appalachian Energy and Manufacturing Infrastructure Revitalization Act will bring us one step closer to making the Appalachian energy hub a reality.”

Senator Capito is Chairman of the Subcommittee on Clean Air and Nuclear Safety.

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Policy= res publica

Freudenberg-Pilster* Es war einmal … eine europäische Idee

Von Hajo Schumacher

Das Brüsseler Märchen wird nicht gut ausgehen.

…Oder es findet sich ein Miteinander, das Bürden und Vorräte halbwegs fair verteilt.

Womit wir bei Europa wären. "Das Schicksal in die eigene Hand nehmen", hat die Kanzlerin gesagt, womit eine historisch einmalige Weltlage sehr dezent umschrieben wäre. Erstmals seit ihrem Bestehen steht die EU allein im Wald, wo Hexenhäuser das geringste Risiko bedeuten. Überall lauern Hyänen, Dämonen, Monstren.

Frei nach Heinrich August Winkler kann ein globaler Kraftraum EU nur als "normatives Projekt" funktionieren, gebaut auf Regeln, Gesetzen, Pflichten. Und da geht’s los: Füreinander in den Krieg ziehen? Soziale Grundsicherung für alle? Verbindliche Grundrechte, Pressefreiheit zum Beispiel? Und natürlich Steuergerechtigkeit. Die eben zu Wasser gelassene "Mein Schiff 6" versteuert ihre Gewinne im EU-Staat Malta, legal zu 0,05 Prozent. Da läuft was fundamental schief, wie auch bei der läppischen Symbolsteuer für den US-Konzern Apple.

Wenn die EU-Kommission nun ein "Reflexionspapier" zur Währungsunion vorlegt, argwöhnt der ganze Kontinent, zu Recht. Die Brüssel-EU, ein Lobbypfuhl mit angeschlossenem Funktionärsbetrieb, ist kein Modell für die Zukunft. Nicht glaubwürdig, zu langsam, eine selbstherrliche, abgekoppelte Elite – Brüssel hatte alle Chancen, geblieben ist Populistenfutter.

In seiner historisch einmaligen Einsamkeit braucht Europa einen Neustart mit einer Koalition der Ernsthaften, die mehr wollen als Schlupflöcher. Das normativ Wertvolle aus Brüssel retten, dann Neustart ohne gigantischen Bremsapparat. Wer allein durch den Wald irrt, braucht Gefährten, die Anstand und Vertrauen mitbringen. Es bleiben nicht 28. Aber die richtigen.

http://www.abendblatt.de/nachrichten/article210789205/Es-war-einmal-eine-europaeische-Idee.html

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Barandat* This is the real story behind the economic crisis unfolding in Qatar

Only Shakespeare’s plays could come close to describing such treachery – the comedies, that is

Robert Fisk

The Qatar crisis proves two things: the continued infantilisation of the Arab states, and the total collapse of the Sunni Muslim unity supposedly created by Donald Trump’s preposterous attendance at the Saudi summit two weeks ago.

After promising to fight to the death against Shia Iranian “terror,” Saudi Arabia and its closest chums have now ganged up on one of the wealthiest of their neighbours, Qatar, for being a fountainhead of “terror”. Only Shakespeare’s plays could come close to describing such treachery. Shakespeare’s comedies, of course.

For, truly, there is something vastly fantastical about this charade. Qatar’s citizens have certainly contributed to Isis. But so have Saudi Arabia’s citizens.

Read more

No Qataris flew the 9/11 planes into New York and Washington. All but four of the 19 killers were Saudi. Bin Laden was not a Qatari. He was a Saudi.

But Bin Laden favoured Qatar’s al-Jazeera channel with his personal broadcasts, and it was al-Jazeera who tried to give spurious morality to the al-Qaeda/Jabhat al-Nusrah desperadoes of Syria by allowing their leader hours of free airtime to explain what a moderate, peace-loving group they all were.

First, let’s just get rid of the hysterically funny bits of this story. I see that Yemen is breaking air links with Qatar. Quite a shock for the poor Qatari Emir, Sheikh Tamim bin Hamad al-Thani, since Yemen – under constant bombardment by his former Saudi and Emirati chums – doesn’t have a single serviceable airliner left with which to create, let alone break, an air link.

The Maldives have also broken relations with Qatar. To be sure, this has nothing to do with the recent promise of a Saudi five-year loan facility of $300m to the Maldives, the proposal of a Saudi property company to invest $100m in a family resort in the Maldives and a promise by Saudi Islamic scholars to spend $100,000 on 10 “world class” mosques in the Maldives.

And let us not mention the rather large number of Isis and other Islamist cultists who arrived to fight for Isis in Iraq and Syria from – well, the Maldives.

Now the Qatari Emir hasn’t enough troops to defend his little country should the Saudis decide to request that he ask their army to enter Qatar to restore stability – as the Saudis persuaded the King of Bahrain to do back in 2011. But Sheikh Tamim no doubt hopes that the massive US military air base in Qatar will deter such Saudi generosity.

When I asked his father, Sheikh Hamad (later uncharitably deposed by Tamim) why he didn’t kick the Americans out of Qatar, he replied: “Because if I did, my Arab brothers would invade me.”

Like father, like son, I suppose. God Bless America.

All this started – so we are supposed to believe – with an alleged hacking of the Qatar News Agency, which produced some uncomplimentary but distressingly truthful remarks by Qatar’s Emir about the need to maintain a relationship with Iran.

Qatar denied the veracity of the story. The Saudis decided it was true and broadcast the contents on their own normally staid (and immensely boring) state television network. The upstart Emir, so went the message, had gone too far this time. The Saudis decided policy in the Gulf, not miniscule Qatar. Wasn’t that what Donald Trump’s visit proved?

But the Saudis had other problems to worry about. Kuwait, far from cutting relations with Qatar, is now acting as a peacemaker between Qatar and the Saudis and Emiratis. The emirate of Dubai is quite close to Iran, has tens of thousands of Iranian expatriates, and is hardly following Abu Dhabi’s example of anti-Qatari wrath.

Oman was even staging joint naval manoeuvres with Iran a couple of months ago. Pakistan long ago declined to send its army to help the Saudis in Yemen, because the Saudis asked for only Sunni and no Shia soldiers; the Pakistani army was understandably outraged to realise that Saudi Arabia was trying to sectarianise its military personnel.

Pakistan’s former army commander, General Raheel Sharif, is rumoured to be on the brink of resigning as head of the Saudi-sponsored Muslim alliance to fight “terror”.

President-Field Marshal al-Sissi of Egypt has been roaring against Qatar for its support of the Egyptian Muslim Brotherhood – and Qatar does indeed support the now-banned group which Sissi falsely claims is part of Isis – but significantly Egypt, though the recipient of Saudi millions, also does not intend to supply its own troops to bolster the Saudis in its catastrophic Yemen war.

Besides, Sissi needs his Egyptian soldiers at home to fight off Isis attacks and maintain, along with Israel, the siege of the Palestinian Gaza Strip.

But if we look a bit further down the road, it’s not difficult to see what really worries the Saudis. Qatar also maintains quiet links with the Assad regime. It helped secure the release of Syrian Christian nuns in Jabhat al-Nusrah hands and has helped release Lebanese soldiers from Isis hands in western Syria. When the nuns emerged from captivity, they thanked both Bashar al-Assad and Qatar.

And there are growing suspicions in the Gulf that Qatar has much larger ambitions: to fund the rebuilding of post-war Syria. Even if Assad remained as president, Syria’s debt to Qatar would place the nation under Qatari economic control.

Read more

And this would give tiny Qatar two golden rewards. It would give it a land empire to match its al-Jazeera media empire. And it would extend its largesse to the Syrian territories, which many oil companies would like to use as a pipeline route from the Gulf to Europe via Turkey, or via tankers from the Syrian port of Lattakia.

For Europeans, such a route would reduce the chances of Russian oil blackmail, and make sea-going oil routes less vulnerable if vessels did not have to move through the Gulf of Hormuz.

So rich pickings for Qatar – or for Saudi Arabia, of course, if the assumptions about US power of the two emirs, Hamad and Tamim, prove worthless. A Saudi military force in Qatar would allow Riyadh to gobble up all the liquid gas in the emirate.

But surely the peace-loving “anti-terror” Saudis – let’s forget the head-chopping for a moment – would never contemplate such a fate for an Arab brother.

So let’s hope that for the moment, the routes of Qatar Airways are the only parts of the Qatari body politics to get chopped off.

http://www.independent.co.uk/voices/qatar-crisis-economy-diplomatic-links-torn-middle-east-russia-hacking-real-story-robert-fisk-a7778616.html

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Middle East

founded by George Friedman

A Coalition of the Less-Than-Willing

By George Friedman.

June 14, 2017. The U.S. convinced Arab governments to work together against jihadism. Now it needs to focus them.

It’s been almost 16 years since the United States responded to 9/11 by going to war in Afghanistan, and 14 years since the United States invaded Iraq. Neither war has been successful, and there is no reason to believe that either is going to succeed if it continues to be fought as it is. Indeed, it’s been some time since they’ve been fought with any expectation of success. They have been fought in large part because neither George W. Bush nor Barack Obama were prepared to admit failure. Domestic consequences in the U.S. would be grave, but there was also legitimate fear that abandoning the wars would result in the creation of radical Islamist states in the region and the toppling of governments that the U.S. regarded as, at best, preferable to the radicals.

The wars turned into a holding pattern whose primary purpose was to keep al-Qaida, the Taliban and, now, the Islamic State off balance, destroying their capabilities in some areas but ideally destroying the groups themselves. But this was wishful thinking. The U.S. did not have enough forces in either theater to eliminate groups like the Taliban and IS. And it was a mistake to believe the destruction of the groups would mean the destruction of the jihadist movement. Instead, it spawned new flag bearers for the movement. Further, the idea that these operations reduced the amount of terrorist activity was becoming dubious. There were no more attacks on the scale of 9/11, but there were several smaller attacks that went on despite the wars.

The Wrong Approach

The essential flaw was the way the U.S. had defined the problem. From the beginning, the Americans had focused on the organizations that carried out terrorist attacks and had sought to kill their members and thus destroy the organizations. This was a misunderstanding of the challenge. The organizations represented the tip of an extremely large spear. If the tip of the spear broke, it would just be replaced. No matter how many radical Islamist organizations were destroyed, a replacement would appear, made up of new members prepared to carry on the struggle.

The problem was not the organizations but the strain of Islam that gave rise to them. This strain was embedded in Muslim communities in Afghanistan and the Middle East. The only way to defeat the jihadist movement was to enter Muslim society and root it out. But this wasn’t viable for the U.S. military, which didn’t know how to distinguish those who wanted to follow jihadism and those who didn’t. Leaving aside that American soldiers rarely spoke the languages required, they weren’t generally Muslims and had no understanding of the culture.

U.S. strategy for the past 16 years has consisted of doing what America knew how to do, not what needed to be done – and done by those who truly understand the culture. Only the governments in the region can identify and destroy the jihadist movement. Without them, all that U.S. military operations will achieve is creating a succession of Islamist radical organizations.

From the beginning of the American engagement, governments in the Middle East have been ambivalent at best about radical Islamists. On the one hand, they declare their hostility toward organizations like al-Qaida. On the other hand, fully understanding that the movement was far more substantial than any one group, they hesitate or refuse to act against it. Partly this was because even among the citizens who were not jihadists, the jihadists were seen as admirable, dangerous (to others, not to them), or simply part of their community. The willingness of average citizens to cooperate with the government was limited.

So, too, was the governments’ willingness to risk destabilizing their societies in an attack on a deeply embedded segment of those societies. Sometimes the governments went through the motions. In some cases, segments of the government opposed or undermined any action. In others, parts of the government supported the jihadists, either to protect themselves from criticism or attack, or simply because they shared their point of view.

In short, the U.S strategy couldn’t work. If the jihadist movement drew from a social base that was part of the broader society, then attacks on the groups that arose from that base had little more than a temporary effect. The key had to be an attack by Middle Eastern nations on their own social structure. And it was the countries of the Middle East that had to compel their neighbors to take similarly aggressive action. This might not work, but without it there was no hope of the war succeeding.

A First Step

This is the context that I think the June 5 decision by a handful of Arab countries, led by Saudi Arabia and Egypt, to isolate Qatar must be viewed. Or, more precisely, the action against Qatar was part of an attempt at a strategic shift by Middle Eastern countries, forced by the United States. But the U.S. was asking for more than simply turning on Qatar.

What the U.S. has been asking for is the creation of a coalition in the Middle East. The purpose of this coalition is to make a united effort to eliminate the flow of money, fighters and other resources from each country to the Islamic State. This can’t possibly be achieved unless the governments of each country move to suppress the jihadist strand in their own countries and eliminate non-jihadist actors who, for various reasons, support them. If this were done, then the war, after these many years, might be winnable.

U.S. President Donald Trump (C) is welcomed by Saudi King Salman bin Abdulaziz al-Saud (3rd-R) upon arrival at King Khalid International Airport in Riyadh on May 20, 2017.

Qatar was presented as a particularly egregious example, but the point was that there be a coalition – a group of Arab countries acting in concert against supporters of the Islamic State. It was far easier to begin by creating a coalition to stop a foreign country, but the goal was not to deal with Qatar. That was a first step. The goal for the countries in the coalition was to deal with the jihadists in their own countries.

That the U.S. would want this is understandable. It is more interesting to speculate about why a group of countries as fractious as those in the Arab world would come together on this, after so many years of being asked to act and so many years of (mostly) deflecting the request. I would offer this possible explanation. First, given the strategy the U.S. is following, this war will never succeed. Second, the Trump administration, having invested less in the war than Bush or Obama had, made it clear that unless the Arabs formed an anti-jihadist coalition, the U.S. was not prepared to continue waging the war. And third, the Arabs, contemplating their region and their own positions in the absence of the U.S., agreed to a collective effort against Qatar, and also to effective action against the threats embedded in their societies.

The Arabs don’t want to see the U.S. leave at this point. The forces that have been released in the Middle East are too great for them to contain on their own. In due course, IS and its supporters would destroy the existing order. The Arabs’ ideal position is that the U.S. wage an inconclusive war that contains IS while respecting their inability to fight within their own countries against jihadists and their supporters. That is rational.

What the U.S. seems to have done is recognize that it cannot wage this war indefinitely and cannot give the Arab states the luxury of avoiding risk. If the U.S. is going to remain at war, the Arabs have to assume some risk, or face the greater risk of a region without American force. Qatar is the focus on which the coalition will be built. From there, the U.S. expectation is that it will expand to a total commitment by the Arab world to deal with jihadists.

But there’s still a problem. The Americans want the Arabs to sign up for the war. The Arabs want the war to be against Qatar. From the Arab point of view, an attack on jihadists in their societies is, for most, an attack on society itself. Taking on another Middle Eastern government is one thing, but targeting their own societies is too risky. The United States may threaten to leave, but it probably won’t. The Arabs will be content to cross that bridge when they come to it.

The Americans see three choices. They can continue the war indefinitely. They can continue to fight alongside a full-blooded Arab coalition. Or they can leave. There is no good time to throw in the towel, but at some point reality has to be faced. The first choice, therefore, is the most unlikely; staying with no hope of winning is insane. The second choice is nearly as implausible; trusting the Arab world to take the kind of risk the U.S. has asked it to take is unlikely to happen. Therefore, the third choice is the most likely.

I would interpret the Qatar situation as an attempt by the U.S. to avoid the third option. If the Arab states took the risks, the war might be won, and the U.S. could remain and even increase its force. The U.S. has made its demand, and for the moment, the Arabs have complied. But this is only the down payment, and unless the Arabs decide the chaos of the United States leaving the Middle East will be greater than the chaos of concerted effort against jihadism, the likelihood of the gambit working remains small.

https://geopoliticalfutures.com/coalition-less-willing/?utm_source=GPF+-+Newsletter&utm_campaign=3e756f6b93-Friedmans_Weekly_Paid_List&utm_medium=email&utm_term=0_72b76c0285-3e756f6b93-240043701

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*Massenbach’s Recommendation*

When Currencies Fall, Export Growth Is Supposed to Follow—Until Now

The U.K. economy is providing a live test of whether globalization has blunted the textbook effect of currency depreciation

Shipping containers on the docks in Corringham, east of London.

For decades, economics textbooks argued that suddenly weaker currencies are a boon to growth, because they make a country’s exports more competitive or profitable on the global stage, which in turn boosts domestic production and employment.

What if that theory no longer holds?

Economists and government officials are increasingly wondering if that effect is diminishing, especially among advanced Western economies with shrinking manufacturing capacity and supply chains increasingly interwoven with the rest of the world. The new idea is that much of the benefit from a falling currency is offset by the higher prices paid for components imported from overseas.

The U.K. is emerging as a test case for whether globalization has diminished the effect. Although its currency has been battered by the financial crisis, the Brexit vote to leave the European Union—which took place a year ago June 23—and the country’s fresh bout of political uncertainty, its exporting power hasn’t responded as textbooks might suggest.

Chemicals made at Chemoxy International Ltd.’s factory in Middlesbrough are worth about 20% more in the export market after last June’s fall in sterling, given the beefed-up value of the currencies used to buy those goods overseas. Higher costs for imported materials, however, all but erased that advantage.

“We have a huge interdependency on international markets,” says Chemoxy Chief Executive Ian Stark. The company exports more than 60% of its products and imports about 85% of its chemical raw materials. A weaker pound, he says, “isn’t revolutionary.”

British businesses ranging from car makers to food processors to lumber mills are discovering the same thing.

Adam Posen, president of the Peterson Institute for International Economics, and a member of the Bank of England’s rate-setting monetary policy committee between 2009 and 2012, says the effects of currency moves on exports have faded over time. After the financial crisis in 2008, a big sterling depreciation didn’t result in the pickup in exports “we would have expected,” he says.

“You just don’t get as much bang for your pound as you used to,” said Mr. Posen.

Whether or how the relationship between a currency’s strength and economic growth still holds has ramifications for international politics. In the U.S., manufacturers have long complained about the impact of a strong dollar. President Donald Trump has accused Japan and China of keeping their currencies artificially low, hampering U.S. exports.

In 1992, the pound fell by around 11% between September and the end of that year after the U.K. crashed out of the European exchange rate mechanism—a precursor to the euro that required a stronger pound than the government could sustain. The U.K. economy then went on an export tear, which turned a trade deficit into a five-year surplus and jump-started a recovery.

The pound fell by nearly 25% against the currencies of its major trading partners between 2007 and 2010 and never recovered, sparking optimism in government that exports would rise. In 2012, then-U.K. Treasury chief George Osborne targeted an increase in exports to £1 trillion by 2020, from £499 billion that year. By the end of 2016, exports had risen to just £547 billion.

When the currency took another beating after the Brexit vote, the impact was similarly muted. Car maker Aston Martin, which exports 80% of its vehicles, helps show why. Before Brexit, when the pound traded at $1.50, sports cars sold in New York for $150,000 would bring home £100,000. With the pound now at $1.27, such sales bring an extra £18,000. But over half the car’s components must be bought from abroad, blunting the effect.

“During the past decade, a lot of auto suppliers have moved offshore,” says Aston Martin Chief Executive Andy Palmer. “In consequence, you don’t get the benefits.”

Ian Stark, CEO of Chemoxy International, at the company’s chemical manufacturing facility in Teesside, England.

In recent months, sterling has recovered from its post Brexit lows and is currently down 15% against the dollar and 13% against the euro. Analysts remain pessimistic about the currency as Britain heads for divorce from its largest trading partner, the European Union. The pound fell 1.7% on Friday after Prime Minister Theresa May’s ruling Conservative Party failed to secure enough seats in a snap general election to alone form a government.

Global economists are debating how much exchange rates affect trade for developed nations. Two recent papers, from the World Bank and the Organization for Economic Cooperation and Development, found movements in exchange rates had a declining impact on trade in several advanced economies.

The OECD paper said a plunge of sterling in 2008 and the yen’s decline against the dollar in 2012 had little impact on trade. The study said evidence suggested companies had become more embedded in global supply chains. Between 1995 and 2011, the import content of exports rose from 14.9% to 24.3% among OECD nations.

In May, the Bank for International Settlements published new mathematical models for estimating real effective exchange rates, one measure of the strength of a currency. It said without taking into account deep global supply chains, standard exchange-rate models “are increasingly becoming obsolete.”

Other economists have resisted the idea, including a team at the International Monetary Fund, which came to a different conclusion and found “little evidence of a weakening in the effects of exchange rates over time.”

In its analysis, the IMF suggests a significant currency depreciation—where currencies weaken by at least 13% in advanced economies, or 20% in emerging ones—results in a 10% rise in export volumes over five years.

The IMF had some caveats. The paper argues the impact of a weaker currency is strongest when the economy isn’t running at full capacity, for example following a recession. It also suggests that financial crises dent companies’ ability to take advantage of a depreciation, because of the lack of available credit.

“In general, however” the authors conclude, “the role of flexible exchange rates in facilitating the resolution of trade imbalances remains significant.”

Since Britain’s vote to leave the EU, consumers abroad have been buying more British products. In the six months through April, the most recent month for which the U.K.’s Office for National Statistics has published data, goods export volumes increased 3.1% from the year-earlier period. Over that same period, import volumes rose even more, by 4.9%.

“We are not yet seeing a notable narrowing of the [trade] deficit,” the Office for National Statistics noted in its latest report.

For some exporters such as Scotland’s whisky industry, the pound’s fall has been pure good news because most of what goes into a bottle of whisky is produced locally. The Scotch Whisky Association says exports increased 4% last year to over £4 billion.

A container ship is unloaded at a dock in Southampton, in southern England.

Most U.K. manufacturing industries, however, can no longer rely on domestic supply chains. In 2015, manufacturing represented 9.8% of the U.K.’s gross domestic product, down from 14.7% in 2000. In the U.S., by comparison, manufacturing represented 12.3% of the GDP in 2015, and 15.5% in 2000.

As U.K. manufacturing declined, service industries grew and now are responsible for 79% of GDP. Those industries are less sensitive to changes in exchange rates. In the services sector, the U.K. runs a trade surplus that grew to 5.4% of GDP at the end of last year. For London’s huge financial sector, sterling’s tumble has little benefit because business is often denominated in other currencies and demand for service industries tends to be less price sensitive.

Trade in goods, however, is an entirely different story. The U.K. deficit in that area has ballooned from 1.6% of GDP in 1995 to 6.4% last year. It has kept rising despite imports becoming more expensive and exports more competitive. This year’s goods deficit, through April, is £42.8 billion, excluding oil and particularly volatile items such as aircraft.

Some economists have long been sceptical of the idea that trade can be shifted by currency depreciation in the longer term. As a currency weakens, the price of imported goods rises, raising inflation. Also, they say, structural problems, such as weak productivity and competitiveness, are often causes of trade deficits, which depreciation cannot address and may even prevent a country from tackling.

“Don’t believe that Britain is going to depreciate itself out of its current account imbalances,” says Willem Buiter, chief economist at Citigroup Inc. and a former member of the Bank of England’s rate-setting committee.

To make matters worse, Britain, like other developed economies, has become so reliant on imports to stock its stores that a weaker pound has increased inflation, making life more expensive and curbing consumer spending.

Britain now imports more than 60% of its fish. The pound’s fall triggered a 15% overnight jump in prices for the crates of cod and haddock that Mike Woods buys from the docks of Grimsby, in northern England. That cost his food processing company, Albert Darnell Ltd., an additional £15,000 a week.

Fish merchants in Grimsby, England, say the price of imported fish jumped overnight when the U.K. currency fell.

Like other food manufacturers, Mr. Woods is passing on that increased cost to consumers. Fish and chips have become more expensive at the St. James Fish Restaurant in the center of Grimsby. “We get people complaining now,” says waitress Eve Barrow.

Retail prices of cars, shoes and potato chips all have risen. Last October, an increase in the price of Marmite, a sticky yeast spread beloved by the British, triggered front-page headlines. Economic growth in the U.K. slowed in the first quarter of the year, with higher prices hurting consumer spending.

While more expensive imports should present opportunities for British manufacturers and suppliers to step in, it will take time for industry to adjust.

Around 80% of the timber used in U.K. construction is imported, mainly from Scandinavia, according to the Timber Trade Federation. It isn’t easy for Britain’s construction industry, which is responsible for around 7% of GDP, to shift quickly to domestic suppliers.

Keith Ainslie of James Jones & Sons Ltd, the U.K.’s largest sawmill, says the company’s main plant in Lockerbie, Scotland, is already “working full tilt.” Processing more logs would mean building another sawmill, a roughly £60 million project that would take around three years to get up and running.

Nature also acts as a limit. “We’re constrained by the availability of trees,” says Mr. Ainslie. It takes 40 to 55 years to grow a crop of trees to maturity.

Still, some companies see the pound’s fall as an opportunity to expand. Mark Driver is setting up Rathfinny Wine Estate on England’s southeastern coast. The price of equipment he needs to import, such as wine presses and bottling machinery, has increased since Brexit.

Nevertheless, the former hedge-fund manager thinks the pound’s decline is good news. By 2025, he says, he aims to be producing around one million bottles of sparkling wine a year and sending half of that overseas.

A “weaker pound helps us,” he says. “Long term, I think it’s really positive.”

https://www.wsj.com/articles/when-currencies-fall-export-growth-is-supposed-to-followuntil-now-1497207236?mod=djemlogistics

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see our letter on: http://www.massenbach-world.de/41259.html

*Herausgegeben von Udo von Massenbach, Bärbel Freudenberg-Pilster, Joerg Barandat*

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