Monday, June 11, 2018

Junior versus LoudMouth

He who is willing to destroy something controls it. That is Trump’s game (I wouldn’t call him Mister).  We probably have all played or at least experienced the act of indignation. Trump doesn’t care whether he tells things that are factual or not. It is all about bluster and threat. He is correctly labelled a ‘bully’. But if you have ever been in negotiations you can recognize this attitude which is not for those that see negotiations as win-win. There are times it works even if you have in fact nothing to offer or if there is nothing to feel offended about. In that case, each inch in your favor seems a win, but what about your long-term relations?

Trudeau’s response is correct. There is no other way. The markets may be shaky but that is not Trudeau’s fault. If he and the other G7 leaders give in, Trump will want more. That is the nature of this beast. The U.S. is a world power in trade and militarily. But it’s economy is smaller than the EU. It is only 25% of the world economy and shrinking in proportion. Look, S&P500 companies get 47% of their profits from outside the U.S.  A large portion of these profits are kept outside the U.S. The U.S. is one of the few countries that collects taxes from corporate earnings outside its borders and thus more dependent on trade than anyone else. Trump is trying to repatriate manufacturing which is a trend likely to happen anyway. With labor costs becoming less important in a robotizing manufacturing industry it are resources and energy costs as well as know-how that count. The U.S. education system is notorious. Canada’s is better but antiquated and politized. Gloating about U.S. healthcare and public schools is not that smart either.

This is a fight about where manufacturing occurs. It is just a matter of the costs of getting products to market. Is it cheaper to process raw resources in low populated areas, manufacture them there and then transport them to the population centers or vise versa?  Is recycling meaningful enough and can it be used as  a sufficient and cost-effective input for manufacturing rather than raw resources?  As I understand it, most extraction from recycling is again done away from the population centers.  Maybe driverless trucking is an advantage for less populated areas. Time will tell, but Trump is using his bluster against the existing manufacturing centers trying to bully them to move to near the U.S. consumer. Canada is a resource rich and low population country and as such we are at cross roads with the bully.
The U.S. claims to be an exporter of oil and gas again. Is that including Canada’s resources?  Simple arithmetic:  The U.S. produces 10 million barrels of oil and a lot of gas per day. It uses 25% of the world’s oil that is around 20 to 25 million barrels - nobody talks about the globe's natural gas production. The U.S. will need oil imports, no matter how deluded. The U.S. needs Canada’s resources and more. 

Nobody knows for sure, but I think the weak point of shale-oil is its high decline rate. The U.S. production needs ever-more wells just to keep its production steady. The abandonment costs and the number of wells no longer economic for production will be staggering and are usually not included in economic evaluations. In the past, wells had an economic life of decades and thus the future value of an abandonment is zero (until the day you must abandon the well, aka Alberta). Now with much shorter well life, abandonment costs are starting to bite. So, U.S. oil production may be more costly than presented. Also, much hated Canadian Heavy Oil is now produced close to $25 per barrel and its reserves are ‘long live’. Don’t consider our resources 'sunset' as a misguided Justin thinks/thought.
With 47% of the profits of U.S. large caps coming from outside it’s borders and a significant portion of its energy imported (also, close to 90% of U.S. uranium is imported from Kazakhstan and Canada) and... its growing need for water, the U.S. needs the rest of the world and especially Canada. We need each other. Trump maybe willing to hurt him-self so that he can hurt others but many Americans are happy with trading globally. See no further than Robert de Niro. I wait for the moment that Trump calls him 'weak and a traitor to his country'.  Yes, Trump is catering to his xenophobic voter base, those Americans brass and loudly proclaiming how the world is abusing them. But that is not real. It is a distraction; an excuse for not having to address their own huge internal problems and place blame on anyone but themselves.

I am not a fan of Junior but everyday I become less a fan (if I ever was) of Mr. LoudMouth. In this I am with Justin. Maybe he will become a true national prime-minister with backbone after-all. But then, next year will judge whether he will be replaced by a more down-to-earth Andrew Scheer.  In the meantime, Trump will have to face the music in November. 

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