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Four takeaways from the short-lived shutdown

January 25, 2018 by  
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On Monday, Congress ended a short-lived government shutdown, voting to fund both a popular children’s health-care program and government operations for another few weeks. Senate Majority Leader Mitch McConnell (R-Ky.) got 33 Democratic votes by promising that the Senate would look at how to protect the “Dreamers” from deportation — discussing legal status for undocumented immigrants brought here as children, who had been protected by Barack Obama’s Deferred Action for Childhood Arrivals (DACA) program, which President Trump canceled. McConnell relaxed his condition that that the Senate would only consider a DACA measure if the president endorsed it.

Not every Democrat trusts McConnell. More than a dozen Senate Democrats — including several considered likely to run for president in 2020, such as Kamala Harris (D-Calif.), Kirsten Gillibrand (D-N.Y.), and Cory Booker (D-N.J.) — voted against the bill, as did three-quarters of House Democrats.

Others have done their partisan post-mortems on shutdown winners and losers. Instead, we offer four takeaways about the polarized Congressional dynamics that more often lead to short-term deals rather than substantive laws.

1. The big problem is that the GOP is divided on immigration

Republican senators have increasingly disagreed with one another. As we wrote last spring and summer, these fractures are undermining Republicans’ attempts to legislate.

Naturally, Trump blamed Democrats this past week, accusing them of supporting “illegal immigrants” over hard-working Americans. But both House and Senate Republicans are divided on immigration. In the House, over two dozen Republican representatives recently called on Speaker Paul Ryan (R-Wis.) to put a DACA bill on the floor. Across the Capitol, nine Senate Republicans joined a bipartisan group this week to pressure McConnell to commit to DACA action.

Republican disagreements over immigration — including DACA, quotas, family reunification and humanitarian protections — helped Democrats press for action. Republicans apparently discounted Democrats’ threats to prolong the stalemate. But Democrats’ efforts to forge common ground with more collaborative Republicans could make it harder for McConnell to ignore bipartisan demands.

2. Democrats have stress fractures, too

Trump’s first year in office has shown us Democrats in lockstep opposition to his controversial nominees, and to Republican efforts to repeal Obamacare and cut taxes for the wealthy. That apparent unity masks a steadily widening internal divide. Looking at the figure below, you can see that the Senate’s ideological span is the widest in a generation.

Complex issues like immigration make it harder to forge consensus.

So it may be no surprise that Democratic activists and much of the liberal or left-leaning news media excoriated Senate Minority Leader Chuck Schumer’s (D-N.Y.) deal with McConnell. Many are asking: Why did Democrats fold so soon?

Reports suggest that Schumer faced conflicting pressures from his party’s left and right wings. Progressives wanted to hold out for a DACA fix attached to the funding bill. Red-state Democrats who will face voters in November worry about getting out of step with their constituents. Senator Claire McCaskill — a moderate Democrat up for reelection in Missouri this year — said of the Democrats’ different sides last week, “never the twain shall meet.”

Schumer has tried to downplay Democratic differences while highlighting the GOP divide. That made it hard to hold the line on the shutdown. Rather than let the party fracture, Democrats settled for a promise. We could well see a replay when the new short-term funding bill runs out next month.

3. Can-kicking won’t fix a broken budget process

Why does Congress keep recycling stopgap spending bills? If legislators followed the law, Congress and the president would have enacted 12 “appropriations” bills for the fiscal year that began last October. As you can see in the figure below, it’s been 20 years since Congress last finished its spending homework on time. Polarization, divided party control and internal fissures all make this difficult, even in good economic times. Recently, controversial amendments on the Confederate flag and employment discrimination have upended the budgetary process in the House. And partisan differences have stalemated spending bills in the Senate.

Unable to pass spending bills one by one, party leaders typically combine some or all of the bills into “omnibus” measures. While lawmakers craft these measures, Congress often adopts stopgap “continuing resolutions,” just as it did this week. CRs are nothing new; Congress lives on a steady diet of them, averaging five per year over the past two decades. In late 2000 alone, Congress passed 21 very short-term CRs to buy time while lawmakers finalized spending bills for the fiscal year that was already underway.

This broken budget process sets the polarized parties up for repeated brinkmanship. That’s how we got the recent shutdown. Deadlines can force an otherwise dysfunctional Congress to act. But they also can allow the parties to delay working out their differences, turning votes over short-term spending bills into battles over the parties’ governing priorities. So long as lawmakers disagree over the size and scope of federal programs, they will keep fracturing over the budget.

4. More deadlines are coming

When the current CR expires in February, lawmakers could repeat the process. But lawmakers could lose patience with short-term fixes. And Congress still has to decide overall levels of defense and domestic spending. If it doesn’t, it would face a “sequester” — a compromise Congress bound itself to seven years ago — that automatically triggers across-the-board cuts to spending in both areas. Both GOP defense hawks and Democrats passionate about domestic programs seem eager to avoid that.

Another flash point is coming this winter: raising the debt ceiling, which sets the upper limit on federal borrowing. Without increasing the limit, the federal government — which must issue new bonds to cover its obligations – would likely default on its debt. Would either party refuse to provide necessary votes to raise the ceiling until their other legislative demands were met?  Republicans tested the ceiling more than once during the Obama administration. It’s unlikely, but who can be sure?

Some GOP conservatives argue that the U.S. Treasury can prioritize paying some obligations and not others — meaning that a default might not be so bad. And House Financial Services chairman Jeb Hensarling (R-Tex.) in 2015 revealed that Treasury and the Federal Reserve had run exercises to test whether the government could pay interest to its bond holders first, so that the government would not technically stiff its creditors.

The debt ceiling deadline creates additional opportunities for lawmakers to demand policy concessions in exchange for their votes — if not by Democrats than by Republican factions eager to shrink the government’s obligations. Expires-at-midnight governing is here to stay.

Mark Spindel is founder and chief investment officer at Potomac River Capital, a Washington-based investment firm.

Binder and Spindel are co-authors of the recently published “The Myth of Independence: How Congress Governs the Federal Reserve” (Princeton University Press, 2017).

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Trump tariffs will save some solar jobs and destroy others

January 23, 2018 by  
Filed under Lingerie Events

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The first time the United States tried to protect solar industry manufacturing jobs from foreign competition, things did not go exactly as planned.

Chinese solar panel makers evaded U.S. tariffs by relocating to Taiwan, and the Chinese government retaliated with its own duties on U.S. exports of the raw material used in making the panels — leading American manufacturers to lay off more than 1,000 workers and scrap a new $1.2 billion factory.

Now, the United States is trying again. President Trump on Monday imposed a new round of tariffs on imported solar panels in response to fresh pleas from two bankrupt manufacturers, Suniva and SolarWorld. The companies — U.S.-based but foreign-owned complain that Chinese rivals, backed by generous state subsidies, have flooded the U.S. market with solar panels at prices they can’t match.

For the president, the solar decision, and a similar move against imported washing machines, represent a big step toward fulfilling his campaign promises to get tough on trading partners like China. Additional decisions loom on trade secrets, steel and aluminum, raising the prospect of a more confrontational trade stance that might cheer Trump’s supporters in the industrial heartland while unnerving investors and multinational corporations.

The polysilicon industryserves as a cautionary tale of what can happen when trade officials take actions designed to protect workers in one corner of the economy only to see them boomerang elsewhere.

Production operator John White checks a panel at the SolarWorld solar panel factory in Hillsboro, Ore. (Natalie Behring/Reuters)

“There’s always a risk of tit-for-tat retaliation, particularly with China. . . . It’s a warning shot: Don’t do this too often,” says economist Douglas Irwin, author of “Clashing Over Commerce: A History of U.S. Trade Policy.”

Three global firms — Wacker, REC Silicon and Hemlock Semiconductor — account for the vast majority of U.S. polysilicon production. The material is used to produce semiconductors for computers as well as the solar components that turn sunlight into electricity.

The Tennessee factory that Hemlock leveled in 2015 before it had produced anything was not the only collateral damage from the initial U.S. trade action. REC Silicon took refuge in a joint venture with a state-owned Chinese company, gaining a foothold in China but surrendering access to its proprietary technology in the bargain.

Polysilicon executives fear that the president’s action will leave in place the Chinese trade barriers, which imperil their existing U.S. operations.

Industry representatives in recent weeks met with officials such as Robert E. Lighthizer, the president’s chief trade negotiator, and Commerce Secretary Wilbur Ross to plead for an alternative that would resolve all solar-related disputes between the United States and China.

Polysilicon producers say that the United States should negotiate a comprehensive settlement with China to resolve both the old and new solar issues. Such a deal could divide the estimated $1.5 billion in customs duties that importers paid in the original trade case among the panel makers, polysilicon producers and rebates importers.

Trump’s tariffs could pave the way for such a negotiated bargain. Lighthizer’s formal tariff announcement promised to open “discussions among interested parties” toward that goal.

Still, the idea remains a long shot. The European Union resolved a similar spat with China through talks, but Obama administration efforts to settle its solar differences with Beijing at the negotiating table stalled.

Most analysts say that Trump has long been fixated on imposing tariffs as a demonstration of the muscular new course in trade policy that he is charting.

“Politicians like to say they’re going to bat for a particular group of people and like to look tough,” said Daniel Ikenson, trade policy analyst at the nonpartisan Cato Institute. “What’s harder to see is there are costs . . . and they are real.”

It may be too late to prevent further erosion in the U.S. polysilicon industry, given the dramatic expansion in Chinese production since the tariff war erupted. In 2010, the United States topped China 62,000 tons to 55,000 tons, according to Ethan Zindler, head of Americas for Bloomberg New Energy Finance. But by 2016, after a flurry of new plant construction, China produced 208,250 tons, nearly triple total U.S. production.

“There was a moment when the U.S. was the global leader. But China just basically blew by them,” Zindler said. “If tariffs disappeared immediately, they would still have trouble finding customers in China.”

The Chinese tariffs effectively barred U.S. suppliers from a market that accounts for 80 percent of global sales. U.S. exports of polysilicon to China plunged to less than $200 million in 2016, the most recent year available, from more than $1 billion before the tariffs were imposed, even as overall Chinese demand more than doubled.

Hemlock laid off roughly 500 workers in Michigan and Tennessee, including 100 who will leave the payroll this quarter. REC Silicon dropped 450 workers in Washington state, cut production capacity in half and mothballed a new $150 million facility.

“We’re probably the victim that’s been hit the hardest in this trade war,” said Francine Sullivan, vice president for business development at REC Silicon.

If the Chinese tariffs remain in place, further layoffs are likely, industry officials have warned.

Wacker Polysilicon North America produces polysilicon at a $2.5 billion polysilicon plant in Charleston, Tenn., that was designed as an answer to China’s surging needs, a company executive told a U.S. Trade Representative Office hearing last month. The “health” of the facility and prospects for future expansion depend upon lifting the Chinese tariffs, said Mary Beth Hudson, the Charleston site manager.

Polysilicon factories are mammoth, multibillion-dollar facilities that in scale and appearance resemble oil refineries. Inside, workers use a chemical process to convert silane gas or quartz into polysilicon. Industry jobs pay well, with total compensation often exceeding $100,000, executives say.

The dispute that reached Trump’s desk saw panel makers Suniva and SolarWorld, two bankrupt foreign-owned manufacturers, face off against a growing U.S. workforce of solar installers, engineers, project managers and sales executives.

The International Trade Commission concluded that rising imports are hurting the domestic industry and recommended to the president potential remedies including quotas and tariffs of up to 35 percent. Tariff opponents say that more than one-third of industry’s 260,000 jobs are at risk of disappearing following the president’s action to discourage imports.

Suniva petitioned the government for protection in April, taking advantage of a clause in U.S. trade law that allows the president to impose sweeping global tariffs without any evidence that foreign trading partners acted unfairly. SolarWorld joined the fight for such “safeguard” measures one month later.

“More than 30 U.S. companies have been forced out of business. A strong remedy will revive and strengthen U.S. manufacturing,” Timothy Brightbill, an attorney who represents SolarWorld, said before the decision.

When the United States has imposed such safeguard measures in the past, its trading partners have inevitably complained to the World Trade Organization. And the multilateral trading body’s dispute settlement board has repeatedly found the specific U.S. actions in violation of Washington’s international commitments.

No U.S. industry has sought safeguard protection since 2001, when the steel industry appealed for help to the Bush White House. President George W. Bush imposed tariffs of up to 30 percent, drawing applause from domestic manufacturers but leading to steep job losses at companies that used steel.

Estimates of the jobs lost ranged from 26,000 to 200,000, dwarfing the steel jobs temporarily saved. Bush lifted the tariffs in 2003 after the WTO authorized the European Union to retaliate for the improper duties with more than $2 billion in levies on U.S. imports.

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