Friday, October 19, 2018

Trade Bullying - China's Viewpoint on the Growing U.S.- China Trade War

With Donald Trump's trade war with China seeming to grow worse on a weekly basis as more and more tariffs are imposed on Chinese imports, a recent white paper published by China's Information Office of the State Council entitled "The Facts and China's Position on China-US Trade Friction" provides us with interesting insights into the nation's stance on U.S.-China economic and trade relations.  Let's look at some of the more interesting details from the white paper, trade bullyism practices of Washington.  Like any other issue, it is always prudent to see both sides of an issue rather than focussing on the viewpoints of one side over another, a problem for those of us who live in the West and are rarely exposed to the Chinese viewpoint on key issues.

Let's open by looking at some key background data on trade between China and the United States from the perspective of China.  Here is a table which shows the major Chinese imports from and exports to the United States and the share in exports to the United States:

Here is a graphic showing U.S. services imports from and exports to China in US$100 million:

According to U.S. statistics, two-way trade in services between China and the United States rose from $24.94 billion in 2007 to $75.05 billion in 2017 with the United States becoming the biggest source of China's deficit in services trade.  In fact, U.S. service exports to China grew from $13.14 billion in 2007 to $57.63 billion in 2017, an increase of 340 percent.  This compares to an average increase of 180 percent to other nations and regions around the world. 

Here is a graphic showing how the regional components of the U.S. foreign trade deficit have changed since 1990:

The big increase in the trade deficit with China occurred in the new millennium when China accede to the World Trade Organization, a deal that was very heavily promoted by President Bill Clinton.  According to China Customs, in 2017, 59 percent of China's trade surplus with the United States was a result of operations by foreign-invested enterprises (i.e. factories that have been established in China by multinational and American companies).

Let's close this backgrounder with a selection of current tariffs imposed by both the United States and China on each others imports/exports:

Here is a trade weighted average tariff rate for China and other key trading partners of the United States:

As you can see, China's current tariff rates are similar to or less than tariffs imposed on imported items by America's other major tSince China has fulfilled its WTO obligations, it has substantially reduced import tariffs on 1449 daily necessities from an average of 15.7 percent to 6.9 percent and its orading partners.  Overall tariff level on goods from 15.3 percent in 2001 to its current level of 9.8 percent.  This has meant that Chinese consumers are increasingly likely to consume imported goods rather than domestically produced goods, a move that should be considered as positive by Washington.

Now, let's look at why China believes that the current administration in Washington is acting as a "trade bully".  The authors of the White Paper note that Washington's viewpoint on trade has changed markedly since 2017 largely because of its "America First" agenda, a key part of its unilateral and economic hegemony:

1.) Unilaterally provoking trade friction under the pretext of United States domestic law: The current administration circumvents the WTO's trade dispute mechanism using American laws regarding industrial injuries and intellectual property rights instead, undermining the authority of the World Trade Organization and its membership.  Under Section 232, the current administration has cited "national security" as a justification for the imposition of tariffs on steel and aluminum imports from China and other nations as well as imported automobiles and auto parts.  The current administration has also initiated Section 201 actions under the Trade Act of 1974 which allows the President to grant temporary import relief by raising duties against products that have either injured or threatened to injure domestic industries which led to the imposition of 50 percent tariffs on imported washing machines and 30 percent tariffs on photovoltaic cells.  The administration has also initiated Section 301 actions related to the forced transfer of U.S. technology and intellectual property which affects $50 billion worth of Chinese imports.

2.) Baseless accusations against other nations' industrial policies: Industrial policies adopted by the United States which range from technological innovation incentives and government procurement through subsidies on specific sectors of the economy which enhance the competitive strength of American industries.  Here is a partial list of these policies:

Framework for Revitalizing American Manufacturing (2009)

United States Manufacturing Enhancement Act of 2010

Advanced Manufacturing Partnership (2011), A Manufacturing Renaissance: Four Goals for Economic Growth (2011)

National Strategic Plan for Advanced Manufacturing (2012)

A Strategy for American Innovation (2011) 

National Network of Manufacturing Innovation: A Preliminary Design (2013)

Clean Energy Manufacturing Initiative (2013), A Roadmap for U.S. Robotics – From Internet to Robotics (2013)

Measurement Science Roadmap for Metal-Based Additive Manufacturing (2013)

National Artificial Intelligence Research and Development Strategic Plan (2016)

While formulating and enacting its own plans to increase America's competitiveness with government intervention, Washington has accused other nations of unbalancing the trade playing field when they enact their own industrial policies.

3.) Long-Arm Jurisdiction and sanctions against other nations based on American laws:  In recent years, the United States has attempted to exercise jurisdiction over foreign entities based on its own domestic laws, forcing entities and individuals from other nations to obey U.S. domestic laws or face civil, criminal or trade sanctions.  Here is a quote from the white paper:

"The US is also vigorously reviewing and revising its export control legislation to strengthen its “long-arm jurisdiction”. On August 13, 2018, the US President signed the National Defense Authorization Act 2019, an important part of which is the Export Control Reform Act (ECRA). The ECRA further tightened restrictions on foreign-holding companies, intensified controls on “emerging and basic technologies”, and mandated an inter-agency process to boost law enforcement capabilities. Recently, the Bureau of Industry and Security of the US Department of Commerce added 44 Chinese entities to its Entity List for “acting contrary to the national security or foreign policy interests of the United States”. Such measures create obstacles for Chinese businesses to conduct normal trade and are in fact an extension and upgrading of “long-arm jurisdiction”.

4.) Internationalizing domestic issues and politicizing economic and trade issues:  The current mantra from Washington is that other nations, particularly China, are stealing American jobs.  In fact, even though U.S. imports from China grew substantially after 2009, U.S unemployment dropped as shown on this graphic from the paper:

While the movement of manufacturing jobs to China is often cited as a reason for America's manufacturing sector problems,  in fact, between 2010 and 2015, the number of U.S. manufacturing jobs rose by 6.8 percent while U.S. imports from China's manufacturing sector rose by 32.4 percent.

Here is another quote from the paper:

"The current US administration’s attempt to blame international trade and exporting countries for domestic unemployment is not supported by facts; it aims to deflect public attention in the face of intractable domestic political problems. Without truly resolving its own deep-seated structural problems, the US attempt to bring the manufacturing sector back home through protectionist measures is a completely counter-productive move. This beggar-thy-neighbor and lose-lose approach runs counter to economic rules and will only make the world economy less efficient and trigger opposition from countries around the globe. The US will do as much damage to itself as it will to others."

Let's close this posting with one final quote from the white paper:

"Faced with a host of grave challenges to human progress, all countries, particularly major countries, need to shoulder the obligation and responsibility of guiding and promoting international cooperation. Countries should respect each other, engage in discussions as equals, and resolutely reject the Cold War mentality and power politics. Countries should not engage in a zero-sum game that puts one’s self-interest first and sees others’ gains as one’s losses, nor should they follow a hegemonic approach that advocates beggar-thy-neighbor policies and believes in the strong bullying the weak."  (my bold)

Perhaps, as China suggests, nations should work together to build a common prosperity, a notion that seems beyond Washington.  A win-win situation is far better for global stability than the current win-lose mantra proclaimed by the United States.

Thursday, October 18, 2018

The Crisis in Yemen - How Washington is Fighting Both Sides of the Same War

Given this recent certification to Congress from U.S. Secretary of State Mike Pompeo which allows continued sales of U.S.-built arms to Saudi Arabia: would think that all is well in Yemen and that the Saudi's are doing their very best to ensure that Yemenis are not suffering at their hands.  Unfortunately, as you will see in this posting, according to the United Nations World Food Program and other reputable sources, Yemen continues to suffer at the hands of the Saudi Royal family particularly given that King Salman is the Commander-in-Chief of the Royal Saudi Arabian Armed Forces and his son, Mohammad Salman bin Abdulaziz Al Saud who is affectionately referred to as MBS is the nation's Defense Minister as shown on this diagram:

One of the biggest problems facing Yemen is the nation's overall lack of food.  The latest statistics from the World Food Program (WFP) shows the following:

1.) 18 million people are food insecure (i.e. they do not have enough food)

2.) more than 8 million are severely food insecure and must rely on external sources of food

3.) 3 million pregnant and nursing women and children under the age of 5 need nutritional supports with the rate of child malnutrition is one of the highest in the world

4.) more than half of Yemeni families are purchasing food on credit because salaries have not been paid to public sector employees since September 2016

The World Food Program has the goal of providing 9.5 million people with 100 percent of their daily nutritional requirements.  WFP requires total funding of $91.4 million to sustain their Yemeni food program until February 2019.

Here is a fact sheet from the United States Agency for International Development or USAID, a taxpayer funded U.S. government agency providing additional background on Yemen's food emergency:

As you can see, USAID has made significant contributions through its Food for Peace program with the vision of "reducing hunger and malnutrition, ensuring that all individuals have adequate, safe and nutritious food to support a healthy and productive lifestyle".  In total, American taxpayers have generously funded food for Yemen, spending a total of $872.2 million since fiscal 2016 on food aid for Yemenis

As well, according to the Famine Early Warming Systems Network or FEWS NET, Yemen's food situation likely to grow significantly worse over the next few months as shown here:

FEWS NET notes that Saudi-led conflict near the main Red Sea port of Al Hudaydah has resulted in concerns that the meagre amount of food that is getting into Yemen may be further disrupted.  As well, the main road between Al Hudaydah and Sana'a City, the nation's capital and largest city, has worsened Yemen's food crisis.

Now, let's look at the other side of the equation, the link between Washington - Saudi Arabia and arms.  Between 1950 and 2009, Washington enacted 418 arms sales with Saudi Arabia with a total value of $106.8 billion.  According to SIPRI, between 2013 and 2017, the United States is the world's largest exporter of arms with Saudi Arabia being its biggest client by a wide margin as shown here:

Here is a summary of the most recent major proposed sale of $110 billion worth of U.S. armaments to the Saudi Royal family:

A recent report from the Congressional Research Service entitled "Saudi Arabia: Background and U.S. Relations" makes this observation about the Saudi - Yemeni situation:

"Since March 2015, the U.S.-trained Saudi military has used U.S.-origin weaponry, U.S. logistical assistance, and shared intelligence in support of military operations in Yemen. Legislation has been proposed in the 115th Congress to condition or disapprove of some U.S. weapons sales and condition or direct the President to end U.S. support to Saudi operations without specific authorization....

Saudi Arabia’s armed forces have relied on U.S. arms sales, training, and service support for decades. Congress has broadly supported U.S. arms sales to the kingdom, while seeking to maintain Israel’s qualitative military edge (QME) over potential Arab adversaries and expressing concern about the merits or terms of individual sales cases in some instances. Some Members of Congress have at times expressed concern about the potential for U.S. arms sales to contribute to or help drive arms races in the Gulf region and broader Middle East and about Saudi use of U.S. origin weaponry in Yemen." (my bolds)

Let's summarize.  The Saudi Royal family and the military coalition that it controls is obviously to blame for the food insecurity in Yemen which now impacts 18 million Yemenis including young children and pregnant/nursing women largely using materiel supplied by the United States military-industrial-Congressional complex.  As a result of the conflict which has left Yemen in tatters, U.S. taxpayers have now spent nearly $900 million on supplying much needed food aid for Yemenis.  Nonetheless, Secretary of State Mike Pompeo recently certified that sales of U.S.-built military equipment should continue because "...the governments of Saudi Arabia and United Arab Emirates are undertaking demonstrable actions to reduce the risk of harm to civilians and civilian infrastructure resulting from military operations of these governments."

How bad does the situation in Yemen have to become before Washington realizes that its second-best friend in the Middle East is guilty of what can best be described as a crime against humanity?  How long will it be before U.S. taxpayers realize that they are fighting both sides in the same war?

Wednesday, October 17, 2018

Washington's Chosen Template for the Middle East

A recent speech by U.S. Secretary of State Mike Pompeo played right into the hands of Israel.  The speech, given to the rather interestingly named Jewish Institute for National Security of America (JINSA) very clearly outlined the Trump Administration's agenda for the Middle East and Israel's place in America's plans for the region.

Let's look at some key excerpts from the speech where Mr. Pompeo compares Israel to Iran, a move that plays right into the hands of Benjamin Netanyahu:

"Let me start with just a basic fact: In the entire Middle East, there is only one consistently pro-American, free-enterprise, democratic nation; it’s the people of the State of Israel. And this administration understands that deeply.

For the previous eight years, we had an administration that showed more respect to the leaders of Iran than to the people of Israel.

President Obama thought he – thought if he made dangerous concessions, removed economic sanctions, and flew a plane full of cash to Tehran, he could somehow hug Iran’s leaders into behaving well and rejoining the community of nations.

But those leaders aren’t from a Disney movie. They’re real. They’re not tragically misunderstood. They are murderers and funders of terrorism who lead chants – today, still – of “Death to America.” Their goals include profiting off the misery of their own people and wiping Israel off the face of the Earth.

By and large, I think the American people understand the threat that Iran poses. It’s why they opposed the deal that the previous administration made by a margin of two to one, and it’s why they sent to our country a very different kind of president in 2016."

I guess that in Washington's eyes, when you compare Iran to Israel, there is a clear winner.

Now, let's look at the key sentence to his entire speech, one that very, very clearly illustrates Washington's views on Israel and Greater Israel (i.e. the Middle East):

"Israel is everything we want the entire Middle East to look like going forward."

Here's why Israel is so special in the eyes of this Washington:

"It is democratic and prosperous. It desires peace. And it is a home to a free press and a thriving free market economy."

In case you wish to watch the entire speech and the question and answer exchange that follows, here it is:

Let's look at  three of Mr. Pompeo's reasons for Israel's "specialness", its democracy, the freedom of its press, the freedom of its economy and finally its desire for peace.  

1.) Democracy:  According to the Economist Intelligence Unit, Israel is considered to be a "flawed democracy as shown here:

While this is substantially better than its neighbours, it is hardly what one would consider a full democracy.

According to Freedom House, Israel had the following issues that impacted Israel's democratic score in 2017:

"High-level corruption investigations are relatively frequent, with senior officials implicated in several scandals and criminal cases in recent years. In August 2017, police confirmed that Prime Minister Netanyahu was a suspect in two investigations into allegations of fraud, breach of trust, and bribery; they pertained to his acceptance of expensive gifts and his apparent attempts to collude with the owner of Yedioth Ahronoth to secure positive news coverage. Two other inquiries that were under way during the year focused on some of the prime minister’s closest associates, with allegations involving bribery in a contract to purchase naval vessels and an exchange of regulatory favors for positive news coverage with the telecommunications and media conglomerate Bezeq. Separately in September, the attorney general announced plans to indict Netanyahu’s wife for aggravated fraud and breach of trust related to inflated spending at the prime minister’s residences.

In recent years the environment for civil society groups has gradually deteriorated. A law that took effect in 2012 requires NGOs to submit financial reports four times a year on support received from foreign government sources. Under a 2016 law, NGOs that receive more than half of their funding from foreign governments must disclose this fact publicly and in any written or oral communications with elected officials. The measure mainly affected groups associated with the political left that oppose Israel’s policies toward the Palestinians; foreign funding for right-leaning groups that support Jewish settlements in the West Bank, for example, more often comes from private sources.

In March 2017 the Knesset approved a law that bars access to the country for any foreign groups that publicly support a boycott of Israel or its West Bank settlements. The measure was criticized by civil society organizations as an obstacle to the activity of many pro-Palestinian and human rights groups.

Other bills that were proposed or considered during 2017 would go further than these existing laws, for example by imposing tighter restrictions on foreign funding and allowing the closure of organizations that support boycotts or seek to hold Israeli forces accountable for human rights abuses in foreign tribunals. One proposed measure would make it easier for plaintiffs to file civil suits against NGOs and activists who support boycotts without having to show proof of damages." (my bolds)

2.) Freedom of the Press: According to the 2018 Reporters Without Borders annual ranking, Israel scores rather poorly when it comes to press freedom, coming in 87th place out of 180 nations (up from 91st place in 2017) for the following reasons:

"Despite the existence of independent media, journalists are subject to “military censorship,” gag orders, and the hostility of members of the government. The Israel Defense Forces often violate the rights of Palestinian and foreign journalists, especially when they are covering demonstrations in the West Bank or Gaza Strip. Under Israel’s system of administrative detention, Palestinian journalists can be held indefinitely without trial, without formal charge, and without notification of a lawyer on the grounds that they are inciting violence, cooperating with terrorist organizations, or otherwise posing a threat to Israel’s security." (my bold)

3.) Economic Freedom: According to the Heritage Foundation's 2018 Index of Economic Freedom, Israel scores in the lower part the "Mostly Free" grouping as shown here:

One of Israel's biggest barriers to economic freedom is government integrity which falls very close to the "mostly unfree" bracket as shown here:

4.) Desires Peace:  Here is a look at Israel's desire for peace from its own media:

1.) Haaretz:

In case you have forgotten, Israel's Operation Protective Edge in 2014 killed 2220 Gaza residents, 70 percent of whom were civilians including 500 children and wounded 17,000 residents.  This compares to 73 Israeli deaths with 67 of those being scolders and 6 being civilians.

, Israel seeks peace, does it?  Perhaps this video report showing violence along the border fence between Gaza and Israel from Canada's CBC from May 2018 better explains Israel's definition of peace:

As we can see from this posting, the current administration's geopolitical goal in the Middle East is to remake the region in the image of the State of Israel, its chosen model for the imposition of American-style democracy.  From the information that I have included in this posting, you can see that Washington's reasons for wanting a Middle East that reflects Israel's '"specialness" may be somewhat flawed, something that is concerning in light of the looming Middle East plan that is being prepared by Jared Kushner, Donald Trump's Senior Advisor and unofficial envoy to Israel.

Apparently when it comes to geopolitics, the Middle East and Washington, beauty really is in the eye of the beholder.

Monday, October 15, 2018

How Corporate Tax Cuts Have Failed to Enrich Working Americans

Let's start this posting with a question.  Which would you rather receive from your employer:

1.) a ten percent raise?

2.) a one-time fifteen percent bonus?

Bonuses are a one time item for an employer.  A ten percent raise will compound the next time that a raise is given whereas a one-time fifteen percent bonus will not.  Employers know this and would much prefer to grant their employees a one time bonus than a ten percent raise.  As for the employee's side of the equation, a ten percent raise will reach the same value as a fifteen percent bonus in 4.3 years, assuming that the raise is given only once.  If a raise is given every year, the period of time taken to reach the value of the one-time bonus is reduced.

Let's start by looking at a quote from Gary Cohn, the National Economic Council Director and former President and Chief Operating Officer of Goldman Sachs:

"One of the real impetuses for our tax reform and tax cut plan was to get real wages to grow in the United States, we haven't had real wage growth in a long time in the United States."

After Washington passed the most recent tax cuts for Corporate America, dropping the headline corporate tax rate from 35 percent to 21 percent, a there was a rapid flurry of employers (up to 500 employers covering more than 5.5 million workers) announcing that they were giving bonuses to their employees with the individual one-time bonuses ranging from $1000 to $2000 as shown on this list from CNBC.  As well, according to CNBC's Global CFO Council, 20 percent of companies in a recent survey stated that they were granting one-time bonuses only because of the 2017 Tax Cuts and Jobs Act (TCJA) as shown on this graphic:

Fortunately for those of us who sweat while we work, a blog posting by Lawrence Mishel at the Economic Policy Institute examines the veracity of the Trump Administration's claims that corporate tax cuts announced in the TCJA have led to widespread increases in employee compensation.  By examining data from the Bureau of Labor Statistics' Employer Costs for Employee Compensation for the first two quarters of 2018, we can see the trend in non-production bonuses in both absolute dollars and as a percentage of compensation.  The BLS data breaks quarterly compensation down into the following components:

1.) Wages and salaries
2.) Paid leave
3.) Vacation
4.) Holidays
5.) Sick leave
6.) Personal leave
7.) Supplemental pay
8.) Overtime and premium pay
9.) Shift differentials
10.) Non-production bonuses
11.) Insurance
12.) Life insurance
13.) Health insurance
14.) Short-term disability
15.) Long-term disability
16.) Retirement and savings
17.) Defined benefit pensions
18.) Defined contribution pensions
19.) Legally required benefits
20.) Social Security and Medicare
21.) Federal unemployment insurance
22.) State unemployment insurance
23.) Workers' Compensation

Over the period from the beginning of 2017 to the end of the second quarter of 2018, this is what happened to non-production bonuses in dollars per hour and as a percentage of total compensation for all private industry workers (see table 9):

Q1 2017  $0.85  2.6 percent
Q2 2017  $0.85  2.6 percent
Q3 2017  $0.86  2.6 percent
Q4 2017  $0.92  2.7 percent
Q1 2018  $0.96  2.8 percent
Q2 2018  $0.96  2.8 percent

Here is a graph showing what has happened to bonuses as a percentage of total compensation from 2008 to the second quarter of 2018:

The Tax Cuts and Jobs Act was signed into law on December 22, 2017.  In the last full quarter of 2017, non-production bonuses were $0.96 per hour or 2.7 percent of total compensation.  For both the first and second quarters of 2018 when Corporate America was announcing its employee bonus programs in response to the corporate tax cuts, non-production bonuses were $0.96 per hour or 2.8 percent of total compensation, an increase of $0.04 cents per hour or 0.1 percentage points.  By the time the bonuses are adjusted for inflation, the bonuses supposedly connected to the TCJA added a whopping $0.03 cents per hour to employees' pay. 

Here is a quote from the Economic Policy Institute's Lawrence Mishel:

"The White House contention that corporate tax cut-inspired widespread provision of bonuses that led to greater paychecks for workers is not supported by the BLS Employer Costs for Employee Compensation data. This is not surprising. Press releases—“a flurry of corporate announcements”—by a small group of administration-supporting firms do not create widespread bonuses or wage growth for workers. Neither do tax cuts, at least within the first six months."

Let's close with this graphic from CNBC showing how Corporate America really intended to spend its tax savings for the first half of 2018:

Given that one-time bonuses, particularly those of the thousand dollar variety, are a really inexpensive way for Corporate America to reward its workers, it is interesting to see that America's employers are still too cheap to help their workers make financial gains by bribing them with shiny baubles in light of the tax savings granted to them by Washington.

Friday, October 12, 2018

The Intentions of the Twenty-Fifth Amendment to the Constitution

In the recent New York Times anti-Trump op-ed piece by a White House insider there was this interesting paragraph:

"Given the instability many witnessed, there were early whispers within the cabinet of invoking the 25th Amendment, which would start a complex process for removing the president. But no one wanted to precipitate a constitutional crisis. So we will do what we can to steer the administration in the right direction until — one way or another — it’s over."

The Twenty-Fifth Amendment to the Constitution is one that Main Street America rarely hears about, unlike the Second Amendment which guarantees the freedom to bear arms, the Fourth Amendment which guarantees the right to be secure against unreasonable searches and seizures, the Eighteenth Amendment which is best known for enforcing prohibition and the Nineteenth Amendment which gave women the right to vote.

The Twenty-Fifth Amendment reads as follows:

"Amendment XXV

Section 1.

In case of the removal of the President from office or of his death or resignation, the Vice President shall become President.

Section 2.

Whenever there is a vacancy in the office of the Vice President, the President shall nominate a Vice President who shall take office upon confirmation by a majority vote of both Houses of Congress.

Section 3.

Whenever the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that he is unable to discharge the powers and duties of his office, and until he transmits to them a written declaration to the contrary, such powers and duties shall be discharged by the Vice President as Acting President.

Section 4.

Whenever the Vice President and a majority of either the principal officers of the executive departments or of such other body as Congress may by law provide, transmit to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office, the Vice President shall immediately assume the powers and duties of the office as Acting President."

This amendment is designed to ensure the integrity of the office of President and the continuity of government in certain specific cases.

The need for the Twenty-Fifth Amendment became apparent after the deal of John F. Kennedy and prescribes the order for presidential succession, how a Vice President is replaced if he/she leaves office and the mechanism for removing a President from power if he/she is deemed unable to serve for the remainder of their term.  The Amendment was submitted to the states on July 6, 1965, was adopted by Congress on February 10, 1967 and signed into law by President Lyndon Johnson on February 23, 1967.  Interestingly, it took the 47 states that have ratified the Amendment 584 days to do so (from July 12, 1965 to May 25, 1967).  Three states have not ratified the Amendment; Georgia, North Dakota and South Carolina, however, since only three-quarters of states need to ratify an Amendment so that it becomes part of the Constitution, their ratification is not really necessary.

In the case of Donald Trump, it is the third and fourth sections of the Amendment that are key.  Let's look at them in turn:

1.) Section 3: This section sets out the formal process for determining the capacity of the president to remain in office.  In this case, the President submits a written declaration to the President pro tempore of the Senate (currently Orrin Hatch) and the Speaker of the House of Representatives (currently Paul Ryan) that he/she is unable to discharge the duties of the office of President and that, until notified otherwise in writing, the Vice President will take over the duties as Acting President.  Prior to the signing of the 25th Amendment, nine presidents had experienced health issues that left them temporarily unable to fulfill the duties of their office; William Henry Harrison, Zachary Taylor, Abraham Lincoln, James Garfield, William McKinley, Woodrow Wilson, Warren Harding, Franklin Roosevelt and Dwight Eisenhower with six of these presidents dying while in office.  This section of the Amendment has never been used with the near exception of Ronald Reagan who was incapacitated while he underwent surgery for a gunshot wound that he received during a failed assassination attempt on March 30, 1981.  Even during that event, there was no designation of a replacement President.

2.) Section 4: This section, which has also never been used, sets out the process for removing a President that is deemed incompetent from office.  Unlike Section 3 where the President unilaterally determines their capacity, in Section 4, the Vice President and Congress have the ability to remove the President if, in their determination, he/she is unfit for office and unable to fulfill their duties.  The Vice President will then assume the duties of the President as Acting President, however, the President can still defend himself/herself as follows:

"Thereafter, when the President transmits to the President pro tempore of the Senate and the Speaker of the House of Representatives his written declaration that no inability exists, he shall resume the powers and duties of his office unless the Vice President and a majority of either the principal officers of the executive department (currently 8 out of 15 Secretaries) or of such other body as Congress may by law provide, transmit within four days to the President pro tempore of the Senate and the Speaker of the House of Representatives their written declaration that the President is unable to discharge the powers and duties of his office. Thereupon Congress shall decide the issue, assembling within forty-eight hours for that purpose if not in session. If the Congress within twenty-one days after receipt of the latter written declaration, or, if Congress is not in session within twenty-one days after Congress is required to assemble, determines by two-thirds vote of both Houses that the President is unable to discharge the powers and duties of his office, the Vice President shall continue to discharge the same as Acting President; otherwise, the President shall resume the powers and duties of his office."

According to the Brookings Institute, it is procedurally more difficult to use the 25th Amendment to remove a President from office than it is to use the impeachment mechanism.  Impeachment requires a simple majority in the House and a two-thirds majority in the Senate.  The Twenty-Fifth Amendment requires a two-thirds vote in both houses.  Impeachment is also seen as a less palatable way to remove an ill President from office, particularly when that President has been perfectly functional up to that point in time.

As I noted above, Section 4 has never been used, although it was considered in 1987 when Ronald Reagan appeared to have lost interest in the job of President, was inattentive and indecisive.  As we now know, President Reagan was suffering from the early stages of dementia during the latter part of his second term in office.

If you are interested, here is a brief video which summarizes the Twenty-Fifth Amendment and how it can be used:

Given the ongoing controversy regarding the Trump presidency it will be interesting to see whether Donald Trump becomes the first President of the United States to experience Section 4 of the Twenty-fifth Amendment of the Constitution   It certainly appears as though at least some of his inner circle have considered its use.