Tag Archives: international trade

The End Of The Petrodollar

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On Friday, MSN posted an article from India Today about the end of the petrodollar. Since 1974, oil has been traded in petrodollars.

The article explains:

What are petrodollars?

Petrodollars are not a currency but US dollars exchanged for crude oil exports.

The term “petrodollars” refers to the US dollars earned by oil-exporting countries through the sale of oil.

The concept emerged in the early 1970s and has played a significant role in global economics and geopolitics.

History behind petrodollars

Initially, the Bretton Woods Agreement of 1944 established the US dollar as the world’s primary reserve currency, pegged to gold. This facilitated international trade and economic stability post-World War II.

However, in 1971, US President Richard Nixon ended the dollar’s convertibility to gold, leading to floating exchange rates and increased currency volatility.

In the following year, the Organization of Petroleum Exporting Countries (OPEC) imposed an oil embargo in response to US support for Israel during the Yom Kippur War, causing oil prices to skyrocket.

The US struck a deal with Saudi Arabia and other OPEC countries to stabilise the situation, where oil would be traded exclusively in US dollars.

The move to petrodollars was supposed to stabilize the world’s currency. It was also a boon to America because it provided some stability for the American dollar. Petrodollars were also part of what sustained the value of the American dollar despite ridiculous overspending by Congress. Obviously, the overspending by Congress continues. My fear is that we will become like many formerly prosperous countries with citizens needing to take wheelbarrows of money to the supermarket to buy groceries.

This is not being heavily reported, and I suspect that is because most Americans will have no idea what it means and the news may start an unnecessary panic.

Some Thoughts On One Long-Term Effect Of The Coronavirus

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On March 1, Forbes Magazine posted an article about the long-term impact of the coronavirus. Obviously the article was written before America went on lockdown and the stock market felt the full impact of the epidemic.

The article reports:

The new coronavirus Covid-19 will end up being the final curtain on China’s nearly 30 year role as the world’s leading manufacturer.

“Using China as a hub…that model died this week, I think,” says Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm.

China’s economy is getting hit much harder by the coronavirus outbreak than markets currently recognize. Wall Street appeared to be the last to realize this last week. The S&P 500 fell over 8%, the worst performing market of all the big coronavirus infected nations. Even Italy, which has over a thousand cases now, did better last week than the U.S.

So who wins as China loses its place as the world’s leading manufacturer?

The article notes:

Yes. It is Mexico’s turn.

Mexico and the U.S. get a long. They are neighbors. Their president Andres Manuel Lopez Obrador wants to oversee a blue collar boom in his country. Trump would like to see that too, especially if it means less Central Americans coming into the U.S. and depressing wages for American blue collar workers.

According to 160 executives who participated in Foley & Lardner LLP’s 2020 International Trade and Trends in Mexico survey, released on February 25, respondents from the manufacturing, automotive and technology sectors said they intended to move business to Mexico from other countries – and they plan on doing so within the next one to five years.

“Our survey shows that a large majority of executives are moving or have moved portions of their operations from another country to Mexico,” says Christopher Swift, Foley partner and litigator in the firm’s Government Enforcement Defense & Investigations Practice.

Swift says the move is due to the trade war and the passing of the USMCA.

The article points out one of the major problems with manufacturing in Mexico:

Safety remains a top issue for foreign businesses in Mexico who have to worry about kidnappings, drug cartels, and personal protection rackets. If Mexico was half as safe as China, it would be a boon for the economy. If it was as safe, Mexico would be the best country in Latin America.

“The repercussions of the trade war are already being felt in Mexico,” says Miralles.

Mexico replaced China as the U.S. leading trading partner. China overtook Mexico only for a short while.

A strong Mexican economy would solve a lot of problems for America if the drug cartels and other illegal activities could be stopped. A strong Mexican economy would provide incentive for migrants from poorer South American countries to remain there and work. It might ebb the flow of illegals into America that burden the American welfare system and negatively impact the wages of Americans on the lower end of the wage scale.

There will always be drawbacks to outsourcing manufacturing to a country that is controlled by a group of tyrants. American companies who scream about civil rights in America have been willing to overlook sweatshops in China. It is time to add the concept of conscience to the corporate decision-making process.

Success Often Breeds Success

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When President Trump campaigned for President, he said he wanted to redo America’s trade deals and bring manufacturing back to America. He has renegotiated the trade deals. Congress has yet to approve the deal with Mexico and Canada, but a lot of manufacturing has returned to America. The Washington Times posted an article today about public opinion of President Trump’s trade policies.

The article reports:

“Bipartisan consensus has emerged that foreign trade is good,” wrote Gallup senior analyst Lydia Saad. “Americans’ broad view of trade is the most positive it has been in more than a quarter-century.

…“Both Republicans and Democrats have become more positive about trade over this period of improving economic conditions,” she noted. “However, support for trade among both groups jumped sharply after Trump took office in 2017.”

The 2019 poll numbers now reveal:

• 70% of Americans say trade with other nations has a positive effect on “innovation and development of new products.”

• 67% say international trade has a positive effect on U.S. economic growth.

• 63% say trade has a positive effect on American businesses,

• 58% say trade has a positive effect of the quality of products.

• 51% say trade has a positive effect on jobs for U.S. workers.

I wonder if the positive results of President Trump’s policies will be reflected in the 2020 election.

 

 

 

Moving Toward Energy Independence

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One America News posted an article today about the impact of developing America’s oil resources.

The article reports:

The Energy Information administration reports U.S. oil production reached almost 9.9 million barrels per day this month.

So what is the impact of this? America i s exporting more than 1.7 million barrels per day of oil. Hopefully this will end some of our cozy relationships with tyrants who rule oil-producing countries in other parts of the world.

The article further reports:

Energy experts say the U.S. is on track to surpass Saudi Arabia in oil output this year, and rival Russia as the world’s energy giant.

The article also notes that the increase in our oil exports give America an advantage in both international trade and diplomacy. There is a concern that the increased exports will cause fuel costs in America to rise, but the Trump administration believes that the deregulation of prices will prevent that from happening.

Energy independence is a good thing. Being able to export oil you don’t need is an even better thing!