2 Takes on Why China 'Wins' a Trade War with America

♠ Posted by Emmanuel in , at 12/29/2016 05:21:00 PM
The premise of Donald Trump's China-bashing rhetoric is that the United States still holds all the good [trump?] cards in the global economy. As such, it can pretty much do as it pleases to serve its own interests. Because of lackluster leadership by others, however, the United States has allowed others to take advantage of it time and again. So, Trump proposes to slap tariffs of up to 40-some percent on Chinese made products to level the playing field.

[1] But what if the premise is wrong? Winter Nie of the famed IMD business school not only argues that China holds the better cards--it has more export markets aside from the United States to approach, but American firms that have invested in PRC-based supply chains will be hurt more than the other way around:
A trade war would be problematic, but it would not be a disaster for China, mainly because the U.S. needs China more than vice versa. Twenty years ago, the situation might have been different. China was dramatically underdeveloped, and it wanted access to Western technology and manufacturing techniques. China has most of what it needs now, and what it doesn’t have it can easily obtain from vendors outside the U.S. While the American market looked enticing a few decades ago, it is relatively mature, and today the newer emerging market countries have become much more interesting to Beijing.

Although a good deal of American high tech equipment is manufactured in China, the lion’s share of the profits go to the American companies that designed the equipment. If that were to stop, American companies would be hurt more than Chinese manufacturers.
What's more, market access to 1.4 billion Chinese consumers makes it crucial for American firms to have access to:
The fastest growing markets for the best items China produces, like laptop computers and cell phones, are in developing regions such as India, Latin America, and Africa. In contrast, China itself is a market that the U.S. can hardly ignore. By the end of 2015, Chinese consumers bought 131 million iPhones. The total sales to U.S. customers during the same period stood at only 110 million. And iPhones are only a small part of U.S. exports. Boeing, which employs 150,000 workers in the U.S., estimates that China will buy some 6,810 airplanes over the next 20 years, and that market alone will be worth more than $1 trillion.

Were Trump to start a trade war, the most immediate effects would probably be felt by companies like Walmart, which import billions of dollars of cheap goods. The prices on almost all of these items would quickly skyrocket beyond the reach of the lower economic brackets—not because of manufacturing costs, but because of the tariffs. The result would be an economic war of attrition that China is infinitely better positioned to win.
CUHK professor James Wang also argues that China wins, largely elaborating on holding out in an economic war of attrition. With a centralized economic apparatus able to tap into state resources, China may be better placed to weather the fallout from a trade war compared to the anarchic US government system and its freewheeling enterprises. The latter's lack of coordination will lead to crying uncle sooner:
China would outlast the U.S. in a trade war, which is a “distinct possibility” next year after President-elect Donald Trump takes office, a commentator wrote in the $1 billion Pine River China Fund’s investor letter.

China’s government would be better placed than the U.S. to marshal state resources to cushion the impact on exporters, wrote James Wang, a City University of Hong Kong professor who pens a monthly commentary for the fund. Privately-owned Chinese exporters would be worse hit than state-controlled peers because they have less political clout in Beijing, he said.

“By design, decision-makers in a democracy face difficulties coordinating a relief effort and must eventually face a political backlash from impacted domestic producers,” Wang wrote. “On this basis, the Chinese may have more runway to play the long game in a trade war.”
It's not so much that China "wins" then, but it loses less. 
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Actually, Trump's Been Great for Mexico's Exports (So Far)

♠ Posted by Emmanuel in , at 12/26/2016 02:11:00 PM
Koreans and others are still doing alright in Mexico. Arguably even better in recent months.
Let us first get an update on the state of Mexican exports to the United States--by far its largest export market. Buoyed by automakers setting up shop south of the border to manufacture automobiles and automobile components at significantly lower costs destined for the United States, it's become a key manufacturing hub for this industry. Consequently, Mexico is now the second-largest exporter to the US (China is tops) after overtaking Canada. To an economist, it simply makes common sense. To the isolationist-protectionist, bunker-mentality specialist Trump, it's "stealing American jobs":
Mexico is overtaking Canada as the No. 2 exporter of goods to the U.S. this year, in a sign of how economic ties have deepened between the two countries even as the relationship is being questioned by President-elect Donald Trump.

Shipments from Mexico totaled $245 billion in the first 10 months of the year, according to Commerce Department figures released Tuesday, ahead of Canada’s $230 billion. If the trend continues, it would be the first time ever the U.S. bought more imports from its neighbor to the south. The two countries ended 2015 tied in exports to the U.S.
Now, more on all this Trumpery. All of Trump's over-the-top anti-Mexico rhetoric has sunk its currency, the peso, to very weak levels.  Mexicans' worst fears came to pass with the US presidential elections that sunk the currency even further. All-time lows, in fact. But, guess, what: just before Trump assumes office, Mexico has turned an expected trade deficit into a surplus, with a weak currency contributing quite a lot. In large part, this unexpected turn of events is due to his rabid anti-Mexico rhetoric about building a wall and the United States leaving the North American Free Trade Agreement (NAFTA):
Mexico is overtaking Canada as the No. 2 exporter of goods to the U.S. this year, in a sign of how economic ties have deepened between the two countries even as the relationship is being questioned by President-elect Donald Trump.

Shipments from Mexico totaled $245 billion in the first 10 months of the year, according to Commerce Department figures released Tuesday, ahead of Canada’s $230 billion. If the trend continues, it would be the first time ever the U.S. bought more imports from its neighbor to the south. The two countries ended 2015 tied in exports to the U.S.
Consider the following unexpected scenario: as long as Trump does not do something radical like leave NAFTA (which, unfortunately, appears under the executive's privilege), Mexico may actually be helped by Trump. Unexpected consequences arise all the time. If so, Michael Bloomberg's advice is sound: don't pay attention to Trump's sound and fury but rather his administration's policies:
Ignore Donald Trump’s words and focus on his deeds, Michael Bloomberg has told Mexico, advising the country to use the president-elect’s antitrade rhetoric as a wake-up call to sharpen its economy’s competitiveness.

“My advice for Mexico is to use this as an opportunity to look inward and see what you can improve to make this country more competitive,” the former New York mayor, whom Mr Trump last week asked for advice on a potential cabinet nominee, told the FT during a visit to Mexico. On a call last week the two laughed about barbs they traded during the election campaign.
The world economy is a weird place. Obviously, things are not what quite what they seem on the surface.
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Xenophobe Trump Needs Migrants to Hit 3% GDP Growth

♠ Posted by Emmanuel in , at 12/22/2016 02:11:00 PM
To generate growth, the US needs more rather than less people from abroad. The math is simple.
Amidst the barely concealed xenophobia of Trump's presidential campaign, something is becoming more evident the nearer he approaches the Oval Office: His economic promises go against what's been found possible in terms of generating growth relative to employment. To begin, witness another of his "clash of civilizations," "us against them" type remarks after the recent Berlin attacks:
President-elect Donald Trump characterized the gruesome truck attack on a Christmas market in Berlin as part of a systematic campaign by Muslim extremists against Christians, fueling speculation that he views the war on terrorism as a clash of civilizations and not a conflict against extremists. Trump’s late-Monday statement noted that the 12 people killed and 50 wounded were “innocent civilians.” But rather than identifying them as German citizens and tourists, he cast the attack in unusually religious terms.

“ISIS and other Islamist terrorists continually slaughter Christians in their communities and places of worship as part of their global jihad,” Trump said. “These terrorists and their regional and worldwide networks must be eradicated from the face of the earth, a mission we will carry out with all freedom-loving partners.”
I though this commentary from MarketWatch's Rex Nutting particularly useful with regard to accepting more migrants, wherever they may come from. With worker productivity slowing instead of speeding up being the trend of the past few decades, the US economy will need to hire more workers it doesn't currently have to achieve a sustained growth increase. That is, it needs more people--make that a lot more people--from abroad. Suffice to say that the lofty goals Trump sets cannot be achieved lest the United States' labor situation changes fairly significantly in the near future (i.e., over his term):
There are only two ways to get the economy to move faster over a sustained period: Hire more workers, or make the workers we have more productive. Those two factors — working harder and working smarter — determine the economy’s potential growth rate, or its speed limit. Potential growth is the sustainable level of output that the economy can supply, and right now it’s below 2%.

Here’s the economic equation: Potential growth = labor-force growth + productivity growth.
With outsized worker productivity gains being unlikely, then, the only real way is to increase the number of workers to achieve these growth targets. With a diminishing native workforce, the US will need to look abroad for workers:
Unless we can magically get productivity to improve at the fastest rates in the past 50 years, the only way to get to the gross domestic product to grow at 3% on a sustainable basis would be to hire 33 million workers over the next 10 years.

The problem? With the working-age population barely growing, the supply of qualified and willing Americans to hire would quickly run out, which means we’d need to open up the borders and let more immigrants in. In 2020, for instance, the working-age population is expected to grow by about 600,000, according to the Census Bureau. But to grow GDP at 3%, the economy would need 2.8 million more workers that year, even if productivity rebounds modestly, as assumed by the Congressional Budget Office in its projections about potential growth.
Maybe the incoming wall-building, Islam-baiting US president would do well to reconsider his viewpoints. As it stands, his numbers here--like most everywhere else--do not add up.

UPDATE 1: Yes, Q3 growth in the US was just revised upwards to 3.5%, but that hardly qualifies as "sustained" after a number of lackluster quarters. Plus, you have to figure exactly what the unpredictable Trump will do once he gets the keys to the Oval Office.

UPDATE 2: Here's more on how conventional economists see labor productivity growth constraining US growth prospects.
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Semi-Detached: The Architectural Roots of Brexit

♠ Posted by Emmanuel in at 12/09/2016 03:05:00 PM
Look closely enough and you might find the roots of Brexit.
I almost forgot to post this interesting architectural analogy made in the Financial Times in the wake of the dreaded Brexit. With all sorts of thoughtful commentary of the "I knew this was going to happen all along" variety made referencing British history, this was the best of the lot. For instance, in 1534, Henry VIII famously renounced the Catholic Church and created the Church of England for the main purpose of facilitating his divorce from Catherine of Aragon. So, the 2016 Brexit was simply another move towards isolation from the continental cousins. This is your British divorce to paraphrase Steely Dan.

Even more intriguing, though, is the idea that Brexit has architectural roots. Instead of being at the center of action at all times, the British supposedly prefer a modicum of isolation from their near-neighbors--while not being entirely too far away. Proximate but not very close, in other words.
England, says historian David Starkey, enjoys a “semi-detached relationship with continental Europe”. The phrase is revealing. First, the reference is to “England”, not “Britain”. Second, the metaphor he uses is architectural. What more English archetype is there than the semi-detached house? That strange hybrid that doesn’t stand on its own — it is inseparable from its neighbour — yet somehow still embodies a dream of suburban independence.

The paradox of the conjoined semi, the Siamese twin of architecture, as a symbol simultaneously of British independence and dependence, perfectly encapsulates the contradictions at the heart of British, and more specifically English, difference. But it is only one. British dreams of domesticity are characterised by peculiarly native typologies: the semi, the bungalow, the Victorian terraced house, the chocolate-box country cottage. Why dream of a cottage when, in your fantasy world, you could just as easily have a villa?
Good question. Again, the point is that reasonably prime accommodations will require compromises among those who are not exceedingly wealthy.  In Britain, this often involves abutting the wall of one's neighbor to save on building expenses as a sacrifice--but not to the extent of regular interaction with him or her. It is a profoundly middle-class ideal. A German sent to investigate the virtues of British architecture relative to that on the continent had this to say:
What Muthesius found was an architecture perfectly suited to the particular conditions of English domestic life. This was something very different to the continental apartments that formed the housing stock of Germany and central and much of northern Europe. On the continent apartments were arranged for effect. Sequences of enfilade rooms, grand chambers and halls overlooked the (often noisy) street while mean service spaces and servants’ quarters backed on to dingy courtyards. Prestige was imparted by scale and location — not convenience. There was little privacy and rows of interconnecting rooms were impractical and inflexible.

In Britain, on the other hand, Muthesius found houses that were tailored to their inhabitants’ needs. Corridors and halls provided separation between rooms and privacy for their occupants (from each other, from servants and from children). Larger rooms accommodated dining and billiard tables, while bedrooms, studies and drawing rooms were intimate and cosy. There was space, but not an excess of it. Location appeared slightly less important to the Brits but the garden — front for separation, back for relaxation — was sacrosanct. The difference lies in what was sacrificed: the British might sacrifice a place within the streets and squares of the city centre for a leafy suburban site, whereas the continentals gave up space and greenery for a prestigious location.
When I am feeling less charitable, I attribute Brexit to racism and xenophobia. However, can it be that there are less sinister reasons for preferring this sort of living arrangement with the rest of Europe--semi-detached? 

I guess there's little point in guessing by now.
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No @#$%: China Stats are Admittedly Fictional

♠ Posted by Emmanuel in at 12/08/2016 03:47:00 PM

The incredible macroeconomic figures the PRC has released in recent decades year in and year out without fail beggar belief. Not only are they exceeding those of most other countries for extended periods of time, but they also show amazing regularity. Most of the time, they come out in line with forecasts made by PRC authorities. Now, however, we are seeing some changes behind the curtain. As the Communist leadership aims to produce more meaningful (read: more accurate) readings of its economic performance, the onus is on statistical authorities to fess up about overstated figures:
China’s top statistician has acknowledged the country’s problems with falsification of economic data, pledging severe punishment for perpetrators in a nod to widespread suspicion that official numbers often fail to reflect true economic conditions.

 “Currently, some local statistics are falsified, and fraud and deception happen from time to time, in violation of statistics laws and regulations,” Ning Jizhe, director of the National Bureau of Statistics, wrote in a column for Communist party mouthpiece the People’s Daily on Thursday.
The thing about China is that they incentivized local- and provincial-level officials to overstate their economic performance. Since their criteria for evaluation was on reporting increases in output, they did so whether they truly reflected what was actually occurring. The leadership sets targets, and the officials are forced to fudge the figures if they do not come up to the level expected. The result? Years and years of pure fabrication that statistical bodies are only trying to deal with now:
Critics of Chinese statistics have consistently argued that political interference in statistical compilation is the problem, not the solution. Communist party officials, especially at the local level, are still evaluated largely on their ability to meet or exceed economic growth targets. For many years, the sum of provincial GDP figures has far exceeded the national total [my emphasis]. The party has taken tentative steps in recent years to reduce the role of economic growth targets in evaluating cadres’ performance, but strong incentives remain.
Ultimately, de-linking the apparatchiks' performance appraisals from raw growth statistics should be the goal. In the meantime, I believe that weighing a broader base of indicators--social and environmental ones as per modern practice in other countries--makes sense. Otherwise we will simply have more and more years of remarkable if highly dubious figures
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Corporate Racket: Pretend to Leave Trump's USA

♠ Posted by Emmanuel in , at 12/04/2016 03:39:00 PM
Wave this in front of the dimwit Trump and collect lots of government money.
US President-elect Donald Trump's avowed interest in keeping American jobs Stateside--no matter how misguided they may be--are nonetheless a lucrative opportunity for companies if they play their cards right. In the run-up to the dreadful day he actually takes office, there have already been a number of instances that may set the template for what follows. First, he has (wrongly) claimed credit for keeping jobs Stateside that weren't going anywhere, anyway:
President-elect Donald Trump took to Twitter on Thursday night to say Ford Motor Co. executive chairman William Ford Jr. had called to say the company would not move production of the Lincoln MKC from its Louisville Assembly Plant to Mexico.

Ford, however, said it neither planned to close the Louisville, Ky., plant nor reduce jobs there. The company said it had considered moving Lincoln production to Mexico to increase production of the Ford Escape in Louisville. Trump criticized Ford during the campaign for its decision to move small-car production from Michigan to Mexico. Trump suggested he might impose tariffs on Ford cars assembled in Mexico.
You see, the Ford Escape and the Lincoln MKC are ear-identical sister models. Freeing up capacity in the US production facility by moving the assembly of the less-popular Lincoln MKC to Mexico would have created more opportunities at home. However, the not-so-bright Trump takes it that moving any manufacturing out of the US would be a loss. Again, this sort of simplistic zero-sum thinking is what you'd expect of him. 

Even more interesting has been the planned move by American conglomerate United Technologies  to Mexico via its Carrier air-conditioning subsidiary. In order to keep some of the jobs Stateside, the state of Indiana has forked over $7 million in subsidies:
Trump, who campaigned on promises to keep manufacturing jobs from fleeing the country, claimed credit for a deal in which Indiana state officials agreed to give United Technologies Corp $7 million worth of tax breaks to encourage the company to keep around 1,000 jobs at its Carrier unit in Indianapolis instead of hiring in Mexico.

The agreement was less than a complete victory for Trump, as the air conditioner maker will still send an estimated 1,300 jobs there. The deal does nothing to prevent other employers from shipping work out of state and has been criticized by Democrats and Republicans alike who call it corporate welfare.

Sanders, who attacked U.S. trade policy in his race against Hillary Clinton for the Democratic presidential nomination, said Trump's deal with Carrier set a "very dangerous precedent" of having taxpayers subsidize multi-billion dollar corporations to "beg them" to keep jobs in the country.
It strikes me that when life gives American manufacturing a lemon of a leader like Trump, you might as well make lemonade. Any announcement concerning sending jobs abroad will be contested on his Twitter feed. Voila! A recipe for corporate handouts on a national scale has been born:
  • STEP 1: Have existing manufacturing or other operations abroad. 
  • STEP 2: Ensure widespread media attention about an impending move so that Donald Trump or his minions like Mike Pence hear about about it. 
  • STEP 3: Wait for Trump or his team to contact you to arrange for financial compensation so that these jobs are "kept"Stateside.
  • STEP 4: Trump tweets about "keeping jobs in America" to impress the stupid while you're laughing all the way to the bank since you probably didn't intend to send jobs abroad anyway.
Trump is a joke, and most of the rest of the decent world probably agrees he's a pretty sick one as well. But hey, I guess American manufacturing firms are better off pretending that you're shipping a bazillion jobs abroad if Trump is willing to call their bluff by paying them so handsomely. 

And no, such idiocy certainly won't make America great again. Quite the opposite, in fact.

UPDATE 1: Even Sarah Palin of all people (sorta) understands this better. Can you believe it?

UPDATE 2: To use Trump's mangled language, I'm bigly unimpressed with the idea that the same sort of "pattern bargaining" not to leave America will likely go on. From his "victory speech" at the abovementioned Carrier plant in Indiana:
[W]e’re going to have a lot of phone calls made to companies when they say they’re thinking about leaving this country, because they’re not leaving this country. They’re not going to leave this country. And the workers are going to keep their jobs. And they can leave from state to state, and they can negotiate good deals with the different states, and all of that. But leaving the country is going to be very, very difficult.
I know a money-making racket for companies when I see one. It's called "Pretend to Make America Great Again by Keeping Jobs Stateside."
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From 1985 Plaza Accord to 2017 'Trump Tower Accord'?

♠ Posted by Emmanuel in , at 11/30/2016 05:29:00 PM
Like Macaulay Culkin, foreign exchange markets circa 2017 may need some direction from Trump.
Too strong a US dollar is not usually good for the rest of the world economy, but that's what we have at the moment with widespread expectations that the United States will hike interest rates faster with a "President Trump." As growth is expected to ramp up through pump priming, the dollar has strengthened accordingly. A casualty since the November 8 election result has been emerging markets--currencies, bonds, stocks...you name it. Not only do they have to deal with an increasingly more attractive US market, but there's also Trump's threat of protectionist measures against developing countries. It has not been a pretty picture in the emerging markets.

However, neither the incoming US leadership nor the developing countries currently being roiled by the strong dollar may necessarily be pleased by this state of affairs. US exports would become less competitive abroad with a strong currency. Meanwhile, the likes of China, Mexico and so on would become easier target for unfairly "manipulating" their exchange rates from the perspective of a President Trump when, in reality, it is the rampaging dollar that is more behind the current moves.

What to do? In 1985, the United States famously gathered economic bigwigs of other major American trade partners at the famous Plaza Hotel in New York to agree to coordinated interventions leading to a weaker US dollar and stronger yen, deutsche marks, francs, etc. Between then and now, Donald Trump briefly owned the Plaza--hence his cameo appearance giving directions to Macaulay Culkin in Home Alone 2: Lost in New York set in--where else--the New York Plaza.

Trump may no longer own the Plaza, but the idea of gathering foreign economic leaders to weaken the dollar once more makes sense according to Hongkongers Andrew Sheng and Xiao Geng:
The strengthening dollar and weakening yuan are shaping up as powerful crosscurrents for global growth. Their divergence could amplify tensions between the U.S. and China over a persistent trade deficit that President-elect Donald Trump has promised to shrink through tariffs and by labeling China a currency manipulator, risking a trade war between the world’s biggest economies. It’s a scenario both sides are keen to avoid.

China doesn’t want excessive yuan weakness because it would prompt companies and savers to shift money out of the country at a destabilizing pace. America doesn’t want unbridled dollar strength that would hurt exporters. While the problem could self correct if the greenback loses steam, there are also worries that it won’t.
How about the Trump Tower Accord--especially to help Asia avoid another regional financial dislocation. The US getting its external deficit under control would also be a plus:
One solution could be a "Trump Tower Accord" modeled on the 1985 Plaza Accord named after the New York hotel where it was signed. Like that pact, a new agreement would seek to put a lid on the dollar’s gains...

"A Trump Tower Accord is needed to bring some coordination into the international financial system to avoid the unnecessary negative shocks and uncertainty of uncoordinated policies," Xiao said in emailed remarks...

The risks are especially acute in Asia, home to the world’s fastest-growing economies. A weakening yuan -- it fell to an eight-year low versus the dollar last week -- will pressure regional currencies just as the Fed gears up to lift interest rates for only the second time in a decade. That combination will strain government’s international reserves and pressure companies who borrowed dollar denominated debt. 
Because such a move could worsen the trade deficit, and work against the President-elect’s stated intention to keep American jobs from migrating overseas, “it is hard to rule out” currency intervention as something a Trump treasury department might find politically expedient, Faust said.
As pointed out by the authors, the US dollar was already overvalued by 10-20% at midyear. What more now as the currency has only gained steam since then? Sometimes, the market may need a nudge to set itself right on occasion. That moment is probably now.
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Life at Samsung's Vietnam Factory After Galaxy Note 7

♠ Posted by Emmanuel in , at 11/23/2016 06:00:00 PM
No thanks to Galaxy Note 7, it won't be a very merry Christmas in these parts.
The recall of Samsung's Galaxy Note 7 worldwide for its battery catching fire has damaged any number of things including Samsung's sales and profits, Samsung's reputation (though some would say less than you think) and...Samsung's hiring of local workers at its Vietnam assembly plant[s]. Nearly a third of Samsung's assembly operations are now being handled in the lower-cost Southeast Asian destination. Obviously, hopes were high that business would pick up at year end when retail demand is highest for the Christmas season.

However, what we instead have is whiplash from the Galaxy Note 7 being discontinued due to safety concerns. Anecdotes about slowing activity are emerging from areas surrounding Samsung's factory town:
"The factory used to be so busy toward the end of the year, and the workers wouldn't come out until night," Nguyen Van Loi says as evening falls and employees shuffle out. He has been selling fruit here for six years, but his sales this month are down 30% from October.

Just over a month has passed since Samsung halted production of the Galaxy Note 7 after a number of phones' batteries caught fire. Some workers at the Bac Ninh plant, which employs some 110,000 people, have been told to stay home. Others have seen their pay fall by half owing to a loss of overtime. "My pay has gone down by 40-50%," says Nguyen Thi Kieu Anh, a 19-year-old assembly line worker. She and other workers say they have been going home three hours earlier, at 5 p.m., since production of the Note 7 ended in mid-October. 
Worse may be in store:
While the factory appears to have been spared layoffs so far, those consigned to waiting at home have had their pay reduced by 70%, employees say. New hiring to ready for the typical year-end rush also appears to have been halted. Nguyen Van Chien, who runs a nearby boarding house, said he now has 30 roomers compared with 50 last year. With his income down by a third, he is finding it hard to make ends meet, he said.
It's going to be a lonely Christmas near Vietnam's manufacturing operations. For what it's worth, though, less than a tenth of its population is Christian, so Samsung's ill-timed lump of coal may matter less.
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Korea, Japan Try to Save Their Shipping Industries

♠ Posted by Emmanuel in at 11/21/2016 04:53:00 PM
It's better to merge than to fade away: the tale of global shipping.
It is no big secret that the global shipping industry is currently encountering difficult conditions. The bankruptcy of Korean shipping giant Hanjin points out how overcapacity--too many ships have been built in expectation of rising shipping demand worldwide in recent years that didn't materialize--has dented the fortunes of this industry. Supply exceeds demand, and correcting the oversupply has not been a pleasant process for those involved. Given its crucial place in ensuring that goods manufactured in East Asia get to consumer markets elsewhere, however, the likes of Korea and Japan cannot simply let market forces play out and quite possibly result in the further diminution of their shipping capabilities.

First up is Korea, where a bankruptcy court has approved of a mid-sized carrier picking up the remaining assets of Hanjin. Especially attractive was the idea that they would lay off fewer workers:
Shipping operator Korea Line Corp. won a contest for some assets of bankrupt Hanjin Shipping Co., whose collapse in late August stranded billions of dollars in cargo at sea, disrupting supply chains world-wide. In a surprise decision, a Seoul court on Monday awarded Korea Line, a midsize bulk-shipping operator, the first right to purchase the assets of Hanjin’s Asia-U.S. route, as well as its stake in a California terminal.

A judge at the Seoul Central District Court, which is handling Hanjin’s insolvency proceedings, said it chose Korea Line over Hyundai Merchant Marine Co., which had been expected to win. Hyundai Merchant was backed by senior government officials and its main creditors, which said they would promote the company as the country’s largest oceangoing carrier.

“Korea Line proposed better terms, including higher prices,” the judge said. “It also offered to take over more Hanjin employees.”
Fears of another Hanjin are also playing out in Japan in the form of consolidation among the largest shipping lines. Instead of competing with each other for business tooth and nail and denting profit margins in the process, this merger is intended to decrease intra-national competition to the benefit of the wider Japan, Inc:
Decades of fierce rivalry between the three main Japanese ocean carriers ended with the agreement to merge their container operations that will propel the new entity into the league of the mega-lines.

In its analysis of the Japanese merger of “K” Line, MOL, and NYK Line, Alphaliner said the “J-3” will become the world’s sixth-largest container line, with the top seven lines controlling around 65 percent of the global liner capacity by 2018. The top seven are expected to widen the gap even further with the rest of the market in the coming years.

The merged pan-Japanese carrier will operate a combined fleet of some 1.37 million twenty-foot-equivalent units with a global market share of about 6.6 percent, based on Alphaliner’s assessment of the capacity operated by the three carriers as at October 31. Their joint orderbook totals 358,000 TEUs.
It will be interesting to see how shipping lines will be impacted by non-passage of the TPP enlargement and China's promotion of the rival RCEP. I'll be posting more about that shortly...
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Economic Folly: Thai Rice Subsidies Never Die

♠ Posted by Emmanuel in , at 11/19/2016 05:13:00 PM
The importance of rice production to the Thai economy cannot be overstated. In the past, I have discussed [1, 2] the current ruling junta's efforts to punish the overthrown Yingluck Shinawatra for her abuses in overpaying for rice to buy the favor of those in rural communities. Appallingly, however, the same junta is now planning to implement another rice subsidy program. This while it is busy pursuing the prosecution of Yingluck Sinawatra.

The junta's calculations are aimed at regime survival. With rice prices at multi-year lows and the recent death of longtime figurehead King Bhumipol, it needs to prop up its domestic popularity lest it be forced out of power:
Just weeks after Thailand’s military government imposed an unprecedented $1 billion fine against an ousted prime minister for her handling of an ill-fated rice subsidy program that racked up huge losses, the junta did something else extraordinary: It announced a major assistance plan of its own. The $1.5 billion effort, which helps struggling rice farmers in part by guaranteeing prices well above market rates, is ironic given its similarities to the larger subsidy program for which the junta has castigated ex-premier Yingluck Shinawatra.

But the current government may have had little choice but to act. Global prices for the grain have plummeted to their lowest in nearly a decade, severely weakening an industry crucial to Thailand’s economic well-being. Some analysts say the about-face is also intended to stave off potential unrest during the sensitive, year-long mourning period following the death last month of King Bhumibol Adulyadej, and to win over some of the politically powerful farmers who make up 40 percent of the population. The rice-growing north is a traditional stronghold of Yingluck and her allies.

The junta has begun to realize “they simply cannot ignore the plight of the farmers anymore, especially (if) they wish to be in power for the long term,” said Puangthong R. Pawakapan, an associate professor at Bangkok’s Chulalongkorn University.
That said, the junta's program is said to be less costly and therefore more economically viable:
The junta’s plan is similar to Yingluck’s in that it is offering artificially high prices for rice, dispersing large sums to farmers and encouraging them to keep the grain off market in hopes of stimulating prices. But Jitti Mongkolnchaiarunya, dean of Thammasat University’s School of Development Studies, said the latest plan is less risky because its scope is smaller, its price ceilings lower, and rice farmers — not the government — will be responsible for storage.
What can I say? It's a tragicomedy that never seems to end.
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