Maple syrup: Justin Trudeau charms Donald Trump

GIVE Justin Trudeau credit for emotional intelligence. Paying his first visit to Washington after Donald Trump took office, on February 13th, the Canadian prime minister brought his host the perfect gift: a photograph of the president in his youth with Mr Trudeau’s father, Pierre, a glamorous prime minister of the 1970s. The subtle caress of Mr Trump’s vanity seemed to go down well. Mr Trudeau went home with Mr Trump’s promise that Canada has little to fear from his plan to renegotiate the North American Free Trade Agreement (NAFTA), which gives Canada, Mexico and the United States preferential access to each other’s markets.

Before the meeting, the Canadians were nervous. Mr Trump’s repeated threats either to renegotiate NAFTA or to rip it up were aimed almost entirely at Mexico (which, unlike Canada, has a big trade surplus with the United States). Yet Canada has almost as much to lose if the United States rescinds the 23-year-old agreement or demands one-sided revisions. The value of Canada’s trade worldwide is equivalent to 65% of its GDP; the United States buys three-quarters of Canada’s exports. American protectionism could trigger an economic crisis and political turmoil north of the border.

Canadian planning for the meeting went beyond combing the archives for a flattering photo. Mr Trudeau revamped his cabinet last month to take account of the new reality in Washington. Chrystia Freeland, a former journalist who has worked in the United States and knows many of the decision-makers, replaced the cerebral but brusque Stephane Dion as foreign minister. Before the summit Mr Trudeau dispatched his foreign, finance and defence ministers to Washington.

Canadians do not enjoy watching their prime minister pay court to Mr Trump. Nearly 75% think he will be a bad president, according to a poll published last month. The New Democrats, an opposition party, urged the prime minister to castigate Mr Trump for his ban on refugees (some of whom have crossed into Canada to claim asylum). Mr Trudeau held his tongue, but preserved Canadian dignity by hinting at his disagreement with Mr Trump’s policies.

This artfulness seems to be working. Mr Trump declared America’s trading relations with Canada to be “outstanding” (while those with Mexico remain “extremely unfair”). Tweaks to NAFTA, he said, “will benefit both our countries”. Knowing he prefers bilateral deals, some analysts think he may replace NAFTA with separate accords with Canada and Mexico.

The bonhomie could disappear when Mr Trump defines his policies more clearly. He wants a “buy American” programme, which could discriminate against Canadian exporters. A “border-adjustment tax” on imports, part of a proposed corporate-tax reform, could reduce Canada’s GDP by 1%, reckons the C.D. Howe Institute, a think-tank. That would be poor thanks for Mr Trudeau’s gift.

See Also : media.economist.com

GIVE Justin Trudeau credit for emotional intelligence. Paying his first visit to Washington after Donald Trump took office, on February 13th, the Canadian prime minister brought his host the perfect gift: a photograph of the president in his youth with Mr Trudeau’s father, Pierre, a glamorous prime minister of the 1970s. The subtle caress of Mr Trump’s vanity seemed to go down well. Mr Trudeau went home with Mr Trump’s promise that Canada has little to fear from his plan to renegotiate the North American Free Trade Agreement (NAFTA), which gives Canada, Mexico and the United States preferential access to each other’s markets.

Before the meeting, the Canadians were nervous. Mr Trump’s repeated threats either to renegotiate NAFTA or to rip it up were aimed almost entirely at Mexico (which, unlike Canada, has a big trade surplus with the United States). Yet Canada has almost as much to lose if the United States rescinds the 23-year-old agreement or demands one-sided revisions. The value of Canada’s trade worldwide is equivalent to 65% of its GDP; the United States buys three-quarters of Canada’s exports. American protectionism could trigger an economic crisis and political turmoil north of the border.

Canadian planning for the meeting went beyond combing the archives for a flattering photo. Mr Trudeau revamped his cabinet last month to take account of the new reality in Washington. Chrystia Freeland, a former journalist who has worked in the United States and knows many of the decision-makers, replaced the cerebral but brusque Stephane Dion as foreign minister. Before the summit Mr Trudeau dispatched his foreign, finance and defence ministers to Washington.

Canadians do not enjoy watching their prime minister pay court to Mr Trump. Nearly 75% think he will be a bad president, according to a poll published last month. The New Democrats, an opposition party, urged the prime minister to castigate Mr Trump for his ban on refugees (some of whom have crossed into Canada to claim asylum). Mr Trudeau held his tongue, but preserved Canadian dignity by hinting at his disagreement with Mr Trump’s policies.

This artfulness seems to be working. Mr Trump declared America’s trading relations with Canada to be “outstanding” (while those with Mexico remain “extremely unfair”). Tweaks to NAFTA, he said, “will benefit both our countries”. Knowing he prefers bilateral deals, some analysts think he may replace NAFTA with separate accords with Canada and Mexico.

The bonhomie could disappear when Mr Trump defines his policies more clearly. He wants a “buy American” programme, which could discriminate against Canadian exporters. A “border-adjustment tax” on imports, part of a proposed corporate-tax reform, could reduce Canada’s GDP by 1%, reckons the C.D. Howe Institute, a think-tank. That would be poor thanks for Mr Trudeau’s gift.

See Also : media.economist.com

FOR too long American workers have been ignored, President Donald Trump declared on February 13th, as he promised to “tweak” trade relations with Canada and to transform an “extremely unfair” relationship with Mexico. Flanked by the Canadian prime minister, Justin Trudeau, Mr Trump made plain that he stands by a campaign pledge to rewrite the North American Free Trade Agreement (NAFTA), a 23-year-old pact underpinning trade between Canada, Mexico and the United States.

Demonising NAFTA helped Mr Trump to the presidency. But in reality millions of American jobs are supported by that pact. One of them belongs to Chris Gambrel, who builds vast diesel engines in Seymour, Indiana. It would be odd to think of Mr Gambrel, a skilled and brawny employee of Cummins, an engine-maker, as ignored or “forgotten”. He is proud of the “world-class” engines that he produces: 95-litre behemoths powerful enough to pull a cargo train. Three-quarters of them are exported to foreign customers for up to $1m apiece.

Free-trade rules, notably those provided by NAFTA, helped persuade Mr Gambrel’s bosses to build the giant engines in Seymour, rather than at a Cummins plant in India which almost won the work. America offered lower shipping costs and less red tape when exporting the engines, and–vitally–lower and fewer customs duties when components are imported from cost-effective suppliers around the world. Add on quick access to American engineers, and the Midwest was the most competitive site. Mr Gambrel’s job involves installing cylinder-heads made in Mexico, a task he carries out with a surgeon’s care.

Elsewhere at the Seymour plant, which employs 1,300 workers, whole assembly lines are kept profitable by supply chains that run to and from Mexico, a manager says; one of the lines “remanufactures” 16-litre engines from parts stripped, cleaned and repaired at a Cummins plant in Ciudad Juarez. Experienced workers in Seymour can earn $28 an hour or more. Cummins pays up to $7,000 a year for employees to study for college degrees. The manager proudly notes that in ten years he can count hourly workers who left of their own accord “on one hand”.

Nor is the rest of Seymour really overlooked–certainly when compared with the bleakest bits of the midwestern rustbelt. In addition to Cummins, steady jobs are provided by Valeo and Aisin, car-parts companies that come from France and Japan, respectively. With a jobless rate at 3.2%, the town enjoys what economists deem full employment. Its centre, while not exactly bustling, is home to popular businesses such as Larrison’s, a diner, the Bite the Bullet gun shop, and the clubhouses of fraternal orders including the Knights of Columbus and the Elks. Seymour is about 85% white, though its Hispanic population has more than doubled in a decade, as migrants from Guatemala and other countries filled low-paid jobs in industries like egg-processing.

From the outside, Seymour is navigating a globalised age reasonably well. Nonetheless it swooned before Mr Trump, and his dystopian talk of trade bringing “carnage” to America. In 2012 Jackson County, of which Seymour is part, gave the Republican presidential candidate, the stiffly patrician Mitt Romney, 62% of its votes. In 2016 the county swung hard to Mr Trump, giving the NAFTA-bashing populist 73%.

Mr Gambrel suggests that Seymour was ready to take a gamble: “People were tired, they wanted change.” Asked if he fears that Trumpian brinkmanship may imperil his job, the engine-maker shrugs. “Trade deals come and go. There probably is a price to pay,” he says. “But I’m far enough away that I’m insulated. And the press blows everything out of proportion.” As for the Mexican components that Mr Gambrel installs, he would like to see them made in America. At root he trusts Mr Trump: “The man’s a billionaire, he’s made some shrewd moves.”

Another Cummins worker, Lew Findley, concedes that cheaper Mexican components may save some American jobs. But still his hunch is that workers like him are safer under President Trump, who he feels shares his values on other questions, from guns (good) to abortion (bad). Seymour’s Republican mayor, Craig Luedeman, says that issues such as gun rights and immigration explain much of Mr Trump’s support. But unlike the Cummins workers, the mayor fears what a trade war could do to his city: “We’re not in a regional economy any more, we’re global.”

Tom Linebarger, the chairman and CEO of Cummins, has a similar message for his 55,000 worldwide employees, of whom more than 25,000 are in America. “Our jobs overwhelmingly exist because of trade,” says Mr Linebarger in an interview at his new offices in Indianapolis. Sales in 190 countries make the firm less vulnerable to local downturns than it once was, he argues. But the flipside of selling to so many countries is that a global company cannot simply manufacture in one place and export products from that hub, as some mercantilists would like America to do. In part, that is because local market conditions must be understood on the ground. But Mr Linebarger makes a subtler point: other countries worry about their own workers, too. “If your deal is, I am good with exports but not with imports, generally speaking most people won’t strike that deal with you.”

As a multinational CEO, Mr Linebarger knows both great power and the anxiety such power provokes. Every time he visits a Cummins facility somewhere in the world, whether in a developing or mature economy, employees “are all worried I am going to close their plant,” he relates. Defenders of an open global order are learning that two hard tasks must be tackled together: trade must be made to work, and workers must be convinced that they have a place in today’s economy. Towns like Seymour–luckier than many, yet still willing to risk everything on a trade-bashing president–are a living reminder of how much is at stake.

See Also : cdn.static-economist.com

SISYPHUS was condemned to push a boulder uphill only to watch it roll down again. Yet an eternity of boulder-shoving seems purposeful next to the unending labour of keeping Greece in the euro zone and out of default. It is nearly seven years since the first Greek bail-out. A second rescue package soon followed. In 2015 Greece came close to dropping out of the euro before its newish prime minister, Alexis Tsipras, buckled down to the task of pruning the budget as part of a third bail-out. Now a Greek disaster is looming all over again.

This time the source of the trouble is a row among the two main creditors over how to assess Greece’s public debt (see article ). The stand-off threatens a payment to Greece from the euro zone’s bail-out fund, the European Stability Mechanism (ESM), which would redeem EUR6.3bn ($6.7bn) of bonds that are due in July. If the money is withheld, Greece will be in default. Sooner or later, Grexit would be hard to avoid.

This time the source of the trouble is a row among the two main creditors over how to assess Greece’s public debt (see

). The stand-off threatens a payment to Greece from the euro zone’s bail-out fund, the European Stability Mechanism (ESM), which would redeem EUR6.3bn ($6.7bn) of bonds that are due in July. If the money is withheld, Greece will be in default. Sooner or later, Grexit would be hard to avoid.

Hopes of an agreement before a meeting of euro-zone finance ministers on February 20th have evaporated. A deal is in everyone’s interest, and the Greek crisis has a history of last-minute fixes. Sadly, there are reasons to fear that brinkmanship and politics will get in the way.

Before this new impasse, Greece’s economy was improving. Deposits had trickled back to the banks, letting the European Central Bank (ECB) cut its emergency lending. GDP has risen fitfully after years of persistent decline. Unemployment is still woefully high, at 23%, but is down from a peak of 28%. And Greece comfortably surpassed a crucial target by recording a primary budget surplus (which excludes debt-interest costs) above 0.5% of GDP in 2016.

Still, the economy is too weak to withstand a fresh bout of austerity. Almost half of bank loans are non-performing. Investment is feeble. Credit to small firms, the backbone of the economy, is scarce. Business rules and tax codes are unfriendly and changeable. In addition, Greece’s primary surplus is the result of policies that are inefficient and unfair. Marginal tax rates have been increased while exemptions proliferate, a recipe for Greeks to exercise their mastery of tax avoidance. More than half of wage earners in Greece are still exempt from income tax. Essential spending has been cut even as pensions remain generous. A newly retired Greek receives 81% of average wages, compared with 43% for a German.

Against this backdrop, a row between Greece’s creditors has been brewing. At issue is the IMF’s role in the bail-out. Germany and the Netherlands do not trust the European Commission to police Greece, and have made the fund’s involvement a condition of their support. The fund is reluctant. Its officials reckon that the programme’s target of a sustained 3.5% primary budget surplus might push the Greek economy into recession. They would prefer to delay further austerity and to insist on more tenable fiscal measures that would do less harm. Europe thinks the IMF is too gloomy about Greece’s prospects.

These are not the only sticking-points. By the IMF’s own rules, it cannot take part unless it believes that the bail-out will leave a debt burden that is “sustainable”–one that is steadily falling and easily financed. For the Greek bail-out to pass muster would require a commitment to debt relief from the euro-zone partners. But an explicit pledge to let Greece off its debts would be politically poisonous, because it might increase support for anti-EU parties ahead of elections in the Netherlands, France and Germany. Instead Klaus Regling, the ESM’s boss, argues that the euro zone’s evident “solidarity” with Greece (the ESM holds two-thirds of its debt, much of it at long maturities and low rates) is enough to make the sums add up.

This is a farce. Most of the bonds due for redemption in July belong to the ECB. In essence, therefore, Greece’s creditors are arguing among themselves over whether to agree on a payment from one euro-zone institution to another. The shape of a compromise is plain. Greece will have to pass legislation that commits the government to reducing pensions and income-tax allowances after 2018. European creditors will need to pledge to finance Greece’s debts at today’s low interest rates. And the IMF will have to stomach a higher fiscal-surplus target for Greece than it would like.

Yet everything could still go wrong. Mr Tsipras seems to think he can wait for the IMF, egged on by America under Donald Trump, to abandon its stewardship of the bail-out. The resulting uncertainty will set back Greece’s fragile economy. Growing political turmoil in Germany and France could also make a deal harder to reach. A long stand-off risks seeing Greece roll down to the bottom again. Nobody would benefit.

GIVE Justin Trudeau credit for emotional intelligence. Paying his first visit to Washington after Donald Trump took office, on February 13th, the Canadian prime minister brought his host the perfect gift: a photograph of the president in his youth with Mr Trudeau’s father, Pierre, a glamorous prime minister of the 1970s. The subtle caress of Mr Trump’s vanity seemed to go down well. Mr Trudeau went home with Mr Trump’s promise that Canada has little to fear from his plan to renegotiate the North American Free Trade Agreement (NAFTA), which gives Canada, Mexico and the United States preferential access to each other’s markets.

Before the meeting, the Canadians were nervous. Mr Trump’s repeated threats either to renegotiate NAFTA or to rip it up were aimed almost entirely at Mexico (which, unlike Canada, has a big trade surplus with the United States). Yet Canada has almost as much to lose if the United States rescinds the 23-year-old agreement or demands one-sided revisions. The value of Canada’s trade worldwide is equivalent to 65% of its GDP; the United States buys three-quarters of Canada’s exports. American protectionism could trigger an economic crisis and political turmoil north of the border.

Canadian planning for the meeting went beyond combing the archives for a flattering photo. Mr Trudeau revamped his cabinet last month to take account of the new reality in Washington. Chrystia Freeland, a former journalist who has worked in the United States and knows many of the decision-makers, replaced the cerebral but brusque Stephane Dion as foreign minister. Before the summit Mr Trudeau dispatched his foreign, finance and defence ministers to Washington.

Canadians do not enjoy watching their prime minister pay court to Mr Trump. Nearly 75% think he will be a bad president, according to a poll published last month. The New Democrats, an opposition party, urged the prime minister to castigate Mr Trump for his ban on refugees (some of whom have crossed into Canada to claim asylum). Mr Trudeau held his tongue, but preserved Canadian dignity by hinting at his disagreement with Mr Trump’s policies.

This artfulness seems to be working. Mr Trump declared America’s trading relations with Canada to be “outstanding” (while those with Mexico remain “extremely unfair”). Tweaks to NAFTA, he said, “will benefit both our countries”. Knowing he prefers bilateral deals, some analysts think he may replace NAFTA with separate accords with Canada and Mexico.

The bonhomie could disappear when Mr Trump defines his policies more clearly. He wants a “buy American” programme, which could discriminate against Canadian exporters. A “border-adjustment tax” on imports, part of a proposed corporate-tax reform, could reduce Canada’s GDP by 1%, reckons the C.D. Howe Institute, a think-tank. That would be poor thanks for Mr Trudeau’s gift.