Trade War! Boeing vs Bombardier, US vs Canada & UK

♠ Posted by Emmanuel in at 9/29/2017 05:47:00 PM
Will Delta really fly Bombardier CS100s? Of Canada has trade "friends" like the US, who needs enemies...
When it comes to capital-intensive businesses, commercial aircraft is among the most demanding of sheer funding. Especially when it comes to developing all-new models, the level of research and development required equates to a lot of money spent. Today's case in point is Canadian jetliner manufacturer Bombardier. Its niche is jets smaller than the smallest offerings of the industry titans Boeing [737] and Airbus [A320]. You'd think that not competing directly with them puts it in a safe spot, but no:
Boeing’s beef with Bombardier concerns the CS100 jet, which has slightly more than 100 seats, a market niche that Boeing executives were once pretty sniffy about, possibly with good reason. Bombardier ran into all kinds of financial difficulties developing and trying to sell the innovative C Series, which led to a $1 billion bailout by Quebec in 2015. Bombardier persisted, yet no sooner had Delta thrown it a lifeline by placing a firm order for a few dozen C Series jets, Boeing fired off a complaint to the U.S. government.

Boeing’s fear, as its legal complaint makes clear, is that one day Bombardier will become a much stronger competitor. But Boeing’s aircraft sales are eight times larger than Bombardier's today. Taking legal action makes Boeing seem like both the playground bully and the class snitch.
Interestingly enough, it appears the first major trade war of the Trump administration will not be against China or Mexico, the usual targets of his anti-trade rhetoric. Instead, it will be against supposedly friendly Canada. To make a long story short, Boeing (which doesn't make the same-sized jets, again) complained to the US Commerce department that Bombardier received substantial subsidies in launching its latest mode, the CS100. Being then asked that tariffs be applied on Bombardier CS100s being sold Stateside. In this activity they were more than successful:
The U.S. Commerce Department’s decision to tag Bombardier Inc.’s newest plane with retaliatory tariffs of more than 200 per cent[219.6% to be exact] was a blatant abuse of power. The complainant, Boeing Co., had asked for only an 80-per-cent penalty. Wilbur Ross, the commerce secretary, went bigger to remind the world that he could. “The U.S. values its relationships with Canada, but even our closest allies must play by the rules,” Ross said in a press release.
You read that right: the Commerce department almost tripled the tariff Being sought since it wanted to make an example of these Canadian trade miscreants:
Ross’s move was the equivalent of the schoolyard tough smearing a Cheez Whiz sandwich on the face of an innocent. He used the Bombardier press release to remind that his department had initiated 65 trade-related investigations since Inauguration Day, a 44 percent increase from the same period a year earlier. Economic historians have a term for this sort of behaviour: beggar-thy-neighbour. It comes from the Great Depression, when countries resorted to tariffs to “protect” jobs and only ended up making things worse.
Note that this is just an initial ruling; the ultimate tariff applied (if any) may be lower. However, rest assured that the Canadians are understandably outraged. At stake is an order for 125 CS100s ordered by the US-headquartered Delta Airlines. We're entering trade war territory as Canadian government figures are threatening to rescind a defense contract to buy 18 F-18 Super Hornet jet fighters from Boeing:
[Canadian Foreign Minister] Freeland also repeated the threat to cancel the Liberal government's planned sole-source purchase of Boeing Super Hornet jet fighters. The Liberal government has been clear that this case "very much has a bearing" on the decision to buy the warplanes, said Freeland. "The government of Canada cannot treat, as a trusted partner, a company which is attacking our aerospace sector."

Prime Minister Justin Trudeau was even more blunt. Speaking two weeks ago beside British Prime Minister Theresa May, Trudeau said the fighter deal is all but dead. "We won't do business with a company that's busy trying to sue us and trying to put our aerospace workers out of business,'' he said.
I mentioned that it's not only the US against Canada, but also the US against the UK. You see, Bombardier has wing assembly operations in Northern Ireland, and Ulster would lose a lot of economic opportunities if the US mega-tariff holds. With May's government relying on the support of Northern Irish lawmakers--and her attempts to build a relationship with Trump--in mind, the result is disappointing:
It’s no wonder Theresa May says she’s “bitterly disappointed” by the U.S. Commerce Department’s decision to impose punitive import duties on Bombardier Inc.’s new jetliner. It hurts the U.K. prime minister in several ways at once. First, it’s a blow to a big employer: More than 4,000 work for the company in Belfast, Northern Ireland, where the plane’s wings are built. Second, Northern Ireland is a sensitive area for British politics: It is only because May’s Conservatives have the support of 10 lawmakers from the region that she’s able to govern.  

Third, it’s a personal embarrassment: After spending political capital at home to try to build a close relationship with Donald Trump, she raised the issue with him both by phone and in person, with no obvious result.
Going forward, the UK is said to be reconsidering awarding more defense contracts to Boeing:
British defence minister Michael Fallon has also criticised Boeing. He ruled out cancelling existing orders with Boeing for nine P-8 spy planes and 50 Apache helicopters, but added the U.S. firm was seeking other UK contracts. 

Boeing has risen since 2000 from a relatively minor defence supplier to become one of Britain’s top five following the purchase of C-17 transporters and Apache attack helicopters, according to defence analyst Francis Tusa.
The game commences. Whether Canada and likely the UK take the US to the WTO for a complaint will depend on what tariff is ultimately applied to the Bombardier CS100 Stateside.
Read More

Did Xi, Macron & Merkel Make US Stocks Great Again?

♠ Posted by Emmanuel in at 9/26/2017 05:58:00 PM
It's probably not Trump, or Invader Zim for that matter, making the world economy great again.
There are any number of mysteries as to why US-listed stocks are reaching all-time highs early in the presidency of Donald Trump. As business media always explains, markets abhor uncertainty. With Trump you certainly have very little certainty. In trade, he's killed the Trans-Pacific Partnership (TPP), and threatens to pull out of the North American Free Trade Agreement (NAFTA) and the Korea-US Free Trade Agreement (KORUS). For good measure, he's spoken about pulling out of the World Trade Organization (WTO) over his disdain for multilateralism. Nor has he delivered yet on massive tax cuts for corporations, so it makes you wonder what's buoying US stocks.

One argument is that Trump is simply coasting on favorable economic conditions his predecessor Barack Obama created Stateside. Another is that, actually, it was other global leaders responsible for creating such profitable conditions worldwide which attract investors. And, since S&P 500-listed companies derive about 43.2% of their revenues from outside the US, they are able to capitalize on improvements in the business climate elsewhere.

Sebastian Mallaby brings this argument forward by bluntly stating that it's other countries' leaders making American stocks great again and not Trump:
Last year, in the wake of President Trump’s election, financial markets took off on a wild sprint, apparently believing his promise to make America great again. Ten months later, the financiers are wiser: The president’s immigration clampdown alarms them; his divisive response to Charlottesville appalls them. Despite the heady expectations of this past winter, there has been no sign of an infrastructure plan; few expect serious tax reform given the bungling of health-care legislation, not to mention the sidelining of Gary Cohn, the tax plan’s chief Sherpa. And yet, as if by a miracle of levitation, the Standard & Poor’s 500-stock index is still about a fifth above its level on the day of the election. What’s happening?

The short answer is that foreign leaders have done a surprisingly good job of making foreign countries great again. From Xi Jinping’s China to Emmanuel Macron’s France, politicians are delivering policies that businesses want. As a result, the world economy is growing faster than at any time since the post-crisis bump of 2010. The yuan and the euro have risen sharply against the dollar. A more competitive greenback and the prospect of strong exports have supported U.S. stock prices. A Chinese communist and a French technocrat have done more for American business than Trump has.
In the remainder of the op-ed, Mallaby goes into the specific actions the leaders of China, France, Germany and so on have taken to improve their countries' economic conditions--and the rest of the world economy as a result. I too am in the camp believing that US stocks are being buoyed by the rest of the world economy rather than by anything Trump has done. If anything else, American companies are doing well in spite of instead of because of his term. Ironically, his ineptitude is aiding corporations by pushing down the value of the dollar, making foreign earnings appear larger after converting them back to USD.
Read More

Kim Jong-Un [Hearts] Markets, Sort Of

♠ Posted by Emmanuel in at 9/25/2017 06:00:00 PM
We sorta knew they love rockets...but markets too?!
The perception we often get is that North Korea is the archetypal Communist state, with collectivist means of production concentrated in mostly rural communities churning out goods which the government tells to make in what quantities. Actually, the old-style command economy is on the outs. For several years now, the hermit kingdom has been experimenting with the use of markets. Mind you, it's not because of any sort of enlightened about the virtues of capitalism. Rather, it's being done out of survival. Indeed, North Korea may be more resilient than believed because of these partial market-oriented reforms:
Byung-Yeon Kim, a professor at Seoul National University, began interviewing North Korean defectors seven years ago to learn more about their country's economy. One wouldn't have thought there was much to discover: Often described as "Stalinist," the hermetic regime to the north seemed to preside over a crude, centrally planned system, with peasants toiling away for a pittance in collective farms and state-owned factories, dependent on food aid and growing poorer with each passing year.

In fact, as Kim lays out in his new book "Unveiling the North Korean Economy: Collapse and Transition," that popular image is almost entirely wrong. By necessity, virtually all North Koreans, from farmers to army commanders, now buy and sell goods and services in capitalist markets -- whether to survive or, in some cases, to get rich. The economy is growing and wages are rising; until recent rounds of United Nations sanctions, North Korea was about as dependent on foreign trade as the U.K. or Italy.

This will come as a disappointment to those who hoped that popular discontent would spell the end of the North Korean regime; despite decades of isolation, the country has stabilized economically even as it rapidly develops its nuclear and missile arsenals. Kim is more sanguine: He sees the spread of markets and money as a threat to dictator Kim Jong Un -- whom U.S. President Donald Trump now derides as "Rocket Man" -- and a point of pressure that the outside world can exploit. We spoke last week soon after North Korea tested its first thermonuclear device but before its latest missile test flew over Japan. A lightly edited transcript:
To be sure, North Korea is hardly booming. Still, it is actually quite externally involve as its trade levels are nearly similar to global averages [!] according to Prof. Kim. Note though that much of this market activity occurs in the informal sector. Prof. Kim adds:
Since Kim [Jong-un] took power in 2011, the economy has stabilized. While the rate of growth isn't that high, overall the economy has grown 1 to 2 percent for the last five years.

It's not really a Stalinist economy anymore. North Korea experienced a severe crisis in the late 1990s, when several hundred thousand people starved to death because of famine. Afterwards, the economy changed dramatically. Before, the regime repressed any kind of market activities. But nowadays, households participate more in the informal economy than the official economy. About 70 to 90 percent of household income comes from markets.

The reason is quite simple: The government cannot pay a salary sufficient to live on. I talked to one high-ranking diplomat who served in London and defected to South Korea last year. He said that he received a monthly salary of 2,000 North Korean won. At that time, the market rate was 3,000 North Korean won to the dollar. A typical North Korean household needs $50 per month for survival; the remaining part of this need is filled by markets. Some 70 percent of households participate in markets, while only 50 percent participate in the official economy. It's a hugely informalized or marketized economy.
Second, North Korea is not a closed economy anymore. I estimate the economy's trade dependency ratio is higher than 50 percent. The world average is 58 percent.
So, are there any truly Soviet-style economies left out there in the year 2017? Our usual suspect may not even be on the list. I guess that's progress of a sort.
Read More

Foreign Investment, Duterte Drug War Victim

♠ Posted by Emmanuel in , at 9/17/2017 12:18:00 PM
Unlike poor, defenseless Philippine teenagers, foreign investors have successfully avoided Duterte's Philippines.
Philippine strongman Rodrigo Duterte has elicited international condemnation over his bloody drug war,  whose most visible result are thousands of deaths among poor Filipinos unfortunate enough to live in open areas targeted for anti-drug operations. While primarily a security issue, there are also apparent economic consequences for Duterte's "reign of terror" (as the Catholic Church describes it) being waged on the civilian population as foreign direct investment dries up.

In fact, foreign direct investment [FDI] pledges have fallen for the four consecutive quarters Dutertet has been in power.
Investment pledges made by foreign firms slid 55 percent year-on-year to P18.2 billion in the second quarter, the fourth straight quarter that commitments dropped. In a report Friday, the Philippine Statistics Authority (PSA) said foreign investments approved by seven investment promotion agencies (IPAs) from April to June declined from P40.4 billion in the same three-month period last year.

As of the end of the first six months, IPA-approved foreign investments totaled P41 billion, down 38.4 percent from P66.6 billion a year ago. To recall, foreign investment pledges fell 12.8 percent year-on-year to P22.9 billion in the first quarter. Also, approved foreign investments declined 9.3 percent year-on-year to P125.7 billion in the fourth quarter of last year after commitments dropped by a faster 45 percent to P26.7 billion in the third quarter of 2016. It meant that foreign investors’ pledges decreased in the first four quarters of the Duterte administration.
In brief, what we have here is a political risk issue. Would-be foreign investors fear for their safety in a country where a Korean businessperson has been falsely accused of involvement in the drug trade and killed inside of police headquarters in a kidnap-for-ransom scheme. There's also the problem of possible losses of market access. First, the European Union is evaluating whether to continue preferential trade access to the EU under its Generalized System of Preferences Plus (GSP+). Under GSP+, duty-free rates can be availed if participating countries meet various conventions, of which those concerning human rights are coming under scrutiny:
The Philippines was granted beneficiary country status under the EU-GSP+ in December 2014, allowing the country to export 6,274 eligible products duty-free to the EU market. The alleged cases of extrajudicial killings as part of President Duterte’s drug war, however, has put at risk the country’s GSP+ privileges.

The beneficiary status under the GSP+ necessitates the implementation of the 27 international treaties and conventions on human rights, labor rights, environment and governance. Results of the latest review are expected to come out this year.
Following the EU's lead, others are encouraging fellow democracies to impose economic sanctions on the Philippines to discourage Duterte's violence against his own people. As you would expect, Philippine investment authorities are up in arms:
Trade and Industry Secretary Ramon Lopez on Tuesday hit The New York Times (NYT) for urging the international community, in an editorial, to impose trade sanctions against the Philippines for extrajudicial killings under the Duterte administration's campaign on illegal drugs.

"The editorial by The New York Times last March 24, calling for trade sanctions against the Philippines, is baseless and unfair," Lopez said in a statement. "Any form of trade sanction against the Philippines is uncalled for, unfounded and undeserved," the Trade chief emphasized.

In an editorial, titled "Accountability for Duterte," the American daily urged foreign governments to "hit" President Rodrigo Duterte "where it may hurt the most" – trade – in a bid to hold the Philippine leader accountable over the alleged killings in his "deadly" war on illegal drugs.
It's a cliche to say that businesspersons appreciate the lack of uncertainty, but with Duterte in charge of the Philippines, let's say no one is rushing to make investments in a country that's becoming increasingly isolated due to human rights concerns when there are so many far more predictable places to invest.
Read More

Premier League Post-Brexit & Post-Free Movement

♠ Posted by Emmanuel in , at 9/12/2017 03:06:00 PM
Premier League clubs would have a harder time hiring European talent like N'golo Kante after leaving the EU.
The top flight of British football--the Premier League--is arguably not the most competitive in Europe if you go by the number of European Champions League winners it has produced. That said, the overall level of competition may be rather higher given its higher wages than comparable first divisions in other European countries. Something that has enabled a lot of transfer activity to the Premier League was being part of the European Union, where freedom of movement is part of the deal for EU citizens.

The UK's impending [sort of?] exit from the European Union is causing some consternation among Premier League clubs that will lose easy accessibility to European footballing talent. Instead of being readily available almost as though they were British, European players would now fall under the same restrictions facing migrant workers from elsewhere in the world. Fewer marquee European names playing in England due to these restrictions could negatively impact Premier League revenues:
England’s standing in the soccer world would be diminished if EU stars gravitated to other countries after Brexit, potentially cutting the value of future TV rights after the current 8-billion-pound ($10.5 billion) deal expires. Players from the bloc are allowed in to the U.K. under EU freedom of movement rules, while athletes from elsewhere must meet criteria that only permit the highest level of foreign players, judged on criteria including age and how many times they have played for their national team.
It's  not going to be the same. That said, there are plans afoot to tailor immigration rules to the demands of this sport:
The league says that, under current rules that apply to athletes from outside the EU, two French players who were crucial to Leicester City winning the championship in 2016, Riyad Mahrez and N’Golo Kante, wouldn’t have gained admittance to the U.K. in a post-Brexit world.

The government wants to develop an immigration system that’s in the best interest of the whole of the U.K., and plans to make initial proposals for a new policy later in the autumn, a spokesman said. “We recognize the importance of sport to the nation and within that the contribution that international talent makes,” the government said in a statement. “We are in discussions with key representatives from the sport sector, including the Premier League, regarding the challenges and opportunities that our EU exit brings.’’
Together with most things concerning Brexit, the fate of hiring foreign footballers is up in the air. Then again, there is no certainty that the departure will happen.
Read More

Deport-o-Mania 2: Houston's Rebuilding Labor Shortage

♠ Posted by Emmanuel in , at 9/05/2017 03:32:00 PM
Is Donald Trump's America so hateful of immigrants that it'd rather slow Houston's reconstruction significantly?
Being human after all, we have certain cravings that are personally destructive: nicotine cravings, sugar cravings, and so on. For several members of the American Trump administration--and those who voted for this affront to humanity--they have a different sort of craving that is rather worse in being societally destructive. That's right, their one true addiction is deporting people who are "different" from them culturally, ethnically or religiously. They're bringing drugs, they're bringing crime, they're rapists, etc.

In an earlier post I discussed the potential consequences of ramping up deportations from the US just as Houston lies devastated by Hurricane Harvey. Being a Trump voter-rich state, Texas has unfortunately been at the forefront of sending those from other countries packing:
Under President Trump, authorities in Texas have been bearing down on illegal immigrants. Until a judge blocked the measure last week, they threatened to enact a new state law that would outlaw sanctuary cities. Texas also has been leading a group of 10 states demanding that Trump end the Obama-era Deferred Action for Childhood Arrivals program, or DACA, which granted reprieves from deportation to nearly 800,000 undocumented immigrants who came to the United States as minors.
The last time a disaster of this magnitude hit the Gulf of Mexico area, then-President George W. Bush silently rolled back strict deportation to help reconstruct New Orleans in the wake of Hurricane Katrina in 2005. Indeed, Hurricane Harvey may have made immigrants more vulnerable by literally bringing them out in the open:
It is a harsher landscape for those in the country illegally than it was 12 years ago, when the Gulf Coast faced the similar-size task of cleaning up from Hurricane Katrina. Eight days after that storm made landfall, President George W. Bush bowed to pressure from construction firms and relaxed worker ID rules. By some estimates, that allowed more than a quarter of all government-paid recovery jobs to go to illegal immigrants [my emphasis]...

But 10 days after Harvey struck Texas with record-setting rains and caused unprecedented flooding, the Trump administration has made no similar proclamation. Worse, immigrant rights groups say, federal authorities have sent conflicting signals about whether they might start simply detaining and deporting those flushed out into the open by the storm.
Builders, unlike certain elected officials, know what really needs to be accomplished in order to meet the labor requirements in rebuilding Houston. Most certainly it isn't ramping up deportations:
Leaders in the construction industry have begun sounding alarms that there will not be enough American-born workers to rebuild as quickly as needed. “If they would relax the rules, honestly, that would be great, we could use it,” said Jeffrey Nielsen, executive vice president of the Houston Contractors Association, whose members include the city’s largest firms that build roads, bridges and other public works.

Nielsen said that even before Harvey hit, almost every member of the association was grappling with a shortage of workers. With a crushing list of jobs now growing by the day, thousands need to be hired — and fast. Nielsen said he and other construction industry officials were told at a weekend briefing that roughly 30 percent of all roads in and around Houston will remain impassable without some construction work.
The city's reliance on undocumented workers is substantial if left unsaid. As the saying goes, there are literally few gringos (white natives) willing to do the work:
“The truth is, there are not a lot of people jumping up and down to do civil construction work in Texas. It’s hot, and these jobs are pouring concrete or, worse, hot asphalt,” Nielsen said. “That’s the reality of it, and we need more people than ever.”

There are plenty in and around Houston who might consider taking on the work, which can pay $20 an hour or more, if ID requirements were relaxed, construction industry officials say.

The Houston metropolitan area has the third-largest illegal immigrant population in the country, about 575,000 people, according to a Pew Research Center report this year. Those workers already make up roughly a quarter of all construction laborers citywide, according to the study. Some estimate it could be closer to half [my emphasis].

But as the federal government this week is expected to begin signing massive contracts for debris removal, roofing work and other emergency efforts, none of Houston’s unauthorized immigrant population could pass worker verification guidelines required of federal contractors.
Trump-style bigotry certainly raises several ethical issues. However, as this storm illustrates, racism doesn't make much economic sense either while you're trying to rebuild an American megacity. Somehow, I doubt there are enough Breitbart readers out there [representative headline: Satanic illegals kill US teen!] willing to do the hard work that needs to be done.
Read More