President-elect Biden could outflank Sen. Mitch McConnell by teaming up with GOP governors on COVID-19 aid

On November 18, 2020, a group of Democratic governors in the U.S. Midwest held a conference callⁱ and agreed that they can’t fight the pandemic alone. Between now and June 2022, state and local governments could face budget shortfalls of $500 billion.ⁱⁱ They need help from Washington. This was not a call from what Senate Majority Leader Mitch McConnell, a Kentucky Republican, likes to refer to as mismanaged coastal elite Democratic blue states such as California and New York.

But the appeal for help for millions of desperate constituents seems to have fallen on deaf ears. McConnell dismisses such requests, saying Democrats just want “a massive slush fund for their own use.”ⁱⁱⁱ

But what if Republican governors felt the same way – and said so? This is an opportunity for President-elect Joe Biden. He should meet with all the Republican governors (there are more of them than Democratic governors). The goal: uniting them to pressure McConnell to pass a bill that not only helps constituents pay the rent and put food on the table, but also replenishes pandemic-eviscerated state and local budgets. That will avoid layoffs of police, firefighters, healthcare workers and teachers, while enabling states to repair the crumbling transportation infrastructure. The cost of fixing the infrastructure will be an estimated $2 trillion, much of which cities and states must finance.^iv

The benefits to Biden would be substantial. It would show his willingness to cross the aisle. That, in turn, would demonstrate a willingness to heal the country’s deep divisions. It would put the onus squarely on McConnell’s shoulders if he turned down his own party. and if Biden is successful, it would goose the economy and set him up for success instead of failure.

The impact that American cities and states have on the overall economy is significant. A March 2020 paper by the Washington, D.C., think tank Brookings Institution noted that state and local governments represent about 13% of total employment and their tax revenues account for about 9% of gross domestic product (GDP). The paper said that the Hutchins Center Fiscal Impact Measure showed cuts in state spending during the last recession between 2009 and 2012 lowered real GDP growth about 1.2 percentage points.^v

In addition, according to the paper, while tax cuts helped fuel private spending during that recession and boosted growth slightly, the negative effects of government spending cuts more than offset the benefits. The bottom line: federal aid to states and localities will give the economy a needed boost. So the question for McConnell is whether he wants to make Biden a one-term president – his unachieved, stated goal for Barak Obama – or does he want to help his constituents, the nation, and Republican senators who are up for election in 2022?

Biden already has started down a bipartisan road. The day after the Democratic conference call, he met with Democrats and Republicans on the executive committee of the National Governors Association to promise coordination in fighting the pandemic. The group included Republicans Charlie Baker from Massachusetts, Gary Herbert of Utah, Larry Hogan of Maryland, Asa Hutchinson of Arkansas, and Kay Ivey of Alabama.^vi

Red states are reeling

Why would Republicans join forces with Biden? Because Republican red states are hurting every bit as much, if not more, than blue states. Moody’s Analytics found that six of the seven states expected to see the biggest drops in revenue over the next couple of years are red states that Trump won.^vii

And since red states typically have done far less than Democratic blue states to fight COVID-19, it will take longer for their economies to recover. For months, these states wouldn’t adopt mask mandates or promote physical distancing and handwashing. COVID-19 was a Democratic hoax, right? But now their delusions are haunting them as the states with fewer restrictions see big COVID-19 spikes.^viii Two red states in mid-November had the highest seven-day positivity rates in the nation: Wyoming with a rate of more than 70% and South Dakota with a rate that exceeded 55%.^ix

Making matters worse, red states didn’t have the best starting point. The McConnell mantra that blue states are fiscally irresponsible and, hence, need bailouts while red states are fiscally fit is a typical McConnell statement: blatantly false. 

In 2018, Forbes (owned by a conservative Republican) ran a piece that ranked state fiscal solvency based on a study by two authors, including an economist at conservative George Mason University. The bottom five did not include California or New York. They were Kentucky, Massachusetts, New Jersey, Connecticut, and Illinois. Four of the five states (all but Connecticut) had Republican governors at the time.^x

Flash forward to the pandemic. Oklahoma, which has a Republican governor, faced a $1.3 billion budget deficit in the summer of 2020 after losing 18% of its revenue.^xi That might not seem that large in the grand scheme of things, but the Oklahoma budget itself is not a grand scheme: roughly $8 billion.^xii So the deficit was 22.5% of the entire budget.

Other red states face long-term fiscal woes that the pandemic has just aggravated. Wyoming, Alaska, and North Dakota face years of budget shortfalls as demand declines for fossil fuels – a major source of tax revenue.^xiii Wyoming’s financial plight, for example, has continued to deteriorate thanks to the pandemic. In July, Republican governor Mark Gordon proposed a $250 million cut – more than 8% of the budget.^xiv He came back in November with an additional $500 million budget cut – 15% – with some agencies cut by 20%.^xv And that still left a $300 million shortfall.

In addition to the short-term budget issue, long-term unfunded pension liabilities dog most states. A Pew Charitable Trusts’ study a year ago ranked states by the percentage of these liabilities that they had funded. New York came in with the fourth-best ratio, 94.5%. California was in the middle with 68.9%. McConnell's Kentucky was dead last with a 33.9%. New York and California ranked better than a bunch of other red states: Kansas, Alaska, Louisiana, Indiana, North Dakota, Mississippi, and South Carolina. Someone from Kentucky has no standing to point fingers.^xvi

A break in the red wall?

Some Republican governors already are asking for help from Washington. On the same day as the Democratic governors conference call, Maryland’s Hogan said: "Everyone on both sides of the aisle in Washington needs to come together and finally get this done for the American people." In April 2020, Hogan, then chairman of the National Governors Association, and New York’s Democratic governor Andrew Cuomo – the vice chairman – asked congressional leadership for direct state aid to offset the revenue shortfall.^xvii

By September 2020, Cuomo was chairman and Arkansas’s governor Asa Hutchinson was vice chairman. Together, they issued a joint statement explaining that state solvency was critical to an economic recovery. "Every major economist, regardless of party or ideological bent, came to the same conclusion after the 2007-09 financial crisis,” the statement said. “The lack of support for state and local governments slowed the nation's economic growth for more than a decade. As we begin to recover and rebuild from the COVID-19 crisis, we can't afford to repeat the mistakes of the past – we know now that there can be no national recovery if state and local governments aren't solvent.”

Even the most recalcitrant GOP governors may hop on board. South Dakota governor Kristi Noem, for example, disputes the efficacy of masks, noting that 41 states have some kind of mandate, and cases are rising in 39 of them.^xviii That is a perfect lawyer’s statement: absolutely true and utterly misleading. It ignores little facts such as the rates of increase and positivity rates that show masks are effective, if not foolproof. Sure, cases are rising in California and New York. But on November 28 2020, California’s 14-day positivity rate was 6%,^xix while New York City closed schools when the city’s rate went north of 3%, and the rate in the schools was 0.16%.^xx

Look overseas, Gov. Noem. Have you ever compared the COVID-19 death rates of South Korea (1.01 deaths per 100,000 as of November 29) and Taiwan (0.03 deaths per 100,000) with those of the U.S. (81.32 per 100,000)?^xxi With South Dakota’s stratospheric positivity of 55%, I don’t know how she can keep a straight face when arguing that her moronic approach is as effective as what New York, California, South Korea, and Taiwan are doing.

She may not help her constituents stay well by heeding federal health advice, but she has no problem swilling from the federal trough to keep her state afloat financially. South Dakota had a $19 million surplus^xxii on a $4.9 billion budget^xxiii in the fiscal year ended June 30, 2020, but only after spending about $75 million of $1.25 billion in federal COVID-19 aid. Analysts project a deficit of between $16 million and $40 million for the next fiscal year. In June 2020, Noem announced that city and county governments would be able to get access to federal coronavirus relief funds. Will the color of that money – and its allure – change in a Biden administration? Or will she lay off a lot of government workers – teachers, cops, firefighters, health workers­– to make a political point? Somehow I doubt it.

Blue states also need budget support

I don’t mean to suggest that blue states don’t need the help. But California, ironically, is one that doesn’t right now. In fact, it expects a $26 billion surplus^xxiv on a $202.1 billion budget for 2020-2021.^xxv Analysts say the reason the Golden State is in good shape is that higher-earning residents have been largely insulated from the pandemic – they’re happy to telecommute – and the state’s progressive income tax rates stabilized revenue. This, of course, runs counter to Republican orthodoxy about the pernicious effects of progressive taxes. (As an aside, California spends $5,430 per capita, while per capita outlays for red states include $5,575 for South Dakota, $10,585 for Arkansas, $15,419 for Wyoming, and $19,328 for North Dakota.^xxvi Sen. McConnell, who is profligate?)

New York, the other GOP bogeyman, has fared less well. In September, it reported a $14.5 billion deficit^xxvii on a $177 billion budget.^xxviii That 8%, however, is a lot less than some of the red states.

The GOP senators up for reelection in 2022 also could put pressure on McConnell. If Kelly Loeffler wins the January special election runoff in Georgia, that will mean 21 of the 34 senators up in 2022 will be Republicans. Loeffler, Ron Johnson in Wisconsin, and Pat Toomey in Pennsylvania are from states Biden won. John Thune of South Dakota, no doubt, has seen the benefits his state has received. After a Pennsylvania judge tossed out a Trump challenge to vote certification, Toomey issued an olive branch. The ruling confirmed Biden’s victory, he said, adding: "I congratulate President-elect Biden and Vice President-elect Kamala Harris on their victory. They are both dedicated public servants and I will be praying for them and for our country."^xxix Might others break ranks with McConnell, if not out of patriotism then at least to save their political skins?

The fiscal plight of some of the other states could prompt more senators to join a rebellion against McConnell’s do-nothing policy:

Ohio: It projects a 9% drop in revenue and a $2.4 billion deficit on a $69 billion budget for 2019-2021 .^xxx Rob Portman is more of a traditional Republican than a Trump acolyte and could press for aid for his state.

North Carolina: Its revenues will be short about $5 billion^xxxi on its $26 billion 2020-2021 budget.^xxxii Trump edged Biden by just 1.3 percentage points.^xxxiii Richard Burr reportedly is under investigation for the sale of up to $1.7 million in stock in February before the pandemic began to devastate the economy – but after he and other senators got private briefings about the potential for a massive economic downturn.^xxxiv He might want to show that his presence in Washington benefits his hard-pressed voters.

Indiana: The Hoosier State had an $882 million deficit ^xxxv on a $21 billion 2020 budget and drew down on previous surpluses to balance the budget.^xxxvi The state has lost 60,000 jobs since February, and though many aren’t looking for jobs now, one Indiana economic outlook projects the state won’t return to the pre-COVID state of economic affairs until the end of 2021.^xxxvii That means another tough year. Will Sen. Todd Young want to wait to see if that projection materializes or do something to increase its odds before the 2022 election?

Kentucky: McConnell’s home state, where Rand Paul is up for reelection, is one the majority leader doesn’t have to worry about. Sure, the state faces a $1.1 billion deficit^xxxviii on an $11.4 billion fiscal 2021 budget and enacted only a one-year budget instead of the normal two-year budget because of pandemic-related economic uncertainties.^xxxix (Kentucky spends about 49% more per capita than California.^xl Just sayin’.) In his 2016 election, Paul was dominant, winning by 14.5 percentage points,^xli and Trump crushed Biden in the state by 26 percentage points.^xlii Democratic governor Andy Beshear’s ability to squeak by in 2019 with a 0.37 percentage point margin against an enormously unpopular governor seems an aberration.^xliii If McConnell doesn’t have to worry about retaining a Republican senate seat, he has little incentive to help Beshear and Biden – or his constituents.

The McConnell conundrum

So what’s the bottom line? GOP governors have a strong case to make. It’s better if it comes from them than from Biden or Democratic governors. Biden can help coordinate the effort and show he wants to collaborate. Whether McConnell will flinch depends on how he gauges his self-interest.

With Trump out of the White House, McConnell may be less fearful of the right-wing base. He isn’t up for reelection for six years – if he runs again (he’ll be 84). If the Democrats win the two Georgia seats and he no longer is majority leader, his incentives may change. He already has cemented his legacy for remaking the federal judiciary in an ultraconservative mold. Does he want the rest of his legacy to be one of recalcitrance or one of helping rescue the country from a perilous predicament?

I don’t know. His recent actions delaying any further aid suggest a heartlessness that is hard to stomach as eviction moratoriums and unemployment benefits head for year-end expiration. His attitude actually stretches back at least to Obama’s first electoral victory.

I have no confidence McConnell on his own will see the light instead of the darkness where he normally dwells. He has said he won’t even consider state and city aid unless the legislation immunizes employers from lawsuits by workers who get COVID-19 because of inadequate safety precautions at work. His callousness knows no bounds. Workers get screwed if they go to work and get COVID-19, and they get screwed if they don’t work since new federal aid won’t include the $600-a-week in assistance in the initial COVID-19 spending bill. Only if Biden gets GOP governors to gang up on McConnell may he feel pressure to change his stance – and at long last grudgingly do the right thing.

Stan’s biography can be found here.

Will Democrats snatch defeat from the jaws of victory over police tactics?

I can think of a few things as wondrous as a thunderous Donald Trump thumping in November – but not many. Fast development of a COVID-19 vaccine. A quick global economic rebound to prevent mass starvation. And a rapid end to racism in the U.S. and around the world.

Of these, Trump’s defeat is by far the most likely. But I worry that Democrats could snatch defeat from the jaws of victory – as only the Democrats can. How? By overplaying their hand on the issue of policing – the issue Trump is trying to ride as his desperate, last gasp attempt to win reelection. The Democrats are potentially vulnerable because of three missteps they have made.

1. Arguing to defund the police. The truth is that most activists, Democrats – and presumptive nominee Joe Biden – aren’t talking about getting rid of all public safety officials. But some misbegotten radicals are. Most are mulling the kind of reform Eugene, Oregon has achieved: dispatch medics and mental health counselors when they are better suited than police to handle 911 emergency calls that involve homelessness, substance misuse, or a suicide threat. Other activists want to rebuild some police departments from scratch, though with a similar outcome: a smaller budget for crime and reallocation of a portion of police department budgets to experts who can perform social services and health tasks better than the police. Unfortunately, all this verbiage to explain the term “defunding” is a problem. Once you have to explain the bumper sticker, you’ve lost.

The term, not the objective, is a serious problem – and a huge gift to Trump. It enables him and the Republicans to argue that the Democrats favor anarchy and that the country needs a law-and-order president. The Trump ad for 911 calls that says, “Our estimated wait time currently is five days” is an over-the-top, shameful lie, but it exploits the opening that radicals provide. The defunding mantra enables Trump to tell Fox News commentator Sean Hannity: “And we can't abolish our police. They want to abolish our police.”

Whether this will play well beyond Trump’s base depends on several factors. One is how peaceful the protests are. In Portland, Oregon federal and local law enforcement working cooperatively had simmered down the unrest before Trump sent in his militia, which fanned the flames in Portland and other cities. On July 30, 2020, the feds agreed to leave Portland, and as soon as the Trump militia agreed to stand down, peaceful protests resumed. So Trump said he went in to restore peace and instead created more unruly unrest. Only when he left did peace return. Yet in an Orwellian turn, he will claim victory and will have the visuals of defaced federal buildings and tear gas canisters for his campaign ads. The peaceful protesters’ messages will have gotten lost amid the firebombs.

Another factor is whether voters will recognize that crime rates have been dropping for decades – and that we need a COVID-19 leader far more than a law-and-order police commander-in-chief. An October 2019 Pew Research Center report noted that Federal Bureau of Investigation data show that violent crimes plummeted 51% between 1993 and 2018. To be sure, there’s been a recent spate of homicides, including killing of children, and that’s an ominous sign. This tends to happen because of the “Ferguson effect”, a slowdown in police enforcement after an incident that leads to mistrust of cops and lower police morale. But these numbers don’t come close to offsetting the long trend of a safer America.

What’s ironic is that the police and protesters actually have a lot in common. The Washington Post captured this well in a July 26 profile of Thomas Parker, a Huntsville, Alabama police officer. He had become a cop to make felony arrests, but mental health calls had mushroomed from one or two a month to 3,000 a year. He had just finished 16 hours of mental health de-escalation training, compared with 544 hours of physical control tactics and 188 hours of firearms training. Huntsville’s police budget was $51 million while the behavioral health programs budget was $800,000. Hence the reliance on police for those calls. The story focused on Parker’s deft handling of a woman with mental health issues who was brandishing a gun and a butcher knife while neighbors and their cell phone cameras were at the ready – Parker’s worst nightmare. In the end, the woman consented to be taken away for an evaluation – the outcome her husband wanted.

An officer who trained Parker complained that the police had to do things unrelated to law enforcement, yet if they screw up because they’re not specialists, they’re held accountable. “I feel like if they care enough to send us to those calls a few times a day, they should allocate money for someone that’s an expert,” the officer told Parker. Parker agreed. So would a “Black Lives Matter” (BLM) activist.

You would not hear such sensible sentiments from Trump, a supposed supporter of the police. Of course, facts rarely are a deterrent for Trump, who will paint Biden as a puppet of the radical fringe even though Biden supports what Parker and his colleague advocate. Trump’s stock-in-trade is to sell fear, warranted or not. And he will try to make it warranted. Beyond battles that administration militia deployments have stoked, Trump no doubt can count on more unrest sparked by white supremacists like the Umbrella Man, who started rioting in Minneapolis by smashing store windows. Add to the recipe just one terrorism incident, and it’s more grist for Trump’s ads.

Biden’s big lead in the polls is likely to shrink as Election Day nears since margins typically do so. As a result, Democrats can ill afford to give Trump such a generous present, which could peel off votes from the center and right. Will reallocating police funding – a perfectly reasonable position – look naïve come November? What will have more impact, the decades-long decline in crime rates or Trump’s ads? I hope Trump’s tropes will prove ineffective, but there are no guarantees if voters think it’s all about defunding the police. And the radicals have fallen for Trump’s bait.

2. Obstructing police reform. Democrats in the Senate nixed a debate on the Republican police reform bill. That was a mistake. The Democrats looked like they were blocking reform, something that could endanger support from the left. The Democrats should have allowed debate and passage of the GOP measure. It would have gone to a conference with the House, which passed its own bill. Then the House-Senate conferees would have tried to negotiate a compromise. Whether or not they succeeded, Democrats would not look as if they had aborted the normal legislative process by meathead intransigence.

The fact is there were some ideas in the Republican bill that were similar to proposals in the House measure, such as using the threat of withholding federal funds to pressure police departments to ban chokeholds. Since local police departments need the federal funds, the threats likely would have been an effective incentive. Did the Senate bill go as far as the House bill? No. Is something better than nothing? Yes. Senate Democrats blew it on both the optics and the substance. Another gift for Trump.

3. Claiming police racial bias when it may not exist. This is complicated so bear with me. Let me start by explaining that I am sympathetic to BLM. At a recent BLM rally I attended in Bethesda, Maryland, a young Black¹ speaker said she agreed that all lives matter and added that all houses matter, too, but noted that you don’t send fire trucks to homes that are not on fire. That analogy makes sense.

I also don’t believe that a few bad apples in police departments explain the data that suggest bias in such areas as traffic stops and nonlethal use of force by police. No, there is clearly systemic bias within police ranks. That said, I have reservations about the conventional wisdom that there is a pandemic of lethal police force being perpetrated on Black civilians. What is missing from that argument is context. Census data showed that in 2019, Black civilians comprised 13.4% of American civilians while White civilians accounted for 76.3%. Yet Black civilians accounted for 32% of those fatally shot by police, while White civilians accounted for 52%, according to the National Center for Biotechnology Information. That sounds like a disproportionate number of Black civilian fatalities. But crime doesn’t follow census data. In 2018, Office of Justice Programs data show, Black suspects accounted for 38% of arrests for murder, nonnegligent manslaughter, robbery, and aggravated assault (rape statistics were not in the database).

I suspect that this statistic, rather than census data, is the right benchmark and that the data about criminal involvement – rather than racial bias – could be the reason for the fatality differential. More on this later, but suffice to say that Democrats and their allies give Trump another gift wrapped with a big bow if they make an argument about racial bias involving fatal police shootings that is not, for want of a better term, bulletproof.

1. Traffic stops. Let’s start with an area where there does seem to be clear evidence of bias: traffic stops. A PBS Newshour segment reported that in Missouri in 2018, Black drivers were 91% more likely than White drivers to be pulled over for a traffic stop. In North Carolina from 2002–2016, Black drivers were 63% more likely to be pulled over, according to Frank Baumgartner, a political science professor at the University of North Carolina. A Stanford University study of 95 million traffic stops by 21 state patrol agencies and 35 municipal police agencies showed that Black drivers were 43% more likely than Whites to be pulled over during the day, when police can see who is driving. The discrepancy disappears at night, when cops can’t see the driver. A few bad apples can’t explain these stunning statistics.

   The intuitive reaction that the numbers indicate racial bias, while understandable, should not be the end of the analysis. From an economic efficiency standpoint, if stopping a Black driver statistically has a higher probability of finding contraband (drugs, guns, alcohol, etc.) and producing an arrest, it makes sense if cops stop Black drivers at a higher rate than they stop White drivers. This is called statistical bias because data support the discrepancy. It is not solely a product of a cop’s racial prejudice.

   Do the data show that the differential is justified? Let’s take a look at numbers that the city of Durham, North Carolina collected for the first half of 2019. Of the 7,616 police stops, 63% of the drivers were Black drivers while 34% were White drivers. Black residents account for 41% of the population, so the traffic stop rate is disproportionately high. (Similar disparities occurred in Charlotte, Greensboro, Raleigh, Fayetteville, and Winston-Salem.) Was the arrest percentage the same for Black and White drivers, suggesting there was a basis for the higher traffic stop rate for Black drivers? No. No enforcement action was taken for 61% of the stops for Black drivers vs. 53% for White drivers. This suggests there was no justification for the discrepancy in traffic stops.

   The city reached a different conclusion, however, saying there was no evidence of unexplainable disparities among the officers. The stops were “consistent with the demographics and crime statistics of their assigned areas,” the report said.

   The book Suspect Citizens, whichanalyzed 20 million traffic stops in North Carolina, also found that Black drivers were more likely to be stopped and searched than White drivers, but less likely to be found with contraband after discretionary searches. The hit rate was 36% for White drivers and 33% for Black drivers. Even after controlling for stops in high-crime areas, skin color seemed to be the only explanation for the race differential in traffic stops.

2. Use of force. Traffic stops are more than an annoyance – and can turn deadly – but they are not at the heart of racial turmoil today. Police use of force is. This issue presents three types of subtopics: anecdotes about deaths at the hands of police, discrimination in nonlethal uses of force, and discrimination in fatal uses of force.

   1. Anecdotes: Some victims such as George Floyd should be alive today. The scenes on bodycams and cell phones are heartbreaking and outrageous. Those who watched Floyd’s final nine minutes of life no doubt think that never would happen to a White man. But they would be wrong. Podcaster Sam Harris notes the case of Tony Timpa. Back in 2016, Dallas police kept their knee on the back of the unarmed 32-year-old White man for 13 minutes – longer than what Floyd experienced. Timpa had called 911 himself for help when he was off his prescription medication for schizophrenia and depression, according to the Dallas Morning News. Timpa died while in custody as the police cracked jokes about him. Imagine if such a video involving a Black man had gone viral. Also in 2016, Time magazine published an article with a long list of White civilians killed in situations that would spark outrage for Black victims. Like Timpa’s case, the others remain invisible to the public.

      This is not to diminish in any way the importance of the lengthy list of Black victims. But they are anecdotes, not rigorous data analysis that prove something is systemic. It’s like combining Trump saying he took hydroxychloroquine and is fine, Brazilian President Jair Bolsonaro doing the same, and Houston doctor Stella Immanuel saying the drug was effective for her patients (when she’s not talking about the harm of having sex with demons).

      These anecdotes about the drugs prove nothing. But they have political heft. The anecdotes about Black deaths at the hands of police are equally political, frankly. But they are powerful, indisputable (unlike Trump’s), and most important galvanizing – as they should be. But do they represent racism or something else: horrendous police practices? As Harris asks, is it likely the officer on George Floyd’s neck, Derek Chauvin, intended to kill Floyd in a racist act in front of a crowd of people with cell phones taping his every move? Is it likely the officer on Timpa’s back who thought Timpa had fallen asleep intended to kill him? The more likely explanation is that cops do awful things and – unlike Huntsville, Alabama police officer Thomas Parker – display not a whit of empathy. If they don’t understand the consequences of their actions, that’s a pretty severe indictment. These tragic incidents must lead to police reforms. But don’t argue, as Trump does, that the anecdotes prove more than they do, a point I will expand on below. The anecdotes don’t prove racism. They prove the need for an overhaul of police practices, and that’s seismic enough.

      PHOTO: ISTOCK/NYCSHOOTERThe author is sympathetic to the Black Lives Matter movement, but questions whether there is a pandemic of lethal police force being perpetrated on Black civilians. In this July 12, 2020 photo, we see where New York City Mayor Bill de Blasio authorized the slogan “Black Lives Matter” to be painted in front of Trump Tower on 5th Avenue in Manhattan.

   2. Nonlethal use of force: In a 2016 empirical analysis of racial differences in use of police force, Harvard economist Roland Fryer² accounted for 125 variables in police-civilian contacts such as encounter characteristics, civilian behavior, and precincts. He found that Black and Latinx³ civilians are more than 50% more likely than White civilians to experience nonlethal force in their interactions with police: being thrown to the ground or against a wall or tazed. The variables reduce but don’t eliminate these racial differences, which were consistent with, if not dispositive proof of, bias.

      Fryer looked at four sets of data. The first was New York City’s Stop, Question, and Frisk program, which had about 5 million observations. The second was the Police-Public Contact Survey, which contained civilians’ descriptions of their police contacts. Another, collected for the study, was a compilation of summaries of incidents in which a cop discharged a weapon (hits and misses) in Austin, Dallas, Houston, six large Florida counties, and Los Angeles County. The fourth data set was a random sample of incidents in Houston where the arrest code suggests lethal force is more likely to be justified (for example, attempted murder of, or assault on, a police officer).

      For the New York City data, Fryer analyzed precinct statistics that were a proxy for “dangerousness”:  income, education, and unemployment. He divided the precincts in thirds, from minimum racial differences to larger differences. He found no racial differences in outcomes in the three segments. Yet when police reports indicate the same level of compliance with police orders, Blacks were 21.2% more likely than Whites to have force used on them.

      Relying on police data may be problematic. They are neither comprehensive nor standardized. Fryer acknowledged the data may not be representative because the figures came from self-selecting police departments willing to share their data. They may have done so knowing that they would look good. And, of course, some of the data may suffer from police bias.

      And it may be worse than mere bias. Philip Stinson, a criminologist and professor of criminal justice at Bowling Green State University, told CNN in June that it’s common for police to lie in reports. He tracked more than 10,000 cases in which nonfederal officers were arrested and found that about 6.3% involved false reports or statements. About a quarter of those cases also involved alleged acts of police violence, and the problem is probably more common than the data suggest, he said. Many people have seen the video of officers in Buffalo, New York pushing a 75-year-old man to the ground. Police initially said he tripped and fell. Police said Floyd resisted arrest, but the video showed he didn’t. Police said Timpa resisted arrest, but again the video didn’t show that. He struggled to breathe. That was all.

      Yet even with a potentially self-serving, self-selection of data, Fryer found differentials that likely were the result of racial bias.

   3. Use of force that leads to death: On the one hand, we have an astonishing event: On July 14, Trump actually stated something that is true: more White civilians than Black civilians die at the hands of police. On the other hand, BLM advocates counter that’s no surprise because there are so many more White than Black civilians, and Black civilians are disproportionate victims of police shootings. Both sides remind me of my wife saying I never passed the bar exam – when I never took it. Trump, BLM, and my wife all are making statements that are absolutely true and utterly misleading because they lack context, as I explained above.

      Let’s look at some more data. The Washington Post has tracked fatal police shootings since 2015, and the number is about 1,000 each year. The Post notes that probability theory would predict this: “It holds that the quantity of rare events in huge populations tends to remain stable absent major societal changes, such as a fundamental shift in police culture or extreme restrictions on gun ownership.” And the “population” of police contacts with civilians is huge: 53.5 million civilians had contacts with police in 2015, the most recent year that data are available, according to the Bureau of Justice Statistics (BJS). (An interesting side note, according to the BJS: total imprisonment fell 15% from 2008 to 2018, including a 28% drop for Black civilians.) Shootings thus account for a mere 0.00002% of police encounters.

      PHOTO: FLICKR.COM/FIBONACCI BLUEThe truth is that most activists and Democrats, including presumptive presidential nominee Joe Biden, aren’t talking about getting rid of all public safety officials. But some misbegotten radicals are. In this photo from June 11, 2020, we see a protester in Minneapolis calling for police services to have their funding cut.

      That doesn’t sound like a pandemic. And other data are consistent with that. In 2019, Los Angeles Magazine reported, Los Angeles police officers shot 26 people, down from 33 the previous year, 48 in 2015, and the three-decade high of 115 in 1990. In fact, 2019 was the lowest number in three decades. The number of fatal shootings also has declined. In homicide-plagued Chicago, the total number of police shootings dropped from more than 100 in 2011 to 44 in 2015, according to the Chicago Tribune.

      What’s more, Fryer’s study found no racial differences in officer shootings when he took into account the 125 variables. Indeed, he found that Black civilians were 24.2% less likely than non-Black civilians to be shot. Remember the traffic stops suggesting bias because more Black drivers were stopped, but fewer were arrested since they had no contraband? Well, the data are different in the lethal force category. Fryer found that in cases involving White officers, 84.2% of White suspects involved in a police shooting had a weapon, while 80.9% of Black suspects did – not a statistically significant difference.

      Fryer’s conclusion is a point that a misunderstood Tulsa police officer, Maj. Travis Yates, tried to make, perhaps inartfully, when he cited Fryer’s work and said that based on crime statistics, the predicted number of Black civilians shot by police should be 24% higher than it is. He was making a statistical point, not issuing a call to arms.

      Fryer has his critics, who say he uses the wrong methodology. For example, Fryer’s economic analysis – weighing the costs of discrimination against the benefits of maximizing arrests per traffic stop – might make sense in analyzing how to maximize efficiency for controlling contraband in cars. But police are not interested in maximizing shootings, so critics say that using the same cost-benefit analysis to see if there is discrimination in that context doesn’t work. Even if you concede flaws in Fryer’s approach, though, it’s an equally flawed approach to assume police shootings should mirror the population distribution in the census.

      If police allocated their resources by census data instead of where the crime is, they would be justifiably criticized for being moronic. To use the BLM speaker’s approach, if you don’t send fire trucks to houses that are not burning, don’t send police to low crime areas. And if police focus on high crime areas, which in inner cities often are minority neighborhoods, it’s likely that more shooting victims will be Black civilians.

This is a harsh reality. It also was a surprise for Fryer, who is not some right-wing think tank crank. The Black Harvard economist received tenure at 30, won a MacArthur Genius Grant, and was awarded the John Bates Clark Medal as an outstanding American economist under 40.

The even harsher reality is the possibility that this kind of analysis could be political dynamite that Trump would have no qualms detonating. I can hear him saying, “They get shot more because they commit more crimes.” He always uses “they.” And a lot of White heads would nod in approval when he says this. Of course, it would be a distraction from reform of police practices and the economic causes of crime in the first place. But it dovetails perfectly with the racist narrative Trump wants for his campaign.

That’s why Democrats should focus on what is indisputable: the anecdotes that show police reform is imperative. Why not include examples of White victims, too, to broaden the coalition? This is not a political shift to “all lives matter”. The fact is that the more compelling visuals by far are of Black victims, and they are persuasive. By highlighting them instead of ignoring them, by demanding police accountability, Democrats can show “Black Lives Matter”. That’s different from citing a police pandemic that may not exist. Democrats shouldn’t give Trump the chance to use data to make them look like they’re bending the truth the way he constantly does. Democrats don’t need to. Stick to the facts. Don’t overplay your hand. That’s the way for Democrats to win.

1. I am using the relatively recent convention of capitalizing both Black and White to give the same respect to both groups.

2. Harvard suspended Fryer in 2019 for two years for engaging in unwelcome conduct of a sexual nature. He apologized for off-color jokes and offending anyone in his work environment.

3. I am using the relatively recent convention of Latinx, which includes Latinos and Latinas.

Stan’s biography can be found here.

Facts could have been wild card at Senate trial

Forcing the Bidens to testify could have been a nightmare for Republicans

President Trump and some of his more rabid followers have wanted to have a real trial on impeachment in the Senate. In their mind, it would afford an opportunity to call as witnesses – and crucify – Joe Biden and his son, Hunter. Actually it’s the Democrats who should have been salivating at that prospect – which may come as a surprise to most readers. Calling the Bidens to testify could have been be the Republicans’ worst nightmare. Maybe that’s why Senate Majority Leader Mitch McConnell nixed the idea of witnesses. Smart move.

The Republicans who wanted a courtroom drama have been quaffing too much cockamamie Kool-Aid. It led them to peddle a fantasy that Biden as vice president in the Obama administration pushed in 2016 for the ouster of a Ukrainian prosecutor investigating Burisma Holdings Ltd., a Kiev-based energy exploration company whose board of directors included Hunter. Republicans argue that Hunter was unqualified to be on the board and was there solely because of his father’s position. Republicans also wanted testimony that supposedly would show Ukraine interfered in the 2016 election.

I say those wingnuts have been making these arguments, not that they really believe them. But they think they can get away with these baseless accusations because the press has been negligent. The media simply assert there’s no evidence of wrong-doing by the Bidens without explaining the underlying facts. Those facts would come out in a Senate hearing, soaking Republican lawmakers’ faces with egg.

I won’t waste time debunking the argument that Ukraine interfered with the 2016 election since Trump appointees in the intelligence community, FBI and National Security Council already have testified under oath that’s hooey. It was Russia, Russia, Russia. The Ukraine argument is part of a Russian disinformation campaign. That Moscow got the previously hardline Republican party to spread Russian propaganda is a monumental achievement for Vladimir Putin. But I digress.

My apologies for being old-fashioned, but let’s look at the evidence we know from reporting that doesn’t simply regurgitate unsupported assertions of no evidence. Much of this information comes from a balanced October 1, 2019 article on discussglobal.com by Meko Haze. It gives the evidence on both sides, but makes clear what’s fact and what’s not.

Joe Biden and his efforts to oust Ukrainian prosecutor Viktor Shokin: In 2018, Biden crowed about threatening to withhold U.S. aid to Ukraine unless Shokin was removed to make way for someone who would fight corruption. The U.S., the International Monetary Fund, European Union, European diplomats, the Ukrainian parliament, and Ukrainian anti-corruption activists thought Shokin himself was corrupt. The international push to get rid of him started in late 2015 and early 2016, according to a report in USA Today. But Shokin had shut down the Burisma probe in 2014, according to discussglobal.com, which quoted Vitalu Kasko, a former Ukrainian official who quit because Shokin’s office was corrupt. Ukrainian anti-corruption activists also complained Shokin went easy on Burisma. It’s hard to argue that Biden wanted Shokin removed to end an investigation that had been closed for nearly two years. If anything, an anti-corruption replacement for Shokin would be more likely, not less, to investigate Burisma and its owner, Mykola Zlochevsky.

To be sure, Shokin filed a deposition in a court case in Austria saying he was fired because he was investigating Burisma, a document Rudy Giuliani is likely to exploit. But the deposition is inconsistent with other evidence. For example, much earlier, Zlochevsky had been the target of law enforcement interest. The British had frozen his assets because he was under investigation for embezzling public funds when he was ecology minister. But Shokin refused to provide documents requested by the Brits, and his office wrote Zlochevsky's lawyers to say there was no case against him. There could be three reasons for this: the documents didn’t exist (there was no case), Shokin was incompetent, or Shokin was corrupt. These are not mutually exclusive explanations. But it’s important to note that the UK Serious Fraud Office, a district court in Kiev, and Shokin's successor, Yuriy Lutsenko (no prize either), found there was no case. The Brits ended up unfreezing the assets.

The facts thus show that Joe Biden didn’t try to remove a prosecutor to interfere with an ongoing investigation involving Burisma or Hunter.

(Separately, Zlochevsky was under scrutiny for tax evasion and money laundering. Lutsenko reached a tax settlement with Zlochevsky.)

Hunter Biden’s role on the Burisma board: I have no doubt Burisma picked Hunter for its board because of his father’s position. Hunter followed a hoary and disgraceful tradition predating President Jimmy Carter’s brother, Billy, and which today is being executed with dazzling indecency by Trump’s offspring and son-in-law. At least Hunter now recognizes it was bad judgment.

But that’s not the end of the inquiry. Hunter stayed on the Burisma board long after his daddy was out of office, resigning only earlier in 2019 to avoid being a campaign distraction. If Joe’s position was the sole reason Hunter was there, why not kick him off the board when Joe was out of office? Especially since the new president hated anything and anyone connected to the Obama administration.

The reason is that Hunter was qualified to serve on the board and was a valuable board member. A former head of a hedge fund, he advised Burisma on business deals. Aleksander Kwasniewski, a former Polish president who is on the Burisma board, told The Associated Press in November 2019 that while Hunter was picked because of his name, he was an active board member who helped the company and never used his relationship with his father to further the company’s interests. Kwasniewski said Hunter conducted research and brought a unique American perspective to the company, including in the areas of corporate governance, capital markets and gas drilling equipment.

Perhaps the realization that testimony could backfire is the reason Senator Lindsay Graham and McConnell want to go straight to a vote without calling witnesses and be done with impeachment. That way Republicans could make allegations about what they “could have” proven – perhaps using anything Giuliani got from discredited Ukrainian sources such as Shokin and Lutsenko. With just a cloud but no need for evidence, the GOP has the best of both worlds. Unless the press steps up with facts and context, voters will have the worst.

Stan’s biography can be found here.

Place your bets on the Gentle Lady from California to outsmart the bullying White House misogynist

For months, the conventional wisdom was that House Democrats should vote on articles of impeachment against President Trump and send them to the Senate as quickly as possible. That way they could avoid Republican accusations of playing politics during the 2020 campaign, while maintaining momentum for – and focus on – impeachment to sway the public.

But the plan has changed, wisely, in my view. On December 18, the House approved two articles of impeachment against Trump. Then House Speaker Nancy Pelosi put the brakes on. She said she would not send the articles to the Senate until she had assurances that the Senate process would be fair. Good luck with that. But I don’t think she should wait just a short time. I have been arguing for months that she ought to wait until after the November 2020 election to send the articles to the Senate. The benefits of a speedy process are dubious, while a delay provides both numerous and significant advantages.

Let’s look at the arguments for speed. Republicans already are accusing the Democrats of playing politics, so the Dems can’t avoid that smear. And much of the public is already suffering from impeachment fatigue, so it could be that slowing the process down would be a better way to shift public opinion.

Now let’s look at the benefits of a slower process.  

Unlike George Washington University Law School Prof. Jonathan Turley, who testified before the House Judiciary Committee in early December that he favored more hearings because the record to date is flimsy, I think the record is overwhelming. But if the Democrats delay sending the articles to the Senate, it’s possible that the record will get only more persuasive, which could change the thinking of the few remaining undecided voters.

Those who have already testified may embolden others to come forward or, at the very least, leak damaging documents. One could assume that if the documents that the administration was withholding made Trump look good, the White House would have released them. Similarly, if witnesses had other than damaging testimony to provide, the White House would have provided limos, motorcades, and police escorts for them to rush to Capitol Hill. Thus it’s fair to assume that documents and any information from identified or anonymous sources would range from embarrassing to smoking-gun culpability. And there are hints that tapes may show the extent of the skullduggery. (The notion that this president withheld testimony or documents based on a principle, such as executive privilege, is silly. He has never shown himself to have a belief in any principle.)

Why rush when the case could get better?  Let the courts rule on whether officials have to testify. Former National Security Advisor John Bolton, for example, says he has information that has not come out yet. The public should hear it. Don’t foreclose additional hearings because the articles already are in the Senate’s hands. Hearings could provide the basis for additional articles of impeachment or at the very least provide damaging testimony under oath that would ratchet up the pressure on Senate Republicans to do the right thing.

Beyond the evidence, a delay could mean that during the election campaign, voters will hear a steady drumbeat about Trump’s execrable behavior. Behavioral economists will tell you that repetition leads to familiarity, which leads to credibility and eventually to comfort. Trump used this approach to make his voters comfortable with “Crooked Hillary”. Notice the truth of what’s repeated matters not at all, though Democrats will have the added benefit of truth and facts on their side. The Democrats will benefit politically from the repetition if they can come up with the right sound bites and explain them clearly.

House Democrats could blame the delay on the Senate’s attempt to run a kangaroo court and on the White House, arguing they were just waiting for Trump to turn over documents and let witnesses testify and for the courts to resolve bogus issues that Trump lawyers are raising. Former Clinton administration White House spokesman Joe Lockhart wrote in a December 8, 2019 opinion piece for CNN that the House shouldn’t send articles to the Senate before the White House provides witnesses and documents. It really is all Trump’s fault.

A delay also avoids the problem of strapping senators running for president into their chairs in the Senate chamber during a trial. It’s unclear how long Senate Republicans want the trial to last, and they could try to hobble Democratic Senate presidential hopefuls. A post-election Senate trial would enable the candidates to campaign without impediment.

Eventually there has to be a Senate vote. Congress must hold the president accountable. But Speaker Pelosi has complete discretion on when to send House action to the Senate for a trial. The Constitution provides no deadline. Waiting until after the election means Trump will not be able to claim vindication based on an acquittal by his cowed Republican lackeys.

It would be a delicious revenge on Senate Majority Leader Mitch McConnell. Moscow Mitch has not permitted a vote on election security, which could enable Moscow to help Trump’s re-election bid in 2020. And in March 2016, McConnell didn’t permit a vote on President Obama’s Supreme Court nominee, Merrick Garland, even though Obama had 10 months left in office. Since McConnell has been so eager to deny Senate votes Democrats sought, Pelosi should take the opportunity to deny McConnell a vote he so desperately wants.

Would sending the House vote to the Senate after the election make the impeachment process moot? Not necessarily. Let’s look at some possibilities.

Trump loses: No longer threatened with retaliation from a vindictive Trump who would continue in power, Senate Republicans would be able to act publicly on the disgust they have expressed privately. They could grow vertebrae and vote to convict. This is still important even if Trump loses the election. Congress needs to show that a president will pay a price for the kind of reprehensible behavior Trump has displayed. It needs to establish where the acceptable line of presidential conduct is because Trump has trampled over every previous line, and now there isn’t one. History must record a permanent stain on Trump as the only president impeached, convicted and removed since the nation’s founding – even if it’s just days before he would be out anyway.

Trump wins: All the more need to go ahead with a trial. It will be a key test of whether the so-far craven Senate Republicans care more about party or country. The key may be whether Republicans in the House and Senate lose in droves in 2020. In 2022, 24 Republican senators will be up for re-election, while only 12 Democrats will be. If Trump is not able to help candidates lower on the ballot, it could change the calculus for Republicans facing voters in 2022. It won’t be about party or country, but about self-preservation. That has meant supporting Trump so far. Will that still be true if he hurts down-ballot candidates? And a conviction would disqualify Trump from serving a second term.

Speaker Pelosi has bided her time well so far. She did not rush for impeachment when activists beseeched her. My guess is that she knew Trump well enough to anticipate that he would do something exceptionally idiotic, and she just had to wait for it. Of course, she was right. It wasn’t just releasing the less-than-perfect phone conversation with Ukrainian President Volodymyr Zelensky about investigating Joe Biden and his son, Hunter. It was screwing the Kurds by pulling out of Syria, writing a threatening, puerile letter to Turkish President Recep Tayyip Erdoğan, and promoting the idea of holding a G-7 meeting at his Doral resort.

All these incidents happened within days of each other. The Kurdish/Turkish moves, denounced in bipartisan fashion, showed how reckless and ignorant Trump is when it comes to national security. The Doral decision, later rescinded after bipartisan condemnation, shows Trump’s utterly venal instincts and inability to learn or distinguish right from wrong. Trump’s later war crime pardons of some in the military enraged supporters of the chain-of-command structure and military discipline. Trump’s tweets during former Ukraine Ambassador Marie Yovanovitch’s testimony on November 15, 2019 before the House Intelligence Committee added more fuel to the GOP perception of the president as an intemperate, volatile, childish bully. And his decision to mock a grieving widow, Rep. Debbie Dingell, and her late husband, Rep. John Dingell, just after the impeachment vote, show just how despicable Trump is.

These blunders show that Trump has limited cognitive ability and dubious character – former Defense Secretary James Mattis’s take, according to The Atlantic. So while Ukraine can give senators the pretext for conviction, Trump’s loathsome behavior, utter lack of judgment and the risk he poses to the nation’s security ultimately may give Senators the motivation to oust him.

Pelosi plays Trump better than anyone else in Washington. When she initially declined to move on impeachment, saying Trump wasn’t worth it, it was a riposte calculated to drive him even more nuts, if that’s possible. It would be poetic justice on an unimaginable scale if the Gentle Lady from California outsmarted the misogynist in the White House. I am not sure how she’ll do it, but my money is on her.

Stan’s biography can be found here.

October 28, 2019

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Editor’s Note from Warren Perley: I’m a sucker for inspirational stories that expose the unvarnished truth about business titans who, despite their flaws, succeed due to healthy dollops of moxie, brains and chutzpah. Our profile on Clark Abt showcases the originality and genius of his achievements in many fields of endeavor, some well beyond the scope of traditional business.

The story idea came about during a casual phone conversation in early 2019 when out of curiosity I asked BestStory.ca contributor Stan Crock about the etymology of the company name Abt Associates Inc., where Stan works in the marketing and communications department. Bloomberg describes Abt Associates Inc. as a company with 2,700 employees worldwide which offers research, consulting, and technical assistance services.

But Bloomberg says nothing about how the company started or who the founder was. How can you not love a story about a business virtuoso such as Abt who hired “no men” (as opposed to “yes men”) to tell him why some of his business plans might not work? Despite the best efforts of “no men” to talk him out of boneheaded initiatives, the strong-willed Abt still plunged into some losing ventures. On the other hand, other choices often paid off big, ensuring a company that is still growing and thriving more than a decade after his retirement.

My thanks to Stan for accepting my request to produce such an original piece of journalism, which required him to visit Abt at his home in Cambridge, MA. and talk by phone with the rest of his family. In total, Stan spent in excess of 100 hours conducting interviews in person, by phone and by email, researching, writing, and fact-checking. The result is a fascinating, well-balanced, 15,000-word profile that gives us a glimpse into the life and times of one of America’s least known but most prolific geniuses. I hope our readers enjoy perusing this fine piece of journalism as much as I enjoyed editing it. Stan’s biography can be found here.

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The boy who eluded the Nazi death machine and grew into America’s obscure Renaissance man

One day in 1935, a Jewish art dealer in Berlin, Germany named Eugen Peisak thought a Nazi Party member had hurled an insult at him in a restaurant. Peisak slugged him. Then Peisak found out the Gestapo was after him. He bolted to Sweden.

He left behind his wife, Elizabeth, and 6-year-old son, Claus. Elizabeth realized she and Claus had to flee too. After sweet-talking an officer at the local police station into providing a tourist visa for France, mother and son stole away that night for Paris. After two days, they moved to Zurich, where her ailing father, Leopold Abt, lived. She put her son in an orphanage and promised to return soon.

A couple of days stretched into a couple of weeks, and Claus became depressed, despairing that his mother would ever return. When she finally did, he refused at first to talk to her, but they finally reconciled. From the orphanage, Claus went to stay with his grandfather for a couple of months and eventually attended first grade at a boarding school in St. Gallen in eastern Switzerland. He stayed for a year. His mother visited once, at Christmas.

The next move for Elizabeth was a tourist visa for London, where she had studied Shakespeare after World War I. Her timing was less than impeccable. She went to the U.S. Embassy to apply for a visa at a time when Washington was allowing in only a quarter of the immigration quota for Germany, effectively excluding thousands of Jews facing growing repression in Germany. The embassy flatly rejected her request on the ground that she was in England on a tourist visa. She would have to return to Germany to apply. Her argument that the Germans would send her to a concentration camp fell on deaf ears.

The next day, though, her fortunes changed. Dramatically. The embassy phoned. “When may a limousine call for you, madam?” an embassy staffer inquired solicitously. The reason: her connections were more than impeccable. After the embassy rejection, Elizabeth returned to the bed-and-breakfast where she was staying and phoned a cousin Claus called “Uncle Julius”. That would be Julius Ochs Adler, the general manager of The New York Times. He had visited Elizabeth’s family in 1915, before the U.S. entered World War I, when he was a young Army captain. He had offered to take Elizabeth to New York for safekeeping during the war, but her father demurred. A supporter of German Kaiser Wilhelm II, he said that wouldn’t be necessary because Germany would win the war.

After Elizabeth’s call, Adler phoned President Franklin Delano Roosevelt (FDR). The White House then called the embassy and ordered it to issue the visa. When she arrived at the embassy, the ambassador, Robert Worth Bingham, asked whether she was the lady who was the subject of the phone call, then grumpily stamped her passport. She fetched Claus in St. Gallen, and they sailed for the U.S. aboard the Cunard-White Star liner Berengaria. They occupied a second-class cabin, and the steward brought breakfast in bed. Claus tasted orange juice for the first time.

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Correction: The original version of our story posted on October 28, 2019 incorrectly stated that Joseph P. Kennedy was the U.S. ambassador to the U.K. when Elizabeth Abt applied for a visa to immigrate to America. In fact, Kennedy took over as ambassador in 1938, months after Elizabeth and Claus arrived in the U.S. A sharp-eyed reader discovered the mistake after uncovering documentation indicating that Elizabeth and Claus arrived in New York City in April 1937. Clark Abt subsequently passed word to the author, Stan Crock, that his mother referred to “the ambassador”, but not by name, and as a young boy at that time, he had assumed it was the high-profile Kennedy. BestStory.ca corrected the story on November 12, 2019, one day after Mr. Abt confirmed the error.

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Story of a Renaissance man

So begins the tale of one of the most remarkable and influential people most folks have never heard of. Today Claus Peisak is Clark C. Abt. From the transatlantic crossing, his journey included attending school in New York City, graduating from Massachusetts Institute of Technology, a hitch in the Air Force as a navigator, electronic countermeasure specialist and intelligence specialist, and working as an engineer and manager in Raytheon Co.’s missile division. All of this prepared him for his ultimate achievement: the founding in 1965 of Abt Associates in a modest, two-room office above a machine shop a couple of miles from Harvard Square in Cambridge, MA. Abt Associates now is a major player in policy research and international health and development, activities aimed at helping the most vulnerable people in the U.S. and abroad.

In his nine decades on the planet, Abt’s breadth of interest and activities has rivaled that of Leonardo da Vinci, as the enclosed table shows. He has been an entrepreneur, engineer, rocket scientist, social scientist, environmentalist, educator, game theorist, social-accountability guru, poet, architect, literary magazine editor, artist, and more. “He’s obviously very smart and very eclectic,” says Chris Hamilton, a poverty expert and former Abt Associates vice president who worked for the firm from 1966 to 2003. “He always thought of himself as a Renaissance type.”

Abt dismisses the comparison, saying da Vinci had far more impact. And Hamilton notes that it was hard in the 20^th century to be the kind of Renaissance man Abt aspired to be simply because there was so much knowledge to master in a given field, compared with the 1400s. “Da Vinci had it easy”, Hamilton argues.

However intriguing Abt’s artwork is, many of his scores of paintings are in his basement, not the Louvre. None has sold for $450 million, as did da Vinci’s “Salvator Mundi”, one of only 16 pieces he finished. Yet Abt’s influence has been both significant and broad, if more subtle and under the radar than da Vinci’s. “Most people who are Renaissance men are much more into the thinking part and much less into the doing part,” notes David Ellwood, a former Abt Associates board member and former dean of Harvard’s Kennedy School of Government. “Da Vinci hardly ever finished anything.” In contrast, he added, Abt “tried to do things.” Abt’s genius, says former Abt employee Ray Glazier, is that he “sees the ramifications of new ideas.”

Interviews with Abt, his family and former colleagues and a review of his unpublished reflections on Abt Associates’ first 20 years provide details about his role as a major player behind the scenes in America’s national security strategy and socio-economic policy. The company he founded relied on the systems analysis techniques he had honed in the military and defense industry in the 1950s and 1960s. Some people bring rocket science to stock trading. He brought it to solving social ills.

And he was everywhere – nothing less than an intellectual Zelig, with an uncanny knack for being in important places with important people doing important work at important times:

• While in the Air Force, he worked on the first computerized simulation of a Soviet attack on Europe that led to a nuclear exchange.
• He also developed a way to set target priorities from all the target data tactical aircraft receive and was awarded the Air Force Commendation Medal for his work.
• At Raytheon, he oversaw the analysis of how in 1960 the Soviets shot down a high-flying, American U-2 spy plane, a major international incident at the height of the Cold War.
• His strategic analysis while at Raytheon helped maintain the balance of power in the Middle East in the 1960s through arms sales that actually promoted strategic stability.
• At Abt Associates, he helped launch the social policy research field to document the impact of the 1960s War on Poverty, from federal government housing policies to early childhood programs.
• Following the collapse of the Soviet Union in December 1991, he worked with government contacts to collaborate with Russian nuclear scientists to get them commercial work so they wouldn’t sell their weapons skills to a malevolent high bidder.

The divorce

It was hardly clear from Abt’s difficult early years that he would rise to be such a formidable figure. He was born in 1929 in Cologne to parents from quite different economic strata. His father came from an East Prussian working-class peasant family. An army infantryman, he was awarded the Iron Cross Second Class in World War I after suffering a serious shrapnel wound in a bombardment.

Elizabeth Abt was the bright, beautiful and bold daughter of a Munich millionaire who supplied all the grain to Bavaria during World War I and moved about Munich in a chauffeur-driven, four-door Mercedes sedan. He achieved the rank of commercial counselor, the second highest civilian rank in Germany. Eventually the Nazis plundered his wealth, and he was reduced to living in a pensione in Zurich by the time Abt stayed with him. One of the grandfather’s rare sources of solace in Zurich: cheering for Jesse Owens’s victories in the 1936 Olympics.

Judaism seemed to be one of the few things Claus’s parents had in common. And it was something that would play a recurring role in his life. By the time his father threw his life-altering punch at a Nazi in 1935, his son had already been expelled from kindergarten because of his religion. That confused Claus. He couldn’t understand what he had done to merit the dismissal. Sitting by his swimming pool and waterfall recently in the backyard of his tasteful Cambridge home, he recalls that his mother simply told him that the school “didn’t want people like us.”

Not long after he got to New York in 1937, he faced another educational setback. He was held back for a half year in third grade because he was ill-prepared. That made him determined to work harder. So did his “bad ass single mother”, says Abt’s daughter, Emily.

School wasn’t the only source of angst for Claus. Iphigene Sulzberger, wife of the Times’ publisher, had helped Claus’s father get to the States, and the Ochs-Sulzberger clan had interceded to get him a job at Parke-Bernet Galleries, the nation’s leading fine art auction house. One day someone asked Eugen to help move some furniture, and he replied, “I don’t move furniture.” He was fired on the spot. An argument then erupted in the family’s tiny apartment on Manhattan’s Upper West Side. Abt’s mother, Elizabeth, was livid because her husband had humiliated her family, which had gone to bat for him. And he was jobless. Eugen told her that she and the child could jump in the Hudson River.

She quickly hired a divorce lawyer, who informed her adultery was the only ground for divorce in New York State. Neither parent wanted that, so the resourceful Elizabeth flew to Reno, NV, got a divorce there, and changed her name – and her son’s – back to her maiden name. At the time, divorce was considered disgraceful among educated middle-class families – another setback for Claus.

Elizabeth, who had never worked before, adjusted quickly to her role as a working single mom. Her first job was as a masseuse in a Helena Rubenstein salon. Rubenstein took one look at Elizabeth’s stunning complexion and said: “All you have to do is say you use my cosmetics.” Elizabeth later became a saleslady and, eventually, an insurance broker.

A nasty custody fight ensued after the divorce. When Abt’s father wanted visitation rights, his mother took him to court. He could have visitation rights, the judge said, if he paid child support. Looking gray and ill in court, Eugen turned his empty pockets inside out, saying he had no money. At the time, he was living with his older brothers and sisters, whom Elizabeth considered low-lifes.

The judge put 8-year-old Claus on the stand and asked him if he loved his father. With his mother and her lawyer glowering at him, he answered, “No.” The rather judgmental judge replied, “You’re a strange child.” Claus recalls that at the time, he didn’t love his father. His mother won the court fight, and the hearing was the last time Claus saw his father. (His mother’s lawyer, who had won her trust during the divorce proceedings, subsequently defrauded her and other clients of thousands of dollars in an investment scheme.)

In the late 1940s, Claus’s father passed away from cirrhosis of the liver. Years later, Abt felt guilty that as a child he had rejected him. He wrote a poignant poem about his father titled, “Provider”, which appeared in Audience, A Quarterly Journal of Literature and the Arts, a magazine he edited. The point of the poem: his father wasn’t much of one.

An education on war

While the time he spent with his father was relatively short, the effect on the arc of Claus’s life was profound. When he was about 7, his father was drying himself after a shower, and Claus asked him about the deep scars on his upper back. They were from shrapnel, his father explained, but his World War I story was more complicated than that.

His father said that he had taken shelter in a muddy shell crater after a bombardment when an enemy French soldier jumped into the same crater. They raised their rifles at each other. But explosions overhead forced them to try to protect their faces. They lowered their rifles and glared at each other. The French soldier shrugged and put down his rifle. Claus’s father did the same. They nodded to each other, acknowledging their common misery. When the bombardment ended, and it was safe to leave the crater, the Frenchman picked up his rifle, kept it lowered, waved to Claus’s father, and climbed out to head to his front line. Claus’s father did the same and said he wished many others had.

“This was my first vicarious experience of the horrors of war and blessings of peace,” Abt wrote years later. “I’ve never forgotten it, always wondering if I had the courage to fight and to stop fighting if I had to.” The conversation with his father launched Abt’s lifelong fascination with war – and with ending war.

Uncle Julius wasn’t Abt’s only “uncle”. In fact, not his only uncle associated with the Times. Another was Uncle Birchie – Frederick Birchall, the chain-smoking Times Berlin bureau chief who had helped the family escape Germany. A Pulitzer Prize winner for his interviews with and coverage of Hitler, Birchall also had interviewed political leaders Neville Chamberlain, Winston Churchill and Mahatma Gandhi. A Brit and a hard-headed realist, he saw World War II coming, predicted appeasement would fail, and recognized the imperative of U.S. intervention to defeat the Nazis.

Birchall had moved to New York to oversee the Times European news coverage and was a frequent guest at the Abt’s new home at 19 East 95^th St. Abt viewed him as a foster grandfather. Birchall showed up because of his interest in Abt’s mother — he wanted to marry her – but he was attentive to Abt.

While Abt’s mother cooked in the kitchen, Birchall gave him “a ringside inside view of the international politics of war and peace all through World War II and its triumphs and tragedies, its successes and failures, its military and political problems, solutions and errors on both sides,” Abt wrote.

This dovetailed with Abt’s precocious interest in war and peace since his father’s story about the Frenchman in the crater. The discussions bolstered Abt’s interest in military aviation, naval technology and Abt’s dream of becoming a fighter pilot and aeronautical engineer. Birchall also taught Abt that “investigating, researching and writing about important issues was a noble pursuit that could make a difference to the outcome of major conflicts,” Abt wrote.

The goateed Birchall accompanied Abt’s mother to her son’s eighth grade graduation, and a number of people commented on what a distinguished dad he had. Abt didn’t correct them.

Abt duplicated his Birchall experience with his children. When they were young, he had them read the front pages of the Times and Boston Globe every day and discuss the stories. “He would engage us as if we were serious intellectuals,” his son, Thomas, recalls, because his parents thought being a responsible citizen was important.

As unusual as his education at home was for a boy his age, Abt was in many ways a normal 8-year-old. His most important goal was to be an All-American Boy. And that meant changing his first name, Claus. That would avoid the frequent “Claus the louse” barbs of his peers – and perhaps some of the anti-Semitism Emily says he endured. Abt’s mother agreed with her son’s first-name change as long as he retained the first two letters. His mother liked Clark Gable, and Claus liked Clark Kent. So the decision on a new name, Clark, was not hard. Claus became his middle name.

The young entrepreneur

When he was 10, Abt continued to indulge in his fascination for all things military – and demonstrated his determination, ingenuity, and entrepreneurial bent. He and his best friend, Artie LaCov, played naval battle games regularly, using tin battleships, cruisers and destroyers that Artie’s wealthy mother had bought at FAO Schwartz. Artie grabbed all the $5 six-inch-long battleships with half-inch, three–gun turrets that simulated powerful 14-inch guns. That left Abt with the cruisers and destroyers, which had less firepower and put him at a decided disadvantage.

He couldn’t afford to buy battleships with the 25 cents an hour he earned delivering butcher packages on weekends, so he improvised. He bought softwood, gray paint, airplane glue, and X-Acto knives to build his own fleet. Uncle Birchie, who by then was heading British War Relief, provided accurate plans of Royal Navy ships.

While Abt managed to make the battleships, he couldn’t afford enough of them to compete with Artie – his first encounter with the effect of cost overruns. He tried to sell his existing battleships to FAO Schwartz to get more money to buy raw materials to build a larger fleet from scratch, rather than buying more expensive pre-made models. When FAO Schwartz rejected them, Abt asked the store’s buyer who else might be interested. The response: Saks Fifth Avenue.

Saks bit. He was thrilled with the $10 he received – until he saw the display with a $20 price tag. When he tried to negotiate a higher payment for the next batch, the Saks’ buyer wasn’t interested. She told him Saks was discontinuing the hard-to-sell product. Did he want $10 or not? He took the money with gritted teeth, knowing he had enough to match or beat Artie’s fleet, and he closed his “business”.

A New York education

As he moved through the New York school system, several teachers broadened the understanding and interests of this eager sponge of a student. His sixth-grade English teacher, a Mrs. McBarron, paraded back and forth in front of the class, warning students that the Federal Bureau of Investigation, college admissions offices and corporate personnel managers would come back to the school to investigate them and make decisions based on her evaluation of their behavior. The kids thought she might be exaggerating, but they were never sure enough to dismiss the message completely. Her threats impressed on Abt that there could be future consequences of every action he took.

Abt was a good enough student to gain acceptance to the prestigious Brooklyn Technical High School, which provided a crucial formative experience. It was one that went far beyond the math, science and technology for which the school was famous. As he listened to FDR’s fireside chats with his mother at home, his studies confirmed for him that the American government was the best in history.

But the school also gave him a complex and nuanced view of the country that had rescued him. This was, after all, New York City, whose political spectrum spanned all the way from Communists on the left to progressives on the right. Abt’s teachers gave students a healthy dose of skepticism about America, pointing out its warts: oppression of slaves, cruel exploitation of immigrants, union suppression, and denial of equal rights to women and minorities. As a refugee from the Nazis, he sympathized with the social reform movements he learned about. He began to read the works of British philosopher Bertrand Russell and became interested in the potential for social change.

Abt’s mind and interests scattered in many other directions as well. In his foundry class, he designed a heated air-pressure-actuated foundry temperature gauge that he wanted to patent. He tried his hand with little success as a Golden Gloves boxer. And he served as editor of the school’s science bulletin, perhaps a prelude to his tenure as editor of a literary magazine. When he was a sophomore, he wrote an article for the bulletin about supersonic flight, a novel development; Birchall arranged for him to become a young student member of the Institute of Aeronautical Sciences library. The following year, after William L. Laurance of the Times wrote about the atomic bomb, Birchall arranged for Abt to interview him about nuclear weapons.

During Abt’s senior year, he won a New York State Regents Scholarship, which he could use at any college in the state. But which school? During World War II, he had wanted to be a fighter pilot, and after the war, he wanted to be a test pilot like Clark Gable and Spencer Tracy in the movie, Test Pilot. Abt’s nearsightedness – ironic for someone so farsighted intellectually – made him ineligible to be a pilot and scotched those dreams. So he hit on becoming an aircraft designer, like Leslie Howard in The First of the Few, a movie about the designer of the Spitfire, which helped win the Battle of Britain.

Abt’s mother went along with his desires and suggested fine engineering schools in New York State such as Rensselaer Polytechnic Institute and Cornell, to make use of the scholarship. But Abt wanted the best aeronautical engineering program, and that meant Massachusetts Institute of Technology. The $1,400 Regents Scholarship went up in smoke, and his mother never forgave him. To compensate for the loss of money, Abt worked as a proof-press printer at the Times after graduating from high school six months early.

Massachusetts Institute of Technology (MIT)

While Abt was certain about aeronautical engineering when he started, he ended up switching among five majors. Aeronautical engineering got too mathematical for him. He took the Kuder Preference Record testing at Harvard’s Psychology Guidance Center, which showed he had a talent for drawing and visualization. So he switched to architecture. Then he learned the architecture degree took five years. He didn’t have the money for that. So he switched again, this time to mechanical engineering (stifling his aspiration to write the next great American novel). Next was industrial engineering, and finally he ended up with a general engineering degree.

He had failed so many courses, though, he did not seem headed for graduation. Then a professor suggested he write a novel as his senior thesis. The novel about an unhappy undergrad love affair was the first by an MIT undergraduate for thesis credit and enabled him to get his degree. When his thermodynamics professor handed him his diploma on stage – like half the class, Abt had flunked thermodynamics the first time – the professor looked at him quizzically. “Jesus Abt,” he said, “I never thought I’d see you here.”

The ever-evolving Abt

Abt changed his religious beliefs and his politics almost as many times as he switched majors. Birchall was a Unitarian, and his influence led Abt to switch to that faith from Judaism. It was not a hard push. Abt had attended a boarding school briefly in New Jersey and liked the hymns and Bible lessons. “They treated me like everyone else,” he recalls.

When he returned to school in Manhattan, his mother enrolled him in a synagogue-affiliated religious school. It was not the best fit. When he asked why there was no discussion of Jesus, as there was everywhere else, the teacher was not amused. It didn’t help that when Abt went to a Jewish summer camp, one of the taunts he heard too often was: What kind of cheese comes from Germany? Refucheese. Abt’s first marriage was in a Unitarian church.

Abt’s second wife, Wendy Peter, came from a mostly Irish Catholic family, but three of four sisters married Jewish men and two converted to Judaism. His daughter, Emily, belongs to a reform Jewish synagogue and is raising her daughters Jewish. Now, Abt says, “I remain Jewish by blood, Unitarian Protestant by secular preference, and atheist scientific humanist by faith and conviction” (as is Wendy). Abt may have left the religion of his birth, but between his daughter and in-laws, he didn’t escape very far.

His politics evolved similarly. Abt supported Democrat FDR enthusiastically. “He had saved our lives,” Abt says. He also supported Republican President Dwight Eisenhower because when Abt was in the Air Force and deployed to Europe, he saw first-hand the Soviet threat. He recalled hearing the broadcast when Russian tanks rolled into Hungary in 1956, “and we couldn’t do a damn thing about it.” From liberal Republican, he switched to independent, and then to moderate/liberal Democrat. He was a supporter of Democrat John F. Kennedy.

Abt evolved professionally, too. After getting his engineering degree, he didn’t follow a standard engineer’s path. He spent four months in the Merchant Marine as an ordinary seaman. Then he taught freshman English at John Hopkins University for a year while studying writing, literature, poetry and philosophy and earning a master’s degree from the Department of Writing, Speech and Drama. His thesis: “A Year of Poems”.

From 1952 to 1953, his day job was working for Bechtel Corp. in San Francisco as a power plant engineer. At night, he prowled the Vesuvio Cafe and City Light Bookstore, mingling with second-tier beat poets. “I tried to write beat poetry,” Abt recalls. “I was not very good.”

The Korea conundrum

As the Korean War heated up in the early 50s, Abt wanted to quit his job at Bechtel to become a writer because he thought he could help his country more that way than by being an engineer. His mother was beside herself and asked Uncle Julius, by then a retired major-general, to intervene. Abt went to meet with him, and Adler asked what all the nonsense was about dropping engineering to become a writer. When Abt explained his reasoning, Adler quickly dismissed him. “That was painful and a little scary,” Abt recalls.

The war posed a dilemma for him. As the risk of getting drafted into the Army grew, liberal friends and the beat poets recommended that he evade the draft by fleeing to Canada. But Abt felt indebted to the country that had rescued him and wanted to serve. “My pacifist friends were disgusted with me,” he says.

But he didn’t want to join the Army. He had no interest in shooting anyone or being shot at, at least not at close range. Nor did he want to sleep in the cold mud, much less die an agonizing and slow death in the muck with a bayonet or bullet in his belly. And he wanted to command, not be under the thumb of a bullying sergeant. He also knew more about planes and boats than infantry, so the Army was out.

What about the Navy? Then-Senator John F. Kennedy’s tales of his PT-109 exploits were intriguing, romantic – and alluring for Abt. Unfortunately, he learned when he applied for a direct commission that naturalized citizens weren’t eligible for one. (He had been naturalized in 1945.)

That left the Air Force, where combat took place at a comfortable and sanitary distance. “It was clean beds and a warm cockpit for me until my time came,” he wrote. With a pilot’s role out of the question, he hoped to launch aloft as a navigator. His timing couldn’t have been better. The Air Force was recruiting for a direct commission program that combined navigator training and electronic countermeasures – an ideal marriage for an MIT-trained engineer.

Within two years, he got to command, too, as the chief of a two-man, anti-aircraft battle branch of the 12^th Air Force operational intelligence. He considered air defense noble. You killed only threatening aggressors.

But he was ambitious and looked for even more challenging tasks. He got his chance in June, 1954. A big NATO operation was simulating a sudden Soviet invasion of Western Europe: the NATO, U.S. Air Force, and Royal Air Force’s response involved – for the first time – using simulated nuclear weapons. Abt served as liaison with the U.S. and NATO European Air Force Headquarters in “The Cave”, a supersecret command center in caves under the World War II Maginot Line. There they followed and plotted the progress of “Carte Blanche”, the first simulated NATO-Soviet nuclear war.

Abt’s task: read telexes, answer phoned-in situation reports and drink 20 cups of coffee a day to stay up for four days straight. He used colored grease pencils to mark nuclear strikes on plastic overlays of a map of Western Europe. At the end of the four days, most of the plastic was covered with red circles for nuclear detonations and larger yellow cigar-shaped lethal fallout contours. “Apparently we would have to destroy Germany and its population to save it from the Russians,” he mused.

Participation in this ground-breaking exercise led to an epiphany for the young engineer and strategist. He had the sense for the first time that a monstrous nuclear war actually could occur as the result of a small miscalculation. And he concluded that he might be able to make a valuable contribution. With thought, analysis and planning, he could help avert the madness. The generals and strategists weren’t so smart, after all, if they could in theory kill millions in a few days and produce a defeat for everyone instead of a decisive victory. To help defend the West and avoid nuclear war, Abt decided to dive deeply into war planning, operations analysis, and command decision-making as soon as he could – but not before visiting as many European and North African capitals as he could to see their cathedrals, art galleries and museums.

The Raytheon years

When his Air Force stint ended in 1957, he joined Raytheon Co. It offered high-tech work and Boston’s attractive cultural environment. The Hawk surface-to-air missile system and the Sparrow air-to-air missile both were moving from development to testing, so Abt could witness the most advanced military, scientific and technological developments in the world. His task was to determine where to place Hawk missile batteries and to figure out operational tactics that would shoot down the largest number of incoming Soviet bombers.

He moved up steadily for seven years, holding engineering and management positions, including managing the Advanced Systems and Strategic Studies departments in the company's Missile and Space Division. As a sideline, from 1958 to 1960, he was editor-in-chief of the literary journal Audience and worked 90-hour weeks to do both jobs.

His interest in strategy led him to join the Harvard-MIT Arms Control Seminar taught by Henry Kissinger and Thomas Schelling, two of the foremost nuclear strategists. Though he was the youngest participant, Abt played a critical role because he was the only one who knew whether the strategic theories meshed with the realities of available missile technology. And he had been doing more and more strategic policy work at Raytheon.

The seminar, in turn, prompted him to apply for MIT’s PhD program in political science. But it wasn’t the only reason. He felt he had topped out at Raytheon, whose focus was on equipment sales, not strategy. To expand his role in the strategy world, he would need the skill and credential a PhD could bring. So from 1961 through 1964, he worked three-quarter time at Raytheon while earning his PhD. He called his dissertation, an analysis of the end of the two world wars, “The Termination of General War”.

The years at Raytheon were eventful. In 1960, Abt found himself in the middle of one of the most dramatic events of the Cold War. On May 1, 1960, the Soviets shot down a CIA U-2 spy plane deep in their territory and captured the pilot, Gary Powers. The incident shocked the Pentagon, which didn’t think the Soviets had the capability to shoot down a plane flying at 70,000 feet.

Earlier in the year, Abt had helped Raytheon win a contract to create a Quick Response Capability Technical Intelligence Center. Its task now was to figure out how Moscow did it. The Soviets’ self-importance and unthinking bureaucracy helped. Fortunately, Moscow mechanically held its May Day parade without considering how the display of the SA-2 high-altitude, surface-to-air missile was an intelligence bonanza for the U.S. An American air attache took fuzzy photos of the weapon and sent them back for analysis. The Raytheon team compared the missile with the parade watchers standing nearby to estimate its dimensions. Then it projected the capability of America’s smaller surface-to-air missiles onto a missile the size of the SA-2. After two days of computer modeling and simulations of performance curves, the team calculated the SA-2 could reach 90,000 feet, well above the U-2’s maximum flying altitude.

The following year, Abt found himself embroiled in another international controversy. Raytheon had been selling Hawk air defense missiles to Israel, but the Saudis decided they wanted them, too. Raytheon President Charles Francis Adams knew it would be good for business to sell to both sides, but he had a higher priority: would the sale threaten strategic stability? Increasing the risk of war wouldn’t be good for either side or U.S. interests. He would forego the revenue if the sale altered the balance of power. (It’s no surprise Adams would put national interests first: he was a direct descendant of John Adams and John Quincy Adams, 18^th and 19^th century father-son American presidents.)

Adams knew about Abt’s arms-control work and asked him to analyze the situation. Abt finished his report in a week. His conclusion: the sale would increase, rather than decrease, stability. Why? Accidental wars could stem from the presumed advantage of a preemptive first strike. Effective Hawk air defense batteries considerably diminished the likelihood of a successful first strike and, thus, its appeal. The Hawk system was strictly defensive. It couldn’t attack ground forces at all or aircraft more than 20 miles away. If both sides had the systems, they could worry less about a surprise attack. And they wouldn’t bolster their offensive firepower. Abt’s argument proved persuasive to Washington, the Arabs and the Israelis. It was consistent with sound arms control policy and the balance of power in the Middle East.

Sick of stalemates

By 1965, he had received his PhD. In the process of his work, he had evolved from a cold warrior weapons systems engineer to a defense strategy analyst to an international arms control policy planner and strategist. His exposure to the best minds in this area, though, led him repeatedly to see unsatisfying conclusions. “I never liked stalemates, or dead ends, especially if it could be everybody’s dead end,” he wrote.

His first stalemate: the B-70 Bomber Penetration Aids Project. The goal was to maximize B-70 penetration of Moscow air space. The bomber would have to evade Soviet fighters and missiles with speed, altitude and on-board countermeasures such as equipment for jamming (causing signal interference) and spoofing (sending false signals). Computer simulations found that at 70,000 feet and three times the speed of sound, the B-70s would be vulnerable to Soviet surface-to-air missiles. But both the B-70 and older B-52 could survive at the lowest possible altitude and at subsonic speeds because of radar blind spots at low altitudes.

 (The 1964 satiric, black comedy Dr. Strangelove or: How I Learned to Stop Worrying and Love the Bomb was accurate in depicting a low-altitude, B-52 nuclear bombing run – with actor Slim Pickens portraying Major “King” Kong – as being able to evade radar detection by the Soviets.)

But if a lot of U.S. bombers could reach Moscow, Soviet Bison bombers similarly would be able to reach the U.S. Abt’s conclusion: “Most American and Russian cities and their populations would be wiped out.” The Air Force agreed, but not the head of the Strategic Air Command, General Curtis Lemay. Gesturing with his cigar, he dismissed Abt: “Naw, young man, just give me altitude, just altitude, and we’ll make it to our targets!”

This was from the lips of a senior officer whose bombing campaign in Japan during World War II left an estimated 500,000 civilians dead and 5 million homeless, who had advocated bombing Cuban missile sites during the 1962 missile crisis and who supported bombing North Vietnam back into the Stone Age during the Vietnam conflict. Lemay noted that if the Allies had lost World War II, he would have been tried as a war criminal. Suffice to say, Lemay’s comments on altitude did not inspire Abt’s confidence in Washington’s nuclear strategy.

Another stalemate involved the Ballistic Missile Boost Intercept space-based, anti-missile system. In the early 1960s, Abt’s team designed a system of about 240 satellites that would circle the Earth in 300-mile-high orbits. Each had 20 infrared homing interceptor missiles. The cost: more than the entire defense budget. Its effectiveness was unknown and untested, but the best estimate – with everything working as intended – was 80% effectiveness. If 20% of the Soviets’ intercontinental ballistic missiles made it through, though, they could destroy 200 of America’s largest cities and most of the country’s population. Another dead end.

Branching out

With his new credential in hand, Abt pondered his next move – whether to stay in the comfortable confines of Raytheon or branch out on his own. Fear of failure dogged him as he mulled his future. But his ambition to have his own venture, his entrepreneurial bent, and his belief that his leadership could improve on what he saw at Raytheon triumphed over his anxieties. In addition, his frustration with military stalemates and his empathy for underdogs led him to shift his focus from the Cold War to the War on Poverty.

Abt’s wife at the time, Susan, a psychiatric social worker, supported Abt’s aspirations. His mother, not so much. She had gone through the German depression of the 1920s and the Great Depression of the 1930s in the U.S. She couldn’t fathom why he would want to leave a secure job to try something new. Most of those whose counsel he sought were supportive, however. So he took the plunge.

Abt’s vision for the new firm was nothing less than utopian: to create a world free of war and poverty. His strategy for moving toward this nirvana was hard-headed, though, using systems analysis, computer modeling and simulation methods for quantitative evaluations to improve social programs. Social science methodologies such as case studies and cost-benefit analysis delivered evidence-based interdisciplinary solutions for social and economic problems. One former Abt Associates employee described the firm as a mild-mannered social reform organization, an informal graduate school, and a profit-making enterprise.

The firm was a major force in developing ways to comply with performance requirements imposed on government contractors in the social policy arena. “His vision was to have kind of a think-tank like RAND, dominated by PhDs, that would push into all aspects of public policy to do monitoring and evaluation research on what the best policies need to be,” says Gary Gaumer, a health economist at Simmons University who worked at Abt Associates for 27 years. “That was critical to the development of the kind of evidence-based approach to policy that came to be in this country.”

What is remarkable – and generally gets little media attention – is the stunning progress the world has made toward Abt’s goals, though many factors other than Abt Associates’ work are responsible. According to ourworldindata.org, the annual number of war deaths has been declining since 1946, from half a million in the post-war years to 87,432 in 2016. The war Abt hoped to avoid was a nuclear war, and there hasn’t been one. Meanwhile, World Bank data show that the percentage of the world’s population living in poverty has plummeted from 36% in 1990 to 10% in 2015. To paraphrase a line in the play, Crazy for You, Abt was worse than a hopeless romantic. He was a hopeful romantic. And his optimism has proved surprisingly justified.

The first important task when Abt started the firm: coming up with a name. Acronyms were the trend at the time for similar organizations: RAND (Research and Development) or IDA (Institute for Defense Analysis). Abt tried out ISAC (Interdisciplinary Systems Analysis Company), but his colleagues hooted him down. Another idea was to use the name of his department at Raytheon: Strategic Studies Inc. But “strategic” sounded too militaristic and pompous; “studies” sounded too passive. A third approach was to use the founder’s name. Arthur D. Little and Bolt, Beranek and Newman were examples. Abt Associates was alliterative and unusual, which Abt liked. He thought there would be little confusion with the American Ballet Theater. (In fact, virtually everyone who hears the name these days thinks it’s an acronym – though not a dance company.)

Abt had the good fortune to start his firm with a reasonably solid foundation:

• a contract to design educational games for a non-profit starting up a middle school social science curriculum
• assurances from the Joint War Games Agency of the Department of Defense that if he kept together his Raytheon team, the agency would find funding to support the Technological Economic Military Political Evaluation Routine (TEMPER), the first computerized model of global Cold War conflict
• interest from the Army and Marines to continue financing his counter-insurgency training simulations

The path the company would take and its strategy, however, were not entirely clear to the staff in the early days. Educational games and Cold War conflict brought revenue, but not clarity. “There was not as much focus as Clark thought,” recalls Chris Hamilton, the poverty expert who worked at Abt Associates from 1966 to 2003. “By 1967–68, he was sitting there with a bunch of really smart people who could do a lot of things, but didn’t have a home turf.”

Hamilton, Abt veteran Steve Fitzsimmons and others say that as a manager, there was one thing Abt was really good at: hiring people who would turn out to be effective. “I think that’s the key to all kinds of success in all kinds of fields, but especially the one we’re in,” Hamilton says. Abt often said he would never hire anyone who wasn’t better than he was in at least one thing. And he said managers should always hire staffers who were smarter than they were. At Abt Associates’ 25^th anniversary, Wendell Knox, a senior executive who later would become CEO, quipped that the staff wanted to congratulate Abt on his great success at consistently hiring people who were smarter than he was.

Abt was legendary for wanting to interview all new hires and asking them about the last three books they had read. He wanted to know if they read books. He was a voracious reader and had probably read one of the books or knew something about one of the authors. In the subsequent discussion, Abt could discern how smart and able the person was. Not that he was perfect at hiring. Peter Miller, a former Raytheon colleague and Abt Associates No. 2, says that while Abt hired capable people and rewarded them with added responsibilities, he sometimes hired impulsively. Miller often had to serve as the shovel brigade to clean up after the elephant parade.

Abt was progressive in his hiring practices, seeking out women and minorities to fill top slots. In 1986, women headed five of the company’s six government research units. “The rest of the world was hiring women to be secretaries,” Miller says. “Clark didn’t see them that way.” He gave them the same kinds of jobs as men. “One of the great things that era of injustice did for us was to bring a whole bunch of incredibly talented women to the company,” Miller says.

Part of Abt’s vision never really thrived: influencing military policy with tools such as war games. “We failed miserably to win defense contracts,” says economist Larry Orr, a former Abt Associates’ employee and the husband of current CEO Kathleen Flanagan. “I think it was because he hired a bunch of social scientists who didn't speak DoD's language.” It didn’t help that the Joint Chiefs of Staff had grown impatient with the TEMPER world conflict computer model, which at one point spit out that a nuclear war had broken out between Argentina and Greenland.

One notable exception: The firm’s research on revolutionary conflict, war gaming and simulation suggested that the United States' defeat in Vietnam was predictable. The research indicated that it would be virtually impossible for a numerically inferior defending conventional army to defeat a numerically superior and highly motivated guerrilla force operating in its own territory and backed by a larger conventional army in adjacent territory. But by 1967, the firm on its own initiative dropped all defense work to protest the Vietnam War.

Ushering in a new era

The other part of the vision – influencing social policy – did pan out. In spades. The reason: timing is everything, and President Lyndon B. Johnson had just launched one of his signature initiatives, the War on Poverty. Announced during LBJ’s State of the Union address the year before Abt Associates’ founding, the War on Poverty encompassed a broad range of programs. The legislative package created the Office of Economic Opportunity to administer anti-poverty funding at the local level; the pre-school program Head Start; Medicaid, a health program for the poor; the job-training program Job Corps; and a huge increase in Social Security spending, which caused the poverty rate for seniors to plummet from 28.5% in 1966 to 10.1% today. Congress added some projects based on anecdotes or a lawmaker’s idiosyncratic or political interests.

In sum, Washington was throwing vast sums at programs to tackle social ills. “Most didn’t accomplish very much,” Hamilton says. “People started asking why weren’t they working or were they working and we can’t see it.” In fact, poverty rates did decline, but they had been dropping before the War on Poverty. Someone needed to help the government determine if the programs were the cause of the continued drop and if not, how to fix them.

The best way to evaluate such programs is a rigorous methodology known as randomized controlled trials (RCTs). Take a group of similar people, assign some randomly to a program (the treatment group) and exclude others randomly from the program (the control group). If the treatment group does better, and participation in the project is the only difference, you can conclude the program was the reason.

This scientific approach applied to War on Poverty programs heralded the dawn of a new era. At the time, institutions such as the Kennedy School of Government at Harvard didn’t exist. Policy research didn’t exist as a field or as a market to meet this emerging need. Abt knew his crew was positioned to lead the charge. “Who better to exploit a new market than those who don’t currently have one?” Hamilton asks. “Take smart people accustomed to sitting up all night writing term papers; the government issues a request for proposals, and they sit up all night writing a proposal.”

Abt’s ability to attract smart people was not limited to staff. The board boasted such luminaries as Kenneth Arrow, a Nobel Prize-winning economist, and Daniel Bell, a Harvard sociologist and one of the leading post-war intellectuals.

While the board provided insightful strategic guidance, it was the stellar staff that won as many as half the proposals Abt Associates submitted in those early years. Those efforts helped the firm grow rapidly. In 1965, Abt Associates had gross billings of $205,097 and profits before federal taxes of $22,665. By 1967, billings skyrocketed 550% to $1,127,685 and profits before taxes ballooned 510% to $115,539. Orders similarly grew more than 500%, from $270,000 to $1.4 million. Those three years exemplified what later was captured in the iconic ying/yang symbol in Abt Associates internal presentations: the seeming conflict but actual interdependence between financial health and the mission. Abt had planned from the start to create a for-profit company that would have the resources to help the world’s most vulnerable. And the theory was working in practice.

Indeed, in the early 1970s, Abt Associates was prominent in the market policy research market and perhaps even dominant, Hamilton says. Policy discussions within government at the time were intense, and politicians, social scientists, and academics hungered for facts. Liberal supporters of the programs wanted data to justify the War on Poverty programs, while critics in the Nixon Administration wanted data to show the programs were failing so they could kill them. Thus, there was bipartisan support for the kind of work Abt Associates was primed to perform.

In 1972, for example, Abt Associates conducted the nation’s first large-scale social experiment: an RCT of housing subsidies for renters to determine the effects of supporting housing demand, rather than subsidies to builders to increase supply. The findings led to the Section 8 housing program, which since 1974 has been the nation’s largest low-income, safety-net housing program. Under the program, renters spent a percentage of their income on rent, and the federal government paid the difference between that amount and the actual rent.

The social scientists’ focus on methodological rigor and RCTs led to some quirky incidents. For example, as Abt embarked on a project in Los Angeles, one client asked what the control group for the city of Los Angeles would be. A similar concern with methodological rigor led Abt, at the height of the Surgeon General’s anti-smoking campaign in the 1960s, to decide that the Surgeon General’s evidence showed a correlation between smoking and cancer, not causation. Conclusive evidence would require an RCT. Senior staffers balked, arguing you couldn’t assign people randomly to smoke or not to smoke. Abt’s reply: “The military could. Let’s talk to DoD.” Such incidents led one wag to write on a Cambridge headquarters bathroom stall: “Abt Associates: Analysis in Wonderland.” “That’s a pretty good description of the place,” says Steve Fitzsimmons, an evaluation specialist who left Abt Associates in 2002 after 36 years and was the firm’s 12^th hire.

So Abt Associates and its CEO, with his fertile and sometimes febrile mind, were off and running. But the contracts tended to be short-term, and each year the company bet the farm on its proposals. If the firm didn’t win enough of them, it could have gone belly-up. Abt was not averse to risk. He often said, “If it’s worth doing, it’s worth doing badly,” Abt’s son says. “It doesn’t mean he has low standards. It means if he thinks it’s something to do, he won’t let the risk of failure stop him from doing it.”

The firm had another motto that buttressed Abt’s mantra: Ignorance is no bar to action. “We were smart. We were cocky,” says Peter Miller, Abt Associates’ second-in-command at the time. “We would take on most anything.”

Risky business

The stunning trajectory of those heady first three years screeched to a halt in the fourth year. The reason: the disastrous acquisition of Audio Video Industries Inc. (AVI), which lost more money in Abt Associates’ fourth year than the accumulated profit of the first three years. Abt as the CEO took full responsibility and was particularly harsh on himself, calling it a foolish decision and bad judgment. “I was driven to accelerate growth by preparing for an IPO [initial public offering], seeking the venture capitalists’ Big Payoff,” he wrote. Abt blames himself for not doing sufficient due diligence and assuming the adviser who brought him the deal had.

The deal also may have been a triumph of hope over experience. In trying to understand how he got involved in what he called a “terrible acquisition”, Abt concluded that AVI had convinced him on the idea of expanding the market for Abt Associates’ educational and training games by selling them to AVI’s closed-circuit TV customers. Commercializing his simulation games was a long-standing dream of Abt’s, a road taken many times and aborted as often. The lesson was to stick to government work and resist commercial products. (Abt periodically ignored the lessons and lost millions in other ill-fated ventures.)

Perhaps nothing shows Abt’s penchant for risk better than one critical aspect of his hiring approach, which is virtually unheard of for a CEO today. He hired a bunch of “no men” instead of “yes men”. “There were half a dozen folks whom he would call into his office and float an idea on, and they would shoot it down more often than not and tell him what was wrong with it,” former company vice president Chris Hamilton recalls. Harvard sociologist and former board member Daniel Bell once said that the board’s function was to restrain Abt from taking excessive risks based on his enthusiasm for the latest technological innovations. Retired executive Peter Miller recalls that after meetings in which Abt would tell people to do half a dozen things, the staff would come to him, and Miller would give a green light to some and a red light to others. “It was clear we worked that way,” he said.

Sometimes Abt bypassed the no-men. Take the time he asked senior staff to arrange a meeting with Navy admirals without saying why. Abt had sufficient credibility with the brass for them to agree to the meeting. Abt walked in and proposed a submersible aircraft carrier to reduce carriers’ vulnerability and add an element of surprise. The meeting went neither long nor well, but the concept was eventually published in Proceedings, the monthly journal of the U.S. Naval Institute.

Just as Abt wasn’t always right, the naysayers made mistakes, too. Consider the incident when Abt dragged a bunch of people into his office to discuss a brainstorm he had: solving the unemployment problem by training the unemployed to start their own businesses. The assembled group of senior staff thought it was a crazy idea. They cited the expense and a host of other reasons it wouldn’t work. After about an hour and a half, Abt gave up. “The lesson I drew from it was that it took 11 vice presidents to convince Clark that he had a bad idea,” says economist and former employee Larry Orr. “Fortunately, we had lots of VPs.”

A few years later, the Department of Labor put out a request for proposals for a project to train the unemployed to start their own businesses. Abt Associates won the contract. “Much to our own surprise, it showed that this was a cost-effective idea,” Orr says. “Self-employment training is now an allowed service under Unemployment Insurance.”

Author, author

In 1970, Abt published the first of his 10 books, Serious Games, which triggered a breakthrough in how games and simulations can train decision-makers in industry, government, education, and personal relations. Time magazine had highlighted his views in an interview several years before publication, and his approach took hold among academics, business leaders and gaming experts worldwide. “As an inventor of serious games played by serious people such as State Department or other cabinet officials or the military, Abt has become an ardent advocate of the usefulness of games as a pedagogic device at all stages of life,” wrote Kirkus Reviews, a trade publication that previews books. “For children, games may be more instrumental than lecture and rote learning methods and for the children of the poor, they may be the most effective way of instilling enthusiasm, cooperation and conquering fears.”

In classrooms in poor neighborhoods, the games brought out the intellect of some students who otherwise sat quietly at the back of the room, never showing the spark that the games elicited. They were able to show their understanding of the behavior of others and their motivations and plan strategies accordingly. It may not have been traditional book learning. But it enabled the students to demonstrate and refine a tactical shrewdness that, if encouraged in school, would enable them to succeed outside of the classroom.

Six years later, Abt published another groundbreaking volume: The Social Audit for Management. Its genesis was in 1971, when Abt introduced social accounting to Abt Associates and the business community. He wanted to create and measure efficiently an organization’s social benefits.

So he developed a quantitative approach for evaluating the social benefits and costs of an organization’s operations for five constituencies: employees, stockholders, clients, neighbors, and the general public. On August 19, 2019 – nearly 50 years after Abt’s 1971 social audit – the Business Roundtable’s leading CEOs caught up to him, redefining the goals of a corporation to expand beyond profit maximization. The goals also should include delivering value to customers, investing in employees, dealing fairly and ethically with suppliers, and supporting local communities.

Forward thinking

Such prescience was hardly an aberration for Abt. He opened a solar-heated office in 1976, well before it was financially viable. It never paid back the investment, but years later when solar heating took off, it would have been a sound strategy. 

Similarly, in 1987 after his retirement as CEO, Abt took over Abt Books and as its publisher pioneered the production of scholarly CD-ROMs such as Drugs and Crime and fine arts CD-ROMs such as the Smithsonian Institution’s National Portrait Gallery on CD-ROM. The idea was to sell such “books” for a fraction of the cost of hardcover editions. But potential customers didn’t yet have the equipment to read the CDs, and the “portable” player Abt wanted to offer – about the size of a large suitcase – cost more than buying the books would have. After publishing about 100 social science books and four CD-ROMs, the unit closed in 1990. Soon after, most computers had the CD drives needed to have made a go of the business. 

“It’s like he could see in the future,” says evaluation specialist and former employee Steve Fitzsimmons. “He just couldn’t see the timeline.” You need the right combination of technical skill, marketing and marketplace readiness for a product. From a business standpoint, “a great idea before it’s time is a lousy idea,” he adds.

Sometimes it was Abt himself who was the “no-man”. This happened most often with ideas for forays into the commercial sector, perhaps because he had been burned so badly. But some people had good ideas, and “he just shot them down”, Fitzsimmons says. At least one person left the company as a result. Abt wanted to let a thousand flowers bloom, Fitzsimmons adds, but “sometimes he kept weeds and didn’t plant what was most promising.”

A polymath company

Overall, Abt managed to create a firm very much in his polymath image. “Abt Associates carries this man’s DNA,” says David Ellwood, former board member and former dean of Harvard’s Kennedy School of Government. The firm dove into a breathtaking range of areas.

• It had a contract with the National Aeronautics and Space Administration (NASA) that focused on using NASA technology for energy efficiency in urban construction.
• Together with Stanford Research Institute, it conducted the nation’s largest educational experiment: an evaluation of the education for 79,000 disadvantaged children in 180 communities from Grades K to 3.
• It conducted a landmark study of the societal costs and benefits of federal regulation of the consumer banking industry.
• For the city of Houston, it created a busing plan to integrate the schools.
• Abt Associates laid the groundwork for the Early Head Start Program with an evaluation of a child-care program.
• It developed measures to assess the effectiveness of basic research projects and to forecast the probability of success of alternatives to basic research involving the National Science Foundation.

Staffers for the most part had their specialties and worked heads-down on their narrow projects to bring in revenue, but Abt’s mind knew no boundaries. “The way his brain worked, it was out of the box, and I guess that’s part of being the unique person that most entrepreneurs are,” says health economist Gary Gaumer, who worked at Abt Associates for 27 years. Abt, he added, saw “opportunities where other people are so narrow that they never thought about it.”

• He mused about the sale of air rights to build structures over parking lots and roads long before the world was ready for it.
• He wanted to convert one of the company’s courtyards to grow saffron to test high-yield agricultural products.
• Abt inspired game simulations to illuminate the motivations, considerations and actions of stakeholders. One simulation conducted around 1970 involved transportation in the northeast and Canada that, quite sensibly, ignored state and even national boundaries. Transportation experts from the states and provinces participated, along with national government representatives from commerce, infrastructure, and transportation agencies. Transportation modes included road, rail, air and water. Participants got a picture of the whole regional transportation system and the surprising types of external events that could derail transportation plans. They also discovered how many moving parts there were in the decision-making process – many of which had not been apparent beforehand. And the networking during the simulations contributed to regional cooperation.
• A long-time environmentalist credited with planting more than 1,000 trees during his tenure at Abt Associates, he won the Henry David Thoreau Grand Award for Commercial-Industrial Landscaping from the Associated Landscape Contractors of Massachusetts for the landscape architecture of Abt’s Cambridge headquarters.

Abt’s creativity extended to employee benefits. He offered free breakfasts and as much as eight weeks of vacation after 20 years of service. Eventually he dropped the free breakfasts in exchange for dental care. In 1975, he created an employee stock ownership plan and employees also had individual retirement accounts and 401 (k) retirement options. The firm covered abortion care and offered paternity leave long before other employers. It offered generous tuition reimbursement. And in the parking lot was an electric car that employees could borrow for the weekend. Abt “pioneered in taking an interest in employee benefits,” says Fitzsimmons.

Health expert Henry Goldberg’s favorite benefit was a garden cultivated over a former dump on an adjacent plot of land purchased by the firm. The original plan was to construct another building, but there wasn’t money for it. Instead the company grew produce that the cafeteria used, and employees could sign up for plots to grow vegetables and flowers. “Only one person got busted for growing marijuana,” Goldberg says, adding that the police just told that person to get rid of it.

A sharp rise in healthcare costs in the late 1970s and early 1980s spelled an end to this gravy train. Abt’s collaborative solution was to use a benefits tool for his employees that Abt offered to clients. The firm’s overhead for pensions, health costs, and vacations needed to be industry-competitive, so Abt used the tool to create a hypothetical budget listing all options with their costs. The tool educated the entire company – then about 650 employees – about the issues and tradeoffs needed to cover healthcare and other costs. Employees then chose which benefits they wanted, given the budget ceiling. For example, they decided to jettison free coffee. “They got to be complicit in the crime,” says Wendell Knox, the retired former CEO.

Abt’s exit

In 1986, Abt switched gears. Instead of advising policymakers, he wanted to be one. He transferred responsibilities as president and CEO to Walter Stellwagen (but remained board chairman) so he could campaign as a Republican for the House seat Speaker Thomas P. "Tip" O'Neill (D-MA) was vacating. O’Neill, who was retiring, told Apt’s wife, Wendy, not to let him run. Another red flag: when Abt defended O’Neill to a right-wing Republican, the response was, “You stink!” Abt, of course, was not dissuaded and lost by a 3-1 margin to Joseph P. Kennedy II, the nephew of President John F. Kennedy. In retrospect, Abt thinks that running for Congress and reducing his role at the company was his biggest mistake. “I lost interest in expanding the business,” he says.

But he still had his passion for national security and socio-economic policy. In the early 1990s, he organized and directed four Russian-American Entrepreneurial Workshops in Defense Technology Conversion for nuclear weapons scientists. Nuclear scientists from Los Alamos and Lawrence Livermore labs and their Russian counterparts brainstormed to commercialize their work so that the Russians would not look to make money by selling their nuclear know-how to rogue nations. “They worked together quite well,” recalls health economist Gary Gaumer. “They were the same kind of people. Not a nickel’s worth of difference.”

The theory may have been better than the practice, however. The teams developed product ideas, put together business plans, and made presentations. Abt board members playing the role of venture capitalists listened to the pitches and provided feedback. But at one point, the Russian co-sponsor, the minister of nuclear power, a heavy-set, Nikita Khrushchev-like figure, invited the workshop faculty into his office for what everyone but Abt thought was a perfunctory meeting. Abt proceeded to lecture the minister in English, which he didn’t understand, on the need for safe nuclear power and for developing viable careers for Russian nuclear scientists. After a short time, the minister stood up, said the meeting was over, thanked the Americans, and walked out. Abt thought it was a great opportunity to brief a powerful guy who could get things done, but others were a bit embarrassed. “I’m sure the guy never got talked to like that in his whole life,” Gaumer said.

Another problem: Abt and the Pentagon differed with Moscow about the way forward. Russia upset then-Defense Secretary William Perry when it gave Iran nuclear power plants. Abt, who had been working with Perry, asked Viktor Mikhailov, the minister in charge of Russia’s nuclear program, what he was doing because the U.S. and Russia were supposed to contain the spread of nukes. “Professor Abt, you and we have so many thousands of nuclear weapons,” Mikhailov replied. “They might get one or two. It’s so small. Why are you worried about it?” Not the answer Washington wanted.

Still, Washington and Moscow reached agreement on dozens of contracts to keep the Russian scientists busy. One was for Russia to export surplus highly enriched uranium, which the U.S. would dilute and use as reactor fuel. It was a win-win: Russia got money and the U.S. saved the cost of mining uranium. Many of the deals, however, never bore fruit.

Other ideas didn’t even reach the contract stage. Abt and the deputy director of the Los Alamos National Laboratory pushed the idea of having Russian mathematicians help the biotech industry with drug discovery modeling and simulation. They set up a meeting in Cambridge with biotech pioneer Craig Venter, who led the first draft of the human genome. When Abt presented what he thought was a brilliant idea, Venter laughed out loud. “You mean you expect our highly competitive drug discovery industry to share their secrets with Russian scientists?” Venter asked. “I realized it was a really dumb idea,” Abt says now. “And so did my colleague from Los Alamos.”

The irrepressible Abt stayed engaged in socio-economic policy, too. In 1997, he conducted research on renewable energy and environmentally sustainable economic development and presented papers in the United States, at the United Nations, and in China, Malaysia, Kazakhstan, and the Philippines.

Enter Wendy

Just as the business and his ideas had ups and downs, so did his personal life. His two-Porsche, first marriage to Susan, the psychiatric social worker, ended in divorce in 1970, though it ultimately was amicable. “She got her car and the house. I got the company and my car,” Abt says. Abt and his ex-wife still run into each other frequently at the Harvard Institute of Learning in Retirement.

While he was separated and heading for divorce, he felt at loose ends. A turning point, bizarrely, was a journal article he wrote in 1969 about a systems analysis approach to calculating the cost-effectiveness of education. At the time, Wendy Peter was a young program officer at the Africa-American Institute in New York City. She had been in Operation Crossroads Africa when she was 17 and had kept up her interest in African development. She had sold the idea of a systems analysis of the school dropout problem in French-speaking West Africa and had raised money from the U.S. Agency for International Development and the Canadian government. The only problem: she knew nothing about systems analysis. “I had oversold it,“ Wendy says. “A not untypical situation for me.”

Abt’s article was just what she needed. She took a plane to Boston and made an appointment to recruit Abt. But he was busy, so when she arrived at 11 a.m., he told his secretary that she should see a colleague in a nearby office who had led high school programs in Uganda. After 10 or 15 minutes, Abt got a call from his colleague: “You ought to meet this lady,” he said. “She’s very interesting.” Abt declined. Ten minutes later the colleague called again, this time with an urgent tone: “Clark, you really ought to meet this lady.”

Abt decided to break off his work and walk around the corner. He walked in, introduced himself, apologized, and said he just wanted to say hello. “And there she was,” Abt recalls. “A beautiful woman in a sans-culotte tweed suit. Straight lustrous brown hair. Beautiful face, beautiful legs and talking very well, assertively about this project.” Abt listened for a couple of minutes, then detailed for two hours how to perform the systems analysis.

Wendy had to get on a plane back to New York and thanked him for his support, mentioning she would meet her boss the next day. Abt said he had to be in New York the following day (he didn’t really) and would be happy to meet with her team. “I was smitten,” he says.

After the New York meeting, Abt asked her if she would like to have dinner. She was shocked and said she never went out with married men. “I grinned and said, ‘But I’m not married,’” Abt says. Two years later they married, and eventually she joined Abt Associates after partnering with the firm to win a contract for educational technology in Africa.

Nearly 50 years and two children later, they are still together at home. But work no longer is a family affair, thanks to a corporate crisis the Reagan Administration created. Sharp cuts in social programs put the firm, then with 1,000 employees, at risk. Revenue fell roughly 50%. Abt’s advisers told him just to hunker down because government funding eventually would come back.

Waiting was not Abt’s style, though, so he rejected his advisers’ recommendations. Instead, working with Wendell Knox, at the time a vice president and area manager, he decided to try to sell the firm’s skills to private industries in turmoil: banking, healthcare and automotive. Banks were undergoing deregulation. Healthcare costs were soaring, and every CEO wanted to get them under control. And the auto industry was under assault from Japan. Abt and Knox thought they could sell the firm’s ability to collect data to analyze markets and predict customer behavior – and they did. “I saw Clark come from a gloomy place to an exciting place,” Knox says.

But the new business wasn’t enough to stabilize the ship. The company had to pare everyone’s hours or lay off up to 400 people. Both the staff and leadership thought layoffs were the better option. It was impractical for everyone to take a 50% cut in pay. Lots of people would simply leave – perhaps the wrong people. Abt realized “it was critically important to retain the company’s core skill set, to retain our top brains,” Knox says. At the time, Wendy was planning to return from maternity leave but decided it was inappropriate with so many people being laid off. So she ended her eight-year tenure at Abt, where she had focused on education and youth employment, directing analyses of the impact of President Richard Nixon’s revenue-sharing school programs.

The hallmarks of Abt’s business approach – risk-taking, evidence-based decision-making and quirky impulsiveness – are evident in his personal life. For example, his wife says Abt likes gadgets and machines that do more than one thing: a can opener that’s also a vase. One day he was driving in Watertown near Cambridge and spotted a car with a “for sale” sign on it. He immediately went to a bank in Watertown Square, withdrew money, and bought it. It was an amphibious car, which operated in the water and on the road. But it was an older version, and it leaked. “It was pretty hilarious to be riding along Storrow Drive and then go into the Charles River,” Wendy says. “It was fun and then fun when you had to bail. It was less fun when he took the kids and their friends out.”

A while later on Wendy’s birthday, money was tight but Abt knew she liked elegant cars. So he bought a 1939 Bentley for a few thousand dollars. Unfortunately, 1939 was not a good year for Bentleys. It broke down so often they needed a flatbed to haul it to the mechanic. Eventually Wendy issued an edict: She never wanted to be in a vehicle that people wave at or take pictures of. Nor did she want to be in a position that makes people burst out laughing.

Abt applies his decades of hard-headed data analysis to personal decisions. Several years ago as a weekend approached, he faced a medical emergency – a twisted small intestine – that required surgery quickly. In the emergency room, as Abt was literally dying, he rejected any precipitous action. He knew studies showed that operations on a Friday afternoon did not turn out well. He didn’t want to miss his Sunday tennis game. And if he couldn’t talk to his primary-care provider, he would not consent to the surgery.

There was one more issue. His condition normally was found in babies. He asked the surgeon how many times he had performed the surgery, and the answer was hundreds of times. Then Abt asked the doctor how many times he had performed it on someone his age. The answer: never. That, unfortunately, just added to Abt’s certainty and defiance. (Of course, he seemed to ignore one other bit of relevant evidence: what happens to people with untreated twisted small intestines.)

He threw the hospital into complete chaos, as Wendy recounts the story. The deputy head of surgery was in tears. “I went to medical school to save lives,” the doctor said. “Now you’re not letting me do it.” No one else given the facts and information would have had the self-confidence to exercise his own independent judgment, Wendy says. She was ready to have him committed to a psychiatric ward so she could authorize the surgery. But she worried that if a shrink asked if he ever acted like this before, the answer would have to be: “Sure, all the time.”

All the while, the clock was ticking. The monitor showed his intestine deteriorating, and once it was gone, so was Abt. What saved him? His son, Thomas, showed up in the emergency room and reminded Abt that as a manager and executive he frequently had to make decisions under conditions of uncertainty and missing information. As Thomas talked, Wendy could see Abt’s shoulders squaring. He relented and allowed the operation to go forward. “One of the hallmarks of my dad is intellectual flexibility,” Thomas says. “He is intellectually confident, but when he is convinced he has made a mistake, he will change his opinion – and abruptly.”

In 2006, Abt retired from Abt’s board. The board had evolved from an advisory body to a governance body and instituted rules such as term limits for directors and a mandatory retirement age of 75. Abt was grandfathered briefly, but eventually had to leave.

His namesake company continues to thrive as it branched out into diverse areas. Today it is far more international than it was in Abt’s day. With more than 3,600 employees working in more than 50 countries, Abt Associates:

• sprays insecticide and distributes insecticide-treated bed nets in two dozen countries to combat malaria while performing entomological studies to analyze mosquito resistance to insecticides;
• has fought Zika virus;
• provides technical assistance to dozens of countries trying to improve their health systems and healthcare delivery of everything from family planning services to HIV to tuberculosis;
• helped the U.S. Centers for Disease Control and Prevention draft opioid prescription guidelines to reduce misuse while providing medication to those who need long-term pain treatment;
• analyzed the environmental impact of the 2010 Deepwater Horizon oil spill in the Gulf of Mexico;
• conducts the annual homeless survey for the U.S. Department of Housing and Urban Development;
• collects survey data for the ABC/Washington Post political polls;
• wrote a chapter of the recent U.S. National Climate Assessment;
• found that a 19% cut in federal prison sentences would have no impact on recidivism and would have an enormous positive impact on the individuals, their families, their communities, and taxpayers; and
• used machine-learning to analyze 10,000 comments on a proposed U.S. Environmental Protection Agency regulation.

If you want to evaluate Abt’s impact, former employee Steve Fitzsimmons says, look at what the firm is like now. “It’s a pretty good measure,” he says. Adds former board member David Ellwood: “Many of the great institutions of the world that really matter are blessed with a founder whose values and vision just become part of the culture. Clark was such a person.”

Abt’s proud progeny

If Abt Associates figuratively has its founder’s DNA, Abt’s children literally do, and they are another important legacy. “We’re all definitely birds of a feather,” says 44-year-old Emily. “My father’s influence on my life cannot be overstated.” Emily and 47-year-old Thomas have taken different approaches to follow in their father’s footsteps.

Thomas is a senior research fellow at the Harvard Kennedy School of Government. He served as deputy secretary of public safety to New York Governor Andrew Cuomo and as a policymaker in the Obama administration’s Justice Department. In addition, Thomas has viewed gun violence from the lens of a Washington, D.C., high school teacher and as a New York City prosecutor. In mid-2019, he released a book called Bleeding Out: The Devastating Consequences of Urban Violence, which analyzes data to produce some novel strategies for stemming the tide of gun deaths on city streets. The work has been featured in the Atlantic, New Yorker, The Economist, and other media outlets.

Thomas’s approach turns on the insight that violent crime, particularly homicide, is highly concentrated among a relatively small share of the people and places in the United States. For most major cities, less than 1% of the population is responsible for 50% or more of the violence. Two percent of U.S. counties cope with 51% of all murders, while 54% of counties see none. In some cities, a handful of street intersections are the “hot spots” that police, economic developers and community activists should target to reduce murders. Abt doesn’t invariably applaud his children’s work, but rather gives honest appraisals. “He is both my biggest fan and most vocal critic,” says Emily. But he clearly is proud of Thomas’s book. “It’s a better book on policy analysis than I ever wrote,” he says. 

Kirkus Review gives the book high marks. It says Thomas “skillfully mixes academic research, information about previously instituted pilot programs, and interviews with families devastated by gun-related homicides to propose a multistep solution that he believes will reduce gun deaths in cities across the country.” It calls the book “a useful addition to the necessarily growing literature on urban violence.” The Washington Free Beacon says, “Students of criminal justice should take Bleeding Out seriously,” adding, “Abt persuasively argues that as much as poverty causes violence, violence also causes poverty – alleviating the former, therefore, would not only save thousands of needlessly lost lives, but help reinvigorate some of America’s most benighted communities.”

Emily’s approach highlights social ills not through data, but through storytelling in films. When she was just 34, Variety Magazine named her one of its “Top 10 Directors to Watch”. The first of four documentaries she directed was Take It From Me in 2001, which aired on PBS's POV series. It tells the stories of four women toiling to lift their families out of poverty and the impact on them of the 1996 Personal Responsibility Act’s five-year limit on public assistance. Huffington Post called her 2008 documentary All of Us a “riveting” look at Ethiopian-American Dr. Mehret Mandefro, who investigated why young, heterosexual, African-American women were statistically most likely to get HIV/AIDS infection. Mandefro concluded that their lack of emotional control in sexual relationships was an issue that went beyond race and class. The film was the Showtime network’s “World AIDS Day” film in 2008.

Emily’s next effort, Daddy Don’t Go, in 2015, tracked the efforts over two years of four unemployed fathers to become part of their children’s lives. While she got the idea for the documentary from her time as a case worker, her inspiration was her father, who, like the film’s subjects, had no father as a role model yet wanted to become a good dad. “The film is really a love letter to all fathers, but especially to my own,” she says. Daddy Don’t Go aired on the Starz network in 2016, won eight Best Documentary awards, including as the American Black Film Festival Best Film, and screened at 35 film festivals.

“Something he said about the company reminds me of how he views fatherhood,” Emily says. “You have to go back to his roots to understand him. He told me once about Abt Associates that he was trying to create the family he never had.”

Emily also wrote and directed a feature-length narrative film, Toe to Toe, which premiered at the 2010 Sundance Film Festival and received a glowing review in the New York Times: “Ms. Abt provides an unusually honest, compassionate and challenging view of contemporary youth, neither sugarcoated nor prurient.” Like Abt Associates, she is conscious of the yin and yang, the need to make money while fulfilling her mission to send a message. Her next feature project is about a woman who runs for mayor, but it’s a love story, too. “You have to entertain while feeding people a little bit of vegetables,” she says. Abt likes this venture but made clear his strong dislike for Emily’s project before that.

If Abt had had his way, his daughter would have done none of this. He pushed back hard when she said she wanted to go to film school instead of becoming, say, a civil rights lawyer. He thought it wouldn’t be financially viable. “To a certain extent he was right,” she says. But her parents ended up financing her two-year master’s program at Columbia. When her first documentary aired on PBS and received a good review in the Times, her father was proud. When she won a Fulbright Scholarship, he really started to come around and now passes out DVDs of her work.

Thomas and Emily also get DNA from Wendy, of course, and she was every bit as driven as Clark to help the world's most vulnerable people. After leaving Abt Associates in 1979, she ran for the Massachusetts state senate. She won the endorsement of an anti-tax, high tech group, which was important for someone running in a district near Boston’s technology corridor along Route 128. Then the group found out she was opposed to its tax cap referendum. It was, Wendy says, “awkward”. She spent much of the family’s savings on the campaign, but lost by 200 votes in the Democratic primary to an incumbent who had been in the chamber for 26 years.

Without much in the way of family reserves, Wendy needed a job quickly. With a Bachelor of Arts in Economics and Government from Connecticut College and a master’s degree in statistical research from Harvard’s School of Education, she got one with Coopers & Lybrand, helping cities improve their finances. On her first day, she was led to a cubicle. She asked where her office was. Only then did she learn that she didn’t need one because she would be on the road most of the time. As the mother of two small children, she thought this was not going to work. She developed a more than respectable business portfolio, but when a big layoff came after less than a year at the firm, it was last hired, first fired—and that was Wendy.

For someone whose work ethic was the opposite – first in the office and last to leave – it was devastating. Clark knew he had to do something. So despite the fact that their income had just plummeted, he had the idea that they should go shopping. And they bought a new set of dishes. It was their way of privately telling Coopers to go to hell – they would survive.

Later – too late – Coopers discovered all the business Wendy had brought in – and that it didn’t have anyone else who could do the work. The firm had neglected to check before it fired her. So Coopers tried to hire her back. Not a chance.

She went to work for the Bank of Boston, where she stayed for seven years. As director of strategic planning, she helped improve budgeting and forecasting for 70 businesses in 50 countries. And then as a managing director in the firm's investment bank, she built the division that centralized loan sales and syndications and began packaging consumer loans for sale.

Eventually she opened her own shop, WPA Inc., and got back to her real love: financing projects in Africa. She was able to use the knowledge and skills she had picked up in the financial sector to develop innovative financing schemes in the developing world, particularly in the agricultural sector.

After 16 years of working with countries such as Ghana, Lesotho, Uganda, Rwanda and Tanzania, she was appointed Deputy Assistant Administrator of the U.S. Agency for International Development. She had authority over a broad landscape of projects, including education, microenterprise, private sector engagement, energy and infrastructure. In 2013, she went back to WPA and now advises clients such as the Bill and Melinda Gates Foundation and the African Development Bank, as well as being on the board of Innovations for Poverty Action, a non-profit that fights global poverty.

Rewired

Now 90, Abt rejects the word “retired”, opting instead for “rewired”. He has served pro bono as a high school teacher and tutor for students at risk in Boston public schools. He researched domestic defense against biological and nuclear terrorism, as well as prevention and control of emerging pandemic diseases. He makes new friends, plays tennis and drives. He continues to paint, using a pour-and-tilt method. Some of his current paintings resemble a photo of the earth as seen from the Hubble Space Telescope, thanks to a cosmology course he recently took. He is writing a dystopian novel and is a member of a memoir-writing group. He takes courses in microbiology, genetics and the history of the universe.

As Abt aged and he opted to teach, funding cuts and enrollment changes meant he often had to switch gears and seek teaching appointments at different schools: Boston University, Cambridge College, Brandeis University, Columbia University, Johns Hopkins, State University of New York (Binghamton), the University of California Business Schools, and the University of Massachusetts. He was teaching at the Harvard Institute for Learning in Retirement, and when enrollment dropped, he became an avid student there instead. He could have grown bitter, his pride could have kicked in, Emily says, but it never did. He just moved on to the next thing. “He set the bar high for me in terms of what graceful aging looks like,” she says.

Thomas and Emily trace their dad’s remarkable life and legacy to his childhood. “My dad went through a lot,” Thomas says, adding that he has always had empathy for those mistreated or relocated “because he was one of those people”.

“He always had the sense that he was very lucky, and in fact he was,” Emily says. “The numbers were so against him.” She, too, feels lucky that she even exists. “That could have gone another way very easily,” she says. Thomas notes that their secure childhood was far different from his father’s: “Nobody tried to exterminate me and my whole family.”

Despite his exposure to the darkest side of humanity, Abt remains optimistic. He believes that the U.S. will recover from its current aberrational state because he agrees with the late Reverend Martin Luther King Jr. that “the arc of the moral universe is long, but it bends toward justice.” Abt is a key, if unheralded, point on that arc.

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Addendum: Although U.S. immigration records indicate the spelling of Clark Abt’s childhood name as “Claus Peissak-Abt “, Mr. Abt told BestStory.ca that he typically spells “Peisak” with a single “s” when asked about it. Consequently, we used Mr. Abt’s preferred spelling for “Peisak" throughout our story.

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December 23, 2018

Canadian media pundit Conrad Black has been drinking too much Trump brand Kool-Aid

Editor’s Note: Stan Crock is a distinguished American journalist with a degree from Columbia Law School and a finely-honed bullshit detector. He takes former Canadian media baron Conrad Black to task for his positive comments about the track record of President Donald Trump in an October 2018 National Post column written by Black. Stan’s colorful biography can be found here.

In his National Post column of October 8, 2018, former Canadian publishing magnate Conrad Black wrote this about U.S. President Donald Trump: Most Canadians think Trump “is a buffoon, a bully, and a windbag, and don't confuse them with the facts, such as that he is a very successful president.”

Is Conrad Black a George Orwell pen name? Was Black separated at birth from Trump, receiving some of the same genetic allergy to reality and facts? The opposite of what Black said is true, though without any Orwellian irony. Trump IS a buffoon, a bully, and a windbag. And that’s an understatement. He is a pathetic, petulant, puerile, incompetent, venal and ignorant excuse for a human being and president. The notion that he is a very successful president depends on a definition of success that defies reason.

Black did make one accurate comment: his concession about Trump’s “tendency to unwisely provocative comment.” But that’s about it.

A key point Black tried to make, for example, was that the confirmation of Supreme Court Justice Brett Kavanaugh was part of Trump’s “war to evict the entire political establishment of both parties.” Trump had some momentum, having won the Republican nomination, the election, and initially control of Congress. Kavanaugh gave him control of the Supreme Court as well.

Black’s use of “war” suggests a plan and strategy. Former Bill Clinton spokesman Joe Lockhart similarly opined on CNN that Trump’s attacks on the Ninth Circuit and Supreme Court Chief Justice John Roberts were part of a strategy epitomized in Trump’s inaugural address, in which he painted a dark picture of an America only he could save. “This American carnage stops right here and stops right now,” Trump declared. This all is a justification for a power grab, Lockhart concluded, for if things are going well, there is no need to accrue more power.

Both Black and Lockhart are wrong. Trump lacks the gray matter for a strategy. As Bob Woodward’s book, Fear, documents, national security officials repeatedly tried to explain to Trump that the U.S. trade agreement with South Korea and keeping a missile defense system in South Korea instead of in the U.S. have critical, intertwined security implications for the peninsula, relations with China, and U.S. security. And that our policy prevents World War III. Seniors advisers also explained that trade deficits are not the economic Armageddon Trump thinks they are. No matter how many times they repeated all this, Trump didn’t get it.

International relations often is a five-dimensional chess game, and Trump can’t figure out the next move for tic-tac-toe. He is incapable of a strategy. His actions are what I call GRAPS – “gut reaction at perceived slights.” Trump’s attacks on the Ninth Circuit, calling it a “complete and total disaster,” are not part of a grand scheme, but a below-the-belt, knee-jerk (pun intended) punch at a target that can’t respond. Trump felt attacked by a court ruling that blocked yet another immigration executive order because he overreached. It was not an attack. The court looked at the executive order, as well as the law, and saw the conflict. But Trump perceived it as an attack and responded as he usually does, like a 7-year-old. Trump has a lot of fixed ideas that are not factual and refuses to learn that he is wrong.

Black showed that he, not other Canadians, misunderstands America when he predicted the Kavanaugh fight would enable Trump to “solidify Trump-Republican control of the Congress.” The fight over Kavanaugh backfired and arguably lost Republicans the support of college-educated women in the growing, vote-rich suburbs. That led to a big victory by Democrats in the midterm elections for the House of Representatives on November 6, 2018, and may well have set the stage for Trump’s defeat in 2020. Democrats crushed Republicans in three states – Wisconsin, Michigan, and Pennsylvania – that were crucial to his success in the 2016 presidential election. And Trump is doing nothing to broaden his appeal.

Black posited that Trump would be “only the third president since the Civil War (Franklin D. Roosevelt and Lyndon B. Johnson were the others) to control the Congress and have a Supreme Court in sympathy with his views also….Thus is Trump rewarded for producing four-per-cent economic growth, a full-employment economy, shrinking energy imports, the revival of serious nuclear-arms control, a reduction of illegal immigration, and a Western alliance that isn't just a league of pick-pockets.”

Can someone please give Black a pan to make breakfast with the eggs he has to wipe off his face? Don’t EVER mention Trump in the same breath as FDR and LBJ. Or anyone besides maybe Third Reich Minister of Propaganda Joseph Goebbels. Trump no longer controls Congress. And his fact-free, infantile spat with the judiciary could motivate the courts to assert their independence. It takes a lot for a Supreme Court Chief Justice to rebuke the White House, but Trump’s unwise provocative comments managed to do just that.

Even before Trump’s inflammatory remarks, judges appointed by a variety of presidents overturned dozens of administration actions. Trump abandoned a transition operation so his team never learned the missions and operations of government agencies, as Michael Lewis documents in his new book, The Fifth Risk. As a result, his appointees lack basic knowledge of how to govern and provide a justification for their actions, as the law requires. Of course, many of the actions can’t be justified and exceed executive branch authority, violating either the Constitution or statutes. So any judge who hasn’t been lobotomized would block them.

But let’s put aside jibes and rhetoric for a moment and try to confuse Black with facts. Trump’s alleged successes – according to Black in his column – are listed in italic type in the points below. For each of Black’s claims of a Trump success, I explain the reality in plain text immediately after:

• Four percent economic growth: The GDP growth rate in Trump’s first year was 2.3 percent. To be fair, the economy of the first year of an administration reflects the policies of the previous administration, so you shouldn’t count it. So let’s look at 2018. For the first three quarters, GDP growth averaged 3.3 percent, not 4 percent, and not much above the 3.22 percent average since 1947. Not exactly something to crow about. Trump had one quarter of 4 percent growth, then reverted to the mean. And Trump’s refusal to lift a finger about climate change will damage long-term economic prospects, according to his own administration’s report. If you want 4 percent growth, look to the Clinton administration, which had it in five of its eight years. (Historically, growth is faster under Democrats than under Republicans. That Republicans have a reputation for better economic stewardship shows that Republicans have used a Goebbels strategy successfully for a long time.)

To be sure, growth under Trump was faster than under President Barack Obama. But President George W. Bush saddled Obama with a financial-crisis-induced recession, the worst since the Great Depression of the 1930s. Recoveries from financial-crisis recessions are far slower than from run-of-the-mill, business-cycle recessions. And the economy performed better under Obama than the average of recoveries after previous financial-crisis recessions. On average, unemployment in such circumstances rises 7 percentage points over five years, while under Obama, unemployment rose 5.6 points over only two-and-a-half years. Because Obama’s and Trump’s circumstances were so different, comparing growth rates for their administrations would be comparing apples with elephants.

• Full employment: Unemployment is at rock bottom, and that’s terrific. (Unemployment was 3.7 percent in October 2018 when Black wrote his column.) Job growth was slightly higher during the first 10 months of 2018 (average of 196,000 monthly) than the first 10 months of 2016 (average 182,000), Obama’s final year. But the labor force participation rate has been below 63 percent for almost all of Trump’s presidency, while it was above that figure for almost all of Obama’s presidency. The drop in labor participation rates inflates the cut in the unemployment rate.

Here’s how that works. Let’s say there are 200 working-age people in the population, 100 of them are working or seeking work (are participating in the labor force), and 90 of them are employed, and 10 are unemployed. That would be a 50 percent labor force participation rate (100 out of 200) and a 10 percent unemployment rate (10 out of 100). Let’s say the next month, the 10 unemployed people get discouraged, stop looking for work, and are out of the labor force. Meanwhile, no new jobs are created. So now 90 out of 200 are participating in the work force, lowering the participation rate to 45 percent. All 90 participants are working, so the unemployment rate plummets to zero without one new job created because the denominator of labor force participation shrank from 100 to 90.

When unemployment hit the Obama administration high of 10 percent in October 2009, labor force participation was about 65 percent. It then started a pretty steady decline, dipping below 63 percent in December 2013, when the unemployment rate was 6.7 percent. Obama benefitted from this lower participation rate as the unemployment rate dipped to 4.7 percent at the end of 2016. Commentators noted that connection. But they don’t make it as often about the benefit Trump gets from that trend. For example, if the labor participation rate now were 65% – roughly 5.4 million more people – and we had the same number of people employed as we do today, the unemployment rate would be 6.9%.

Black notably did not mention this issue. Nor did he mention that Trump has proposed nothing to change this undesirable trend, such as a program to bring people back into the labor force (other than the preposterous notion of restoring coal mining jobs).

• Shrinking energy imports: The yolk is on Black again. Crude imports in 2017 were higher than they were in 2016, 2015, and 2014, according to U.S. Energy Information Administration data. Imports rose steadily from 2.68 billion barrels in 2014 to 2.89 billion in 2017. Imports of fossil fuels for the first eight months of 2018 came to 16.994 quadrillion BTUs, down from 17.244 in the first eight months of 2017, but up from 16.993 in the first eight months of 2016. So it’s not clear whether energy imports will shrink by year’s end. That depends partly on the strength of the economy. If it doesn’t crater and demand for fuel is strong, imports may not shrink.

Another aspect of energy policy, net imports, clearly is heading the wrong way, thanks to Trump’s benighted trade spats. As Oil and Gas Journal reported in September, 2018: “The nation’s overall petroleum trade balance went from net imports of 2.9 million b/d [barrels per day] in June to 4.54 million b/d in August, which is more than a 56% increase in 2 months. ‘Placing constraints on exports of American-made energy works against America’s energy future,’ said API Chief Economist Dean Foreman. ‘While the picture is still a bit muddied, it seems to be getting clearer—the trade war appears to be limiting the US’s access to crude export markets. As we produce more energy here at home, the US needs markets for its products in order for our economy to continue to grow. There’s no question that the 1.6 million b/d increase [of] US petroleum net imports, which undid a full year’s worth progress, is a setback to the US’s goal of energy dominance.’”

• Serious nuclear-arms control: What serious arms control? If Trump had his way and everyone bowed out of the Iran nuclear deal, Tehran would be free to go full-speed ahead with a weapons program with no inspections. North Korea manipulated Trump as it made vague promises, Trump declared mission accomplished, and Pyongyang continued to build new nuclear facilities. Trump threatens to dump the Intermediate Nuclear Forces agreement with Russia, which eliminated thousands of warheads, so he can build more of them, as Russia is doing. That’s an Orwellian version of arms control if I ever saw one.

But oh, I forgot. We can rely on Vladimir Putin’s good faith, which he has demonstrated repeatedly in Crimea, Ukraine, Georgia, elections in the U.S. and elsewhere, while poisoning, shooting, or jailing opponents. But all that aside, Trump surely can use his relationship with Putin to wrest a great deal. Trump proved his mettle in a Russia-U.S. summit meeting in Helsinki on July 16, 2018 when he kissed Putin’s ring and posterior. Maybe that $50 million penthouse Trump supposedly promised Putin will buy some goodwill.

Trump is many things, but serious is not one of them, including as a negotiator. As Russia, Saudi Arabia, and North Korea are finding, there are few world leaders who are easier marks. And he receives nothing in return for giving these countries passes on their murderous behavior. (I guess he is serious in one respect, a serious threat to world order.)

Trade is another area where Trump is a snake oil salesman and chump. Take the new trade deal with Canada and Mexico, which Trump touted as a great breakthrough and deal for all three countries. As usual, he utterly lacks credibility. I talked to two American and one Canadian trade experts who all agreed that the new accord, for the most part, merely tweaks parts of the North American Free Trade Agreement (NAFTA), which Trump regularly trashed. Much remains intact. NAFTA II added some new sections dealing with areas such as data security and the Internet, which were not issues when the original NAFTA took effect in January, 1994. But those needed updates differed little from provisions in the Trans-Pacific Partnership, which Trump also trashed. Consistency has not been Pinocchio-in-Chief’s strong point.

If NAFTA is essentially unchanged except for the updates, it is indeed a great deal for all of the countries because the original was – something Trump never would acknowledge because it’s a factual statement. The U.S. especially benefitted. In January 1994, when NAFTA took effect, there were 16.9 million manufacturing jobs in the U.S., according to the Bureau of Labor Statistics. Four years later, though some jobs indeed moved to Mexico, there had been far more gains, and the number of manufacturing jobs actually increased to 17.6 million.  The rise reversed what had been a steady decline since May 1979, when the number hit 19.5 million. That’s not something most Americans, and certainly not Trump, know.

That’s just part of the story. U.S. employment overall grew 21 percent between 1993 and 2007. In the decade after NAFTA took effect, the U.S. economy grew 44 percent, significantly faster than the economies of Mexico and Canada. During that decade, U.S. exports to Mexico and Mexico’s exports under NAFTA grew at similar rates—more than 200 percent. But these figures don’t give the full picture. For example, of every $1 of Mexican manufactured exports that arrived in the United States, 40 cents came from parts and materials made in the U.S. To be sure, in a complex economy, it’s impossible to isolate one cause such as NAFTA for an economic boom, but it’s also impossible to show that NAFTA overall hurt U.S. workers.

So is NAFTA II a great breakthrough that only Trump’s negotiating genius could achieve? Of course not. Aggravating matters, Trump’s illegal tariffs on steel and aluminum (they violate U.S. law) may offset any benefits from NAFTA II. One of my relatives works for a building-management firm that is getting hammered by price increases due to the tariffs. Another friend’s firm uses an aluminum product not made in the U.S. Because of tariffs, the price has sextupled, and the wait time for delivery has more than tripled. His customer: The U.S. government. So Washington and taxpayers are getting screwed.

They are not alone. The Federal Reserve’s December Beige Book, a review of economic activity in the Fed’s 12 districts, said margins were narrowing because input costs rose faster than final goods prices. Most of the Federal Reserve’s 12 districts saw only modest to moderate growth from mid-October through late November 2018, while Dallas and Philadelphia noted slower growth, and St. Louis and Kansas City noted just slight growth. Tariffs were also hurting the agriculture sector. Economic headwinds are starting to blow.

Then there is the trade deal with China. The “incredible” deal Trump struck with Beijing is indeed incredible, but not the way Trump meant. What is not credible is that China will give up its business model – illegal and unethical ways to obtain intellectual property; subsidies to target industries; and the Made in China 2025 vision – for a 90-day delay in tariffs. The stock market realized on December 4, 2018 that Trump was blowing smoke, and that was one reason the market dropped 3 percent that day. If Trump were a tough negotiator, he would have imposed the tariffs to force China to move fast on reforms. Instead, he delayed tariffs while getting nothing substantive in return.

Why? Not because he’s a great negotiator, but because he had to fix a crisis of his own making at home – in effect a huge tax increase for U.S. businesses and consumers. As the effect on my relative’s and friend’s companies ripples through the economy, companies will lay off workers as the 2020 election approaches. Trump had to do something to stem the tide because when he acts impulsively, he simply can’t see the next move until he gets blindsided.

• Reduced illegal immigration: Numbers on illegal immigration actually don’t exist. The proxy is arrests at the southern border. That number declined in 2017 to 304,000 from about 400,000 in 2016. But the figure has declined steadily from the 2000 peak of 1.64 million. Under Obama, the number went from about 700,000 to 400,000. It’s not as if reducing illegal immigration is a novel Trump initiative. But the numbers for 2018 actually are heading in the opposite direction. The total of 340,030 apprehensions near the southwest border and individuals deemed “inadmissible” for the first eight months of fiscal year 2018 were 10.8 percent higher than during the first eight months of fiscal year 2017. If Trump cuts funding to Honduras, Guatemala and others countries – thus creating refugees instead of helping the countries address the root causes of emigration – the cross-border numbers will continue to climb.

A Western alliance that isn’t just a league of pickpockets: Thanks to Trump, it is fast becoming a Western alliance that just isn’t. Trump has antagonized every one of our traditional major allies while sucking up to our enemies. European leaders now want their own military because the U.S. president no longer is reliable. Characterizing allies as pickpockets might make sense if the U.S. got nothing for its military investments. In fact, no country has benefitted more than the U.S from the post-World War II order, which Washington helped create. No country has seen more prosperity. No country has seen more global cultural and social influence. No country has provided more humanitarian aid to help the world’s most vulnerable. With remarkable speed, Trump has reversed all that progress. The U.S. now is anathema, not an archetype.

Black’s litany of “successes” actually highlights a lot of the ruinous Trump policies. Black also ignores that Trump has undermined every important component of U.S. strength: the FBI, the intelligence community, the military, the Justice Department, the judiciary, the First Amendment, the NATO alliance, free trade, the Federal Reserve Board, and elections. And he ignores the elephant in the room: the Mueller probe. While Trump, indeed, won the Electoral College vote, his legitimacy has been undercut because Russia’s strategic hacking and the hush money Trump paid to avoid disclosure of sexual dalliances before the election suggest he won through fraudulent means. In his National Post column, Black did not even try to defend Trump on these scores, perhaps realizing he couldn’t.   

As important as anything else is Pinocchio-in-Chief’s utter evisceration of the concept that what comes out of a president’s mouth is true and important. He is willfully indifferent to the truth and cares only about the impression he leaves of himself – the definition of a bullshit artist. To be sure, not everything that came out of a president’s mouth in the past was true (Richard Nixon, Lyndon Baines Johnson, Bill Clinton, to name a few). But for reporters, covering the White House was a solemn and sought-after job because for the most part that was where you could find an accurate exposition of considered strategic policy. In the Trump White House, one finds neither truth nor consideration nor strategy.

Trump has so violated the norms of White House processes that the press corps should acknowledge that by not enabling Trump to dictate the day’s headlines with whatever diversionary tactic he devises. Instead of ceding that power to Trump, editors should exercise news judgment, ignoring fabricated falsehoods and focusing on facts and reality as dispensed by those with a record of accuracy. That may not be what Trump wants the story to be that day. Tough.

Some fundamentals about Trump just won’t change. He demonstrates the profundity of his ignorance when he continues to talk about NATO dues. Countries have pledged to contribute 2 percent of their gross domestic product (GDP) to their own defenses, not to NATO. But does that figure make sense? Strategy should determine budget. Budget should not determine strategy. Put the horse first.

What does strategy dictate? We don’t need to worry about Soviet troops streaming through the Fulda Gap as we did during the Cold War. The issue today isn’t how many sorties we need to hit a target, but – thanks to cheap smart bombs – how many targets we can hit with one sortie. That means we don’t need as many military aircraft. Terrorism, cybersecurity, China’s oceanic land grabs, Russian incursions, North Korean nukes, and Iran are the top issues. They don’t require the same level of defense spending as the Cold War did. Is Trump asking what the spending requirements are for future strategic needs? Is he asking why Iceland, with no army, should spend 2 percent of its GDP on military spending? Of course not.

Black ignores one of the most troubling aspects of the Trump presidency, one that has largely gone under the radar: the implications of the yawning budget deficit that his profligate tax cut spawned. The reason it is dangerous is that no one has repealed the business cycle. At some point the long-running economic expansion will peter out. Analysts said that was another contributing factor to the stock market plunge on December 4, 2018 and the market has declined even further since. The sharp drop in new jobs in November, 2018 to 155,000 from 250,000 in October may be another harbinger, though I don’t like making predictions based on a snapshot.

But we can look at history. Expansions since 1854 have averaged 39 months. They have averaged 59 months since 1945. The current expansion has lasted 114 months. The expansion from 1991-2001 lasted 120 months. Both are outliers that bring up the average. (Note the overwhelming majority of these two long expansions were during Democratic presidencies.) The expansion will end. The only question is whether the downturn will be a mild business-cycle downturn or something more dangerous. The latter is possible because Trump is dismembering financial safeguards put into place after the Bush financial collapse. Financiers may be able to play dangerously with other people’s money yet again. Who knows where the danger lies? Underfunded state pension funds? Student debt?

Whatever the reason for the coming downturn, the tax cuts and resulting deficit put the administration in a fiscal box. It has little room to enact a financial stimulus package because of the debt. Compare the situation now with what Obama faced. The budget deficit as a percentage of GDP was 1.1 percent in 2007 and jumped to 3.1 percent in 2008 because of Bush's bank bailout, which was necessary. The 1.1 percent figure was historically low, so it was a good baseline to start with as the government financed a way to crawl out of the recession. With Obama's stimulus package and plummeting revenue because of the recession, the deficit as a percentage of GDP soared to 9.8 percent in 2009, the highest figure since World War II. But that stimulus package was critical to bringing the U.S. and global economies back from the brink.

Today, thanks to the GOP's woeful fiscal irresponsibility, the starting percentage will be 4.6 percent in 2019 and 2020, according to the Congressional Budget Office. That's not assuming a financial debacle. It’s a horrible starting point. And this does not assume much spending to alleviate what former Treasury Secretary Larry Summers aptly called the infrastructure deficit, another national disaster. Are Republicans willing to eat their fiscal-hawk principles with a Republican in the White House? If the past is any indication, they will show they are serious about deficits only when a Democrat is president. So maybe they will add even more fuel to the deficit fire. Any significant stimulus package could force the deficit to reach the double-digit percentage of World War II. This is unforgiveable fiscal mismanagement of the highest order. Why no mention of this, Conrad Black?

To prepare for the inevitable, Congress should quietly rescind some of the backroom deals in the tax cut. Such stealthy revenue increases would replicate Ronald Reagan’s numerous tax increases, which pretty much offset his tax cuts without raising income tax rates. He raised taxes on cigarettes, gas, capital gains, and corporations. He limited tax-advantaged deductions and benefits under pension plans. He taxed high-earners' Social Security benefits and forced the self-employed to pay both sides of the payroll tax instead of just the employee side. He generated revenue by broadening the tax base without raising individual income tax rates. It was a smart ploy to raise revenue, one that most Republicans either forget or simply refuse to acknowledge.

Congress today has to close different loopholes. The good news is that the public doesn't know what's in the recent tax bill so it won't know and object if Congress rescinds some of the benefits. The special interests that pushed the provisions will go berserk. So the question is whether Congress will have grown vertebrae and be able to withstand the inevitable pressure to retain the goodies. I would not bet on it. That means a self-inflicted financial disaster may loom for the U.S. That cannot bode well for Trump. He can’t blame this one on Obama. If the Democrat-led House passes legislation to deal with this and related issues, and the bills die in the Republican Senate, we all will know who the obstructionists are.

Successful Trump presidency? Hooey. In the next two years, barring impeachment, it’s likely to get worse. Trump is in a hole and keeps digging. He doesn’t have the brain power to know that when you are in a hole, the smart thing is to stop digging. From the basic functioning of government to climate change to national security to the economy, the United States will pay an incalculable price for the damage this buffoon and windbag is inflicting.

Editor’s Addendum – Those readers who wish to peruse the October 2018 National Post column by Conrad Black which motivated BestStory.ca contributor Stan Crock to set the Trump record straight can do so by following the link below:

http://www.conradmblack.com/1426/canadians-dont-see-the-kavanaugh-episode-for-what

July 23, 2018

With Donald Trump in the White House, the question likely isn’t ‘if’, but rather ‘when’ NAFTA will fail

Editor’s Note: This is Susy Abbondi’s follow-up, detailed analysis of the stalled NAFTA negotiations, 14 months after her first masterful “look" into the NAFTA talks was posted by us on May 17, 2017. Those readers who wish to know what makes Susy so proficient at researching and explaining complicated subjects, such as NAFTA, should check out her biography here.

Donald Trump has always sold himself as a great negotiator, the ultimate problem-solver. But just 18 months into his presidency – by summer 2018 – he had proved himself to be more of a dealbreaker than a dealmaker.

So far, the dealbreaker-in-chief has exited three major treaties – the Trans-Pacific Partnership, the Paris Agreement on climate change, and the Iran nuclear deal. And a fourth deal, the North American Free Trade Agreement, appears to be next on the chopping block, especially in light of Trump’s shenanigans following the G7 Summit at La Malbaie, Quebec on June 7-8, 2018, when he attacked Prime Minister Justin Trudeau for saying Canada would not be bullied by punitive tariffs imposed on Canadian steel and aluminum exports to the U.S. Trump said Trudeau’s outspoken position about the U.S.-Canadian trade dispute was going to “cost a lot of money for the people of Canada.”

Trump’s aggressive use of punitive tariffs has now landed him in the midst of a trade war of global proportions. From the outside looking in, it resembles the world of professional wrestling, where the “good guys” take on the “bad guys” in the midst of a grandstanding charade. The only trouble is that the U.S. has decided to start a wrestling match by hurling a folding chair towards the good guys. Perhaps this is not surprising from a president who made a cameo appearance in the World Wrestling Entertainment ring long before he stepped into the Oval Office.

At this point, the question begs to be answered: what happens if – or should we say when – NAFTA fails? It is a question not easily answered, but in this piece I will attempt to explore the biggest underlying issues preventing us from striking a deal, as well as the economic repercussions of a post-NAFTA world.

Is a deal even possible?

Now that NAFTA has come unglued, it has often been said that Canada has less to worry about as compared with Mexico because we have the luxury of falling back on our original bilateral Canada-U.S. Free Trade Agreement (CUSFTA). The agreement seized national attention for the better portion of two years as then-Prime Minister Brian Mulroney fought hard for re-election and for the agreement which faced a great deal of opposition, in what became known as the great free-trade election of 1988.

As per diplomatic notes, the CUSFTA was merely suspended when NAFTA was enacted in its place in 1994, and it is said it would come back in force should NAFTA lapse. Of course, there is no reason to believe this agreement is not also going to find itself in Trump’s crosshairs given Trump’s zero sum economic view and perceived hostility towards trade partners.

In short order, Trump has managed to undermine the liberal trading environment that American presidents of both parties worked very hard to foster since the first General Agreement on Tariffs and Trade (GATT) emerged from the ashes of World War II in 1948, which was the organizational precursor of the World Trade Organization (WTO).

The formation of the WTO brought with it a solemn promise for a more rational, predictable and fairer global economic order by reducing barriers and providing a forum for members to work out trade disputes. The system is far from perfect, but it is also far superior than the prospect of reverting to the 1930’s style of high tariff trade conflicts, which ultimately led to the Great Depression. With the way things are going, Canada may not only find itself with no treaty framework, but no WTO rules to fall back on either as the U.S. retreats from its leadership position on the global stage.

Take, take – no give

As Wilbur Ross, the U.S. Secretary of Commerce, put it during a CNBC interview on October 25, 2017, referring to the NAFTA negotiations: “We’re trying to do a difficult thing. We’re asking two countries to give up some privileges that they have enjoyed for 22 years. And we are not in a position to offer anything in return.”

There is a clear rift in philosophy (at least within the Trump-led administration) among the NAFTA partners. While Mexico and Canada have demonstrated their willingness to keep borders open, the U.S. keeps pushing a winner-takes-all agenda, which is seemingly incompatible with the principles of open trade.

Despite the empirical link between freer trade and economic growth, the U.S. strategy is exceptionally self-serving: to strengthen its position by weakening that of its trade partners. The danger is that it does so using arguments and facts that are either outdated or purely manufactured (more on that later).

The U.S. is seeking, among other things, to force a greater percentage of motor-vehicle-parts manufacturers to locate within its borders by strengthening American content rules as a condition of duty-free market access. It is also looking to limit access to the awarding of public procurement projects and to diminish the available recourse for foreign companies in unfair trade practice claims.

There is also the issue of the five-year, uncertainty-inducing sunset clause – akin to an automatic divorce every five years unless all parties to the pact agree to its renewal. Trudeau revealed that he was scheduled to travel to Washington at the end of May 2018 to discuss the trade deal with Trump, until Vice President Mike Pence presented him with an ultimatum: the meeting would only happen if he agreed to the sunset clause.

With no trade deal in sight, matters really began to ratchet up when the White House announced the temporary exemption on steel and aluminum tariffs, originally announced on March 1, 2018 would officially come to an end at the stroke of midnight on May 31, 2018. Tariffs of 25 percent on steel, and 10 percent on aluminum are now in effect on imports from Canada, the European Union, and Mexico.

Trade skirmishes

One of the best-known metaphors for the relationship between Canada and the U.S. is that of a mouse sleeping next to an elephant, as recounted by then-Prime Minister Pierre Trudeau almost half a century ago. Today, his son Justin Trudeau likens Canada to a majestic moose, even-tempered and strong – despite Trump’s volcanic reactions to perceived trade imbalances and the fact that Canada is massively outweighed by the American superpower.

Throughout the NAFTA negotiations, Canada, in an effort to pen a deal, inevitably ceded ground on many points it originally deemed “non-starters”, but it has also played its own game of hardball by filing its most damning complaint to date with the WTO in the midst of the contentious talks.

The 32-page complaint not only cites the age-old softwood lumber dispute between the two countries, as well as the American punitive tariffs on paper and Bombardier jets. It also includes 122 cases where the U.S. imposed duties on a long list of other countries, including China, India, Japan, Mexico, South Africa and the European Union.

The document serves as an example of America’s uncouth approach to trade, including improper application of levy penalties beyond what is acceptable by WTO standards, as well as the retroactive application of improperly calculated tariff rates. There are also accusations of bias – by limiting evidence from uninvolved parties and through a lopsided panel voting system rigged in favor of the U.S.

Washington reacted angrily to the filing, a move American trade czar Robert Lighthizer called a “broad and ill-advised attack on the U.S. trade remedies system.” He went on to say: "Canada's claims are unfounded and could only lower U.S. confidence that Canada is committed to mutually beneficial trade."

Canada appears to be acting as an ambassador for the benefits of trade and fighting the good fight on behalf of the globalized world, making its way to center stage just as the U.S. is turnings its sights inwards. Canada has demonstrated that we do indeed have a backbone – sorry! – and that we will not sign a deal at any cost.

Under friendlier circumstances, the trade grievance could also prove to be an effective negotiating tactic as the case could be dropped in exchange for a side deal on steel and aluminum export limits, softwood lumber, or laxer rules of origin for the auto sector.

But since the application of steel and aluminum tariffs, which Canada’s Minister of Foreign Affairs Chrystia Freeland has deemed “illegal”, the country has since filed another WTO complaint. That being said, Washington, Ottawa and Mexico City have litigated dozens of cases against one another over nearly a quarter century since the pact has been in place, and none of these disputes has ever escalated to threaten the existence of NAFTA – but there have also never been such high levels of animosity (and insults of a personal nature) between our leaders.

A matter of national defense?

Overall, Trump has taken an unconventional approach in his attempt to fulfill his campaign promise to protect U.S. steelworkers, as the tariffs come under the guise of a national security imperative. By applying Section 232 of the Trade Expansion Act of 1962, the president is authorized to restrict imports and impose unlimited tariffs on the grounds of national security. The justification is that a healthy industrial base is crucial to the nation’s military – even if, according to the Pentagon, only 3 percent of U.S. steel production goes towards defense.

Essentially, the Trump administration slapped allies with the most severe economic penalties to date with its tariffs on steel and aluminum. And resorting to calling it a matter of “national security” has added insult to injury given that Canadians have fought side by side with the Americans in every conflict since World War I.

This historic relationship is best exemplified by the Peace Arch, built 100 years after the War of 1812, where Canada (as a British colony) was swept up in the military conflict between the United States and Great Britain. Located at the westernmost point of the world’s longest undefended border between the U.S. and Canada, on the one side the inscription reads “children of a common mother” and on the other “brethren dwelling together in unity”.

Conflict between our two countries, whatever the cause, defies this very concept.

Understandably, to many trade analysts, the administration’s national security narrative looks weak – especially since Trump let it slip in a post-G7 tweet that the steel and aluminum tariffs were actually in response to Canada’s tariffs on dairy (which represent only 0.2 percent of U.S. exports into Canada). Anyhow, whatever the justification, the WTO gives countries broad leeway in defining their national security interests, in which case the governing body of trade could be reluctant to declare Trump’s tariffs a violation of global trade rules.

At this point, the only certainty is that the panel ruling process will be long and drawn out. It could be years before the national security rationale was deemed to be baseless and for the tariffs to be unwound. At which point, the WTO rules allow for compensation up to the value of the exporting country’s lost trade.

According to the Peterson Institute for International Economics, a Washington-based non-partisan institution devoted to the study of economic policy, Trump’s steel and aluminum tariffs would eliminate an estimated $14.2 billion of foreign product from the American market.

Trade losses to Canada due to these tariffs are estimated to reach $3.2 billion, while the European Union will experience losses to the tune of $3.5 billion (approximately €2.8 billion). Understandably, when faced with the prospect of these tariffs in March 2018, the E.U. was quick to draw up a list of products it would hit with a reciprocal tariff to make up for lost trade – it included cranberries, Kentucky bourbon and Harley-Davidson motorcycles. These duties finally came into force on June 24, 2018. Perhaps the president of the European Commission, Jean-Claude Juncker, put it best when he said: “We can also do stupid.”

China on the other hand – the one country that Trump repeatedly berated on the campaign trail and supposedly the main offender in question – is known to overproduce, flood global markets and, therefore, depress prices to the detriment of others. But Trump’s steel and aluminum tariffs are not likely to do much to solve that problem, given that of the decrease in American imports, only $689 million of the trade loss is slated to be from China. Thanks to trade barriers, China is only America’s 11th-biggest supplier, accounting for a mere 6 percent of imported steel. That’s because anti-dumping and countervailing duties have already blocked the majority of Chinese steel out of the American market.

The irony is that Trump's linking of trade and national security has targeted more allies than foes. Canada, for example, is the single largest market for U.S. exports – larger than Japan, China, and the U. K. combined. Canada is also America’s No. 1 supplier of metals, while Mexico is the fourth.

According to the Export Development Bank of Canada, 95 percent of Canadian steel exports and 88 percent of aluminum exports in 2017 were sold to the U.S. For the same period, Canadian aluminum producers supplied nearly 50 percent of all aluminum consumed by the U.S. market. In total, Canadian steel and aluminum exports totaled $16.6 billion.

Now the gloves are off – Canada has announced dollar-for-dollar tariffs of its own. By July 1, 2018, Canada commenced charging a surtax on 128 different American imports, ranging from steel to felt tip pens, to yogurt, beer kegs and even ketchup. The idea is that absolutely everything on the list can be replaced with a Canadian equivalent or that of countries other than the U.S. What’s more, all of the items have been strategically chosen to target high profile Republican districts and to grab the attention of Congress.

On the same grounds of national security, the Trump administration has announced another investigation to determine whether automobile imports (including cars, trucks and auto parts) are also a threat. When asked how tariffs on foreign autos could be justified, Trump replied: “It’s very easy. It’s economic. It’s the balance sheet. To have a great military, you need a great balance sheet.”

On July 19, 2018, U.S. automotive manufacturers, car-parts suppliers, car dealers and foreign diplomats lined up to testify at a U.S. Commerce Department hearing in Washington, D.C. looking into Trump’s threatened imposition – once again under the guise of national security concerns – of an additional 25 percent tariff on all autos and automotive-parts imports, including those from Canada supposedly protected by NAFTA. The Commerce Department, led by Wilbur Ross, is charged with recommending to the president whether or not to proceed with those 25 percent tariffs that he has indicated would help American workers.

However, the entire auto sector, including the Big Three of GM, Ford and Chrysler, oppose such a move, saying it would lead to higher prices for consumers, fewer cars being manufactured in America and fewer jobs in the industry.

The Financial Post reported on July 18, 2018 that Democratic Senator Doug Jones of Alabama and Republican Senator Lamar Alexander of Tennessee had announced plans to introduce legislation opposing Trump’s proposed 25 per cent tariffs on automotive imports. Both warned that the tariffs threatened tens of thousands of jobs in their states.

“Foreign automobiles and auto parts are not a threat to our national security,” Jones was quoted as saying. “But you know what is a threat? A 25 percent tax on the price of these imported goods.”

The Financial Post reported that U.S auto sales reached 17.2 million in 2017 — the fourth-best production year on record – and that U.S. automakers and parts suppliers had added 343,000 jobs since the end of the Great Recession in 2009. The Toronto-based daily went on to quote Mary Lovely, a Syracuse University trade economist, as saying of Trump’s threatened 25 percent tariff on auto imports: “This is really taking it up one gigantic notch. I do think it may be a bridge too far.”

A July 25, 2018 story in The Washington Post quoted President Trump’s senior economic advisers as saying that the president wanted to push forward to impose 25 percent tariffs on close to $200 billion worth of foreign-made automobiles and parts imported annually into the U.S. despite warnings from his own inner circle, Republican leaders and automobile business executives.

Trump is making it clear that he trusts only his own instincts and intuition when it comes to crafting policy, tweeting on July 25, 2018: “Every time I see a weak politician asking to stop Trade talks or the use of Tariffs to counter unfair Tariffs, I wonder, what can they be thinking? Are we just going to continue and let our farmers and country get ripped off?"

If Trump moved ahead with the 25 percent tariffs on autos and auto parts, it would more than quadruple the value of products covered by tariffs, bringing the total to $445 billion worth of goods, compared with $85 billion worth of goods covered by tariffs announced by Trump as of July 2018. It would also decimate the North American auto industry, especially Canadian plants in Ontario, which for the last 24 years have counted on the special status afforded by NAFTA to create a tariff-free, seamless auto production supply chain involving the U.S., Canada and Mexico.

The complaints of most Americans (and, of course, all foreigners) impacted by Trump’s trade wars seem to fall on deaf ears when it comes to the president. His answer to American farmers who say they are losing billions of dollars worth of foreign produce sales due to recently-imposed tariffs was to offer them $12 billion in subsidies starting in September 2018, saying he needs time to win his trade wars with foreign countries.

Trump’s “solution” for farmers did not sit well with his own party. “If tariffs punish farmers, the answer is not welfare for farmers,” Sen. Rand Paul (R-Ky.) wrote on Twitter, echoing many Republicans. "The answer is remove the tariffs.” Sen. Ben Sasse (R-Neb.) added: “The trade war is cutting the legs out from under farmers and White House’s ‘plan’ is to spend $12 billion on gold crutches. America’s farmers don’t want to be paid to lose — they want to win by feeding the world.”

Knowing that he was losing the support of the GOP with his harsh trade actions, Trump toned down his behaviour at a July 25, 2018 White House meeting with European Commission President Jean-Claude Juncker whereby he agreed temporarily to hold off on his proposed 25 percent auto tariffs against European cars if Europe would import more American soybeans and liquified natural gas. Of course, nothing was resolved concerning tariffs already put in place by both sides since March 2018 – such as those on steel and aluminum. Those issues would have to be dealt with in talks – which the two men indicated that they aspired to – aimed at signing a bilateral trade deal between the U.S. and the E.U.

Trump engaged in his typical hyperbole, calling the meeting with Juncker a major breakthrough. But the reality is that nothing was signed and no negotiating process or schedule was set up for future trade talks, which typically can take many months or even years to work out details acceptable to all sides in any future pact – well beyond the president’s attention span.

The truth is that while Juncker is the symbolic head of the E.U., any future trade deal would have to be ratified unanimously by the E.U.’s 27 member states in order for its provisions to come into force. Obtaining such unanimous consent from 27 countries is not an easy challenge or one that is resolved quickly. In the meantime, Trump could upset the entire process with its veneer of goodwill with one of his toxic tweets if even one E.U. leader were to make a statement on trade that irked him.

Even as he made a conciliatory gesture towards the E.U. in terms of not imposing any additional tariffs for now, that didn’t change the fact that Trump’s original tariffs against the E.U. are still in place, as are the tariffs he imposed in recent months against many of America’s other trading partners, including Canada, Mexico, China, Japan, South Korea, and Turkey. He has also complained about unfair trade practices by India, suggesting that the world’s second most populous country could be in line for similar tariff treatment.

What’s in a can of soup?

In a media blitz to justify and generate support for the steel and aluminum tariffs, the U.S. Secretary of Commerce explained during an interview with CNBC on March 2, 2018 that the national security concern, as per the action taken under Section 232, covers broader areas than just the military.

As Wilbur Ross explained, because both the steel and aluminum industries in the U.S. are working well below the capacity utilization that is needed for long-term viability of those industries, they are down to one supplier of the aluminum alloy used in satellites and other aerospace applications. Similarly, there is only one supplier left who can provide the steel alloy needed in the production of armored plates for vehicles used in warfare. As such, the tariffs are simply a means of getting these industries working towards a goal of 80 percent capacity because government contracts alone are not enough to ensure the necessary survival of these paramount businesses.

Defending the tariff decision, Ross asserted that the cost to American consumers from any retaliatory actions would be a small price to pay for the security of maintaining domestic steel and aluminum production.

For example, the Commerce Secretary contends that tariffs on steel would add a paltry 0.5 percent ($175) to the cost of a $35, 000 vehicle when the tariffs are applied to the tonne of steel used in manufacturing a typical car. (We should note that the calculation by Ross appears elementary, as there is a fair deal of waste in the process of production, as well as the use of generally more expensive steel alloys.)

To further illustrate what he called the negligible effect the tariffs would have, he held up a Campbell’s Soup can. “In the can of Campbell’s Soup,” Ross said, “there’s about 2.6 pennies’ worth of steel. So if that goes up by 25 percent, that’s about six-tenths of one cent on the price of a can of Campbell’s Soup...who in the world is going to be too bothered by six-tenths of a cent?”

President Trump’s move to impose tariffs on imported steel is meant to protect an industry that employs about 140, 000 Americans. Yet by raising the price of steel, those same tariffs stand to hurt a far larger group – the 6.5 million who are employed by industries which need to buy the steel.

Tariffs will eventually lead to higher consumer prices, which typically lead to slower economic growth and a reduction in the very type of employment the U.S. is trying to protect. Trade Partnership Worldwide, a consultancy that researches international trade, estimates that the proposed tariffs would create a little more than 33, 000 jobs in the metal industry, while at the same time destroying around 179, 000 metal-dependent jobs. The result is a net negative.

There is, in fact, a lesson to be learnt from the history books of economic policy. In 2002, President George W. Bush attempted to revive a struggling steel industry with the application of punitive tariffs he deemed “temporary safeguards” – although Canada was excluded. Sound familiar?

“This relief will help steelworkers, communities that depend on steel, and the steel industry adjust without harming our economy,” Bush proclaimed in a statement at the time. What actually materialized was essentially the opposite, with steel shortages, production delays, increased costs, and of course, job losses – by some estimates, as many as 200,000. Bush ultimately removed the tariffs.

If history teaches us anything, it’s that Trump’s proposed tariffs could jeopardize economic growth, ultimately leading to a significant increase in Americans forced to survive on cans of more expensive soup.

Revival of the old economy

It is hard to know how the situation will pan out, with far too many moving parts to make a realistic prediction, given amongst other things, the recently passed stimulative tax breaks, and the highly anticipated $1 trillion infrastructure bill to come.

The bigger question, however, is whether the U.S. should really desire to compete in the realm of industrial commodities, as these are the types of businesses that peaked decades ago. The White House nonetheless chooses to defend the “old economy” jobs, but it does so at the expense of value-added manufacturing, the evolution to higher tech and greater- paying jobs. Ironically, similar to the effect of the proposed rules of origin, higher prices for industrial materials could stimulate the desire to move production out of the U.S.

There’s also the matter of productivity: the steel manufacturing business has changed over the years. It may be convenient to pinpoint foreign competition as the culprit for lost jobs – especially given the national security argument for protectionist actions – but the biggest threat to steelworker jobs has actually been technology.

Allan Collard-Wexler of Duke University and Jan De Loecker of Princeton authored a study in 2015 titled, Reallocation and Technology: Evidence from the US Steel Industry. It found that steel jobs vanished principally because of new, extremely efficient mini-mills which produce steel largely from scrap metal.

With no available details at the time, the off-the-cuff tariff announcement made by President Trump sent markets into a tariff tantrum. Understandably, the potential for a wave of protectionism spreading across the globe is a serious matter. It is also tough to see how aluminum used to make beer cans and baseball bats could be considered a national security threat.

At its lowest point, the Dow Jones Industrial Average plunged over 550 points (nearly 2 percent) after the announcement was made on March 1, 2018. The S&P 500 and the NASDAQ Composite (which is heavily weighted towards tech stocks) both sunk 1.3 percent on the news. As a whole, the U.S. stock market lost more than $600 billion in value over tariffs that would be applied to a mere $40 billion of metal imports. Either stock market participants believe these tariffs will deliver a bigger blow than the White House thinks is possible or this is a matter that reaches far beyond just tariffs – my gut tells me it’s the latter.

As the U.S. indices sank, the old economy stocks reacted positively to the news because the tariffs charged on steel and aluminum will raise metal prices – and profits – across the board. The iconic United States Steel Corporation rose just shy of 6 percent on the news, and Century Aluminum skyrocketed 14.7 percent.

As the shares of steel and aluminum companies soared, those of America’s industrial manufacturers dropped, as the hike in input prices will inevitably make it harder for them to compete abroad. The likes of General Motors sank nearly 5 percent on the news. As imagined, Canadian producers, such as the Steel Company of Canada (now known as Stelco), got hammered by 7 percent.

The North American sell-off produced a knock-on effect as metals and mining stocks reacted in a similar fashion across the globe. The volatile carnage continued in the days to follow as trade war worries weighed on stocks, as did the resignation of Trump’s chief economic advisor Gary Cohn, who is an avid advocate of free trade – and potentially the last hope in changing Trump’s mind. As he exited the White House for the last time in early March 2018, markets feared that he may have taken with him the last shred of free trade spirit left in the West Wing.

Since then, market volatility has been on the rise with each rumor, new policy and trade-related tweet. The tariffs and threats have reportedly begun to take a toll as steel and aluminum prices – which are normally steady – have been on the rise and supplies have become scarce.

Automotive rules of origin

Perhaps no industry is more closely intertwined with NAFTA, or has more at stake with a shift in trade policy than the automotive sector. Not only is it both America’s and Canada’s largest manufacturing sector, but it is a major employer in all three member nations, supporting more than 7 million jobs in the U.S. alone. NAFTA also played an essential role, according to the American Automotive Policy Council, in the recovery of the sector after the global financial crisis of 2008.

The crisis slashed the demand for vehicles and pushed two (GM and Chrysler) of the “Big Three” American automakers to the verge of bankruptcy. The Canadian and American governments were forced to bail out the industry to the tune of $85 billion. Since then, total automotive production for the members of the trade pact has nearly doubled from 8.6 million light vehicles in 2009 to 17.9 million in 2016 (of which 12.2 million rolled off U.S. assembly lines), as per the Automotive News publication data center.

Over the years, NAFTA has pushed the auto-manufacturing sector to evolve in flexibility and efficiency. The industry that was once Motor City-centric found the majority of its assembly plants and auto parts suppliers close to the northern border with Canada. Today, as a result of the free movement of parts, the manufacturing footprint has shifted south, closer to Mexico which is not only booming in terms of production, but has emerged as a sales market and export base – thanks in part to its free trade pacts with more than 40 nations.

It is no wonder that one of the biggest hurdles to surmount in the NAFTA negotiations has been one of Washington’s earliest proposals to include the caveat that no vehicle shall be eligible for tariff-free treatment unless 50 percent of its content is manufactured on American soil. In the current agreement, there is no U.S. content requirement, only the stipulation that 62.5 percent of the parts originate from within the trade region. Throughout the negotiations, the U.S. had been pushing for this minimum to reach 85 percent, all in an effort to repatriate jobs and appease Trump supporters.

Given that the U.S. content demand would give the Americans a guaranteed economic advantage over their trading partners, the proposal was categorically rejected by Canada and Mexico. It should also be noted that according to the U.S. Chamber of Commerce, a domestic content rule in a trade agreement was previously ruled to be a violation of WTO rules in a case settled nearly two decades ago.

The current NAFTA rules of origin for autos is already the most stringent in any trade agreement in the world. But in an effort to find middle ground, Canada suggested including the value of intellectual property in the calculation instead of just parts because car companies and parts manufacturers spend millions of dollars on research and development to meet the ever-increasing fuel efficiency and emissions standards. This would inflate the numbers and, hopefully, be less disruptive to the industry.

The U.S. has since gone back to the drawing board, not only building upon Canada’s suggested compromise, but also dropping the antagonistic American origin demand which has been one of the biggest sticking points in the trade talks.

Initially, the U.S. proposal also called for more aggressive traceability (from raw material to finished product) and rigorous enforcement. In other words, the end of tariff-shifting, which is the practice (or coping mechanism – depending on your view) of changing the treatment of a product through the process of substantial transformation. It means that if a non-NAFTA item is further processed by a NAFTA partner, that item is deemed to be “transformed” and, therefore, counted as locally sourced in Canada, Mexico or the U.S. What’s more, the substantial transformation rule has been part of U.S. trade policy since it entered into force with the GATT in 1948.

In an op-ed written by Wilbur Ross, the U.S. Commerce Secretary, and published in The Washington Postem on September 21, 2017, he makes it abundantly clear that this will be a sticking point in the NAFTA talks. He argues that the current rules of origin, which were intended to limit non-NAFTA content in final goods is flawed, as the percentage of U.S. content in manufactured goods imported from both Canada and Mexico has fallen since the introduction of the trilateral trade pact.

The data Ross cites is from the Organization for Economic Cooperation and Development between 1995 (the year after NAFTA went into effect) and 2011. He states: “The data is available only until 2011, but there is no reason to think that the situation has improved since then.” In Canada’s case, he contends U.S. content decreased from 21 percent to 15 percent, and it dropped even further in comparison with Mexico, from 26 percent to 16 percent. Given that automobiles account for 27 percent of total U.S. imports from NAFTA trade partners, the content figures for the auto industry follow a similar pattern.

The Commerce Secretary’s argument goes on to say: “This problem is particularly troubling because the previous U.S. share of the content found in imports from Canada and Mexico is largely being absorbed by non-NAFTA trading partners and not by Canada and Mexico themselves…We cannot forget that the point of a free-trade agreement is to advantage those within the agreement – not to help outsiders. Instead, NAFTA has provided entry into a bigger market for outside countries, and the United States is paying the price.”

There is plenty of viable research available which disputes the figures stated by Ross. For example, the Center for Automotive Research (CAR) found that U.S. content in cars manufactured in Mexico has risen from 5 percent prior to NAFTA to hit a record 40 percent in 2014. In the case of Canadian-assembled autos, a Scotiabank Economic Report pegged the U.S. content at nearly 60 percent. A stark difference from the data used in the justification by the U.S. government.

Not surprisingly, Canadian and Mexican negotiators have called the strict rules of origin proposal “wholly unworkable”, but they are not alone in their frustration; the U.S. auto industry was vehemently opposed to Trump’s plan as it could throw a wrench into the gears of the U.S. auto sector. The good news is that after some much needed (and reportedly intense) consultation with the automakers, the Trump administration has adopted a new way of thinking. Not only did they drop the proposal to have 50 percent of the content produced in the country, but they have also scaled back their North American requirements from 85 to 75 percent.

The latest proposal also stipulates that rather than tracing or keeping track of the materials that are not originating within North America to meet the exemption requirements, they would instead adopt an all-or-nothing approach. The idea is to group material inputs into defined categories by content thresholds (ranging from 65 to 75 percent). If the parts in the category meet the content threshold, the total value will be counted as 100 percent, if not, they will simply be counted as having zero originating content.

Sourcing more auto components locally is in theory possible, although there are certain components which cannot be procured from wholly North American sources, such as semiconductors, for example, which make up an ever-increasing portion of modern vehicles.

Moreover, although we have seen that the auto industry is able to adapt and change, it can take an awfully long time, especially when the planning process of a new car ranges between seven to 10 years. Any abrupt changes to the system may result in damaging existing contracts and a diminished viability in existing plant and equipment. It would also hamper the flexibility of automakers to adapt to changes in the global marketplace.

The auto sector as a whole is already contending with several challenges, such as the emergence of autonomous vehicles, the ride-sharing phenomenon and the ever-increasing need to reduce emissions through electrification technologies. It is the cost efficiencies created by NAFTA’s integrated supply chains that have allowed U.S. automakers to remain competitive against the likes of lower-cost Korean and Japanese autos that have flooded the market with their affordable vehicles. Much of this continued success has been thanks to the ability to move certain aspects of production to lower wage Mexico.

Unfortunately, the shift in mindset towards content requirements was accompanied by the notion that would require U.S. automakers to produce in jurisdictions that have a set minimum wage. According to Jude Webber of The Financial Times, “The US is pushing for 40 per cent of light vehicles, and 45 per cent of pickup trucks, to be produced in areas where average wages in the sector are $16” per hour – well beyond those prevailing in Mexico.

The idea is to level the North American playing field, either incentivizing automakers to bring jobs back to the U.S. or otherwise increasing wages in Mexico. Given that labor costs make up about 10 to 15 percent of vehicle production, a sudden increase in wages could have a material effect on already single-digit profit margins.

Whether it is the increased compliance demands of origin tracking systems, the potential for wage increases, or some other aspect of the renegotiated NAFTA that ultimately raises costs for suppliers and manufacturers, the next question then becomes: does it make economic sense to adapt the business to meet the new tariff-eliminating requirements?

Trump believes that his suggested policies are going to be a boon for his country, its workers and the economy, but if the U.S. were to get its way, there would likely be some unintended consequences. Complying with the more stringent rules of origin or added costs is likely to cause producers to make non-optimal procurement decisions – but they can only be pushed so far. We should not forget the beneficial use of NAFTA, or any other trade deal, is certainly a privilege, but not an obligation.

Let me explain: if the resulting cost of compliance surpasses the saving from preferential duty qualification, the producer will simply ignore the rules and opt to pay the applicable WTO Most Favored Nation (MFN) tariffs. In the case of auto parts, it is a mere 2.5 percent, but it can also have a big impact on an already low-margin business in a trade-sensitive sector, such as auto parts.

Because tariffs are a tax on trade flows and not on net production, even a small levy could have a disproportionate impact in NAFTA’s tightly-knit supply chains. Auto parts often cross the border numerous times at different stages of production (estimates reach as high as seven or eight times), which means that the same product will be included in both export and import totals. To give you an idea, in an RBC report published in November 2017, titled Life After NAFTA? it states: “Canadian exports of finished motor vehicles to the U.S. totaled $63 billion last year, though the sector’s direct contribution to GDP was about $8 billion.”

For those manufacturers who elect to pay the tariff, there would be an extra incentive to reduce costs by moving production to a lower-cost zone, such as Asia, for example. For those who choose to remain, there are several options for firms to adjust to squeezed margins – none of which are likely to please the Trump administration – such as replacing workers with robots or moving production abroad.

Finally, limiting the ability of manufacturers to source raw materials globally will not only raise costs, but will produce lower returns for investors, give fewer choices to consumers and render the industry less competitive. According to CAR, the withdrawal from NAFTA could also result in the loss of tens of thousands of U.S. automotive and parts manufacturing jobs. They also noted, “China would become a more dominant player in automotive parts, components, and intermediate goods” should NAFTA collapse.

China, China, China

China – albeit indirectly – may further complicate the NAFTA negotiations, as both Canada and Mexico are participating in the recently rebooted TPP – now called the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). The Asia Pacific trade pact runs counter to Trump’s trade goals – especially in the auto sector. As Trump pushes to shrink the foreign content in duty-exempt vehicles (somewhere in the range of 15 to 25 percent), the TPP allowance is at the other end of the spectrum at 55 percent. The deal will allow for more pieces to be imported from Asia, including from countries not in the deal – like China.

A report published by the Office of the Chief Economist at Global Affairs Canada, titled Economic impact of Canada’s participation in the Comprehensive and Progressive Agreement for Trans-Pacific Partnership concludes that the “liberalization of Canada’s trade with other new FTA partners will displace imports from existing FTA partner countries in Canada”. As such, American imports into Canada are expected to fall to the tune of $3.3 billion, led by a decline in automotive parts.

In percentage terms, the decline which amounts to nearly 1.2 percent of a $278 billion U.S. import market (of which $58 billion was in vehicles for 2016) may not be significant, but it may be enough to leave a sour taste and give this protectionist administration all the more reason to be inflexible in its demands. Especially now that China is also in Trump’s aggressive line-of-trade fire and matters on that front have escalated beyond the initial 25 percent tariffs imposed by the president on $50 billion worth of Chinese imports as of July 6, 2018. Not surprisingly, there was swift retribution from Beijing.

All told, there is the potential for $450 billion in tariffs, covering nearly 90 percent of the goods China sends to the U.S. The issue is that the U.S., in turn, does not send as many goods back to China, leaving China short-changed in its revenge. The fear among American businessmen is – and it had already begun by July 2018 – that this would lead China to adopt other tactics for revenge, such as calls for a boycott of U. S imports and the imposition of additional bureaucratic measures, such as increased paperwork and delays for American goods trying to clear Chinese customs.

There is no doubt that China has failed to live up to its WTO commitments, but America’s position with that country would be much stronger if it were able to present a united front, with the support of Europe, Mexico and Canada. Instead Trump has picked trade fights with his allies, which in turn has driven them to explore closer relations with Beijing.

Decisions, decisions

As reported by The Associated Press on June 21, 2018: “John Murphy, a senior vice president at the U.S. Chamber of Commerce, estimates that $75 billion in U.S. products will be subject to new foreign tariffs by the end of the first week of July.” And these figures are expected to keep climbing.

We are already beginning to see the impact of retaliatory trade barriers on business decisions with the latest announcement on June 25, 2018 from America’s iconic motorcycle manufacturer, Harley-Davidson. As a consequence of retaliatory tariffs set by the European Union, the Milwaukee-based company has decided that it will shift some of its production oversees in an effort to circumvent the applicable tariffs which have reportedly jumped to 31 percent from 6 percent for motorcycles imported from the U.S. In the case of Harley’s premium bike prices, this adds approximately $2, 200 to the price of the average motorcycle sold on European soil. In response, Trump threatened that moving production abroad would “be the beginning of the end.”

In 2017, the company sold nearly 40, 000 motorcycles in the E.U. (about 17 percent of worldwide sales). For the time being, the company is expected to eat the added expense of the tariffs in an effort not to alienate buyers and to avoid permanent damage to the market. If sales remain at a similar level to last year, the tariffs are expected to cost the company between $90 and $100 million a year – a major hit to the bottom line. Harley reported that it could take up to 18 months to effectuate the change in production.

In the meantime, Trump has continued to tweet about the company saying, “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag. I fought hard for them and ultimately they will not pay tariffs selling into the E. U…Taxes just a Harley excuse – be patient!” The president seems confident in his assertion of victory, but companies which exist for the benefit of their shareholders do not have the luxury of waiting around, nor did they enlist for the trade battle they find themselves in.

Of course, Trump famously believes that “trade wars are good, and easy to win” despite the fact that casualties are now starting to roll in from the battlefield. Senators on both sides of the isle have begun to take notice and are raising their concerns as companies such as Kraft-Heinz contemplate returning their ketchup production to Canada to avoid retaliatory tariffs.

Pulling out of NAFTA

Does Trump really have the authority to pull out of the trade pact? Experts offer up mixed opinions: for the time being, there is no clear answer.

From the time Trump made his way onto the political scene in June 2015, we have heard him utter threats many times about a NAFTA termination. He has always talked about the pact’s demise, as if he could pull the plug as easily as he tweets his famously inflammatory remarks.

With no deal in sight, a hot debate has since ensued amongst legal scholars as to a president’s powers and whether he could withdraw without being authorized by statute.

The U.S. Constitution is based upon separations of power: in essence, after the president gives notice to Congress of negotiation intent, Congress is consulted throughout the process and is liable to review the draft agreement and its accompanying legislation. When the agreement is finalized, it is Congress which ultimately rejects or approves it. If approved, the president has the authority to sign the trade agreement and make it official.

To bridge this division of the president’s executive powers and Congress’s power over trade, Congress passed the Trade Priorities and Accountability Act in 2015. In essence, Congress lends its power to the president who works under a new set of rules known as fast-track legislation. Under this scenario, Congress can merely approve or deny international trade agreements, but it cannot amend them or subject them to filibuster.

Interestingly, the act is silent on the matter of withdrawal or termination. Similarly, the U.S. NAFTA Implementation Act gives the president the power to make a proclamation on the implementation of the pact, but it does not grant him the power to revoke it.

If no deal can be reached and Trump ultimately decides to pull the plug, he would need to sign an executive order with the intention of withdrawal, at which point the countdown would officially begin. Once the six months was up, another executive order would be needed to make the exodus official.

Many regulatory and legislative experts argue that the second executive order would not suffice, given that Congress ratified and implemented the agreement in the first place. Trump may very well need Congress to repeal the enacting legislation, but there is no guarantee the measure would pass because there are many supporters of NAFTA on each end of the political spectrum.

Also, since the negotiations began, Canada has turned the charm offensive into high gear by enlisting the help of Canadian ministers and consular officials in a grassroots effort to generate support for the trade deal – these meetings have continued despite the apparent stall in the official talks. By pushing the merits of NAFTA to local businesspeople, chambers of commerce, farmers, union leaders, as well as local and state legislators, the hope is to persuade Congress to block a move to kill NAFTA. But congressional opposition may not be enough to save the day.

It could be quite possible for Trump to go over the head of Congress – but it could also turn into a sticky situation. Lawmakers could, in turn, try to stop Trump on constitutional grounds. This would be uncharted legal territory: no court has ruled on a comparable matter because the only trade deal the U.S. has ever terminated was in 1866 – before the formation of Canada.

In the meantime, so long as the litigation was tied up in the U.S. court system, the trade pact would remain in force. We would in theory be spared – at least temporarily – the short-term economic shock and post-NAFTA adaptation period. Trump would normally also require the authorization of Congress to apply new tariffs to any imported goods and services – which he avoided with the steel and aluminum tariffs by citing national security concerns. It is a pattern we have seen continue with his threats on imported vehicles.

In Canada’s fallback case, in regards to the suspension of the original CUSFTA, CBC News reported on June 9, 2018 that according to international trade lawyer Mark Warner: “It's entirely plausible that Canada and the U.S. would disagree about whether the earlier deal would remain suspended or automatically brought back into force. And that dispute could well end up in international court.”

However the matter turned out, trade partners would be left in limbo – what has come to be known as a “Zombie NAFTA” state. Economic uncertainty would become the new normal as we lumbered along, each step slow and arduous, dealing with the thickening of the border, interrupted supply chains and investment insecurity.

Life without NAFTA

Withdrawal from NAFTA (and the FTA) – whether authorized or not – would subject trade among the three countries to most favoured nation rates, as set by the WTO. This would render the divorce more manageable, provided the U.S. continued to respect its WTO commitments, although this would seem unlikely given the recent behavior of the administration.

At this point, experts are hesitant to make any ambitious economic predictions because there are far too many unknowns involved. But all agree that while the end of NAFTA would certainly reduce short-term economic growth, it would not be a disaster of colossal proportions for Canada. In other words, the divorce would hurt a little, but eventually we would get over it.

RBC’s November 2017 research report aptly titled, Life After NAFTA? predicts that a 4 percent across-the-board increase in tariffs between Canada and the U.S. – roughly the equivalent of reverting from NAFTA to WTO tariff rates – could reduce Canadian GDP growth by about 1 percent over five to 10 years, which would mean between a 0.1 and a 0.2 percent decrease per year. These figures may seem trivial to some, but the RBC report says “it adds up to a substantial amount of foregone production potential – about $20 billion (in today’s dollars) of annual output over time.”

On a brighter note, only “a minority of the half million Canadians working in highly trade-sensitive sectors would be most affected.” The auto manufacturing and auto parts industries are chief among those at risk. It is also expected that the province of Ontario, which is heavily skewed towards the auto sector, would bear the brunt of the pain.

Even industries not reliant on trade could experience second-hand effects, such as the diminished support of retail and construction businesses from the rise in unemployment of autoworkers.

In response to NAFTA’s collapse, the Canadian dollar would be expected to swoon in an effort to offset the increased cost of Canadian exports and render them more competitive. The mere suggestion of Trump’s intent to withdraw has put pressure on the dollar, as have the steel and aluminum tariffs. Similarly, we have seen it bounce back when government officials successfully provide reassurance as to the future of the pact – sending the loonie on a temperamental roller-coaster ride.

Corporations that have integrated operations and supply chains scattered across the NAFTA free trade zone, such as General Motors, Ford Motor Company and Magna International, could see their share prices suffer. We have already had a taste of the market’s reaction to the proposed steel and aluminum tariffs amid fears of a trade war.

As we have already seen, we can expect a rise in market volatility, especially in the near term, which would weigh on business and consumer confidence, hampering growth even further. Interest rates would also experience downward pressure, as investors would be likely to abandon the stock market in search of safer assets.

The loss of NAFTA would also mean the loss of a bi-national panel review dispute settlement mechanism, which would mean ongoing battles such as that with softwood lumber would be relinquished to the U.S. court system. Canada would also become more vulnerable to non-tariff barriers, such as creating customs delays via additional shipment inspections, the need for additional licensing requirements, or simply the imposition of quotas.

Without tariff-free access to the U.S. market and in the face of uncertainty, the business investment equation changes significantly. Investors and foreign companies alike would not only face more costs, but inherently more risk. All the more reason to think twice before investing.

With that being said, a world without a Canada–U.S. trade agreement would not stop trade between our two countries. In fact, the majority of the world does business with the U.S. without any bilateral trade agreement, including Japan, the European Union, and, of course, China. There would be an inescapable adjustment period, but in the end, Canadian trade would recover.

Canadians abroad

Perhaps the biggest threat remains to Canadians who find themselves living in the U.S. under TN (Trade NAFTA) visas. It is a unique immigration category in that it was not created by domestic law, but rather through NAFTA itself.

It boils down to a list of 63 occupations (although it is in need of a modernizing facelift to include digital-era jobs), which liberally allows educated professionals to work and live in America. Unlike any other work visas, TNs are granted instantly at the border, and there is no limit on how many times the three-year work permits can be renewed.

Just as we have blended supply chains, businesses with operations on either side of the border need the mobility of labor in the name of innovation and efficiency. According to The Financial Post (December 29, 2017), the “U.S. issued 14, 768 NAFTA professional visas (TN visas) to Canadians and Mexicans in 2016.” And over 56, 000 were issued in the last five years – although the split remains unclear.

If NAFTA were to be no longer, it would be expected that this immigration category would disappear alongside it. It is unclear what would happen to those living in the U.S. – would they be sent home immediately because they are stealing good American jobs? Would they be allowed to stay until the expiry of their TN visas? Or would they be given an arbitrary amount of days to gather their things and leave? …Is that a marriage proposal I hear?!?

Similarly, E-2 investor visas are only available to citizens of countries with which the U.S. has trade agreements. These visa-holders are creators of jobs in the U.S., and should they be forced to leave, their expulsion could end up needlessly damaging the U.S. economy. According to the U.S. government, between 2007 and 2016 over 20, 400 such visas were granted to investors and their families.

Perhaps from this perspective, there is a silver lining for Canada. It may not only reverse the “brain drain”, but it could entice companies to open local Canadian offices. And if that’s not enough, Canadian companies could turn their sights to Europe to fill the void with the Canada-European Union Comprehensive Economic and Trade Agreement (CETA), which mimics NAFTA in terms of professional labor mobility.

Winners and losers

Whether we like it or not, Canada is now being forced to contemplate life without a free-trade agreement with its most prominent trading partner. U.S. trade czar Robert Lighthizer has said in the past that if three-way NAFTA negotiations fall through “we are prepared to move on a bilateral basis.”

In fact, on July 18, 2018, Trump announced that his administration was having “very good” trade talks with newly-elected Mexican President Andres Manuel Lopez Obrador and that the U.S. might strike a bilateral trade deal first with Mexico in the near future and then try to do a separate deal with Canada at a later date.

Mexican Economy Minister Ildefonso Guajardo Villarreal said on the same day that he planned to travel to Washington for bilateral trade talks on July 26, 2018, and would later meet with Canadian officials. At the same time, he told reporters that the three countries were scheduled to resume NAFTA negotiations at some point in the future.

When asked whether trilateral and separate Canadian trade talks were off the table, White House Press Secretary Sarah Sanders said on July 18, 2018: “We’re continuing both of those tracks. We see a lot of progress on the conversations with Mexico, and if we could make a bilateral deal with them, we’re certainly very happy to do that. But again, we’re continuing both conversations, both tracks.”

Bilateral – rather than trilateral – trade deals could change the playing field because Canada’s situation is significantly different than Mexico’s. Not only were the Canadian and U.S. economies integrated long before NAFTA, but our trade is fairly balanced. Despite Trump’s often-heard claim that the U.S. has a major deficit with Canada – usually citing a $17 billion figure. Of course, Trump does have a point if you only include the trade of goods and exclude the trade of services from the equation!

On March 15, 2018 Trump defended his trade deficit stance by tweeting: “We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive). P. M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S. (negotiating), but they do...they almost all do...and that’s how I know!”

Most recently, Trump’s figures have been escalating. In an attention-grabbing June 10, 2018 tweet he said: “According to a Canada release, they make almost 100 Billion Dollars in Trade with U.S. (guess they were bragging and got caught!). Minimum is 17B.”

Turns out that this maximum of $100 billion deficit is a figure which has been promoted by the U.S. trade representative based on a misunderstanding of the data provided by Statistics Canada. The erroneous use of data stems from the fact that Canada reports its figures differently and includes the re-export of goods from third countries in its calculation of a merchandise trade deficit, which amounts to $98 billion. So, for example, if a washing machine from China on its way to the United States makes a pit stop at Vancouver’s port along the way, the U.S. not only counts that in its deficit with China, but it also counts the same machine as part of the trade deficit with Canada.

Canada, of course, includes a notice to the users of this raw data, but the U.S. is clearly willing to distort the truth to make its point and generate support for the cause. The Washington Post fact checked the President’s statement and gave it four Pinocchios! It is a worrisome state of affairs when you are trying to negotiate with a country that has little respect for the facts, no sense of fair play, and no apparent interest in how they are perceived on the world stage.

As for the presence of a trade deficit or surplus, most respectable economists would agree that it is not an appropriate measure to judge the success of a trade relationship, but the American president nonetheless views these figures as key evidence of which country is “winning” or “losing”.

The notion that trade is only favorable when exports equal imports, is not only unlikely, but it is terribly misguided. First, countries of varying populations and economic means cannot be expected to match the buying power of the U.S. Second, it does not take into account the benefits derived from the imports of raw materials, intermediate goods or capital equipment, which in turn can churn out products and create additional jobs.

America is a consumption-based society, which has always been able to expend more than it produces and it has done so every year since 1976. That is, in fact, an enviable position to be in. It also means that America owes money to the rest of the world in the form of bonds – think of it like a cheap line of credit. If the U.S. does not make good use of it, that’s America’s problem, not the trading system’s.

It is also worth noting that because the U.S. dollar is a world reserve currency, there is an added factor of demand constantly propping up the exchange rate. A strong dollar also makes imports cheaper – naturally deficits ensue. Under different circumstances, the value of the American dollar would have likely diminished a long time ago, rendering U. S exports cheaper and helping to reduce the deficit.

Trump may very well think the U.S. is on the losing end of trade with Canada. However, the Office of the United States Trade Representative confirms that “the U.S. goods and services trade surplus with Canada was $12.5 billion in 2016.” Overall, Canada is, by far, America’s best customer and the most important export market for 35 American states. Hopefully logic and truth will prevail one day, and our being on the losing end of trade with the U.S. will work in our favor to keep the gates of free-trade open between our two countries should we need to renegotiate a bilateral trade agreement.

Moving on…

If the U.S. decides to remove itself from the pact, NAFTA could live on between Canada and Mexico. Under Article 2205, the treaty itself provides: “If a Party withdraws, the Agreement shall remain in force for the remaining Parties.” There are many complex relationships at stake, but the big question is whether continuing the terms of the trade pact without the participation of its largest member makes any sense.

Granted, Mexico has made progress to ensure the safety of foreign direct investment, in large part thanks to NAFTA. It has also improved its infrastructure and enhanced legal transparency. The lower labor costs have also allowed numerous Canadian companies to compete more effectively. But there is no telling what will happen to the Mexican economy if NAFTA is left with only two amigos.

In the meantime, Canada has been busy looking elsewhere for trade partners as part of an ongoing mission to expand trading opportunities across the globe. Progress to date includes CETA, which came into force on September 21, 2017. The agreement not only eliminates tariffs between Canada and the E.U., but it opens substantial opportunities in the European government procurement sector.

Canada also recently signed CPTPP, but the issue is that all of these other trade pacts are not in the same league as NAFTA. For the time being, Canada trades more with the border state of Michigan than the European Union. And Canada’s two-way trade with the Asia-Pacific region is less than $170 billion – only a quarter of its trade with the U.S.

Canada has turned its sights on South America with the recently launched free trade talks with the Mercosur bloc of nations – which includes Argentina, Brazil, Paraguay, Uruguay and Bolivia – which it is in the process of joining. (Venezuela’s membership is understandably suspended.) Mercosur is the next largest trade bloc in the hemisphere after NAFTA and is an area of untapped potential.

Trade in Canadian auto parts for example – one of the areas where we do, in fact, have a surplus with the U.S. – could benefit from diversification, given the uncertainty in the NAFTA auto sector. The two powerhouses of Brazil and Argentina would be a welcome alternative, but as it stands Canadian auto parts are currently subject to a hurtful 35 percent tariff in Mercosur nations.

But even the 2.6 million vehicles produced in Argentina and Brazil in 2017 pales in comparison with the over 12 million vehicles built in America during the same period.

Ironically, if NAFTA fails and Mercosur succeeds, Canada may find itself in free trade deals with almost every other American nation, except its original trade partner – the United States of America.

Going back in time

On the first day of March 2018, a telling report called the 2018 Trade Policy Agenda and 2017 Annual Report of the President of the United States on the Trade Agreements Program was released by the Office of the U.S. Trade Representative.

It revealed that Trump’s trade agenda rests on principles espoused by George Washington, who served as America’s first president from 1789 to 1797. Washington said that when it comes to trade “there can be no greater error than to expect, or calculate upon, real favors from nation to nation.” He also cautioned that trade agreements should be “temporary” and “abandoned or varied, as experience and circumstances shall dictate.”

Trump’s terrifying tariffs for the sake of economic independence are the perfect embodiment of this 200-plus-year-ago mentality. It is also the opposite of everything today’s rules-based system stands for.

Aside from the existential risk to the world economy expected to ensue from Trump’s antiquated protectionist policies and unfolding trade war, the greatest long-term injury from this fiasco is likely to be to America’s reputation. Only time will tell if it can ever recover…

February 19, 2018

The Expat Files: My Life in Journalism

 

Editor’s Note: When I heard that my former colleague Ken Becker had published a memoir of his life in journalism, I wasted no time contacting him and asking for permission to post an excerpt on BestStory.ca.

During my years as Montreal bureau chief for United Press Canada (a sister service of UPI) between 1983 and 1985, I dealt frequently with Ken, who mostly ran the day-to-day operation at our Toronto headquarters.

Ken was the principal go-to “slot man” who edited the copy that we journalists in bureaus across Canada sent to him – usually under extreme deadline pressure – before putting it out on the wire to media clients around the world.

The only thing I knew about Ken was that he was a veteran editor who didn’t talk much and worked real fast to shoot our stories out on the wire to beat the competition at Canadian Press. The extent of a typical conversation was when he answered the phone with his New York bark of “Becker”, followed by the words, “Good job, buddy!” after we had finished our brief discussion about the breaking story being edited by him.

So I read with great relish all the details of his colorful career and personal life in The Expat Files: My Life in Journalism. In the book, he writes about stumbling into the news business as a 19-year-old copyboy at the New York Times in 1966 and landing his first job as a reporter at a newspaper in northern California in 1968.

 He tells readers that his skills as a journalist only started to take shape in 1970 after he joined United Press International in New York under the influence of – and with – legendary editor Lucien Carr, a muse to such Beat Generation writers as Jack Kerouac and Alan Ginsberg.

From UPI-New York, Ken was transferred to Canada at a time when he was also dealing with a split from his Swiss wife, Anita, who was living in Bern with their young daughter, Kate.  After about 20 months as Vancouver correspondent, Ken moved to UPI’s Canadian headquarters in Montreal in September 1974. That’s where we pick up the story with the following exclusive excerpt from Chapter 10 of Ken Becker’s book, The ExPat Files.

The Washington Post's mobile app headline caught my attention: ‘Un-Happy Canada Day! Why America’s northern neighbor is so bad at celebrating itself’. The article, published in the June 30, 2017 edition of that newspaper’s Outlook-Perspective section, was written by well-known Canadian journalist Jonathan Kay.

(Note – the desktop version of the story carried the headline: ‘Happy Canada Day. Don't get carried away with the celebration, please.’ Other than the headlines, both the desktop and app versions of the story were identical, and negative.)

The gist of Kay’s analysis was summarized in a one-paragraph precede which ran under the headline and before Kay’s byline: ‘Our nation never faced a life-or-death test, which explains our introspection and self-doubt.’

What followed is a rambling 2,200-word farrago of flummery and fecklessness. Kay’s tendentious prose seems intended to undercut Canada’s national identity, which he describes as being in “crisis” and in “full display as we celebrate our 150th birthday”.

In these days of “alternative facts” and “fake news”, one would hope that an experienced and respected journalist, such as Kay, would take the time and care required to provide balance and context to an analysis of one of the great democracies in the world. It was obviously a piece which he wrote primarily to edify our American neighbors, who themselves should be – and are – justifiably proud to live in one of the most liberal democracies known to mankind.

Unfortunately, if left unanswered, Kay’s turbid, disjunctive essay appearing in a prestigious publication such as The Washington Post would leave a distorted view of both Canada and Canadians, who have a profound pride and love for their country.

With that in mind, what follows is a succinct critique of Kay’s essay, together with some insights I believe should have been included in order to give a more balanced view of where Canada stands as it celebrates its 150th anniversary this year.

Point # 1: Kay uses about one-third of his piece to glorify wars as “instruments of national bonding”, concluding that unlike other nations of the world – the United States, Israel, India, Pakistan, Taiwan and France – Canada has no distinguished military past around which its citizens can rally via collective memory.

Kay says: “The most consequential military battle in our history was fought on the Plains of Abraham more than a century before Canada even came into existence.” 

How can Kay cite the Battle of the Plains of Abraham fought outside the walls of Quebec City in September 1759 as being “the most consequential military battle” in Canadian history when it was primarily French and British soldiers – not Canadians – doing the fighting?

Now for some historical context: This North American conflict, called the French and Indian War, was itself part of the world’s first global conflict known as The Seven Years’ War (1756-1763) pitting Britain, Prussia and Hanover against France, Austria, Sweden, Saxony, Russia and, eventually, Spain. In addition to North America, they fought in Europe, India and on the high seas.

Ironically, George Washington, who would go on to become the first U.S. president, fired the shots which precipitated this first world war, which led to the British capture of North America and was the forerunner of the American Revolution.

It happened innocently enough when Washington, then a Virginia militia lieutenant colonel (Virginia was one of the 13 original British colonies), ambushed a small French detachment in the Ohio Valley in 1754 even though war had not yet been declared between Britain and France. His rash action led to more jockeying and skirmishes between British and French forces in North America. Finally, Britain declared war on France in May 1756.

(Gillian Brockell, a digital video editor with The Washington Post, wrote a detailed account of Washington's “ambush” incident in the July 4, 2017 issue of that newspaper.)

The war in Europe, India and North America ended with The Treaty of Paris in 1763, by which France ceded Canada to Britain in return for the Caribbean islands of Martinique and Guadeloupe, and the Gulf of St. Lawrence islands of St-Pierre and Miquelon.

Of course, victory came at a financial cost. The British, staggering under a war debt of £150 million, tried to impose a series of taxes on their 13 American colonies even though such actions flew in the face of their own principles that only those with parliamentary representation could be taxed.

The American colonists, who had no voice in the British parliament, didn't take well to the tax measures. On December 16, 1773, they threw a party – the Boston Tea Party – where they dumped a shipment of British tea in Boston harbor. On April 19, 1775, the colonial militia known as "minutemen" fired the first shots of the American Revolution at Lexington, Mass.

Getting back to Kay, he writes: “Our whole history is so lacking in drama as to defy celebration.” As for his contention that Canada has never faced a life-or-death threat around which it could bond, it should be pointed out that after becoming part of the British Empire in 1763, Canada had a long and distinguished military history, whereby its troops have been recognized repeatedly for their competence and bravery. Kay dismisses such military feats with the following comment: “The big military battles in every modern war we’ve fought have been thousands of miles away. And so the usual narrative that binds nations together – our enemies came for us, but they could not defeat us – has no relevance.”

Well, here is a news flash for Kay: If Adolf Hitler’s forces had not been defeated in Europe during the Second World War, we in North America would all be speaking German now – that is, those of us whose forebears were not annihilated in Nazi death camps because of our religion or culture. And coming back to the current situation in the world, if Coalition Forces do not subdue the threat of ISIS in the Middle East in the coming months and years, there will be increasing terrorist attacks throughout the world, including in the U.S. and Canada.

So here is a partial list of prominent military actions fought by Canadians over two centuries, which Kay says is not relevant to Canada’s self-image, a point on which I respectfully disagree with him:

• After the American colonies revolted against the British Crown in 1775, Canadian militiamen declined to join their revolution and instead fought off two American invasions – one in 1775 and the last one in 1812.
• Canadian forces fought alongside Britain in the Second Boer War (1899-1902) in South Africa.
• Canada, as part of the British Empire, sent 424,000 soldiers overseas in the First World War to fight the German and Austro-Hungarian empires. Canada joined the war in 1914, compared with 1917 when the U.S. sent troops to fight on the Allied side.
• At the Battle of Vimy Ridge (April 9-12, 1917), Canadian troops won control of  heavily fortified German high ground in the Calais region of France at a price of 10,602 casualties.  It – not the Battle of the Plains of Abraham, as Kay contends – is considered Canada’s most significant military victory and is seen as a symbol of Canadian national pride.
• Canada entered the Second World War on September 10, 1939 to fight alongside the Allied forces led by Britain and France against Nazi Germany and the other Axis powers. Between 1939 and 1945, more than 1 million Canadians joined the armed services out of a population of only 11 million people. Some 93,000 Canadian soldiers played a major role in the liberation of Italy, fighting against ensconced, crack German troops in difficult mountainous terrain for 20 months, starting on July 10, 1943.
• It is interesting to note that whereas Canada entered the Second World War right at its start in 1939, an isolationist America entered the war only after the Japanese launched a surprise attack on Pearl Harbor on December 7, 1941. The U.S. declared war on Japan (not Germany) on December 8, 1941. But on December 11, 1941, Nazi Germany, which was allied with Japan, declared war on the U.S., guaranteeing that American troops would end up joining the Allies in their campaign to liberate Europe.
• Between 1939 and 1945, Canada developed a wartime munitions industry which produced more than 800,000 military transport vehicles, 50,000 tanks, 40,000 field, navel and anti-aircraft guns, and 1.7 million small arms. Some 348 merchants ships were built to transport supplies to Britain, and 16,000 military aircraft were assembled for use by the Allies. Without Canada’s contribution, it is unlikely that Britain could have survived the Nazi onslaught until the Americans entered the war and tilted it in favour of the Allies.
• Canadian troops have participated in the Korean War (June 1950-July 1953); the Gulf War (August 1990-February 1991); the Kosovo War (March 1998-June 1999); the War in Afghanistan (2001-present) and the war in Iraq-Syria (ongoing) against ISIS.

How ironic is it that Kay makes an allusion to one of France’s “national bonding” events as being the liberation of Paris in August 1945 by the French Resistance. He does not mention that it was the approaching troops and military might of the U.S. Army that persuaded Dietrich von Choltitz, commander of the German garrison and military governor of Paris, to surrender, allowing General Charles de Gaulle to take control of the city as head of the Provisional Government of the French Republic.

And how about the role played by 156,000 Allied troops – including American, Canadian, British, Australian, Belgian, Czech, Greek, New Zealand, Dutch, Norwegian, and Polish – who took part in the D-Day invasion establishing a beachhead in Normandy that allowed the U.S. to send forward their tanks and infantry to liberate Paris? Does Kay not consider that a seminal bonding experience for troops of all the nations involved, including Canadians?

From personal experience, I can tell you that my father, Abe Perley, volunteered to fight with other Canadians in the Second World War and served in the European theatre of conflict for three long years, separated from his newly-wed wife, because he believed in the cause of ending Nazi tyranny. He did not speak often of his wartime experiences, but it was clear to me that his participation was based on doing what was right for our country…and for the world.

So let’s put a stake through Kay’s canard that Canada has no historical feats of military bravery and daring, which we as Canadians retain as part of our “collective memory” binding us together as a nation which places supreme value on liberty and human rights.

Point No. 2: Kay spends the balance of his piece decrying the treatment of Canada’s indigenous peoples, adding that “the dominant mood within our own borders is guilt.” He writes with seeming authority that “you cannot dispute that the past four centuries of history have been for them [indigenous peoples], largely a long series of slaughters, forced migrations, botched efforts at assimilation and, in some cases, complete eradication.”

Well, if Kay has information about “a long series of [indigenous] slaughters” in Canada,  it is incumbent upon him as a journalist to back that contention with authoritative citations, such as was done by journalist Calla Wahlquist, writing in the July 5, 2017 edition of The Guardian about repeated massacres of Australia’s indigenous population, numbering in the tens of thousands of victims and stretching back more than two centuries.

Experts who have studied the question in Canada are unanimous in their conclusion that there was “cultural genocide” committed against the indigenous population, but are not willing to say that there was physical and biological genocide. The Truth and Reconciliation Commission, established by the Government of Canada in 2008, heard from 6,000 witnesses over six years. In their Executive Summary (2015), they concluded that “the state pursued a policy of cultural genocide through forced assimilation.” However, that conclusion left open the debate as to whether the Government of Canada also committed physical and biological genocide.

Certainly, there has not been – to my knowledge – mention by leaders of indigenous peoples or historians about “a long series of slaughters” within Canada. If Kay is aware of facts which indicate otherwise, he should have included that information in his “think piece”.

Contrary to Kay’s gloomy assessment of current relations with Canada’s indigenous population, Matthew Coon Come, Grand Chief of the Cree Nation of Eeyou Istchee (James Bay, Quebec) and former national chief of the Assembly of First Nations, says impressive strides have been made in recent years to right the wrongs done by governments to the indigenous peoples of Canada.

Writing in the July 2, 2017 issue of The Globe and Mail, he said:

Good news stories rarely make the headlines. Yet there are examples in Indian country that point the way forward…. I have had the privilege of serving as Grand Chief of the Cree Nation of Eeyou Istchee in Northern Quebec for a total of 20 years. Since the signing of our Treaty, the James Bay and Northern Quebec Agreement, we have made enormous strides in improving the living conditions of our First Nations, in setting our relationship with both Canada and Quebec on a “nation-to-nation” basis; we have taken control over the delivery of health and social services, of education, of policing and justice. We have extracted ourselves from the Indian Act and developed our own robust forms of local and regional self-government. We have established the principle of “Cree consent” requiring all development projects within our traditional territory to obtain our approval and they must involve our First Nations in meaningful ways, including environmental protection measures, employment, training, preferential contracting and financial benefits.

In short, we have achieved all of the elements that have been key recommendations in a number of national and international declarations, including the Royal Commission on Aboriginal Peoples and the United Nations Declaration on the Rights of Indigenous Peoples. All this has been achieved through difficult struggles, media campaigns, legal challenges and hard negotiations.

So unlike Kay’s dour assessment of Canada’s “national soul”, Coon Come sees a light shining through what has been a dark history between native peoples and national/provincial governments.

In fact, the only positive points Kay has to make about Canada come in the last paragraph of his story where he lauds Canada’s national political discourse, its successful immigration policies, as well as its health-care and education systems. Considering the magnitude of such issues in the composition of a country’s social fabric, a discerning reader might have expected Kay to develop those points as part of his analysis, had he approached the subject with an open mind rather than with foregone conclusions.

So let’s leave it to a more objective and realistic individual to have the last word about what it means for him to be a Canadian on this, the sesquicentennial of Canada’s birth. In the words of Chief Matthew Come Coon as expressed in The Globe and Mail article of July 2, 2017: “Please pass the birthday cake in honour of Canada – our home and Natives’ land – and I’ll have a nice slice. Please make it a big one.”

Editor’s Note: BestStory.ca welcomes its newest contributor, Susy Abbondi, a financial analyst and portfolio manager whose interest in economic issues and trends dates back to coffee house chats with her grandfather during her teenage years. Susy's biography can be found here.

No campaign promise resonated more with his supporters – and perhaps even thrust Donald Trump to presidential victory on November 8, 2016 – than his anti-free trade stance and eagerness to overhaul U.S. trade relations.

Punctuated by his “America First” slogan, one of the president’s top priorities is to renegotiate – and perhaps dismantle – international trade pacts such as the North American Free Trade Agreement (NAFTA), which he has repeatedly referred to as “the worst trade deal in history”.

Trump blames unfair trade – with Mexico and China in particular – for the loss of millions of factory jobs, and, not surprisingly, has repeatedly threatened to impose hefty tariffs as high as 45 percent on their imported products.

Although these promises may very well be what secured his victory, his plan for restoring American jobs and reducing the trade deficit are oversimplified, at best. Nevertheless, American voters have come to view these trade agreements as a dirty symbol of globalization, eating away at their domestic job market.

Promises made on the campaign stump – some controversial and potentially damaging – will inevitably be limited by economic reality. Aside from a wall along the 2,000-mile southern border, if Trump follows through on his protectionist pledges, they could not only curb America’s global engagement and demolish decades of progress, but also capsize deeply-established policies on trade.

Just as anticipated, U.S. trade agreements were one of the first economic casualties of the election. On January 23, 2017 an executive order was signed for America to pull out of the Trans-Pacific Partnership (TPP), an ambitious trade agreement which proposed to bring together 12 countries (including Canada), accounting for approximately 40 percent of global economic output. At the same time, Trump also reconfirmed his intentions to renegotiate NAFTA, which since its implementation on January 1, 1994 has removed tariffs on products and services exchanged among the U.S., Canada and Mexico.

As the president attempts to rewrite history, America could be facing the real threat of economically destructive trade wars, especially taking into account that presidents have a large measure of authority over trade policy, even without congressional approval.

What is at stake in terms of trade?

No other neighbors are more fundamentally linked than Canada and the United States. It is not just a matter of geography, but of common interests and values that connect us beyond our multi-layered economic ties. One of the best metaphors to describe the relationship between Canada and the U.S. came from then-prime minister Pierre Trudeau, during a 1969 state dinner in Washington. He expressed that being a neighbor to the U.S was like sleeping with an elephant – no matter how friendly or even-tempered the beast may be, his mammoth stature means that Canada is affected by even the smallest twitch or grunt.

Canada has always had friendly relations with the elephant to the south, and liberal economic ties that superseded those of NAFTA. The U.S. and Canada had a free trade agreement in place since 1988, but as NAFTA negotiations began in 1991, the goal became to integrate these two highly developed economies with that of emerging Mexico. The first time in history that rich countries and a poor country did away with trade barriers in order to compete on even terms.

The objective was to facilitate economic growth by easing the flow of goods between the three countries. Not only was Mexico seen as a lower cost investment location, but it also had the potential to be a promising new market for exports. While in Mexico, it was viewed as an opportunity to modernize the economy and give the population less reason to flee across the northern border – a win-win for all.

When NAFTA finally came into force in 1994, not only did it gradually eliminate tariffs and restrictions on trade, but it also brought with it protection for foreign investors, as well as a reduction in the overall cost of commerce. More importantly, the agreement enhanced the competitiveness of both American and Canadian companies. It was the first agreement of its kind, and to this day encompasses the world’s largest free trading bloc in terms of GDP.

Prior to the advent of free trade agreements, imported goods were taxed, while protected domestically produced goods were made at the expense of consumers, to whom the added cost was simply passed down. Economic theory tells us that higher tariffs lead to more costly goods and generally less trade. Free-trade agreements turn this equation on its head. When you remove the tariffs, not only do you lower costs for consumers, but you create a strong incentive to trade, which leads to higher productivity and increased GDP.

Aside from the general discontent of some American voters and President Trump, there are many proponents of NAFTA, and understandably so. According to the U.S. Chamber of Commerce, since the agreement entered into force, trade with Canada and Mexico has nearly quadrupled, reaching over $1.3 trillion in 2014. To put it in perspective, this means that the U.S. trades more than $3.6 billion in goods and services each day with its neighbors, $2 billion of which is with Canada.

Of course, trade is a two way street; Canada and Mexico do their part by buying more than one-third of all U.S. merchandise exports, making them the largest markets in the world for U.S. goods. According to the U.S. Chamber of Commerce, Canada with its modest population of 36 million, purchases more from its southern neighbor than does the whole of the European Union with a population of approximately 500 million. In fact, Meredith Lily, former Foreign Affairs and International Trade Adviser to Prime Minister Stephen Harper, wrote in Policy Magazine (Volume 5 – Issue 1, January/February 2017) that 35 U.S. states “list Canada as their number one export destination”. Also interesting to note, Mexico with its population of 125 million, purchased more than $240 billion worth of U.S. merchandise in 2014 – nearly twice the amount America shipped to China, and more than to all of the BRIC (Brazil, Russia, India and China) nations combined.

The upside of NAFTA

Mark Twain once famously said: “History doesn’t repeat itself, but it often rhymes.” In fact, this is not the first time that we have seen NAFTA come under scrutiny and become a central argument in a presidential electoral campaign. In his bid for president in 1992, independent candidate Ross Perot claimed that the advent of NAFTA would ultimately result in a “giant sucking sound” of American jobs moving south of the border. His contention allowed the billionaire businessman and political outsider to shoot to the top of the polls – sound familiar? But in the end, Democrat Bill Clinton won the election, making NAFTA a reality.

In the four years immediately following the commencement of NAFTA, according to the figures provided by the U.S Chamber of Commerce, U.S. manufacturers added more than 800,000 jobs. This is a stark contrast to the period between 1980 and 1993, prior to the creation of the trading bloc, when the U.S. shed nearly 2 million manufacturing jobs. It is also interesting to note that unemployment during this period averaged 7.1 percent, while during the post-NAFTA period of 1994 to 2007 (up to the point of the financial crisis) it averaged 5.1 percent.

A study by Dr. Joseph Francois and Laura Baughman titled Opening Markets, Creating Jobs: Estimated U.S. Employment Effects of Trade with FTA Partners comprehensively examined 14 U.S. free trade agreements and arrived at some telling results. The 2010 study, commissioned by the U.S. Chamber of Commerce, concluded that “trade with Canada and Mexico supports a net total of nearly 14 million U.S. jobs, and of this sum, nearly 5 million U.S. jobs are supported by the increase in trade generated by NAFTA.” The Trade Partnership offers analyses regarding the likely competitive impact of prospective or actual trade policies.

What’s more, a 2014 study by the Peterson Institute for International Economics (PIIE) called NAFTA at 20: Misleading Charges and Positive Achievements found that those jobs supported by the increase in trade also pay an average salary of 7 to 15 percent more than the jobs which have been displaced by the increase in imports. PIIE is a private, non-partisan, non-profit and avant-garde institution dedicated to the study of economic policy. Their main goal is to create awareness and find solutions to deal with the issues surrounding globalization.

Similarly, as per the website of the Office of the United States Trade Representative, U.S. jobs supported by the export of goods pay 13 to 18 percent more than the U.S. national average.

The NAFTA value chain

Inevitably, the enactment of NAFTA caused supply chains to evolve and production patterns to change. Today, it is common to see sourced raw materials move through stages of production in different countries, and even cross borders multiple times.

Looking at the apparel industry, for example, I think we can all agree that there is almost nothing more American than a classic pair of blue jeans or dungarees. But after cotton bales are gathered in the U.S., nearly 100 percent (as per the U.S. Department of Agriculture) of it is sent to Mexican textile mills to be transformed into apparel. As it turns out, 40 percent of good old American men’s jeans are made in Mexico, according to the U.S. International Trade Administration. Overall, the American Apparel and Footwear Association says that 98 percent of apparel available for purchase in the U.S comes from abroad.

A 2010 paper by the National Bureau of Economic Research titled Give Credit Where Credit is Due: Tracing Value Added in Global Production Chains states that 40 percent of U.S. imports from Mexico originated from American companies operating in that country. The same goes for 25 percent of U.S. imports from Canada. Overall, “these two countries account for 75 percent of all U.S. value added returned from abroad.”

Without NAFTA, these value-added trade transactions could have gone elsewhere – dare I even say China? As a consequence of this increased production integration, Knowledge@Wharton (the business analysis journal of the Wharton School of the University of Pennsylvania), affirms in an article published in September 2016 and titled NAFTA’s Impact on the U.S. Economy: What Are the Facts states that cross-border investment has also grown. Foreign direct investment in Mexico, for example, has surged from approximately $15 billion prior to the enactment of NAFTA, to over $107.8 billion 20 years later.

The benefits of NAFTA go well beyond manufacturing, as the service and agricultural industries have been big winners, as well. As per the Office of the U.S. Trade Representative, Canada is the leading importer of U.S. agricultural products, just as Canada was the No. 1 supplier of agricultural imports to the U.S. in 2015. U.S. agricultural exports to Mexico have grown from $4.2 billion when NAFTA was first enacted in 1993 to $18 billion in 2015.

Convoluted impact of globalization

Granted, amidst all of this positive data, there is nonetheless a debate to be had about the impact of globalization on middle class wages and inequality. While trade has indisputably contributed to the growth of the economic pie, it has caused its distribution to change – in other words, despite the overall gains, the associated costs have not been spread equally across the population, leaving pockets of desolation in its wake. Clearly, this perceived inequality has left a scar on the American working class that has yet to heal – and which Trump was able to capitalize on. Nonetheless, the growing complexity of today’s economic challenges defy simplistic explanation, and it should be made clear at the onset of this discussion that the argument is a convoluted one. There are numerous factors at play that cannot be easily disentangled from other economic, social and political factors that have also influenced growth.

As stated previously, American manufacturing employment was stable and even grew in the years following the enactment of NAFTA, but generally speaking both backers and critics of the trade pact can agree that there has nonetheless been an overall decrease in U.S. jobs.

Estimates vary widely, ranging from 100,000 to as high as 700,000, but it is incorrect to attribute it all to NAFTA. Other factors cannot be discounted, such as the persistent decline in employment that predated the agreement, or the surge in imports once China became part of the World Trade Organization (WTO) in 2001. In fact, some would argue that since emerging economies are in fact emerging – by introducing economic reform and greater global integration – much of this would have likely occurred with or without the introduction of U.S. trade pacts.

Unfortunately, the threat of offshoring jobs, whether it be to a NAFTA region or beyond, allowed those manufacturers who decided to keep operating on American soil to drive a harder bargain with wages. But perhaps the biggest culprit in the reduction of blue-collar jobs may very well be automation.

Rise of the Robots

The Peterson Institute for International Economics published a 2014 policy brief titled The U.S. Manufacturing Base: Four Signs of Strength, by Theodore H. Moran and Lindsay Oldenski. The brief explores all U.S. manufacturing multinationals over a 20-year period ending in 2014, with the goal of uncovering the economic effects of broadening their operations beyond domestic borders.

The study examines manufacturing as a share of total employment, showing that in 1960 manufacturing accounted for 28.4 percent of non-farm employment in the U.S. economy, but by 2010 that share had fallen to 8.9 percent, and by 2013 it was down to 8.8 percent. Contrary to popular belief, this shrinkage is not due to a reduction in the U.S. manufacturing base, but rather it is due to an increase in output. As you might imagine, the impact of technological progress has played a huge role. Indeed, we have seen a greater than 60 percent increase in gross manufacturing output between 1987 and 2013, reaching $6 trillion.

Yet, despite the overall reduction in manufacturing jobs, the study arrives at a stunning conclusion: “The creation of jobs by U.S. multinationals abroad and the expansion of sales by U.S. multinational affiliates abroad both lead to more production and employment at home, especially in high value-added areas such as R&D.” So not only do you get efficiency gains and greater specialization, making the U.S. more competitive, but ultimately offshoring jobs results in a net positive effect on domestic investment, employment and sales.

In theory, a developed industrial country – such as the U.S. – adjusts to import competition and technological advancement by moving workers into more advanced industries that can better compete in global markets. Instead, it appears that the U.S. workforce was not nimble in adapting to its increasingly skill-intensive, computerized and service-oriented economy. Perhaps policy makers should have done more to encourage the shift from textiles and toys, to aircrafts and semiconductors.  In my judgment, this remains America’s largest challenge in Trump’s mission to bring back American manufacturing jobs.

Auto industry and NAFTA

The auto industry is North America’s most prominent manufacturing sector, and although NAFTA propelled it to a new level on interconnectivity, a cross-border connection was established between Canada and the U.S. decades before the 1988 Free Trade Agreement. As noted by The Canadian Encyclopedia, the Canada-U.S. Automotive Products Agreement (commonly known as the Auto Pact), was a “a conditional free-trade agreement signed by Canada and the U.S. in January 1965 to create a single North American market for passenger cars, trucks, buses, tires and automotive parts.”

In the early 1960s the Canadian auto industry was in hardship as a consequence of substantial tariff barriers. Canada had no homegrown auto manufacturer, and there were only a handful of U.S. companies producing vehicles in Canada, almost exclusively for the Canadian market (total Canadian vehicle production in 1960 was just above 379,000).

Canada needed to take action in order to ensure the long-term viability of its auto industry. As per Michael Hart in an excerpt from his book titled The Auto Pact: Forerunner of Free Trade:

As a result of the established pattern of protection, Canadians paid considerably more for cars than did Americans and had to choose from among a narrower range of vehicles. In addition, Canadian autoworkers earned about 30 percent less than their U.S. counterparts. When the costs of the excise tax, the manufacturers’ sales tax and the extra costs of Canada’s less efficient distribution system were added, Canadians often paid as much as 50 percent more than Americans did for the same car. It is little wonder, therefore, that Canadian consumption of vehicles was a third less on a per capita basis than that of Americans. It is also not surprising that by the end of the 1950s Canadians were turning to cheaper imports, principally from the United Kingdom, Germany and Japan.

To address the competitive gap between the two countries, they arrived at a solution with some rather convoluted requirements in order to increase production for export and hopefully achieve economies of scale. Some argue that the Auto Pact only achieved mixed results; it was nonetheless the initial forging of a cooperative effort on trade.

Today, after more than half a century of trade liberalization further pronounced by the introduction of NAFTA, the auto industry has created multi-layered connections between parts suppliers and assembly points which seamlessly span two borders. The tens of thousands of parts that make up any vehicle typically come from multiple producers and different countries, and they often cross borders several times, making up approximately two-thirds of the value of a vehicle. It’s a matter of fact; you can no longer buy an American-made car, just an American-assembled car.

Each car and assembly plant varies in the amount of U.S. content. By taking a look at a new vehicle’s window sticker, we know that a Chevy Silverado pickup assembled in Indiana is made up of 51 percent Mexican content, as compared to a Ford F-Series pickup made up of 70 percent U.S. and Canadian parts. In 2015, Canada-based suppliers shipped approximately $17 billion worth of vehicle components to the U.S., while the two countries combined shipped $29 billion worth of parts to Mexico, as per the Industria National de Autopartes (Mexican auto parts industry association) and trade data from Industry Canada. Mexico in turn sent more than $61 billion back in parts to its NAFTA trading partners.

Also interesting to note, the U.S. Labor Department says that Mexican, Asian and European companies which produce vehicle parts are a growing share of U.S.-based suppliers, providing nearly 600,000 American jobs.

As compared to the 1960s, the automotive industry today is dynamic and innovative and not surprisingly, the cross-border flow of components has become a tenet of modern manufacturing.

On the Canadian auto front things have changed substantially, as reported by the Canadian Vehicle Manufacturers’ Association: Canada now produces more vehicles than they can sell domestically. In 2015, Canadian plants manufactured over 2.3 million vehicles, of which $57 billion worth were exported for sale in the U.S., equivalent to approximately 85 percent of the vehicles built in Canada – meaning 1.95 million vehicles were exported to the U.S. and 350,000 of the 2.3 million vehicles were sold in Canada. Meanwhile in the same year, Canadians purchased 1.95 million vehicles – the 350,000 made in Canada and 1.6 million imported from the U.S., Mexico and abroad.

The blossoming of the Canadian auto industry has also fostered the development of a successful Canadian auto parts industry with companies such a Magna International Inc., Martinrea International Inc. and Linamar Corp., which are recognized around the world. These companies, along with the auto manufacturers, have become lean and efficient.

In support of improved efficiency due to technological advances, analyst Dennis DesRosiers, of DesRosiers Automotive Consultants Inc., cites the fact that Canada manufactures the same number of vehicles it did in 1993, but with 13,000 fewer workers. But most importantly, integrated supply chains have not only kept costs down for consumers, but have allowed quality, technology and the overall safety of vehicles to be enhanced.

You got Trumped

Aside from the occasional hiccup, the auto industry appears to be working like a well-oiled machine (pun intended)! But before he was even inaugurated, Trump appeared adamant to rewrite the rules governing the North American auto industry – 140 characters at a time. Trump is infamous for taking to Twitter to apply pressure on companies, but few industries have spent as much time in Trump’s crosshairs as the auto sector.

GM, for example, was scolded for importing a model of the Chevy Cruz from Mexico, for which Trump threatened a “big border tax”. During his campaign, Trump also turned up the heat on Ford, which subsequently announced the cancellation of a $1.6 billion plant in Mexico while pledging to create 700 new Michigan-based jobs. Other manufacturers have also altered their plans – all it took was a few casual threats and some pricey tax handouts.

Trump may be resolute about turning back the hands of the globalization clock to the time when “Made in America” meant exactly that. But at what cost?

The return of American manufacturing is a lovely idea in theory. To Trump’s disenfranchised voters, it surely recalls a time when a hard working youngster could get a steady factory job straight out of high school, live a comfortable middle-class life and even retire by age 60. Granted, it may be a hard reality to face, but that America is gone. And no amount of campaign promises will bring it back.

Trump may have been viewed as a progressive presidential candidate, yet a great deal of his economic philosophy remains firmly lodged in yesteryear. The fact of the matter is that the promises made on the campaign trail may not be as simple to fulfill as he made it seem.  

Trump can threaten and bully manufacturers to return operations to American soil, but economic reality, as well as a fiduciary duty to stakeholders, will inevitably limit the success of this tactic. Not all can be as it once was. When faced with the prospect of higher wages, a company will naturally opt for the use of more automation in an attempt to at least maintain profits, if not boost them.

We have already seen that technology is a job-eliminating force to be reckoned with that extends far beyond the manufacturing sector, and there are no signs of this trend coming to an end. Automation continues to make inroads, and no wonder: machines make few mistakes, they don’t take vacation or coffee breaks, and they most certainly don’t ask for raises!

Manufacturing is simply not a viable long-term solution for the revival of the middle-class – no matter how good it sounds on the campaign stump. As we have seen, Trump may very well be capable of bullying companies into returning or maintaining jobs on American soil, but with the presence of high-tech machinery and automation, a fundamental disconnect with the American workforce still remains. If he is successful, new jobs will inevitably be of a higher caliber, require more training and even a higher level of education – qualities lacking in the majority of the forgotten men and women whom Trump has vowed to save.

We have yet to see any attempts in tackling this conundrum, let alone an acknowledgement of its existence. Going forward, the U.S. faces two distinct challenges: to help currently displaced workers, and to prepare the labour force for the future waves of change that inevitably await it.

Ultimately, Trump needs to recalibrate his thinking, or his staunchly protectionist stand could very well dismantle decades of progress, and there most certainly will be consequences for all three NAFTA partners and the companies that currently function freely within their borders. Should Trump end the trade agreement in the same vein as TPP – or even make significant modifications – it will likely result in a slow, painful and potentially costly adjustment period. What’s more, it is certainly not clear that the U.S. or Canada would emerge as winners in terms of job growth.

Although we are unclear about most details surrounding the renegotiation of NAFTA or the effects it will have, we are certain that most companies are not willing to make large investments without more clarity on future policy. For the time being, we are hearing Trump tout potential changes to regulations as a bargaining chip, the most obvious of which is the potential for significant tax cuts on corporate earnings.

When it comes to the automakers, Trump and his cabinet are reviewing the stringent fuel economy and emission standards, which require automakers to raise the average fuel efficiency of new fleets to more than 54.5 miles per gallon by 2025. There’s no doubt that the auto manufacturers are spending significantly in order to reach this milestone, but what a potential rollback in fuel economy standards can accomplish – especially longer term – frankly eludes me. 

For one, the state of California (the largest car market in the U.S.) has the power to set its own emissions policy. Plus, 11 other states have decided to follow suit, and together they represent 40 percent of the new car market. So as much as Washington may want to relax regulations for the automakers, California remains in the driver’s seat. If GM wants to sell cars in the state, it mandates that they sell more zero-emission vehicles, which in turn requires them to continue to invest in alternative-fuel technologies. A lag in fuel efficiency standards may also affect American automakers’ ability to sell their vehicles in Europe whose standards are even more demanding.

At this point, from what little we know with certainty, you may be asking yourself, how might this all play out for the North American auto industry?

One outcome we can be sure of is that major changes to NAFTA (or its demise) would weaken the auto industry in all three countries, making it unlikely that industry manufacturers would make major new investments in North America. This is probably the biggest flaw in the administration’s argument against free trade, as they effortlessly assume that changes to NAFTA will automatically result in jobs returning to America. There is an entire world of possibilities (literally!), which may make more economic sense. This includes manufacturing in larger trading blocs such as Europe or Asia, any of the other countries with which the U.S. has free trade agreements, or member countries of the World Trade Organization which allow for trade with low, non-punitive tariff rates.

Should Trump succeed in imposing new border restrictions on trade, it is possible that it may lead to some marginal gains for a limited number of workers, although I suspect they would be short lived.

Let me explain: what is more likely to happen with the imposition of American content rules is that U.S. consumers will ultimately pay more for an American vehicle than they do today (as will purchasers in Canada and Mexico). In time, this will not only dampen demand, but diminish the relative competitiveness of American automakers. Vehicles produced by competitors who work within open borders will inevitably become more attractive – just as we saw happen in Canada during the 1960s – even with the addition of a punitive tariff. As a consequence, the number of vehicles produced in the U.S. could fall, and ultimately jobs would be lost.

The auto industry aside, 90 percent of Fortune 500 companies have investments in Mexico, so for U.S. business the potential damage extends far beyond the auto sector. Needless to say, should President Trump decide to take unilateral action, it will almost certainly result in a tit-for-tat retaliation, hurting not only corporate profits but causing a general slowdown of the economy. Not surprisingly, there is little evidence that turning the United States into an island is a recipe for sustained growth. In fact, there are some interesting theories on how protectionism not only slows growth, but also innovation; we have examples such as Argentina to prove it.

Trump and the trade economy

Despite all the talk and speculation surrounding the possibility of renegotiating NAFTA, Trump’s underlying issue with trade appears to be the resulting deficit, and as far as we can tell, his goal is to eliminate it.

Trade should not be a zero-sum game, but rather an exchange of mutual benefit. Contrary to the administration’s belief, you do not come out on top from simply running a trade surplus. Americans are winning everyday from an improved quality of life by having access to higher quality goods at lower prices.

The administration’s nationalistic and protectionist stance is a far cry from Adam Smith’s concept of the invisible hand, which has also typically been the approach of the Republican Party. The invisible hand is an unobservable market force, which in a truly free market without government intervention allows the strongest economy to emerge by bringing supply and demand into balance. This, in turn, maximizes output and efficiency.

Surely, if push came to shove, America could produce the majority of what it needs, but forcing businesses to make poor economic decisions will not only come at the expense of consumers, but as mentioned earlier, over time the country would also be plagued with a lack of innovation, productivity and selection. The U.S. is far better off to engage in trade with countries which can make the products they need for less, and to spend the savings elsewhere, or invest them in pursuit of commercial opportunities which make the most sense for the economy and the nation.

We often hear President Trump complaining that he has “inherited a mess.” With the U.S. having experienced steady job growth, the unemployment rate has worked its way down to 4.8 percent (near nine-year lows), and it has been accompanied by rising wages, improved readings on manufacturing, industrial production and housing. This has resulted in GDP growth of about 2 percent per year since the recovery of the financial crisis.

The economy is far from being in shambles, and you could argue it is quite strong. But given Trump’s rhetoric, he is clearly not satisfied, as his economic agenda not only aims to reduce or eliminate the deficit, but to boost economic growth. The administration is forecasting 3.2 percent annual growth in GDP over the next decade, along with the creation of 25 million new jobs. Meanwhile, America’s economy has not been able to top 3 percent GDP growth in a full year since 2005, when that growth figure may have very well been inflated by the financial wizardry of Wall Street and the euphoric optimism of Main Street, which was liberally borrowing against artificially inflated home values.  

Trump and the troubled deficit

If we take a look back at history, to the era of the 80s and 90s, which are often cited as an exemplary time of thriving economic growth, we should not ignore the fact that it was also accompanied by a growing trade deficit.

Actually, America’s trade deficit has been the world’s largest for the last 40 years, and yet America has continued to prosper. In other words, the mere existence of a trade deficit does not mean that wealth is necessarily flowing out of the country. Nor is it a signal that the U.S. has been outnegotiated, or is the loser in the trading game.

Yes, by its very definition, a trade deficit represents an outflow of domestic currency to foreign markets. Perhaps the distaste for the deficit stems from a fear that those dollars will be lost forever? As it turns out, the outflow is more akin to a temporary leakage that is eventually replenished via the capital account in the form of foreign direct investment.

Whether it is an investment in property, plant or equipment, corporate or government debt, these foreign dollars ultimately support U.S. economic activity. Had protectionist measures not permitted those dollars to be used to purchase imports in the first place, many Americans would not have been able to enjoy the subsequent benefits of foreign investments in local factories, research centers, hotel, or shopping malls, etc.

This phenomenon also explains why we have not seen the inverse relationship, which should have occurred between the growth of the trade deficit and job creation, or a decline in output, had a growth in the deficit truly been hazardous to America’s economic health.

In 2015 and 2016, the overall U.S. deficit of both goods and services combined amounted to just over $500 billion.  According to the U.S. Census Bureau, Mexico and Canada make up a mere 10 percent of the total U.S. trade deficit for 2015 (8 percent is attributable to Mexico). Japan is the next largest culprit, responsible for 9 percent of the deficit, the European Union is at 20 percent, and China is the largest contributor of all making up 48 percent of the trade deficit. The remaining 13 percent is from a combination of other smaller nations.

At first glance, it seems that Trump’s disruptive political agenda may have been misdirected towards NAFTA when he has some much bigger fish to fry. In fact, Canada rarely finds itself at the top of the U.S. political agenda, let alone the focus of any aggressive policies. We are, of course, part of NAFTA, but luckily Trump and his voters do not seem to be under the impression that Canadians have stolen their jobs. Nonetheless, today we find ourselves in the middle of two nations – the U.S. and Mexico – that have started off a new relationship on the wrong foot, and tensions appear to be building.

Trump has tweeted: “The U.S. has a 60 billion dollar trade deficit with Mexico” and he continued on a second tweet, “It has been a one sided deal from the beginning…with massive numbers of jobs and companies lost.” He may have exaggerated the pact’s effect on manufacturing jobs, but his figures on the Mexican deficit are accurate. The U.S. went from a trade surplus of $1.7 billion prior to NAFTA taking effect, to over $55 billion deficit in 2015 and over $63 billion in 2016.

Currency swings also played a part in aggravating the situation, as the value of the Mexican peso took a plunge after the enactment of the treaty. This made Mexican imports much cheaper and certainly played a role in pricing American products out of the market. And you can point your finger to the auto parts trade as the principal offender for the growing American trade deficit with Mexico, so it is not surprising to see why the automakers have made their way into the Trump limelight.

The U.S. also runs a deficit with Canada ($11.9 billion in 2015), but closer scrutiny of our bilateral trade flows reveals that the import of fossil fuels is the largest factor affecting the trade balance.

Actually, Canada plays an important role in U.S. energy, as “we provide 100 percent of their imported electricity, 85 percent of their imported natural gas, and 43 percent of their imported oil” as per a conversation with former prime minister Brian Mulroney in Policy Magazine (Volume 5 – Issue 1, January/February 2017). If fossil fuels were to be excluded from the trade balance, there would be no deficit with Canada at all. So perhaps America’s problem is not so much the deficit but geography and geology!

On a positive note, thanks in part to America’s shale revolution and NAFTA, the U.S. has reduced its reliance on oil imports from more hostile regions such as the Middle East and Venezuela. And, in turn, Americans benefit from lower gas prices at the pump.

Trade barriers and taxes

So what is it about the deal with Mexico that is unfair towards America? For one, Trump firmly believes that Mexico’s Value Added Tax (VAT) works as a trade barrier, tilting the balance against American manufacturers.

As per the first presidential debate on September 26, 2016, Donald Trump said: “They have a VAT tax. We are on a different system. When we sell into Mexico, there’s a tax. When we sell in, automatically, 16 percent, approximately. But when they sell into us, there’s no tax. It’s a defective agreement. It’s been defective for a long time, many years, but the politicians haven’t done anything about it.”

Trump’s claims are misleading to say the least. VAT is not a tariff, but rather a consumption based tax, common to more than 160 countries around the world, including Mexico and China. It is neither a trade subsidy nor a trade barrier, and Trump’s statement makes it sound like America was duped by Mexico in negotiations, when in fact the VAT has nothing to do with NAFTA.

A VAT is basically the equivalent of a sales tax whereby the consumers of goods and services will all bear the same tax burden – no matter the origin of the product. Meaning that goods produced and sold in Mexico are taxed just the same as the ones that arrived from the United States. In other words, not only is the VAT blind to a product’s origin, but also both local and foreign products are offered to consumers on equal terms.

It is also not entirely accurate to allege that there’s no tax when Mexico sells its products in America, as they are subject to a sales tax in all but five states. And just like the VAT, it applies equally to U.S.-made items and foreign products. Much like Canada’s GST, PST or HST, which are essentially just another form of VAT by another name.

Perhaps confusion arises because of the difference in the two systems. In the U.S. (and Canada) for example, a corporation does not pay sales tax on purchased inputs used in manufacturing, and the entire tax burden applies to the final consumer. As compared to American (and Canadian) manufacturers, inputs purchased for production under the Mexican VAT system are paid no matter the stage of production.

As the VAT is not payable on exported goods, it is only natural that when these items are shipped abroad, that the producer who has paid VAT to its suppliers will in turn receive a credit for the VAT that it will not consequently collect from the foreign purchaser. Once again, this puts the American company and the foreign company on equal footing.

Despite the fact that VAT is not a protectionist policy, and completely kosher under international trade rules, there are a couple of possibilities that have been proposed and discussed by Congress and the White House, which would not only counteract the effects of the administration’s proposed tax cuts, but would also help to pay for the planned border wall with Mexico.

Border adjustment vs. border tax

Speaker of the House Paul Ryan has rolled out a new tax plan which promises to lower rates and significantly simplify the federal tax system. A core component of the plan includes a so-called “border adjustment tax” provision. Under the measure, U.S. imports would be taxed at a rate of 20 percent and would no longer be a deductible expense. Meanwhile, exports would be exempt of tax in order to encourage American companies to move or increase production at home.

If it were to pass, the border fee is meant to raise $1 trillion over the next decade (or approximately $100 billion per year). Congress’s proposed measure would not only affect Mexico, but it would also affect Canada or any other country that exports their products to the U.S.

Perhaps Republicans hoped the proposed measure could satisfy the president’s protectionist urges, but thus far he has been ambivalent and noncommittal and even criticized the border-adjustment as “too complicated”. Instead he has presented a more straightforward 20 percent tax on products imported from south of the border, which could potentially be included as part of a comprehensive tax package passed by Congress. Although we are told this is just one possibility Trump is considering in order for Mexico to pay for the wall. 

The administration is adamant that the plan would not only increase U.S. wages, help U.S. businesses and consumers, but also deliver “huge economic benefits.” For the time being, without more transparency on the details of the plan, it remains impossible to substantiate those claims. But despite the obscurity, from what we know to date, one important question remains unanswered: would Mexicans ultimately be footing the bill, or would Americans?

Feeling the pinch

Whether you want to call it a tax or a tariff – or any other descriptive name for that matter – it is ultimately the Americans who will feel the pinch. Companies importing products will not bear the brunt of the added cost and instead will adjust prices upwards: Americans will find themselves paying a premium for a variety of products from groceries to electronics, not to mention favorites like Corona beer and tequila.

Mexico is also a large provider of industrial products used in American manufacturing. The cost of many vehicles would be slated to rise, such as the Kentucky-built Toyota Camry. James Lentz, CEO of Toyota Motor North America, estimates that because approximately a quarter of the vehicle’s parts are sourced from Mexico, a 20 percent tax would raise costs by about $1,000.

Granted, there is the potential for a secondary effect on the Mexican economy. If the import tax results in less sales of Mexican-made products, then consequently there would be an impact on profits, and perhaps eventually over time even on the wages of Mexican workers. As you might imagine, this could, in turn, once again ignite the desire for Mexicans to flee north – or maybe fuel an industry for ladders tall enough to get over the border wall.

Not surprisingly, representatives from the likes of Walmart and Target, as well as those of specialty retailers, have been heading to Capitol Hill to warn of the crippling repercussions of a border tax. Similarly, the Retail Industry Leaders Association (RILA) has launched a national campaign called Americans for Affordable Products to create awareness of the dangers. Despite the honorable effort on the part of Congress, the price of even the most basic and necessary apparel is likely to rise, given that 98 percent of the apparel sold in the U.S. is made abroad.

Grocery bills would also go up. For example, U.S. waters cannot produce enough fish and seafood to satisfy domestic consumption. According to the National Oceanic and Atmospheric Administration, 80 percent of the seafood consumed in the U.S. is imported. Also, items such as coffee, tea, spices, chocolate and bananas cannot be produced in substantial quantity on home soil.

Unless the congressional proposal is amended, the border-adjustment measure unjustly shifts the burden onto bulk importers and retailers – especially onto those which low-income Americans rely on the most. Ultimately, if these businesses cannot deduct the cost of goods as an expense, they would end up paying tax on the full amount of revenue in the already low margin retail game. In essence, paying tax on more than just profits. Who knows, perhaps one day we will see the likes of Target reverse its “Expect more. Pay Less.” slogan!

The proposed border adjustment is also a large issue for the energy sector. Oil refiners would no longer be able to deduct the cost of their largest production input, imported oil.

As such, a corresponding hike in gasoline prices would be expected. According to the Wall Street Journal, in an article titled Border Tax Divides Energy Sector (February 23, 2017), both the American Petroleum Institute and American Fuel and Petrochemical Manufacturers have concluded in internal reports that the price of gasoline would rise by 20 cents or more a gallon.

Meanwhile, large industrial and technology companies such as General Electric, Oracle and Boeing are very much in favour of the proposed border-adjustment proposal. Given their business model, it is completely feasible for them to achieve not paying any taxes at all. In the perfect world, the resulting effects of importing and exporting would cancel each other out, but as it turns out many companies have exposure overwhelmingly on just one side of the equation.

Currency fluctuations

Needless to say, either the congressional border-adjustment proposal or the administration’s tariff-like border tax, are a radical change from the status quo. For those businesses strong enough to survive the shock, it would inevitably take time, and in some cases quite a bit of money to adjust their business models to the new reality. But proponents of change argue that because the terms of trade would be altered, it would lead to a sharp increase in the dollar that would even the playing field.

Let me explain that without a change in the dollar’s value, the likely outcome would be a decrease in imports and a rise in exports, which in turn would cause the trade deficit to narrow. A decline in imports would then reduce demand for foreign currencies to pay for them, and instead there would be an increased demand for dollars. Meaning that the dollar is likely to rise as a result, theoretically enough to offset the proposed tax. So if the dollar’s rise is met with a proportional decline in the Mexican peso or the Canadian dollar for example, then the price of the items in question remains the same. What changes is the purchasing power of the dollars the exporter to the U.S. receives in exchange.

In this scenario, it is true that the burden of the tax would fall on the foreign exporter. Of course, economic theory and reality do not always coincide. There is a real chance that the dollar would not rise fast enough or to a level sufficient to offset the negative impacts.

U.S. companies and individuals alike would also be faced with another challenge should the value of the dollar rise as a response to the proposed border-adjustment tax because it would result in a reduced value of foreign investment. Thus far, estimates predict that the dollar could strengthen by as much as 25 percent.

There is also a matter of legality in Trump’s border tax scenario, which could be in violation of obligations under NAFTA and WTO rules in place to safeguard from protectionist trade policies. Should Trump decide to penalize Mexico with a 20 percent tax, it is likely to be challenged.

The perverse effects of protectionism

To make the administration’s case against a crackdown on trade even more compelling, changes to the U.S. trade deficit calculation are being contemplated.

Reports say the preeminent calculation methodology under consideration would exclude from the export tally any products that enter the country in transit (without being altered), before they are shipped to another country, such as Mexico and Canada. By not including product re-exports into the equation, it would inflate the trade deficit numbers, and perhaps give Trump the ammunition he needs to lift political support for the cause, and as leverage in bilateral negotiations.

Thus far, I have spoken at length of the most obvious drawbacks to protectionism, namely higher prices and restricted selection. The worry is that should Trump move forward with his trade-busting agenda, there are many more perverse effects which may manifest themselves.

By blocking the power of the invisible hand in the free market, the government is picking economic winners and losers, while probably sheltering a few inefficient firms that would have not otherwise survived along the way.

Ultimately, punitive tariffs are aimed at reducing competition by raising the price of foreign goods in order to render locally manufactured ones more attractive. This type of protectionism typically has the effect of temporarily creating jobs for domestic workers, and potentially even boosting wages. This, in turn, increases the incentive of workers to remain low skilled instead of advancing their abilities, education or respective careers. As mentioned earlier, this is a grave problem which the U.S. has yet to tackle successfully.

If the United States closes its borders, other countries will do the same. The temporary increase in jobs would eventually reverse itself as other countries also adopt protectionist measures – let’s not forget that hanging in the balance would be14 million U.S. jobs supported specifically by trade.

Just as the workforce has no incentive to improve, neither does industry when it remains protected. Longer term, the lack of competition eliminates the need to remain on the cutting edge of innovation, and over time product quality declines. Without trade, there is less incentive to move the business forward, and it will evolve slowly and towards obsolescence, eventually producing a more expensive, lower-quality product than that of a foreign competitor operating within truly open borders. Not to be dramatic, but insulation eventually leads to isolation, depressing not only the economy but also civilization.

Additionally, for the “America First” ecosystem to work, consumers need to be willing to pay premium prices, otherwise the system collapses. Americans who voted for Trump in essence agreed to pay up for the benefits of protectionism, but when faced with the real decision of spending actual hard-earned dollars, human nature may push them towards fixing old items instead of buying new ones. Why go out and purchase a new Toyota Camry whose price just jumped by $1,000 when you could save in the short term by upping the maintenance or making minor repairs in order to keep driving your current vehicle for longer?

Under this scenario, there are negative cascading effects. Let’s take, for example, the U.S. farming industry which exports about a third of its total production. If they are no longer shipping their farmed goods abroad, then future crops are likely to be smaller. Farming less land translates into a diminished need for tractors. Fewer tractors means that less steel is needed to build them. And less steel implies fewer steelworkers, and generally a reduced need for labour along every step of the value chain.

At this stage, without a single official policy in place, we are already seeing companies make questionable investment decisions. Thus far, the lack of pushback from America’s largest corporations has been surprising, given that nearly 50 percent of the revenue for companies which make up the S&P 500 comes from abroad.

I can only speculate that the silence is in an effort to appease the president and avoid his Twitter wrath, which often results in reactionary stock price declines. Of course, this is not without favors which the administration will need to deliver, such as tax breaks and deregulation. For the time being, American companies are going along for the ride, knowing that they can survive and even remain profitable (at least for a while) if given generous subsidies while making minimal investments in the business.

Déjà vu?

Ultimately, the repudiation of free trade could resemble something that the U.S. economy has already experienced during the 1930s era of the Smoot-Hawley Tariff.

The Smoot-Hawley Tariff was an attempt to assist Americans in need. Specifically, it was designed to protect local farmers by forcing consumers to buy American-farmed products instead of those coming from Europe. The hope was to shift demand towards American consumption while pushing the burden of the crisis onto foreigners. But by the time the bill made it through Congress, it had expanded to include punitive measures on numerous other imports.

As you would expect, other countries retaliated, which then further contracted the demand for U.S. exports. The result was a competitive trade war and the downward spiral of commerce around the globe.

Although the tariffs did not cause the crisis or the resulting Great Depression, they most certainly exacerbated the situation. Unemployment reached a peak of 25 percent in 1933, and it did not fall below 10 percent for almost a decade until the start of Second World War.

When the war was finally over, 23 nations decided to come together in 1947 in an effort to learn from their mistakes, which resulted in the General Agreement on Tariffs and Trade (GATT). It is now generally understood that retaliatory tactics are also accompanied by catastrophic results, and that the benefits of trade are dispersed and only appreciable over time. Today, the basis of the GATT lives on as the World Trade Organization.

The Trump White House represents a large shift in American ideology, and this populist globalization backlash threatens to undermine the country’s position and influence in the world. Since the Smoot-Hawley era and the end of the Second World War, the U.S. has been exemplary in the promotion of free markets and liberal trade. America’s retreat is a strategic gain for China, which is eager to take over the leadership role in the globalized world.

America is abandoning the world stage as it builds border walls and pulls out of crucial multilateral trade agreements such as the Trans-Pacific Partnership (TPP). Meanwhile, China is solidifying relationships, increasing connectivity and even promising to uphold the ideals of free trade in the world (even if it practices a mix between free trade and mercantilism) at the World Economic Forum in Davos in January 2017. It is in the process of creating its own economic zone and Asian Infrastructure Investment Bank, which now has 52 members. Not surprisingly, the U.S. has refused to join, but membership includes the likes of the United Kingdom, Germany and France. Canada has also applied to take part.

From a strategic standpoint, the U.S. is giving up much of its dominance in Asia, where the notion of American exceptionalism has already begun to fray. Despite the fact that the entire world has benefited from America’s role in trade by instilling the rule of law, if American traditional values recede, it leaves room for China to fashion new trading rules to better suit its needs. It may also make it more difficult for the U.S. to export to Asia, which is still undergoing fast-paced growth, as compared with the rest of the world.

In a speech in Mexico City on May 4, 2017, Bank of Canada Governor Stephen Poloz said President Trump’s protectionist threats were already slowing business growth in Canada and weakening the value of the Canadian dollar. He suggested that part of the solution for both Canada and Mexico would be to revive TPP negotiations – without the involvement of the U.S. – in order to open new markets beyond North America.

Poloz called Trump’s decision in January 2017 to pull out of TPP negotiations “unfortunate”, but pointed out that officials from Canada and 10 other countries had scheduled a meeting in Toronto the weekend of May 6-7, 2017 to discuss the possibility of reviving the TPP negotiations without the U.S.

He noted that Canada has free trade agreements with 15 countries, representing 20 percent of the global economy, and that figure would shoot up when the Canada-European Union trade deal came into force in July 2017.

The future of NAFTA

Needless to say, both Canada and Mexico are important trading partners for America after nearly a quarter century of the North American continent’s three economies being tied together via NAFTA. In 2016, Canada was America’s No. 1 export market for goods (not including services) at a value of $246 billion, followed by Mexico as its No. 2 export market with purchases of $212 billion worth of goods. In his May 4, 2017 speech in Mexico, Bank of Canada Governor Stephen Poloz made a point of saying that in the auto parts sector, Canadian companies have more than 150 plants in the U.S., employing 43,000 Americans. But with Trump’s promises of drastic change, both Canada and Mexico currently find themselves teetering on the precipice of the unknown.

Perhaps Canada initially thought it was in an enviable position as compared with Mexico because we did not appear to be the main target in Trump’s desire to reopen NAFTA. After all, our bilateral trade with the U.S. is almost on equal terms, resulting in only a minor deficit for the U.S. when both trade and services between the two counties are taken into account.

Nonetheless, even after a friendly meeting between President Trump and Prime Minister Justin Trudeau on February 13, 2017, we were not much closer to knowing the fate of the trilateral trade deal and the effect any changes would have on the intricacies of economic integration formed over the last 23 years.

You could say the meeting raised more questions than it answered. Granted, there was no talk of punitive tariffs or the need to rewrite the rules in order for trade between the two countries to become fair – just some “tweaking”, in the president’s words.  Phew – but wait, what exactly did he mean by a tweak? The statement was ambiguous and left ample room for interpretation. It is quite possible that one man’s tweak could be another’s complete overhaul!

For the process to begin, the White House needs to provide Congress with a 90-day notice, which was expected to happen sometime in spring 2017, according to Wilbur Ross, the newly appointed U.S. Secretary of Commerce.

The negotiations are expected to take a year to complete, and it could be drawn out as the U.S. government is required by law to consult private sector advisers, as well as lawmakers, throughout the process. Despite the Republican majority in Congress, there are many who do not share the economic nationalistic views of Trump and some members of his cabinet.

The next big question hanging over the renegotiations is what form will they take, as Trump has made his preference for bilateral agreements clear. Whether it will be a two-tiered renegotiation which results in two separate parallel bilateral agreements, or a new trilateral agreement, the challenge lies in the fact that what happens to one party will inevitably have a profound effect on the others. Given the deep-seated economic ties, it would be difficult to merely tweak the agreement for Canada while making significant changes for Mexico –without fully reopening the agreement and starting negotiations anew.

Naturally, each country will aim to look after its own interests, but it is clear that times have changed, and the U.S. is less likely than ever before to budge on its plan to put “America First.” During a March 8, 2017 Bloomberg news interview, Wilbur Ross stated: “They all know they’re going to have to make concessions. The only question is what’s the magnitude, and what’s the form of the concessions.” Given that Canada and Mexico are the weaker trade partners due to their smaller economies and that America is generally less dependent on NAFTA, the U.S. may very well have a leg up in negotiations.

In the meantime, we are faced with many unknowns. Will Trump attempt to put his negotiation skills to the test to broker a completely new deal, or will he simply aim for better terms while maintaining the general infrastructure of NAFTA? Will Trump require Canada and Mexico to essentially “pay” to access the U.S. market? If Mexico is forced out of NAFTA or if the agreement’s rules of origin become more onerous, will we be able to produce Canadian goods that qualify for preferential U.S. treatment? If the administration is not satisfied, will America pull out of the agreement entirely? More importantly, from our Canadian perspective, what would North American trade relations look like without NAFTA?

To tweak or not to tweak?

As per NAFTA Article 2205, the U.S. can pull out of the agreement with a six-month notice. Should it ultimately meet its demise, it would resurrect the pre-existing FTA between Canada and the United States, which originally came into effect in 1988. Canada would be cut off from Mexican inputs, but Mexico would be left with nothing – other than barriers, both physical and economic. Even though Canada and Mexico could theoretically continue on with the pact, it was designed around the U.S. elephant and would make little sense without its participation.

In a December 2016 interview conducted by Policy Magazine Editor L. Ian MacDonald with former prime minister Brian Mulroney, who was responsible for enacting NAFTA, Mulroney referred to it as “an insurance policy.” Stating that “we were concerned that something might happen in the future and we knew that the backbone of our financial success and our economic success as a nation was going to be trade with the United States.”

Yes, Canada would dust off the old documents and have something to fall back upon, but it’s far from a perfect option. The trade deals of today expand their focus beyond just the reduction or elimination of trade barriers and punitive tariffs. NAFTA, for example, pioneered the incorporation of labour and environmental provisions. It also included other improvements over the FTA, such as provisions protecting investors via an independent dispute-settlement process. Today, given the amount of time that has passed and the fundamental changes economies have undergone – such as the advent and rise of e-commerce – the FTA and even NAFTA are due for some much-needed modernization.

Even though the TPP agreement has been abolished, it contained many provisions the U.S. sought from trading partners, and it could be used as a basis for the renegotiation of NAFTA. Canada has the recent pact with the European Union it can use as a guide covering similar provisions, called the Comprehensive Economic and Trade Agreement (CETA). Key elements include addressing the digital economy by way of provision of goods and services in the form of data, and minimum labour standards, including a requisite minimum wage, as well as mobility of labour.

Revising the rules of origin will also be a topic of great importance for all parties involved and likely an area in which the U.S. will seek concessions. Rules of origin classify goods by way of how much North American materials they contain in order to qualify for duty-free access. For example, foreign fabric is considered as local content in the clothing industry as long as the item of clothing meets certain conditions such as being cut, sewn or assembled within the trade-free zone. The U.S. is likely to tighten the rules of origin in order to encourage more American production, while Canada will seek to make the rules more comprehensive and straightforward.

Most other concessions America will seek are readily identifiable as the U.S. Trade Representative publishes them annually in the National Trade Estimate Report. Let’s get into some of the specifics.

Perhaps no sector has more to lose than Canada’s dairy industry, which is currently highly protected, with price and supply regulated through quotas. Most U.S. dairy imports are subject to punitive tariffs of up to 300 percent if they surpass quota levels. Under TPP, Canada had already ceded 3 percent of the market, so it is likely that in this coming round of NAFTA negotiations, the U.S. will push for more.

In an April 17, 2017 story written by Caitlin Dewey, The Washington Post indicated that one of the immediate flash points in NAFTA negotiations could be the issue of milk protein concentrates, known as “ultrafiltered milk” which is used as a protein added to cheese.

Dewey reported that ultrafiltered milk was developed after NAFTA’s 1994 enactment and, as a result, did not face high tariffs such as most American dairy products entering Canada’s protected market. The bulk of ultrafiltered milk produced in the U.S. has been shipped to Canada in the 23 years since NAFTA came into force.

However in April 2016, dairy farmers in Ontario dramatically cut their prices on Canadian ultrafiltered milk to undercut U.S. imports of that product, and other provinces were planning to follow suit, according to the newspaper, which described a price war as “a dire threat to U.S. farms.”

“This could certainly become an issue in any attempt to renegotiate NAFTA,” Luis Ribera, an agricultural economist and North American trade expert at Texas A&M, told the Post, which reported in its story that American industry groups, as well as state and congressional politicians were calling on Trump to intervene directly in the dispute, as well as in a similar issue involving Canadian price cuts on skim milk powder.

Similar to the dairy industry, production quotas apply to the poultry and egg markets, which are also likely to be under scrutiny as part of a new NAFTA negotiation. In this scenario, we could see Canada ask for some quid pro quo, as America’s dairy industry benefits from its own protectionist policies.

The topic of Canada’s softwood lumber exports emerged as a flashpoint once again, as it has been a long-running battle between the U.S. and Canada since the early 1980s. Canada owns (by way of provincial and the federal governments) the majority of the lands where Canadian timber is harvested, as compared to the U.S. where lots are normally privately owned. As such, the price of Canadian timber is treated more as an administrative matter, rather than set in a competitive marketplace as it is across the border. As a result, despite the clear and favorable bias of the U.S. house-building industry towards Canadian softwood lumber, the U.S. government would like to impose limits on its import into the U.S. in order to favor American softwood lumber producers. In 2016 alone, the U.S. imported $5.7 billion of Canadian softwood lumber, mainly for residential home building.

Just as the U.S. has a case against Canada’s softwood lumber, Canada has a similar case against American drywall. There is likely no easy resolution in all of the matters mentioned, especially not since Trump’s visit to Wisconsin on April 19, 2017 where he used a speech meant to focus on “buy American, hire American” (before signing a new executive order) to make a sudden and pointed attack on Canadian trade policies. Given that he was in America’s dairyland, Trump was no doubt playing to his constituents by bringing up the “terrible” plight of American dairy farmers. Citing it as “another typical one-sided deal against the United States” he vowed it “won’t be happening for long”, referring to the pricing changes in ultrafiltered milk products that make American imports less competitive.

Prime Minister Justin Trudeau calmly made his rebuttal the following day during an interview with Bloomberg Editor-in-Chief John Micklethwait in Toronto by pointing out that “the U.S. has a $400 million dairy surplus with Canada. So it's not Canada that is the challenge here." To which he added: “Let’s not pretend that we are in a global free market when it comes to agriculture. Every country protects, for good reason, its agricultural industries. We have a supply management system that works very well here in Canada. The Americans and other countries choose to subsidize to the tune of hundreds of millions of dollars, if not billions of dollars, their agricultural industries, including their dairy.” And despite the finger pointing, we also know that the troubles of Wisconsin dairy farmers stem from a combination of overproduction and low global milk prices.

On April 21st, Trump doubled down on his previous comments by expanding his list of trade irritants from dairy to lumber and energy. Trump’s fighting words, reminiscent of his protectionist campaign rhetoric, make it clear that Canada is in for much more than just a “tweak” to its trade policies.

To begin with, Trump announced that punitive tariffs of up to 24 percent were to be slapped on Canadian softwood lumber imports beginning April 24, 2017. Softwood lumber products do not fall under NAFTA: over several decades they have been regulated by side agreements, the last of which expired in 2015. So it was known that a new agreement would have to be hammered out between Canada and the U.S. at some point, but Trump used his April visit to Wisconsin as a jumping-off point to fire the first salvo by imposing onerous softwood tariffs, which are, in many cases, retroactive 90 days and will throw smaller Canadian producers into dire economic straits.

As if the softwood tariffs weren’t enough of a shock to the trade relationship, Trump mused on April 26, 2017 that he was thinking of giving the required 180-day notice to terminate NAFTA in its entirety to coincide with his 100th day in office two days later. In an interview with The Washington Post on April 27th, he said: “I was all set to terminate. I looked forward to terminating. I was going to do it.” Trump said he reconsidered after speaking with advisers and with the prime minister of Canada and the president of Mexico, saying: “I like them a lot, both of them. We have a very good relationship. And it’s very hard when you have a relationship, it’s very much something that would not be a nice act. It would not be exactly a friendly act.”

White House insiders told the Post that Trump’s stated intention to terminate NAFTA rattled business executives across America, various agricultural groups, the U.S. Chamber of Commerce, state governments, members of Congress, as well as Commerce Secretary Wilbur Ross, Agriculture Secretary Sonny Perdue and Secretary of State Rex Tillerson, who all urged the president to back down. The message was that ending NAFTA would impact negatively all U.S. business and could devastate the U.S. agriculture industry.

The only Trump advisers urging him to keep on his course to cancel NAFTA were trade adviser Peter Navarro and chief strategist Stephen K. Bannon, the Post reported, adding that at the same time two cabinet-level Mexican officials contacted their U.S. counterparts to deliver the blunt message that Mexico would not return to the negotiating table with “a gun to its head” if Trump announced his intention to withdraw from NAFTA. Arturo Sarukhan, a former Mexican ambassador to the United States, described Trump’s threat as a “my way or the highway ambush” from the White House.

Mexican Foreign Minister Luis Videgaray went on to say in an April 27th interview on Mexican television that Canada and Mexico had mapped out a joint strategy for dealing with Trump’s threat to withdraw from NAFTA. “We had the same position,” Videgaray said.

So in reality, Trump had already made up his mind to back down even before he spoke with Prime Minister Justin Trudeau and President Enrique Peña Nieto on Wednesday night, April 26th, the Post reported.

The newspaper gave an interesting anecdote to illustrate how Trump’s advisers, starting with his son-in-law Jared Kushner – who had urged him to back away from cancelling NAFTA – have to play up to him to salve his ego. At one point during The Washington Post interview in the Oval Office on April 27th, Trump, who had already backed down on the issue, turned to Kushner and asked: “Was I ready to terminate NAFTA?”

“Yeah,” Kushner said, before explaining the case he had made to the president: “I said, ‘Look, there’s pluses and minuses to doing it’, and either way he would have ended up in a good place.”

A Canadian Press story published May 8, 2017 in The Toronto Star reported that at 6 p.m. on April 26th Kushner called Katie Telford, Prime Minister Trudeau’s chief of staff, in Ottawa to suggest that it would be good idea for the prime minister to call the president – who was free “right now” – to discuss NAFTA.

The Canadian prime minister followed Kushner’s suggestion and spoke to Trump, as did Mexican president Peña Nieto – although it has not been reported whether Kushner was the White House adviser who triggered the call from the Mexican president. What is known is that Trump spun the calls from the two leaders into what he thought would be a face-saving ploy to explain his change of position about ending NAFTA, saying that Trudeau and Peña Nieto had asked him to back down and that he had acceded to their requests because he likes both men.

Given the mercurial temperament of this president, one wonders how many major changes NAFTA might undergo even if he eventually opts not to pull the plug on the entire agreement. For example, the Trump administration has toyed with the idea of abolishing

NAFTA’s dispute settlement regime (known as NAFTA Chapter 11) – which addresses anti-dumping and countervailing disputes – despite the fact that it seems to have worked in favour of the U.S.

Scott Sinclair of the Canadian Centre for Policy Alternatives documented the 77 known NAFTA investor-state settlement claims made up to January 1, 2015, which included 35 against Canada, 20 against the U.S. and 22 against Mexico: Canada paid out damages totaling $172 million (Cdn); Mexico paid damages of $204 million (U.S.), while the U.S. had not lost a single NAFTA Chapter 11 case up to that point.

Intellectual property rights are also a continuing priority for America, especially in the realm of pharmaceuticals, as the U.S. has serious concerns regarding certain patent utility requirements that Canada has adopted. Ideally, the U.S. would also like additional co-operation in the fight against counterfeit goods (especially goods shipped from China), as Canadian legislation does not allow for inspection of in-transit goods destined for the U.S. via Canadian ports.

The U.S. may also pursue changes to Canadian personal duty exemptions. For short-term travellers, they are far less generous than those provided to Americans who return from travel in Canada. U.S. retailers have raised concerns on the diminishing effects of spending when on their side of the border. The same goes for personal imports of U.S. wines and spirits, which are subject to high provincial taxes and duties.

On a similar note, given the rise of American e-commerce companies, the U.S. would like to see an increase in Canada’s de minimis threshold (DMT). It is the value below which shipments from abroad are exempt from duties and taxes and customs processes, and it is currently set at a mere $20. As you might imagine, it was set in the pre-digital universe nearly three decades ago. It is also the lowest DMT in the world, as compared to the U.S., which has the highest at $800.

Canada spends a great deal of money and resources to collect the tax and inspect these small parcels at the border – it does not even come close to covering the cost of doing so. A C.D. Howe Institute trade and international policy briefing entitled “Rights of Passage: The Economic Effects of Raising the de minimis Threshold in Canada” (published in June 2016 by Christine McDaniel, Simon Schropp and Olim Latipov), reveals that for the government to collect $39 million in additional revenues on these small value shipments, it comes at a cost of $166 million. Needless to say, this is a money-losing endeavour where both countries could stand to benefit if changes were made.

The U.S. is also weary of the support the provincial and federal governments provide to Canada’s aerospace industry – namely Bombardier. Whether it be in the form of the direct aid the company has received or whether it is masked under the veil of research and development grants, or the commercial loans the government is providing to potential purchasers of their CSeries aircraft and the additional credits they receive when the aircraft is sold in the U.S. market – the U.S. views these as subsidies working against American-made products. Meanwhile, Canada, in return, would likely solicit the opportunity to participate in U.S. government procurement projects. This would require the relaxation of local content rules, which in most cases preclude Canadian companies from even participating in the bidding process.

Other than the reciprocal requests briefly outlined above, Canada may also want to solidify measures to prevent a great unraveling of the fully integrated auto-manufacturing sector. Canada could also seek an update to the list of professionals who qualify for temporary entry to the U.S., something they were not able to achieve in TPP negotiations. But the biggest ask would be for the U.S. to open up its agricultural sector, namely the sugar industry, which is heavily protected and currently excluded from NAFTA.

Opportunity pipeline

Despite the concessions and the potential downside of reopening negotiations, there is one large potential opportunity for Canada and it comes in the form of the Keystone XL pipeline, as part of Trump’s plan for energy independence.

The Obama administration had originally vetoed the project, but Trump encouraged TransCanada Corp., the Keystone pipeline builder, to reapply for a permit. The project was finally given a presidential approval on March 24, 2017. If completed, the pipeline would be capable of sending up to 830,000 barrels a day from Canada’s Alberta oil sands to America’s refiners on the Gulf Coast. It also has the potential to create thousands of jobs for Canadians, particularly where they are most needed – in Western Canada.

Despite Trump’s blessings, the project still faces numerous hurdles, namely state-level approvals are needed in Nebraska and South Dakota, and there is continued opposition from environmentalists. There’s also the matter of Trump’s pledge for the exclusive use of American steel in its construction, as well as his expressed desire for a piece of the profits. It is now clear that the U.S. steel promise is unlikely to be fulfilled as the pipeline was already under construction and the materials were previously acquired, although this will be a requirement for new projects. As for the profit-sharing, it appears he has also backed away from pervious comments that would have otherwise been a clear violation of our capitalistic system.

With the arrival of the pipeline also comes consequences for the oil market. Keystone may very well impact oil production in the U.S. and, as such, the price of oil. And if oil prices are depressed, that could, in turn, make expensive oil sands projects – whose heavy crude sells at a discount to the light sweet variety – less viable than they already are today.

On the other hand, if only Mexico is hit with a punitive tariff or border tax, its oil exports to the U.S. will also be affected. This is a potential boon for Canadian producers whose oil already sells at a discount to heavy Mexican Maya, simply because it needs to travel thousands of miles by rail or pipeline. An additional 20 percent on Mexican oil, along with the availability of less costly pipeline transportation, could give the oil sands a real comparative advantage. 

Broadening Canada’s trade horizons

At the end of the day, regardless of the negotiation struggles or the outcome, America’s general retreat from free trade threatens to disrupt Canada’s attempts to forge trade agreements with other countries. Without the economic heft of the American elephant at the table, our government could struggle to negotiate favorable trade deals.

Realistically, whether we have the weight of the U.S. on our side or not, Canada needs to broaden its trade horizons.

Excluding NAFTA, Canada has 10 free-trade agreements in force, which allow Canadian goods duty-free access to 13 countries. This can be improved upon. Now that TPP has fallen through the cracks, Canada needs to reach out to those countries with which it does not already have a trade deal (five out of the 12 TPP partners). They could also expedite exploratory free trade agreement discussions they plan on having with China. Meanwhile, Canadian companies should be looking at expansion opportunities presented by CETA, the new trade agreement with the European Union.

Why Trump’s plans may not work out

In the meantime, as we await the reality of the Trump presidency to unfold in the coming years, we should recognize that there are a few reasons why the president’s proposed plan to stimulate America’s growth may not materialize.

The first cause for concern is Trump’s fiscal plan, including the significant tax cuts, and a $1 trillion infrastructure program. For one, this does not necessarily jive with the traditionally tight purse strings of the Republican Party. Trump’s proposed tax cuts are twice as steep as those proposed by House Speaker Paul Ryan. According to the Tax Policy Center estimates, the cuts are expected to cost as much as $7 trillion over the next decade (this takes into account the effects of the change in tax on economic growth – i.e. dynamic scoring). This is expected to increase the debt-to-GDP ratio by 26 percentage points to 111% of GDP.

Purse strings aside, there are numerous issues on which Republicans and their new president have opposing views. Not only on traditional matters such as free trade, but also on Trump’s approach to world affairs, such as his open admiration for Russia and Vladimir Putin (an FBI investigation was under way for possible ties). Such contention can be used as leverage in the political process, and Trump currently appears to be burning through his political capital to pass just the first of many expected proposals.

There is also the matter of the $1 trillion in infrastructure spending to improve the country’s roads, bridges, tunnels, airports, schools and hospitals. There is uncertainty over the details, but the general idea is that most of the money spent would not be directly shelled out by the government, but rather would come in the form of tax breaks to firms willing to invest in private infrastructure projects. The tax break is significant, at 82 cents per dollar of invested equity, but the fear is that without government direction it may not result in the intended improvement of the country’s maintenance backlog and instead will be directed towards profit-making projects such as toll bridges.

Monetary policy is another worry, as the dollar tends to rise with interest rates, and given the U.S. dollar’s pivotal nature, a rise will inevitably be accompanied by a host of other challenges, which will be felt around the globe. Although the dollar has been strengthening against a basket of rich-country peers for years, there are many interrelated factors driving the currency, and at this point nearly all are anticipatory.  

Because the American dollar reigns supreme as a means of exchange and a store of value, there is a great deal of financing in the currency beyond America’s shores. In fact, there has been a surge in demand as emerging markets have grown richer and hungrier for financing. Those capital inflows then push up local prices and encourage further borrowing.

Of course, when the dollar rises, so does the cost of servicing those debts, which in turn hurts the supply of local credit. It may also send the cycle for these dollar-denominated borrowers into a tailspin of capital outflows, accompanied by a drop in asset prices. Plus, Trump’s protectionist bent is likely to make it even harder for these emerging economies to trade their way out of trouble.

There are also dangers for America in a stronger dollar. The U.S. Federal Reserve is already in the process of raising rates, precisely because the economy is close to full employment and inflation is on the rise. If the dollar continues to strengthen, the trade deficit will widen as imports inevitably become cheaper, while exporters will suffer. Expensive exports may even cost American jobs.

This is exactly Trump’s fear, and what his potential policies are meant to avoid. Should this happen, he may succumb to his protectionist instincts and pull the tariff trigger, setting off the trade war in an attempt to bring trade into balance.

Needless to say, going forward we are facing a lot of unknowns. Could America’s long-term fiscal health be in jeopardy? Will the Fed speed up the pace of the tightening cycle? Has the market moved too quickly in anticipation of policies that may never materialize? Will the Republican Party be able to synthesize their conservative principles with Trump’s world view? Could Trump’s approach to foreign policy, his lack of experience in public office, or his unorthodox views on issues, such as immigration and climate change, damage alliances? What will be the global consequence of the anti-globalization backlash we have now seen in both American and British politics?

The United States and Britain have essentially been the guarantors of international order since the Second World War. In fact, many would argue that their close diplomatic ties and alliances in numerous military and political conflicts not only brought an end to the Cold War, but brought with it growth in world trade and investment flows which increased the standard of living for many around the world. Now that these two countries are on the path to turn inwards, we are also seeing nationalist populism stage a roaring comeback in other countries of importance.

Ultimately, if Trump’s actions result in a trade war, it is unlikely to “Make America Great Again.” It is more likely to make the U.S. and the world – including Canada – a more impoverished, hostile and even unstable place.

Editor’s Note: Stan Crock is a distinguished American journalist with a law degree whom we are pleased to welcome as a contributor to BestStory.ca. Stan’s colorful biography can be found here.

President Donald Trump’s February 16, 2017 press conference proved quite dramatically that he has brought the “no-fact zone” from his election campaign into his presidency.

During his rambling, 77-minute “newser”, Trump claimed to have the largest Electoral College victory since Ronald Reagan, when in reality he beat out only George W. Bush; the winning candidates in five other presidential elections since Reagan produced far larger margins.

Trump also claimed that Hillary Clinton gave Russia 20 percent of the U.S. uranium supply. That was both inflammatory and untrue. In 2013, a Russian company, Rosatom State Nuclear Energy Corporation, bought a majority interest in a Canadian company, Uranium One, which owns 20 percent of U.S. uranium production capacity, which is quite different. The New York Times quoted a former State Department official as saying Clinton played no role in the multi-agency decision to approve the purchase of the interest in Uranium One.

The night after his press conference, Trump called out in a tweet the three oldest U.S. broadcast networks – CBS, NBC, ABC – as well as CNN and The New York Times, labeling them the “ FAKE NEWS media” and describing them as “the enemy of the American people.” But reporting the truth to the public is not treason. In fact, it is an act of patriotism, a fulfillment of the press’s solemn obligation under the First Amendment.

Trump is not the only creator of the no-fact zone, the verbal equivalent of a military no-fly zone, with perhaps even more impact. The real fake news purveyors (pardon the seeming oxymoron) are some digital sites, including social media, which pride themselves on disseminating false information. They help spread misinformation, but have nowhere near the impact of the president of the United States using his bully pulpit to spread falsehoods.

How we got to this presidential no-fact zone involves a complex, combustible, and toxic brew of psychology, neuroscience, behavioral economics, and technology. The press aggravated matters by initially reacting to Trump’s every tweet, however inane and off target, instead of concentrating on the major issues facing the new administration.

But the factors that brought us here – combined with traditional journalistic values and practices, guerrilla warfare, and innovation – can lift us out of this quagmire.

Repetition breeds familiarity

Let’s start with how we got here. A big factor is the way people process information. Behavioral economists such as Daniel Kahneman tell you that repetition breeds familiarity, which leads to credibility. What is familiar also makes you feel comfortable. This is a biological instinct, for the survival reaction to something novel is to withdraw or fear it. Something novel may be a threat. Something familiar is not as likely to be since you have survived it before.

This syndrome operates regardless of the truth of the repeated statement. As a result, people will act in ways that are not in their economic or other interests. Hence the title of Duke Professor Dan Ariely’s behavioral economics book: Predictably Irrational. Behavioral economics thoroughly undermines the notion that markets and market participants are rational. Marketers have known this for years. So have political propagandists.

When people compare Trump to Hitler, they have the right Reich but wrong guy: propaganda minister Joseph Goebbels is the real comparison. Trump knew that repeating “crooked Hillary” time and again would have the desired effect. People would believe it and be comfortable with the idea. The same is true for repeatedly using the term “fake news” to describe legitimate news organizations. Trump knows if he says things often enough, people will believe it. And sure enough, interviews with supporters show they repeatedly use the term fake news.

Cognitive bias is another big factor. In 1986, three Rutgers professors wrote in the Journal of Economic Behavior and Organization about a general framework for cognitive dissonance and utility maximization. It included three kinds of cognitive bias. The first is prior hypothesis bias, in which a belief about the world leads a reader to ignore information that is inconsistent with that belief – essentially confirmation bias.

I have seen that up close and personal. When I wrote a piece for my Business Week online column in March 2004 about whether President George W. Bush had something called central auditory processing disorder, I got a lot of emails from Republicans saying I clearly was a Democrat and from Democrats saying I clearly was a Republican. They all read the same piece. The Republicans believed I was a Democrat because I was saying Bush was not fit for the presidency because of the disorder. The Democrats said I was a Republican because I was being sympathetic to Bush, saying he wasn’t dumb as a stone. I did neither, of course. But as a high school classmate said at the time, “People see what they believe. They don’t believe what they see.”

Anchoring and adjustment

The second bias is anchoring and adjustment, a form of semantic priming. Initial estimates serve as an anchor and later adjustments are too small in light of new information provided. Consider a 1999 study by two German psychology professors involving how old Mahatma Gandhi was when he died. They asked one group if he died before or after the age of 9 and the other if he died before or after the age of 140. The first group’s estimates averaged 50 and the second averaged 67. He actually was 87 when he was assassinated. The numbers in the question clearly had an effect as an anchor to prime thinking about the answer.

The final bias is one based on commitment. When you are committed to a course of action, you will ignore information that causes a low level of dissonance with that commitment. When the dissonance grows too large, however, the three Rutgers professors found, “the blocking of evidence reverses itself, and the initial decision is revised in line with the external evidence.”

The website Better Humans had a piece called Cognitive Bias Cheat Sheet. The subtitle: because thinking is hard. It noted that Wikipedia has a list of 175 cognitive biases, and Better Humans grouped them into a bunch of manageable baskets: What we do to cope with too much information, not enough information, the need to act fast, and figuring out what to remember. We cope with too much information with some of the mechanisms I’ve mentioned: relying on things primed in our memory or repeated, details that confirm our beliefs, bizarre or funny things that stick out, change, and flaws in others.

When there is not enough information or meaning, we find stories in sparse data. We fill in characteristics from generalities ­– and can’t remember what is real and what we filled in. We simplify. We think we know what others think and project our assumptions. We imagine people we know are better than those we don’t know.

When we need to act fast, we are confident in what we know and do, we complete things in which we have invested time, we preserve our status in our group, and we favor the simple over the complex and ambiguous. We may rely on heuristics, experience, a rule of thumb, an educated guess, an intuitive judgment, stereotyping, profiling, or common sense to make a good enough but not perfect decision.

All too human

In terms of memory, we edit and reinforce memories after the fact, discard details to form generalities, reduce events to key elements, and store memories based on how we experienced them. We encode information that seems important at the time, but that is in comparison with what else is going on and may have nothing to do with the memory’s intrinsic information value. All of this can lead to less than optimal behavior. We are human, all too human.

Of course, our minds have filtered information this way for millennia. But in the U.S., the number and quality of sources of information have changed. We used to have three networks and local newspapers that had a fairly uniform approach to providing reliable information. Journalists and editors vetted the information they received to see if it was true and then provided balanced stories by talking to all sides of an issue. So these psychological factors worked on absorbing fact-based information as opposed to the claptrap from multiple sources we encounter now. The advent of multiple sources on the web combined with these psychological dynamics have produced ruinous results.

The New York Times’ Farhad Manjoo wrote an excellent piece on Nov. 2, 2016, about How the Internet is Loosening Our Grip on the Truth. The Internet has democratized the marketplace of ideas, but factually-challenged wing nuts have dominated it, creating a perverse and unhealthy effect on democracy. As a tech writer, Manjoo understandably focused on technology. But there are other factors.

Decades of attacks on the mainstream press by right-wing hosts on the radio – not exactly a new technology – and radio broadcasts of an unending number of absurdities have taken their toll, too. Take a look at how many people think President Barack Obama is a Muslim – 29 percent in a 2015 poll. And in a 2016 poll, 72 percent of Republicans doubted Obama’s U.S. citizenship despite the clear record.

Similarly, 52 percent of respondents who said they knew a lot about Common Core standards thought they applied beyond math and English, and 57 percent thought the standards mandated more testing. They were wrong in both instances, but those misconceptions led them to oppose the Common Core. Not understanding the truth has consequences.

I have had personal experience with the effects of fake news. I have eaten at Comet Ping Pong, the pizzeria that was the site of a December 4, 2016 visit by a gun-wielding North Carolina man named Edgar Maddison Welch, who believed false website stories that the restaurant was involved in a supposed child-trafficking ring led by Democrat Hillary Clinton and her campaign manager, John Podesta. I also eat regularly at a restaurant a few doors away. I shop at the bookstore on that block, Politics and Prose, which supposedly had a tunnel through which the kids went to Comet Ping Pong. The gunman found no kids at Comet and no tunnel. Surprise, surprise. I lived for five years a half block from all of this. I can tell you that fear permeated employees of these establishments ­– and, fortunately, that the neighborhood supported them all.

Fake news does not affect just national politics. A high school classmate recently resigned from the City Council of Lafayette outside San Francisco after serving for 11 years. He had been planning to leave for a while, but he was really glad he did after a local tax measure he had nurtured for two years flamed out in the wake of a hail of social media lies. The biggest was that the measure would finance a $60 million Taj Mahal of a City Hall. There was no such plan, but 56 percent of the population voted against the measure, which had both union and Chamber of Commerce support. Author Neal Gabler calls this fake news an attempt to reverse the Enlightenment.

Another example of irrational behavior, at least from an economic standpoint, is a focus on compositional amenities, the topic of a Washington Post column by Charles Lane. New Yorkers, for example, prize the social, cultural, and economic benefits of a diverse society. As Lane put it, “Life brims with new experiences, challenges, excitement, what an economist would call ‘positive externalities’ of demographic change.”

Survey data from 21 countries shows that people with less education and fewer job skills have more anxiety about cultural changes engendered by the arrival of immigrants, even when such immigration is shown to have an overall positive economic impact.

“Yet,” he goes on, “homogeneity has benefits too. In rural areas, or small towns, where everyone speaks the same language, or practices the same customs, life can be simpler, more predictable, less frictional.” Those are compositional amenities, and many people value them above the benefits of diversity, even above economic gains.

In a 2009 paper, a U.S.-British trio of social scientists used survey data from 21 countries to show that concern for compositional amenities is much more important in explaining public opinion on immigration than economic concerns, such as immigration’s impact on wages and taxes. Anxiety about cultural change can, and often does, outweigh evidence on immigration’s economic impact – even positive data showing immigration actually raises wages overall or that undocumented immigrants pay billions of dollars in taxes.

The study reached another important conclusion: compositional concerns rise as educational attainment falls. As you acquire more skills and information, it becomes easier, presumably, to adapt to an increasingly diverse culture.

So if you believe that Washington is screwed up (your prior hypothesis), if your anchors are that immigration and globalization are awful, if you are committed to throwing the rascals out and changing Washington, if you focus on the unusual, if you fill in characteristics and can’t remember what is real and what you filled in, if you are more comfortable with people like yourself, if you oversimplify, if you think you know what others are thinking (and it’s none too good), if you reinforce memories incorrectly after the fact, and if you keep hearing things whose repetition makes them believable and makes you comfortable, it is quite easy to operate in a no-fact zone.

Fake news purveyors consciously exploit these human cognitive failures. In a January 18, 2017 New York Times article, the Maryland Republican operative, Cameron Harris, explained how he had ginned up a fake news article about an Ohio warehouse with tens of thousands of fraudulent Clinton ballots. Harris noted that Trump was starting to lay the groundwork for losing by saying it would happen only because the system was rigged. Harris noted that the distrust of the media among Trump supporters meant that anything that parroted Trump’s talking points would work. He said that people “were predisposed to believe Hillary Clinton could not win except by cheating” and added, “people wanted to be fed evidence, however implausible, to support their beliefs.”

Yet another element of behavioral economics affects both the public and the press: the penchant to look at the numerator instead of the denominator. If you looked only at the number of people who buy lottery tickets and lose (the denominator), no one would buy a ticket. Instead, the public and the press focus on the numerator, the rare person who wins. That encourages people to buy lottery tickets, which is not economically rational. But it is how people think and act. And it is how journalists act and think when they focus on outliers as newsworthy.

This approach has distorted public perceptions about free-trade agreements. The focus will be on a single plant that closes and lays off 300 workers (the numerator). The press pays no attention to the hundreds of other employers who may be hiring three or a dozen new employees, more than offsetting the job losses. Nor does the press pay much attention to the fact that consumers will be saving, say, $1.50 per imported tee shirt on millions of tee shirts, which adds up quickly and frees up huge sums for other purposes.

NAFTA’s positive impact

This is not academic. How many people know that in January 1994, when the North American Free Trade Agreement (NAFTA) took effect, there were 16.9 million manufacturing jobs in the U.S., according to the Bureau of Labor Statistics, and four years later, though some jobs moved to Mexico, the number of manufacturing jobs had increased steadily to 17.6 million. The rise reversed what had been a steady decline since May 1979, when the number hit 19.5 million.

That’s just part of the story.  U.S. employment overall grew 21 percent between 1993 and 2007, when the great financial recession hit. In the decade after NAFTA, the U.S. economy grew 44 percent, significantly faster than NAFTA partners Mexico and Canada. The U.S. Trade Representative said that during that decade, U.S. exports to Mexico and Mexico’s exports under NAFTA grew at similar rates—more than 200 percent. But of every $1 of Mexican exports that arrive in the United States, 40 cents comes from parts and materials made in the U.S. In a complex economy, it’s impossible to isolate one cause such as NAFTA for the economic boom, but it’s also impossible to argue that NAFTA crippled U.S. workers. The Democrats and Trump are just wrong about trade. And the Trans-Pacific Partnership is perhaps the best trade deal Washington ever negotiated, with unprecedented environmental and labor protections.

The distortions and lack of context have unfortunate consequences. After the 2014 mid-term election, I attended a Northwestern University event in Washington with a bunch of fellow alumni who were prominent reporters. Liz Bumiller of the New York Times was one of the panelists and asked why, when by every measure the economy was doing so much better than when Obama took office, he was such a drag on the party. The answers spewed forth: ISIS, the IRS scandal, Ebola. When it was time for audience questions, my question was: More people have been married to Kim Kardashian than have died from treating Ebola patients in the U.S. Do the media have any responsibility for distorting this and other issues?

Peter Alexander of NBC News, the moderator, said he wished he could take back some of the stories he did. He noted that high school students in Northern Virginia who lived 15 miles from Dulles Airport were treated for post-traumatic stress disorder because someone from Liberia might have disembarked a plane at Dulles. The students didn’t need to have contact with the person or even be at the airport. This is nuts, and the media are to blame.

A structural issue aggravates the media’s focus on the numerator. With 24 hours to fill, CNN and others fill it with all ISIS all the time or all Ebola all the time or all missing Malaysian Airline Flight 370 all the time – for weeks even though there was not a scintilla of anything new to report. This inflates issues out of all proportion and squeezes out time for stories about such things as steady job growth or retiring baby boomers being a big reason labor participation rates are down.

There’s yet another layer to all this. In 2005, Princeton philosophy professor Harry Frankfurt wrote an essay called On Bullshit. He wanted to create a theoretical understanding of the concept and cited everyone from St. Augustine to Ludwig Wittgenstein (1889-1951), an Austrian-British philosopher.

Frankfurt wrote that, “The realms of advertising and of public relations, and the nowadays closely-related realm of politics, are replete with instances of bullshit so unmitigated that they can serve among the most indisputable and classic paradigms of the concept.” The basic premise was that there is an important distinction between lying and bullshit. A liar knows what he is saying is false and tries to deceive the listener. A bullshitter doesn’t care whether what he says is true or not because the goal is not to deceive. Rather the goal is to convey an impression of the speaker – the perfect tactic for a narcissist or the loudmouth at a bar.

Frankfurt cites a book called The Prevalence of Humbug – a 1985 collection of essays written by Cornell University philosophy professor Max Black (1909-1988). It includes an account of a bombastic Fourth of July orator who talks about “our great and blessed country, whose founding fathers under divine guidance created a new beginning for mankind.”  Frankfurt says the speaker doesn’t care whether the statements are true or whether the audience believes them. The speaker just wants the audience to consider him patriotic, sensitive to religion, and conscious of our history. It’s all about the speaker. Was this essay prescient or what?

Into all of this steps the mainstream press, which doesn’t fully understand what it is getting on the bottom of its shoes. I want to take the press to task for contributing to the mess we are in, but not for the conventional reasons. I think it is entirely unwarranted to criticize the press for getting the election wrong. For starters, it simply reports what the polls show.

The national polls actually were right. The Real Clear Politics average just before the election gave Clinton a 3.3 percent edge. The actual result was a 2.1 percent difference, not far off and certainly directionally correct. The slender margins in Wisconsin and Pennsylvania were within the margin of error, though Michigan, which showed Clinton with a substantial lead, was not. The large crowds that Trump cited were not a good indicator. Mitt Romney had even larger crowds than Trump before getting trounced in 2012.

That said, the press has some ‘splainin to do. But a little context first. In the November 21, 2016, issue of The New Yorker, George Packer wrote that the press is “reviled, financially desperate, and undergoing a crisis of faith about the very efficacy of gathering facts.” That’s not a bad summary. Let’s look at reviled. A June 2016 Gallup survey of confidence in institutions showed the press beating only big business and Congress. Some 20 percent of respondents had a great deal or quite a lot of confidence in newspapers, while 21 percent did for TV news. Big business came in at 18 percent. Congress didn’t make it into double digits, managing only 9 percent. Personally, I couldn’t believe it was that high. (At his January 16, 2017 news conference, Trump was wrong about this, too, when he said the media’s public approval is lower than that of Congress.)

Financially desperate also is on target. Labor Department data show newspapers lost 271,800 jobs between January 1990 and March 2016, or 60 percent of newsroom jobs. Magazines lost 52,800 jobs, or 36 percent, in that period. Jobs in broadcasting and Internet partially offset the hemorrhaging, rising from 30,000 to 198,000. But the figure overstates that surge because the industry category includes Internet directory publishing, book publishing, game sites, software publishing, maps, street guides, and atlases. How many of these workers actually produce news is unclear. This job loss has been an unmitigated disaster.

The fact that most news organizations are publicly held aggravates matters. One consequence: according to one polling specialist, Time magazine did not bankroll a single poll this election cycle, and the media financed fewer states polls. In September 2016, much too early for any poll to be dispositive, I saw a national poll on the tube, turned to my wife, and said I wished they would devote more time to meaningless relevant polls rather than meaningless irrelevant polls. After all, we vote by states so the national polls are irrelevant. But now I know why I didn’t see more meaningless relevant polls: there wasn’t money for them as the traditional ad revenue-based business model cratered.

When the L.A. Times, Washington Post and New York Times were privately owned by the Chandler, Graham, and Sulzberger families, respectively, they could be content with modest returns. The focus was as much on the mission as on the money. But when these companies are competing on public capital markets with the returns of a Microsoft or Apple, they are toast. With advertising declining and executives focusing on quarterly earnings and their fiduciary duty to shareholders, layoffs are inevitable. In contrast, Jeff Bezos’s purchase of The Washington Post for $250 million in 2013 has resulted in more staff and continued straight-shooting news coverage. It is a business model we should encourage, as are the non-profit ProPublica and the St. Petersburg Times. (I elaborate more on the Bezos experiment further down.)

The press is ‘reviled, financially desperate, and undergoing a crisis of faith about the very efficacy of gathering facts.’ – journalist George Packer writing in the November 21, 2016 issue of The New Yorker.

The third leg of the analysis by The New Yorker’s George Packer concerned a crisis over the efficacy of gathering facts. Lucas Graves, a University of Wisconsin journalism professor, wrote a book (published in 2016) called, Deciding What's True: The Rise of Political Fact-Checking in American Journalism. According to a review of the book in The Washington Post, Graves says the press faces a dilemma in fact-checking. Reporters are supposed to be objective instead of taking sides. And they typically have to ask both sides for comment. The Post abandoned its constant fact-checking of Ronald Reagan’s fictions because readers ignored the fact-checking, and the paper worried about a perception of partisanship. The paper figured it was up to the Democrats to correct the record. That is not a solution. The public can easily dismiss what Democrats say as partisan. The paper shirked its responsibility. The press needs to be the honest broker and arbiter of facts. There is not always equivalence. Some things are demonstrably false.

I admit to starting off with the naive notion that facts matter. I will never forget the look of utter sadness, bewilderment, and shaken faith on the face of Rachel McAdams’s mother in the wonderful movie Spotlight as she started reading an article about the abuses of her beloved Catholic church – a story reported and written with the rigor that then-Boston Globe editor Marty Baron demanded. It was a movie, but it was not fiction. (Baron became editor of The Washington Post in December 2012, a position he still holds.)

But the press can shoot itself in the foot or even in the head. Consider Rolling Stone’s false University of Virginia rape story. Then there’s Jayson Blair of the New York Times, Janet Cooke of the Washington Post, Steven Glass of the New Republic, Jack Kelley of ­ USA Today, and Brian Williams of NBC News – all of whom fabricated or plagiarized stories. These news outlets are all major, influential, and tarnished.

The balls syndrome

How does this happen?  I suspect some of it has to do with journalistic biases, but I don’t mean the biases that most people talk about. There are two biases in particular that can get media outlets in trouble. The first is what I would call the balls syndrome. There usually is little penalty for a reporter being tough on someone in a story if you get something wrong (assuming no libel risk) because at least you had balls. Contrast that with being soft on someone and getting it wrong. Then you look like a shill. That’s much worse for your reputation in the newsroom.

Writing pieces which exonerate people – and I’ve done that – is much tougher than the hard-hitting piece. There is the fear among your editors that something you missed will come out the following day or week, and you – and your publication –will have egg all over your collective face. The truth is that printing those stories is really what takes balls. It also requires the same reporting and writing rigor Marty Baron demanded of the priest abuse story in the The Boston Globe. Both have to be bulletproof. Of course, all stories should be that way.

The second bias is the slogan I learned when I was in journalism school, that it is the role of the journalist to comfort the afflicted and afflict the comfortable.

Both of these biases were at play in the first question of the first Republican debate. John Harwood, a respected veteran reporter for CNBC, asked: “Mr. Trump, you’ve done very well by promising to build a wall and make another country pay for it, send 11 million people out of the country, cut taxes $10 trillion without increasing the deficit, and make Americans better off because your greatness would replace the stupidity and incompetence of others. Let’s be honest. Is this a comic-book version of a presidential campaign?”

The question afflicted a comfortable Donald Trump and comforted the afflicted who feared deportation. It also was a perfect example of how the press took Trump literally but not seriously while voters took him seriously but not literally. Harwood did this in a particularly off-putting way and made himself – rather than Trump – the issue.

Not only did Harwood turn off viewers (including me, and I was sympathetic to his premise) and make Trump look like the victim, he also fell into a trap Trump had laid. According to an article in the Columbia Journalism Review, Andrew Breitbart, the founder of the notorious right-wing website Trump aide Steve Bannon ran, thought he had a lot to learn from radical community organizer Saul Alinsky.

Alinsky (1909-1972) focused on provocations that would cause a reaction he could exploit to garner sympathy. Breitbart figured he could provoke his enemies into making mistakes and then exploit them. So when Trump makes preposterous statements and the press reacts loutishly, as Harwood did, Trump can pounce.  

Some journalists think the way to deal with Trump is to pair whatever he tweets with mention of the story from which he is trying to distract attention. That would be a mistake. He would nail the press for trying to read his mind and crucify the press for its reaction: exactly the Breitbart strategy. Instead, just write the story Trump didn’t want to get attention and don’t tie it to the tweet.

Another way the press digs itself deeper into a hole is to be dismissive of those who believe fake news. Jim Warren, a respected veteran journalist, wrote on Poynter.org about “the stupidity of a growing number of Americans” who believe “goofy stories, the lies, the conspiracy theories that now routinely gain credibility among millions who can’t bother to read a decent paper or digital site and can’t differentiate between Breitbart and The New York Times.” When you start blaming your customers for your problems, it’s a problem. You need to probe why this phenomenon is occurring. And I have to say that the public had a better bullshit detector than the press if it took Trump seriously but not literally. His supporters never expected him to build a wall. They thought he told it like it is even if he didn’t mean what he said – a contradiction only a brilliant bullshit artist could pull off. But these voters see bullshit artists in bars every day and apparently have extra-large grains of salt in their diets.

While I think Trump is an effective marketer, a clueless low-life, and someone I could never vote for, it’s ridiculous to say all his supporters are stupid. He cobbled together Republicans who could never vote for a Democrat, Hillary haters, people who merely didn’t trust Hillary, people who wanted to oust a dysfunctional establishment, people left behind by globalization and technology, bigots, xenophobes, nationalists, misogynists, people affected by the cognitive biases I have mentioned, and, no doubt, some people who are stupid. I have no idea what percentage of Trump supporters each of these groups constitutes. But calling them all stupid is wrong. Dismissing them as ignorant is an excuse for the press to avoid looking in the mirror to see its own warts.

Finally, the press talks incessantly about Trump’s relations with the press and his name-calling. It comes across as self-important navel-gazing. If the press is worried about this, relegate it to the half-hour Sunday shows about the media. Don’t have panel after panel discussing it. Don’t serve as a megaphone by repeating his message. He is playing the media yet again and the media are taking the bait.

The bullshit meter

Having said all this, what gives me reason for hope?

Reason No. 1: While cognitive dissonance is powerful, the Rutgers professors found that when dissonance grows too large, the blocking of evidence reverses itself, and the initial decision is revised in line with external evidence. Facts do matter.

Harvard Law School’s Cass Sunstein and Tali Sharot, a professor of cognitive neuroscience at University College London, wrote a piece in the New York Times with similar good news about how three groups of people – strong believers in man-made climate change, moderate believers, and weak believers – reacted to good and bad news about climate change. In the initial portion of the experiment, the groups received an anchor – the information that scientists believe the average temperature in the U.S. will rise at least six degrees by 2100 – and the experimenters asked participants for their estimates. They came in at predictable levels, given their sentiments.

Then participants were randomly assigned to get either more encouraging news about the environment or more negative news and asked to revise their own estimates. Weak believers were moved by the good news and reduced their estimates, but were unmoved by bad news. Stronger believers were moved a lot by bad news and less by good news. Moderate believers were moved equally by both kinds of news. The important point is that a large majority showed movement. Few people were impervious to new information. Facts do matter.

Finally, there is the Dunning-Kruger Effect, which stems from a series of experiments conducted in 1999 at Cornell University by psychologist David Dunning, a Cornell professor at the time, and then-Cornell social psychology Ph.D. student Justin Kruger. The experiments illustrated that low-ability individuals suffered from an illusion of superiority, which prevented them from recognizing their own incompetence.

That phenomenon applied to the 2016 presidential election. Dunning, who now teaches at the University of Michigan, wrote in Politico that the problem wasn’t that voters were too uninformed but rather that they didn’t know how uninformed they were. They didn’t understand the holes in their expertise.Voters didn’t hold Trump accountable for gaffes because they didn’t know they were gaffes.

Dunning noted some recent experiments that asked political partisans to rate their understanding of such issues as sanctions on Iran, a flat tax, and a single-payer health system. The respondents expressed a lot of confidence in their knowledge until the researchers started asking them to describe in detail the mechanics of policies. The respondents realized their understanding was mostly an illusion, and they moderated their stances, donating less money earned in the experiment to political advocacy groups they favored. Again, facts do matter. 

And finally, I would note Trump’s abysmal initial approval ratings. According to a Gallup poll, his overall rating has dropped five percentage points since the inauguration to the lowest rating on record for a president at this point. And while he won 48 percent of independent votes, his support among independents has plummeted to 35 percent, according to Gallup. The ratings may be based on missteps, on wrong-headed policies, on the endless stream of falsehoods emanating from the White House, or on some combination. But maybe this too is evidence that facts matter.

Reason No. 2: Truthful reporting has consequences. General Michael Flynn is no longer the National Security Adviser after the media reported accurately that he lied to Vice President Mike Pence about his contact with Russians and discussed sanctions with them. A candidate to succeed him turned down the position because, as the press has accurately reported, the White House national security machinery is in chaos rather than the well-oiled machine Trump says it is. In addition, Secretary of Labor-designee Andrew Puzder withdrew from consideration after truthful reporting about his employment of an undocumented worker. Facts do matter.

Reason No. 3: As I noted, concern with compositional amenities is inversely related to education levels. And those levels are rising. In 1940, 5.5 percent of men held college degrees, and 3.8 percent of women did. In 2015, the figure was 32.3 percent for men and 32.7 percent for women. If the cost of college gets under control, those numbers will continue to rise. That will reduce the fissures in the different ways Americans react to diversity.

Reason No. 4: “Remember the Maine?” Yellow journalists – William Randolph Hearst and Joseph Pulitzer – used that irresponsible phrase to blame Spain (without proof) for the sinking of the U.S.S. Maine in Havana harbor in 1898, which precipitated the Spanish-American War. The U.S. has exhibited irresponsibility and resorted to fake news – think Senator Joseph McCarthy – in the past, and we recovered from it. My hope is that the pendulum will swing again.

Since the election, according to the New York Times, subscriptions have risen for publications such as The Times, The Washington Post, The Atlantic, Vanity Fair, The Wall Street Journal, The Los Angeles Times, and the New Yorker. Non-profits such as National Public Radio and ProPublica report big boosts in subscription rates or donations. People realize that you get what you pay for and the notion of getting free news on the web is neither a sustainable nor a desirable business model.

Reason No. 5: Patient, private capital. Jeff Bezos’s 2013 purchase of The Washington Post offers a back-to-the-future solution, one that demonstrates the benefits of private ownership and patient capital whose vision extends considerably further than the next quarter. An analysis by Northeastern University Professor Dan Kennedy shows that Bezos increased newsroom staff to 700 from 600 and hired 35 more engineers. Traffic on its website rose to 66.9 million unique visitors in October 2015, surpassing the New York Times and a 59 percent increase over the previous year, according to Kennedy. Traffic continued to rise, posting a 30 percent increase in April 2016 over the previous year, according to the New York Times. Bezos was willing to make investments in technology, which bean-counters at public companies typically don’t do.

Bezos media model

The conventional wisdom holds that big investments in the web won’t pay off for a stark reason. Kennedy quotes Nicco Mele, the former senior vice-president and deputy publisher of the Los Angeles Times, as saying that a print ad reaching 500,000 people brings in revenue of around $50,000, while a programmatic ad served up by Google reaching the same number of people on the same newspaper’s website might bring in no more than $20. It’s not easy to make up that gigantic differential.

But Kennedy argues it’s possible if Bezos overturns the traditional business model. Under the traditional model, print ads made a lot of money per reader on a relatively small number of readers. In the future, Bezos said he wants the Post to make less money per reader on many more readers. So the Post is uploading content on Facebook’s Instant Articles, Apple News, and Google AMP (Accelerated Mobile Pages). He is improving the Post’s quality and, thus, its brand to attract paying subscribers to its website and apps, which are more lucrative than Google searches. Kennedy says Bezos also is positioning himself to exploit revenue sources that don’t now exist. And the Post wants to sell some of its technology innovations to other publications to make money and make content-sharing easier.

Bezos fosters experimentation, which is clearly healthy. But more than that, he understands the journalistic enterprise. Kennedy cites a Bezos quotation: “I strongly believe that missionaries make better products. They care more. For a missionary, it’s not just about the business. There has to be a business, and the business has to make sense, but that’s not why you do it. You do it because you have something meaningful that motivates you.”

And at a conference in late May 2016, according to the New York Times, Bezos said he bought the Post because he wanted to make it into a more powerful national — and even global — publication, and that The Post was well situated to be a watchdog over the leaders of the world’s most powerful country. That was when Barack Obama was president and Hillary Clinton was the odds-on favorite to succeed him. It was hardly an anti-Trump partisan observation.

If Bezos strengthens the Post’s journalism, keeps it factual, and expands readership significantly, he could achieve two fabulous goals. One would be finding a viable and sustainable business model for quality journalism. And if the reader base is big enough, he could draw from both Fox News and MSNBC partisans, bridging the gap that has divided the country for too long. Once these partisans start understanding the world from the same fact base, as they once did, we can start to heal as a nation. 

The St. Petersburg Times and ProPublica also benefit from not being public. But they are exceptions. What we need are more buyers with Bezos’s even-handed ethos, a willingness to comfort the afflicted and afflict the comfortable. Indeed, I have not noticed any changes editorially in the Post since Bezos bought it. Its editorial page remains moderate to conservative, and its news columns let the chips fall where they may.

Bezos understands the journalistic enterprise: ‘…the business has to make sense, but that’s not why you do it. You do it because you have something meaningful that motivates you.’

Is this a model others could follow? Obviously with its prominence and size, the Post is not like every other paper. But precisely because of that, what Bezos has to do is expensive. Comedian Stephen Wright once said: “The early bird catches the worm, but the second mouse gets the cheese.” Bezos is willing and able to be the innovator and first adopter. Others can benefit from his risk-taking and be later adopters, buying the technology and adopting his approach without spending to develop them. So others may be able to exploit his cost-saving and revenue-generating techniques at far lower cost.

My last topic: What should the press do?

No. 1: More Denominator – The 24-hour news cycle has become a structural problem when it should be an opportunity. With all this time available and the capacity of the web to eliminate the physical space limitations of print publications, journalists have the opportunity to help the public understand policy and news events in unprecedented ways. Instead of the pap we get, journalists should provide context—the denominator.

Take the economic recovery. The recovery is slow by historical standards, but only if you are looking at business cycle recessions and recoveries. This was a financial-crash induced recession, not a business cycle recession, and business cycle recessions correct themselves much faster. When you compare it with other financial crises, the downward dip was huge, and the turn in employment and growth was comparatively swift. Kenneth Rogoff and Carmen Reinhart of Harvard in their book, This Time is Different, wrote about eight centuries of financial follies. In 2007, the finance wizards said yet again this time was different, just like the dot.com folks in 2001. The point of the book is that it never is. The result always is disaster.

I read that book, and I read behavioral economists so that I could bring perspective to what I was writing when I was a columnist for Investopedia and TheStreet.com. I felt this was important. I could give readers something they didn’t see elsewhere. But that shouldn’t have been the case. Anyone could pick up these books or call the authors. Others should have written the same kind of piece to show that with the proper baseline, this recovery was rapid.

And while growth is slow by past business cycle recession standards, that’s also because U.S. export markets around the globe are in a tailspin. The U.S. is doing much better than our peers in Europe and Japan. But again, the media don’t provide that context. When I hear Obama’s critics say he hasn’t had a 3 percent growth year during his two terms, they are correct. But it’s like my wife saying I never passed the bar when I never took it. What she says is absolutely true and utterly misleading.

This is not about taking sides. I think journalists should have asked why prosecutors allowed Hillary Clinton’s lawyers to decide which emails to turn over when there was no claim of privilege. After all, her point was there were no classified documents on her server. Would mobster John Gotti have gotten that treatment? The cops would have showed up with a warrant and taken all the hardware and software in Gotti’s office and home.

No. 2: A New Model – More and more media outlets are cutting staff and increasing the workload of those who remain, requiring them to do videos, write online, and meet print deadlines. When will they have the time or financial resources to do the necessary legwork to provide evidence, facts, and context?

My idea, which I have suggested to a professor at Northwestern’s Medill School of Journalism, my alma mater, is that the dozen or so most prominent journalism schools band together in a cooperative, much like the Associated Press, and sell their stories for nominal amounts to publications. The schools are in major cities both here and abroad. The costs are fixed and funded. Professors are seasoned professionals who can work with the students on story development and edit their work. The school can use WebEx or something similar for story meetings. Students can take turns administering the distribution of stories and story repositories – a marketable skill.  These could be the stories that get the facts and context right.

A while after I mentioned the idea, I read in the Northwestern alumni magazine that 20 Northwestern students recently helped Pulitzer-Prize-winning Chicago Tribune reporter David Jackson with an investigation of hog confinement and the environmental effects of waste spills, which have killed more than 492,000 fish in a nine-year period. As part of a class, the students built a database of hog confinements in Illinois, compiled field notes, filed Freedom of Information requests, checked court documents, and tracked down other sources. The result was a 4,000-word report that highlighted weak oversight of the industry. To my amazement, at least part of my idea is not half-baked and already has been piloted.

No. 3: Stop Chasing the Shiny Ball – In particular, Trump tweets. They are like snapchats with no lasting effect or value. He rescinds them by the end of the 140 characters or within 24 minutes or 24 hours. They are meaningless. In the past, when a president’s words followed deliberation and thoughtful consideration, you covered them. They had policy consequences. This goes against every journalistic instinct, but Trump’s words, unlike those of previous presidents, don’t matter. (Foreign leaders, please bear this in mind.) Trump's words tell you something about his rather reprehensible personality, but not what he will do. Don’t cover them.

He is simply playing the press. He did so throughout the primaries and the general election, making outrageous comments that got him millions of dollars’ worth of free airtime and making him seem transparent and accessible. He continues to play the press, tweeting, for example, that he knows something about Russian hacking that no one else does. And the press continues to bite for this BS.

Consultant Brad Todd, who coined the phrase that the press takes Trump literally but not seriously, and voters take him seriously but not literally, advocates that the press stop chasing his tweets. I emailed him after he posted that idea on CNN.com. I said he proposed what the press should not do, then asked him what the press should do. He said report on what Trump does, not on what he says. That makes sense. (Lord knows Trump is doing enough to keep reporters busy writing about what his administration is doing, from the travel ban to the environmental safeguards his Environmental Protection Agency is angling to repeal.) While he is following up on some of what he says (the travel ban), he is abandoning other pronouncements (jailing Clinton and his foreign policy stances on one China, Israeli settlements, and ripping up the Iran nuclear deal, to name just a few examples). There is no way to predict whether a tweet will become policy.

When Trump delivers information about hacking that no one else knows, write about it. Until then, write about other things. Only 16 percent of the population uses Twitter. Trump has maybe 18 million followers. Repeating Trump’s tweets amplifies their reach enormously, makes unserious things serious, and does not serve the public well. On January 17, 2017, New York Times columnist David Brooks said he would take this approach. “I’m going to try to respond only to what he does, not what he says or tweets,” Brooks wrote. “I really wish some of my media confreres would do the same.”

As an aside, Trump’s tweets clearly are an attempt to bypass the press and yet use the press to get the message out more widely – a shrewdly-executed paradox.

No. 4: Fight Fire with Fire – According to a piece in the New York Times, fake news sites in Central Europe found out that when they put Clinton in the headlines, they got little traffic. When they put Trump in the headlines, traffic surged. Straight media should use search engine optimization for the same results. Using algorithms to get factual stories at the top of Google searches has to be a priority.

There must be more to the strategy than search engine optimization, however. According to the Southern Poverty Law Center (SPLC), Google’s algorithms are seriously flawed. When Dylann Roof – who shot and killed nine blacks praying in a Charleston, S.C. church on June 17, 2015 – Googled black-on-white crime prior to the shootings, the SPLC says that the first site which came up was that of the Council of Conservative Citizens. It had pages and pages of alleged black-on-white crimes which stirred Roof’s emotions, the SPLC says.

Making matters worse, once you go to such a site, Google’s algorithms lead you to more sites that align with your preferences. Getting L.L. Bean on your list after an Eddie Bauer purchase makes sense, of course. But feeding distortions and incitement is quite another matter. You get into a vicious cycle of seeing more and more of this destructive balderdash. New Nation News, a different racist site, is still at the top of the Google list when you type in Roof’s search words. Similarly, when Trump was doing his victory rallies, my wife Googled leadership rallies and what came up were sites about Nazi rallies.

Google is taking some steps to reduce the depravity. It is depriving false news sites of ad revenue, which is helpful even if the sites simply pop up again in a new form. But it has to go further and change its algorithms. The SPLC said it went to Google at one point because typing in Jew immediately brought up virulently anti-Semitic sites. Google adjusted the algorithm to avoid that. According to a techie I know who works on search engine optimization, Google has an in-house process that enables manual action when someone spots something improper popping up from an innocuous search.

But it would be better to rely on a systemic change rather than ad hoc fixes. According to the techie, Google relies on two factors to determine where a link ends up on a search: relevance and credibility. Relevance ends up taking precedence. A major factor in relevance is time spent on a site. So someone might spend a lot of time on a racist site dealing with black-on-white crime that repeats the phrase often and less time on the Justice Department site with actual statistics on black-on-white crime and a lot of other information, meaning that the phrase (“black-on-white crime”) does not appear as often.

As a result, the racist site will appear higher on the search page. And if that site gets cross-referenced by other racist sites, it also will get high marks for credibility, cementing its position. Maybe credibility, in the sense of factual accuracy, needs to take precedence over relevance in a systemic way, at least for those hot-button issues. Google needs to turn this algorithm sword into a plowshare.

Another way to fight fire with fire is repetition. For those old enough to remember, every night during the Carter administration’s Iran hostage crisis – which lasted 444 days between November 4, 1979 and January 20, 1981 – the network news shows would announce, for example, “Day 200 of the hostage crisis”, then Day 201, then Day 202. Trump’s Inauguration Day on January 20, 2017 was Day 584 since he announced in June 2015 that he was running for the presidency. Now, I think every medium should post the following message every day until Trump releases his tax returns:  “Today is Day XXX since Donald Trump declared his candidacy for president and has been holding his tax returns hostage.”

For good measure, accompany the number of days with a list of candidates who released returns under audit. This is not taunting, though it may be guerrilla warfare. There is a legitimate news reason. The taxes are the only way to see whether Trump is violating the emoluments clause of the Constitution or bribery laws.  He may not have investments in Russia, but he has done business with oligarchs who have bailed out some of his investments. So he owes them big time. The repetition will lead to familiarity, credibility, and positive feelings about the need to release the documents. It will mean the normalization, once again, of what had been a standard practice.

What will be normal in the near term is, of course, a major question. The media will have to be flexible, innovative, and thoughtful to address unprecedented challenges. It has to understand its customers in ways it has not had to in the past.

I have to admit some trepidation for the Republic, and I do not say that from a partisan standpoint. I think the first George Bush was the best one-term president in history. He kicked Saddam Hussein out of Kuwait and had the good sense not to go to Baghdad. He dealt deftly with the reunification of Germany. And he made the politically courageous and politically suicidal decision to raise taxes because it was in the nation’s interest, if not in his own political interest. How many politicians are that altruistic today?

And I think history will treat President Obama extremely well. He brought the country and the world back from the brink of economic collapse. He saved Detroit. He got the Lilly Ledbetter Fair Play Act passed. He nailed Osama bin Laden. He had the guts to abandon the Washington playbook and not take the bait that his credibility was at stake when he drew a line in the sand for Bashar Assad and Assad crossed it. Obama didn’t launch a military strike. Instead he achieved his end – getting rid of Syria’s chemical weapons – through negotiation. Obama got rid of Iran’s nuclear capability, signed progressive trade deals, and negotiated a great climate deal. And he was scandal-free.

While I canvassed for Democrats in 2016 – I departed full-time journalism more than a decade ago – I remain eclectic. I have written exculpatory stories about both a Democrat, Bill Clinton, and a Republican, Scooter Libby. Libby always has insisted on his innocence and in November 2016 received vindication when the District of Columbia Bar reinstated his law license, and the Disciplinary Counsel concluded that he “presented credible evidence in support of his version of events.” 

My trepidation stems from the fact that I don’t think any Trump policy is baked. Trump has no core values, principles, or policies so we have limited insight into what he will do. But as an optimist, I think that things are never as good as you hope or as bad as you fear.

I have a concern that is deeper than policy or politics, though. It concerns systemic, fundamental questions about whether there is truth, whether it is possible to ascertain it, and whether it is possible to have a consensus on it. My answer to all three is an emphatic yes. We did once before and we must again.

As voters, we need to know what’s true and what’s not. And sound government policy needs a factual basis. This requires restoration of traditional journalistic values while journalists become more creative and understand their audience better – not to pander to them but to convey information in meaningful ways that readers and viewers will absorb. This will not be easy. Nothing of this magnitude, nothing so vital, or indeed indispensable, ever is.