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Apr 25 2018

Syria, Sanctions and Tariffs

We are aware that Donald Trump does not take advice from anyone in his cabinet or inner circle. But when it comes to sanctions, tariffs and red lines, it appears he takes his cues from Russian president Vladimir Putin, Fox & Friends and the voices in his head.

When Trump tweeted that he was going to bomb Syria after a suspected chemical attack on the town of Douma, he wasn’t warning Syrian president Bashir Assad, he was warning his pal Vlad. Why did Trump ignore the warnings of caution from his Secretary of Defense and the illegality of bombing a sovereign nation that had not attacked the US without the consent of congress? Could Trump have been watching this?

(A)mid reports that the U.S. was considering a strike against the Assad regime, in response to an alleged chemical weapons attack against civilians in Douma — Russia’s ambassador to Lebanon Alexander Zasypkin warned that “if there is a US missile attack, we … will shoot down U.S. rockets and even the sources that launched the missiles.”

The Fox & Friends morning crew took exception to this bluster, with one host arguing, “What we should be doing is telling the Russians, ‘Every Syrian military base is a target and if you’re there, it is your problem.’”

Minutes later, one of the program’s most dedicated viewers echoed that belligerent note. [..]

The White House had reached no final decision about whether to strike Syria — let alone, whether to target Russian assets within it — when the president tweeted this pledge. Over the ensuing days, Defense Secretary James Mattis implored Trump to hold off on bombing the Assad regime until its responsibility for the Douma attack could be fully verified, and Congress could be given a chance to authorize the act of war.

But the president couldn’t abide a delay. In his view, it was better to bomb Syria without a strategy or legal authorization than to invite doubts about the credibility of the threats he makes on social media.

The tweeted also gave Russia and the Syrians time to move strategic equipment, troops and personnel to safe Russian bases minimizing any damage to Syrian ground and air defenses.

Come to find out, Trump sought out and respected Moscow’s position.

(Russian Foreign Minister Sergei) Lavrov noted that despite the escalating tensions between Moscow and Washington, the U.S. made sure it didn’t harm any Russian personnel and positions during the strikes against the regime of President Bashar Assad following a suspected chemical attack on the town of Douma.

“We told them where our red lines were, including the geographical red lines,” Lavrov told Russian state television. “The results have shown that they haven’t crossed those lines.”

Moscow had warned the U.S. before the strike that it could hit back if the U.S. actions jeopardize Russian servicemen in Syria, and the allies had given Russia an advance warning to make sure no Russians were in the line of fire.

Trump was clearly respecting Putin’s red line while Putin had ignored his on the use of chemical weapons. So much for not discussing strategies when asked by the press what his intentions are. Just have Vlad ask him.

So what about those sanctions? Meh

Nikki Haley informed the United Nations that our government was preparing sanctions against Russian companies complicit in Syria’s chemical weapons program. On Monday, the White House announced that the U.N. ambassador had misspoken.

“We are considering additional sanctions on Russia and a decision will be made in the near future,” Sarah Huckabee Sanders said in a statement. But reporting from the New York Times  and Washington Post suggests that Trump has already decided against imposing a new round of sanctions, absent a new provocation from Moscow.

And about those sanctions against major Russian companies and oligarchs: While the sanctions announced before the strike on Syria had not yet gone into affect, one of them has already been rescinded against aluminum oligarch Oleg Deripask, As of Monday

Earlier this month, the United States announced a remarkably aggressive set of sanctions against the Russian oligarch Oleg Deripaska and his aluminum company Rusal: The United States would freeze all assets that the metal giant had been keeping in American institutions, prohibit American firms from doing business with the Russian corporation, and slap sanctions on any foreign individual or firm that engaged in commerce with the company.

The impact of this announcement was immediate and profound. Rusal had provided 7 percent of the world’s alumina, the raw material for aluminum production. With the company ostensibly sidelined for an indefinite period of time, global aluminum prices surged to a six-year high, while Rusal’s share price plummeted by more than half. But the most damaging aspect of the move, from the Russian perspective, may have been the message that it sent — that the U.S. was prepared to destroy Russian firms in the blink of an eye, even at a cost to the global economy, if the Kremlin persisted in interfering in the internal politics of Western democracies.

Fortunately for Moscow, it now appears that the sanctions against Rusal may never actually take effect. On Monday, the Treasury Department extended the sanctions’ “wind down” period — a window in which U.S. and foreign entities could complete their unfinished business with Rusal without facing any penalty — by six months, while expressing openness to lifting the sanctions entirely. [..]

The administration’s official position is that the sanctions will still go into effect eventually, if Oleg Deripaska does not divest and relinquish control of the firm. But Treasury’s actions suggest that it is eager to avoid inconveniencing Rusal’s business partners, and thus, that some mutually agreeable arrangement will likely be reached between the U.S. and the company before the wind-down period is through. Or so markets seem to believe: Shortly after Mnuchin’s announcement Monday, global aluminum prices nose-dived.

You remember Depreska, he of the money laundering, extortion, and, on at least one occasion, murder. You know, the guy Trump’s campaign manager Paul Manafort (reportedly) offered the oligarch private briefings on the 2016 presidential race shortly after Donald Trump secured the Republican nomination. That guy.

The sanctions against Rusal were a two edged sword according to Leonid Bershidsky at Bloomberg View but, as a whole, mostly a failure:

The softening of U.S. sanctions against Russian aluminum producer Rusal sends at least two important signals to investors and to official Moscow. One is that the Trump administration has little understanding of the impact of its moves before it makes them. The other is that it doesn’t want to impose sanctions that will do a lot of collateral damage outside Russia. [..]

But the U.S. unwillingness to inflict damage on its “partners and allies,” whose interests Treasury Secretary Steven Mnuchin mentioned as the reason for his retreat on Rusal, sends an unmistakable message to Russian companies and the Russian state: spreading operations internationally is an effective way to discourage sanctions. That’s good to know for both strategic and tactical purposes. [..]

I remain convinced that Deripaska was chosen because his company deals in aluminum — the target of Trump’s import tariffs, which are meant to revive domestic production. The opportunity to kill two birds with one stone — punish Russia and get a major foreign player off the U.S.  aluminum market — must have looked too good to pass up. But no one in the Treasury Department appeared to have considered the consequences for the global aluminum market, where Rusal was included in international value chains. Aluminum prices jumped (which can only be bad for U.S. buyers), Australian-British Rio Tinto was forced to search frantically for new buyers for its alumina (a raw material for aluminum production), and a Rusal plant in Ireland was threatened with closure, creating the potential for job losses and an alumina shortage throughout Europe. These problems, reported to Treasury, appeared to soften Mnuchin’s heart. “The U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” his department quoted him as saying. The U.S. government’s problem, Mnuchin said, was limited to Deripaska himself.

The tariffs that Trump imposed on steel and aluminum imports were all his own dong in his promised trade war with China but, again, he didn’t consider the consequences on our allies or businesses, jobs and the working class here in the US.

During Trump’s discussions with French President Emmanuel Macron, one the major topics, besides the Iran nuclear agreement and the Paris Climate accords, was Trump’s trade policy and tariffs, especially on aluminum and new steel

Macron acknowledged the global trade problems that have been created by an oversupply of steel and aluminum — but most of that glut is a product of China, not France.

Trump promised no immediate relief from the tariffs. He complained that even though two-way trade between the U.S. and France is relatively balanced, the European Union imposes too many barriers to U.S. exports. Last year, the U.S had a $14 billion trade deficit with France and a $102 billion trade deficit with the E.U.

By Tuesday afternoon, the Dow suffered as much as a 550-point drop.

The Dow Jones industrial average slipped more than 2 percent — 550 points — at its low in trading Tuesday as a key U.S. government bond yield hit 3 percent for the first time in more than four years and after a seemingly innocuous comment from a Caterpillar executive.

Traders have been worried that the rising yield of long-term government bonds may mean higher rates for consumers and companies and a period of falling stock prices.

The Dow clawed back some ground in the final minutes of trading and closed the day down 1.7 percent, or 424 points.

The Standard & Poor’s 500-stock index and the tech-heavy Nasdaq composite also showed sharp losses, dropping 1.3 percent and 1.7 percent respectively.

Oil prices, which had recently hit highs not seen since late 2014, pulled back slightly.

Maybe it was this comment from a Caterpillar executive:

Caterpillar Chief Financial Officer Brad Halverson said the company’s first-quarter profit “will be the high-water mark for the year” because of expected increases in investment later in 2018.

“The comment that the first quarter represented a high-water mark for the company spooked industrials as well as the overall market,” Clemons said. “Today is just a ripple effect.”

Trump’s ignorance, arrogance and stupidity have its consequences. Unfortunately, we are the ones that are going to the price for it.