Why Trump Is To Blame for the Rising Price of Heating
He subjugated North America, will he be able to stop Nord Stream 2?
The new costs of central heating and electricity are yet to force retirees onto the yellow brick road in Sofia in order to protest. But if they are to reason logically, they should protest in front of the White House in Washington. This is so, because the price of central heating depends on the price of gas and the latter, on the oil price. However, up until recently, the cost of oil was around $50 per barrel; at the moment, it is between $70 and $85 and is going up to $100. Donald Trump is to be credited for this.
In May, Trump threw the nuclear agreement with the world's fifth-largest oil producing country in the trash and declared an economic blockade. Since then, Iran's petroleum exports have dwindled by more than 60 percent. As we know, even a 1 percent deficit of a product may cause 100 percent appreciation, and this is exactly what is happening. If we add the fact that the U.S. is trying to reduce Russia’s influence, central heating in the near future could become as expensive as gold.
But there is a light at the end of the tunnel. Trump has set himself the goal of stopping the Nord Stream 2 gas pipeline, as Barack Obama halted our South Stream pipeline. For the time being, the chances are more than 40 percent for the Nord Stream 2 to be abandoned, but they are constantly increasing. If Trump succeeds, Russia will be forced to retain the Ukraine gas pipelines in their full capacity and our heating costs will increase more moderately than if we receive gas supply through Turkey. If Iran gives in, the price will go down.
It all depends on whether Trump will win or lose the trade war he declared to the world and, in particular, to the European Union. World leaders are outraged, threatening that they are going to fight until the last drop of blood, but they all give up one after the other. The first to fall by the wayside were Japan and South Korea and 10 days ago, all of North America threw in the towel. Those who remain are the EU and China, but their chances for victory have just decreased by at least 30 percent.
What happened 10 days ago? Canadian Prime Minister Justin Trudeau, who up until yesterday was laughing at Trump's claims, has raised the white flag and joined the new trade agreement between the United States and Mexico. With this new agreement, the old one, known as NAFTA, goes down in history. It is replaced by the USMCA agreement that is “an agreement between the United States, Mexico and Canada,” which needs to be ratified by each country's congress or parliament to take effect. This is likely to happen within the next two to three months.
USMCA is a major victory for Trump. It confirms his claims that he is a master of trade negotiations. It is true that his style is a bit hooligan, but even in Bulgaria hooligans achieve more. He first intimidates his closest partners, then he drives them into cognitive dissonance and finally he makes them an offer which they cannot refuse. And so bit by bit, he conquers new territories. However, Trump's ultimate goal is to isolate China, to fully open its markets to American companies and to subjugate it.
Regardless of how unpleasant this could be for the rest of the world, the United States has its reasons. U.S. foreign trade has been in deficit since 1974, and last year the deficit for goods (without services) exceeded $810 billion. This approximately equals the budget deficit and the military budget of the United States — the maintenance of a world empire, which is only covered by printing more money. But the price to pay has become too high.
On the one hand, global trade agreements have led to factory closures and job losses in the United States. There is growing internal discontent and social revolution has become imminent. On the other hand, public debt has already exceeded $20 trillion and threatens the dollar’s position as a world currency. Perhaps the most important thing is that China is way ahead of the United States as an economic power and if this trend continues, in 20 years, China will displace America from its world leadership.
This is the reason why the United States is forced to change the rules of the game. Obama tried to isolate China with two transatlantic agreements, but never succeeded in doing so. One of the reasons was that the agreements disadvantaged working people in the United States and in the partner countries. They granted great power to supranational corporations and deprived nation states of their authority, and people want to keep their sovereignty.
The paradox is that Trump is a right-wing politician, but his trade agreement is far more favorable to the working class, as old-fashioned as the term may sound. There is some kind of reshuffling going on in the United States. The left-wing has abandoned the working class and the right-wing has adopted it. The same is also happening in Europe, where the left parties have indulged in gender utopias, turning their backs to the electorate.
The new North America agreement, negotiated by a right-wing politician and a ferocious capitalist, is convenient for blue-collar workers. More or less, it will preserve production in the U.S. The paradox is that it is also beneficial for the Mexicans with calluses on their hands. USMCA promises 30 percent of the workers in Mexico’s automotive industry to receive at least $16 (instead of $3-$5) per hour and by 2022 this would be 40 percent and so on. Furthermore, the Mexican authorities must create the right conditions for trade unions to develop and for the latter to impose demands for higher wages and social security. So, the price of labor to the south of the U.S. border will increase and to the north of the Mexican border will become more competitive and this will create new jobs.
Under the new agreement, cars from Mexico or Canada imported into the United States will be exempt from customs duties only if at least 75 percent of their parts are manufactured locally. So far, the requirement has been 62.5 percent. This will reduce the import of components from China, Europe, Japan and South Korea and will simultaneously create more jobs in both countries.
I will not paraphrase the USMCA, but I will focus on the so-called "poison pill"— Article 32.10. It gives Washington the right to veto any bilateral agreement which Mexico or Canada sign with “non-market economy countries.” This obviously has China in mind, but Iran and Russia may also fall in the same category. It is believed that the “poison pill” is a matrix for the future trade agreement with the EU, which should one day replace the unfulfilled transatlantic agreement. If the EU also yields, Nord Stream 2 will be halted and the old gas pipelines will continue to run via Bulgaria, Romania, Poland, the Baltic states and so on.
In Bulgaria, many people with pro-Russian attitudes (and I am one of them) will greet this perspective with resentment. But in my opinion, there is no place for emotions here. We are not able to change the games of great powers, but we can try and understand them calmly and objectively; and when we understand them, try and embark on the most economically advantageous policy.
The new costs of central heating and electricity are yet to force retirees onto the yellow brick road in Sofia in order to protest. But if they are to reason logically, they should protest in front of the White House in Washington. This is so, because the price of central heating depends on the price of gas and the latter, on the oil price. However, up until recently, the cost of oil was around $50 per barrel; at the moment, it is between $70 and $85 and is going up to $100. Donald Trump is to be credited for this.
In May, Trump threw the nuclear agreement with the world's fifth-largest oil producing country in the trash and declared an economic blockade. Since then, Iran's petroleum exports have dwindled by more than 60 percent. As we know, even a 1 percent deficit of a product may cause 100 percent appreciation, and this is exactly what is happening. If we add the fact that the U.S. is trying to reduce Russia’s influence, central heating in the near future could become as expensive as gold.
But there is a light at the end of the tunnel. Trump has set himself the goal of stopping the Nord Stream 2 gas pipeline, as Barack Obama halted our South Stream pipeline. For the time being, the chances are more than 40 percent for the Nord Stream 2 to be abandoned, but they are constantly increasing. If Trump succeeds, Russia will be forced to retain the Ukraine gas pipelines in their full capacity and our heating costs will increase more moderately than if we receive gas supply through Turkey. If Iran gives in, the price will go down.
It all depends on whether Trump will win or lose the trade war he declared to the world and, in particular, to the European Union. World leaders are outraged, threatening that they are going to fight until the last drop of blood, but they all give up one after the other. The first to fall by the wayside were Japan and South Korea and 10 days ago, all of North America threw in the towel. Those who remain are the EU and China, but their chances for victory have just decreased by at least 30 percent.
What happened 10 days ago? Canadian Prime Minister Justin Trudeau, who up until yesterday was laughing at Trump's claims, has raised the white flag and joined the new trade agreement between the United States and Mexico. With this new agreement, the old one, known as NAFTA, goes down in history. It is replaced by the USMCA agreement that is “an agreement between the United States, Mexico and Canada,” which needs to be ratified by each country's congress or parliament to take effect. This is likely to happen within the next two to three months.
USMCA is a major victory for Trump. It confirms his claims that he is a master of trade negotiations. It is true that his style is a bit hooligan, but even in Bulgaria hooligans achieve more. He first intimidates his closest partners, then he drives them into cognitive dissonance and finally he makes them an offer which they cannot refuse. And so bit by bit, he conquers new territories. However, Trump's ultimate goal is to isolate China, to fully open its markets to American companies and to subjugate it.
Regardless of how unpleasant this could be for the rest of the world, the United States has its reasons. U.S. foreign trade has been in deficit since 1974, and last year the deficit for goods (without services) exceeded $810 billion. This approximately equals the budget deficit and the military budget of the United States — the maintenance of a world empire, which is only covered by printing more money. But the price to pay has become too high.
On the one hand, global trade agreements have led to factory closures and job losses in the United States. There is growing internal discontent and social revolution has become imminent. On the other hand, public debt has already exceeded $20 trillion and threatens the dollar’s position as a world currency. Perhaps the most important thing is that China is way ahead of the United States as an economic power and if this trend continues, in 20 years, China will displace America from its world leadership.
This is the reason why the United States is forced to change the rules of the game. Obama tried to isolate China with two transatlantic agreements, but never succeeded in doing so. One of the reasons was that the agreements disadvantaged working people in the United States and in the partner countries. They granted great power to supranational corporations and deprived nation states of their authority, and people want to keep their sovereignty.
The paradox is that Trump is a right-wing politician, but his trade agreement is far more favorable to the working class, as old-fashioned as the term may sound. There is some kind of reshuffling going on in the United States. The left-wing has abandoned the working class and the right-wing has adopted it. The same is also happening in Europe, where the left parties have indulged in gender utopias, turning their backs to the electorate.
The new North America agreement, negotiated by a right-wing politician and a ferocious capitalist, is convenient for blue-collar workers. More or less, it will preserve production in the U.S. The paradox is that it is also beneficial for the Mexicans with calluses on their hands. USMCA promises 30 percent of the workers in Mexico’s automotive industry to receive at least $16 (instead of $3-$5) per hour and by 2022 this would be 40 percent and so on. Furthermore, the Mexican authorities must create the right conditions for trade unions to develop and for the latter to impose demands for higher wages and social security. So, the price of labor to the south of the U.S. border will increase and to the north of the Mexican border will become more competitive and this will create new jobs.
Under the new agreement, cars from Mexico or Canada imported into the United States will be exempt from customs duties only if at least 75 percent of their parts are manufactured locally. So far, the requirement has been 62.5 percent. This will reduce the import of components from China, Europe, Japan and South Korea and will simultaneously create more jobs in both countries.
I will not paraphrase the USMCA, but I will focus on the so-called "poison pill"— Article 32.10. It gives Washington the right to veto any bilateral agreement which Mexico or Canada sign with “non-market economy countries.” This obviously has China in mind, but Iran and Russia may also fall in the same category. It is believed that the “poison pill” is a matrix for the future trade agreement with the EU, which should one day replace the unfulfilled transatlantic agreement. If the EU also yields, Nord Stream 2 will be halted and the old gas pipelines will continue to run via Bulgaria, Romania, Poland, the Baltic states and so on.
In Bulgaria, many people with pro-Russian attitudes (and I am one of them) will greet this perspective with resentment. But in my opinion, there is no place for emotions here. We are not able to change the games of great powers, but we can try and understand them calmly and objectively; and when we understand them, try and embark on the most economically advantageous policy.
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