Paris pullout ‘Trumps’ tweets!

June 6, 2017 02:13 PM


Tweets-In. Paris-Out. Yes indeed, as we expected the U.S. President could not resist extensive tweeting once again last week almost immediately upon return from his first major foreign trip to the Middle East and Europe. The happy hysterical headline hiatus that saw the President’s detractors in a lower key mode while he was away on his trip was over. And this was on both a somewhat reasonable level of the renewed Presidential tweets regarding son-in-law Jared Kushner becoming involved in yet another Russian contact investigation, and the irrational level of a partial tweet which was obviously incoherent and once again caused some distraction.

While we are going to review each of those below, it is important to note that the President’s Twitter activity has been superseded by his more substantial policy move last Thursday: Pulling the U.S. out of the Paris Agreement on greenhouse gas emissions.

There is a lot of argument on both sides why this was either the right or wrong thing to do. That said, the real point is the market response in what was a fraught environment due to the President returning to Twitter: U.S. equities decided that the U.S. leaving the Paris Accords (never ratified as a treaty) was a good thing. And that was reinforced by the equities still strong performance after Friday morning’s less than bullish U.S. Employment report.

Lower U.S. corporate burden

There is some basis for that in lower burdens on U.S. corporations, which will also likely be more profitable due to less need to heed more restrictive environmental standards. It is of concern that this will not be as friendly for the global environment we all share. Yet there is also part of the Paris Agreement which Trump rightfully criticized: It was yet another example of a ‘bad’ Barack Obama ‘deal’. Obama was legend for completing deals whether or not they made any sense. The poster child for that was the Paris Agreement…

…which President Trump can so easily abandon because it was never put before the U.S. Senate for ratification as a treaty. As with so much else of what President Obama did by executive orders or memoranda, it was vulnerable to reversal by the next occupant of 1600 Pennsylvania Avenue. The process for major international U.S. commitments is supposed to conform to the President negotiating a treaty. Yet the treaty must then be advised and consented to by a two-thirds majority (67 members) in the Senate. Only after the Senate approves the treaty can the President ratify it.

No U.S. discussion of Paris Accords

And the very good reason that President Obama did not put the Paris Agreement into the Senate for consent is that it had less than the proverbial snowball’s chance in hell’ of being approved by that body. Aside from the sheer Republican Party obstructionism toward Obama’s Progressive agenda on many levels, by leaving the Paris Agreement open to abandonment Obama laid the groundwork for it to be suspect.

That was due to no national discussion in the United States of the benefits and costs. Once again Obama (along with Secretary of State John Kerry) positioned it as the ‘right’ thing to do in spite of the costs to the U.S. taxpayer and economy. This was not just an anathema to U.S. Conservatives… it also left no debate over the nature of an agreement that was ceding much more latitude for increased air pollution to other major economies.

There is something to be said for the idea that both India and China are still developing economies with faster-growing energy needs (even though China is now the world’s second largest economy.) If the Paris Agreement had been debated in the U.S., maybe somebody could have made sense of why the United States was required to diminish carbon emissions by 25% by 2025 (from 2005 levels) while China and India were allowed to expand theirs until 2030.

Or more importantly, it might have been possible to craft a more rational agreement. Yet that was not possible with Obama and Kerry assuming the moral high ground (as they did with so many issues), and asserting it was the ‘right thing to do’. And the idea that the agreement was toothless because it had no enforcement mechanism (and therefore there was no harm in remaining with it) does not take into account the aggressive nature of the U.S. courts. Had the U.S. remained in it, various groups here would have used it as a legal basis to have courts force conformance by the U.S. even if nobody else did.

Hysterical headlines (again)

And it is even more than the derivative news promotion from the mainstream media in the headlines. The outright pronouncements from the Left-leaning political class along with respected members of the liberal press are right back to hair-on-fire hysteria. It is an act of faith at this point that unless the U.S. leads the way on climate from current levels it is abandoning any claim to global leadership.

Yet the U.S. has made substantial progress in this area even after failing to sign onto the Kyoto Accords (the Paris Agreement’s predecessor.) That Treaty was put before the U.S. Senate, and was defeated 95-0! Yet as of 2014, U.S. carbon emissions are down 18% from 2000, back to 1994 levels.

That’s been done without any international treaty based in part on enlightened self-interest, and in part on domestic environmental regulation. While some may claim Trump is now weakening the latter, even a somewhat diminished Environmental Protection Agency (which quite a few folks feel had become too expansive and aggressive under Obama) will be enforcing U.S. standards. 

Still, the Left-leaning mainstream press cannot resist casting the Paris Agreement withdrawal decision as apocalyptic. Don’t take our word for it… just consider the Huffington Post website's main page from shortly after the Trump administration decision to withdraw. That had both its story and links to the various comments from other respected leaders of the left, both political (Barack Obama) and media folks (CNN’s Fareed Zakaria.) Yet as that has surely evolved from the initial posting last Thursday afternoon (see the graphical excerpt from that Huffington Post website’s main page).

So now it is not just the Left press that has “hair-on-fire” hysterical headlines. The atmosphere of the entire planet evidently had a bout of spontaneous combustion in the moment the President announced the U.S. withdrawal from the Paris Agreement. Of course, that’s our own bit of hyperbole, which is fair in the context of the hyperbole on the Left.

That is just as Trump may have also staked out a very reasonable follow-on position even as his very well foreshadowed climate agreement move was treated as a shock.

Rational Trump

And we must admit that two-word phrase is something that at times even we tend to view as an oxymoron. Yet the other reason that the Left’s reaction is nothing less than hysterical is that President Trump offered to do what President Obama should have done: he is allowing some climate deal might indeed be acceptable if it is properly negotiated. He was very forthcoming on his willingness to re-negotiate. European leaders have said they will refuse to do so. Yet that is a very predictable initial response, and we will need to see what evolves across time. 

Part of the problem that brought about the current impasse was acceptance by developed economy representatives that China and India are still (as noted above) developing economies. And as such, they should be able to compensate for the West’s 200-year head start by being allowed to pollute for the next fifteen years, and only then come up with more restrictive environmental standards. India, in particular, was going to be able to double its level of pollution at that time.

Excuuuuuse us

Well, excuse us (the West) for coming up with the steam engine process for rolling steel and modern automobile technology (among many other innovations) long before China and India were able to accomplish such things. Meeting their agreement projections is equivalent to being on a diet where one continues to gain weight, yet says they are doing great because they are well within their projections.

Equally irrational is allowing China and India to expand the level of their pollution at a pace that will offset any but the most extreme savings from the developed world. In fact, the entire result of all of the arduous and economically restrictive Paris Agreement protocols out into 2030 would be to reduce the global temperature by a minor fraction of a single degree.

Along the way, India was scheduled to receive $2.5 trillion (with a ‘t’) in subsidies across that time prior to any environmental action being required of it. That was from an environmental fund which was richly funded by the developed world (especially the United States) Nobody gave the fledgling United States any subsidies after we broke away from England, even though we were a rapidly developing smaller economy. 

So, the "deal" was that new emissions restrictions would cost the U.S. economy trillions of dollars in GDP across the next ten years while the U.S. paid into a fund that subsidized developing economies that were being allowed to expand their pollution out into 2030.

On that basis, pulling out of the Paris Agreement seems to be fairly rational.

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About the Author

Alan Rohrbach is Lead Analyst and President of Rohr International, Inc.  He is an international equity index, interest rate and foreign exchange trend advisor. His forte is ‘macro-technical’ analysis of how fundamental influences blend with technical aspects to drive trend psychology. Clients include international banks, hedge funds, other portfolio managers and individual traders.