Trade War Winners: Logistics Firms Helping Flee PRC

♠ Posted by Emmanuel in ,, at 7/31/2018 03:46:00 PM
Deserting PRC factories in the trade war era? Asian logistics companies are here to help...for a nominal fee.
With assorted China-made, US-bound manufactures being hit with 25% tariffs, some firms have responded by moving their factories out of the PRC to elsewhere in Asia. From an efficiency standpoint, I am ambivalent about this phenomenon. On one hand, there may be some wastage in leaving already-established production facilities--especially if the end result is resettling elsewhere where it's not necessarily more efficient simply to avoid the aforementioned tariffs. (Yes, that's trade diversion.) On the other hand, the move may hasten the inevitable. That is, mainland China is no longer the lowest-cost production location for labor-intensive goods, so Trump's tariffs could simply be the last straw in forcing a (sensible) decision to move.

Regardless, there is a clear beneficiary of all this movement of production facilities out of China: Asian logistics firms. Hong Kong's South China Morning Post cites Kerry Logistics, owned by Malaysian billionaire Robert Kuok:
Kerry Logistics Network, a Hong Kong-listed firm owned by Robert Kuok, Malaysia’s wealthiest man, has become a beneficiary of the ongoing trade war between the world’s two largest economies, as customers shift part of their production lines from mainland China to such destinations as northern Malaysia’s Penang to skirt US tariffs.

“Our clients have been shifting part of their production lines as early as March from China to other Asian countries where they already have manufacturing plants,” said the logistics company’s managing director, William Ma Wing-kai.

The Sino-US trade war has been forcing Kerry’s clients to shift their production towards the members of the Association of Southeast Asian Nations (Asean), or to ship finished goods to the Americas to avoid the increased tariffs. Either way would increase shipping volumes, Ma said. “This is a reallocation of global production bases,” Ma said during an interview with the South China Morning Post.
The net beneficiary of all this movement, geography-wise, could be lower-cost, investor-friendly Southeast Asian destinations:
The ongoing shift of production bases will lead to trade growth in Malaysia, Vietnam, Myanmar and Laos starting in the second half of this year, Ma said, a trend that will last for many years to come. “Our business in China may be affected a bit, but business in Asia is rising,” he said.

Asininity is Believing the *EU* Will Buy More US LNG

♠ Posted by Emmanuel in ,, at 7/29/2018 05:00:00 PM
Actually, European countries are not among the most profitable destinations for American LNG.
Ho-hum, here we go again. After the supposedly triumphal meeting between Trump and EU Commission President Jean-Claude Juncker, The Orange One loudly exclaimed that Europeans would buy lots more natural gas in the form of liquefied natural gas (LNG). Recall that LNG is the product of, well, liquefying natural gas for the purposes of transporting it over long distances--usually overseas--when pipelines are physically or economically unfeasible to build.

That said, there are additional costs incurred by both sellers and buyers in handling gas-to-liquid and liquid-to-gas conversions, respectively. Therein lies the rub this time: given current efficiencies, it doesn't make much economic sense for Europeans to buy American LNG. Let's begin with the (sadly) expected Trumpian hyperbole:
President Donald Trump’s plan for “vast amounts” of U.S. liquefied natural gas (LNG) to be sold to the European Union after trade talks with its top representative faces a reality test...“European Union representatives told me that they would start buying soybeans from our great farmers immediately. Also, they will be buying vast amounts of LNG!,” Trump wrote in a Tweet.
But alas, such is not the case. Given the greater distances involved, European destinations are not quite economically viable for trade in LNG. Locations near Western Europe cost lower given advantages of geographic proximity and a cheaper way of transporting natural gas--through pipelines that do not require conversion of gas into liquid form and back again; e.g., Trump's favorite Russian pipelines:
It appeared that a major LNG deal between the trading partners had been struck. 

In reality, three-quarters of Europe’s existing import facilities lie empty while demand for U.S. LNG on the continent remains limited. The most lucrative markets for U.S. LNG are in South and Central America, India and the Far East, with Europe near the bottom of the pile given its relatively low prices and ample supplies of gas via pipelines from Russia and Norway.
We come around to the same issue concerning the similar Trump-Juncker "agreement" with soybeans discussed in an earlier post. The last time I checked, the European Union was composed of 28 (soon 27) sovereign nations that don't take orders on where to buy energy from, least of all the European Commission. Short of EC subsidies, market access to American LNG is already as good as it gets since tariffs on LNG are essentially zero:
“Will U.S. LNG reach Europe? Yes, but only if there is an arbitrage opportunity that makes sense,” he said. Politicians have little sway over this. The EU applies zero tariffs on U.S. LNG imports, so cutting them is not an option to boost trade in any future U.S.-EU talks.
The EU-28 are not command economies like China where you can rely on an apparatchik to make state-owned firms buy US LNG if agreed to. So, even European gas projects in America may find it more economically feasible to sell to nearby markets given the aforementioned costs that increase with distance:
A number of European companies have already announced plans to buy LNG from a new wave of planned U.S. projects. Portugal’s Galp, Italy’s Edison, Britain’s BP and Royal Dutch Shell are all lining up to lift LNG from Venture Global’s planned Calcasieu Pass project in Louisiana. But supply from these and other projects will not be ready for years and even then there is no guarantee it will come to Europe in meaningful quantities if more lucrative markets, such as China, emerge.
There. Another day, another Trumpian verbal vomit cleaned up. 

Idiocy is Believing the *EU* Will Buy More US Soy

♠ Posted by Emmanuel in ,, at 7/26/2018 06:50:00 PM
Don't count on so-called Trump "friend" Jean-Claude Juncker to somehow get the EU to buy boatloads of American soy.
The stock market is not very smart: Late yesterday when it was announced that the US and EU had arrived at a temporary "ceasefire" on slapping additional tariffs on each other as they negotiate some nebulous trade deal--I hesitate from calling it an agreement--US stock markets rallied. However, there is significantly less than meets the eye here. Consider that most sensitive and vulnerable of products, the humble soybean.

Actually, there are no tariffs being applied to the foodstuff already, hence there is no way of securing additional EU market access or purchases short of subsidizing them. Moreover, the EU isn't China where one guy from the Communist Party can order his minions to buy as much soy as necessary to appease Trump if the Reds felt like doing so. Last I checked, it was made up of 28 (soon-to-be 27) independent countries. Anyway....
But a mere handshake agreement to send more soybeans across the Atlantic won't make up for a reduction in exports across the Pacific.

For starters, that's because the European Commission doesn't actually have authority over how many soybeans Europe imports. It doesn't procure soybeans for European markets and it doesn't tell European businesses where to buy their soybeans.

Of course, there are other ways that governments can encourage businesses within their borders to purchase materials from certain sources. Lowering trade barriers is one way to do it. If the Trump-Juncker agreement would lower European tariffs on American-grown soybeans, for example, that might do the trick of getting Europe to buy more American beans.

Except, well, the European Commission currently doesn't charge any tariffs on American soybeans. Which means European businesses already have access to all the American soybeans they would want. It's hard to see how—short of subsidizing demand across the pond—Juncker will follow through with his promise to have Europe buy more soybeans.
That brings me to another point unmentioned in the Reason blog post excerpted above: Most of the soybeans planted in the United States are genetically modified (GM). Think something on the order of 93%. While the US has been wanting to crack open the EU market for GM soy for the longest time, the EU has always been reluctant about doing so. Not only do they plant far less of the stuff--negligible quantities, really--European consumers generally disdain GM unlike the vast majority of indifferent American consumers. This case has been a long-running saga at the WTO. And because European consumers dislike GM foodstuffs, it's unsurprising EU regulations are quite stringent on their importation (e.g., labeling that these are indeed GM):
But soybeans intended for Chinese markets can’t necessarily be redirected to the European Union, which has stringent regulations on genetically modified foods.

According to a senior E.U. official, there have been no discussions about lifting those standards to purchase U.S. soybeans. The same official said that agricultural products were outside the talks between Juncker and Trump, directly contradicting comments from Commerce Secretary Wilbur Ross, who said Tuesday that “all agricultural products are something that will be discussed.”
It is thus highly unlikely that all these GM soybeans meant for the Chinese market will now find a place in GM-hating Europe. It may be good for show when Trump glad-handed European Commission President Jean-Claude Juncker, but it's really hard to see how the EU becomes a replacement for lost sales to China when (a) it already can buy as much American soy as it needs tariff-free and (b) GM foods like soy are shunned by consumers in Europe.

A Canadian Patriot's Guide to Boycotting America

♠ Posted by Emmanuel in at 7/24/2018 04:55:00 PM
I suppose those WWII-era posters still resonate during a trade war 73 years later.
You must be a real @#%hole to annoy the normally placid and reserved Canadians. However, Trump has apparently accomplished this feat by slapping tariffs on softwood lumber used for building homes as well as steel and aluminum. The equally mild-mannered Justin Trudeau has even been reserved "a special place in hell" by Trump's ultra-protectionist trade advisor, Peter "Death by China" Navarro. What's next, Death by Canada (when it doesn't even have a trade deficit with the "US)?

At any rate, bemusement over US hostility over some imagined slight has turned to real anger among Canadians, who are not usually prone to jingoism like their cousins to the South. Voila! We now have a patriot's guide to Making Canada Great Again by boycotting all things US-made in favor of locally-made goods.

Below are some of my favorites. Whiskey, anyone?
The Trudeau government has also chosen to tariff American-made whisky. This includes bourbon from Kentucky, the home state of Republican Senate Majority Leader Mitch McConnell. But fear not, for Canada has a rich history as a whisky maker since the rum-running days of the Prohibition era. Put down the Jim Beam and try J.P. Wiser’s Deluxe, a rye distilled in Windsor, Ont. The brand is owned by Corby Spirit and Wine, a Canadian firm listed on the TSX. And don’t forget Crown Royal Northern Harvest Rye. The distiller might be owned by a British multinational, but the whisky’s made in Gimli, Man., and was named 2015’s best whisky in the world.
Maybe you need your daily dose of orange juice? Fear not as tariffs have made American multinationals source more of the stuff locally:
The tariffs also affect Florida, known for being an orange juice producer and a volatile swing state. But with Minute Maid manufactured in Peterborough, Ont., you can get your OJ domestically and stick it to the sunshine state. Expect to see more products coming from the Peterborough beverage plant—its owner, the definitively American Coca-Cola Company, just announced an $85-million investment in the facility.
Dumping US purchases of toilet paper? There's a lot of that stuff made in Canada, anyway:
It’s another tariff targeted at Pennsylvania. Kimberly-Clark operates a paper mill in Chester, Pa., producing Scott toilet paper. Charmin toilet paper also comes from the Keystone state, as Procter & Gamble has a plant in the town of Mehoopany. Thankfully, these aren’t your only options. Cascades, a Quebec-based tissue paper manufacturer, has several plants in La Belle Province as well as in the Greater Toronto Area. In addition, Kruger Products has plants in Quebec, B.C. and Ontario that manufacture Purex, Scotties and Cashmere.
What Trump forgets is that there are plenty of locally-sourced goods in the countries he slaps tariffs on to retaliate with by buying domestically.   

Tariff-Loving Whirlpool Suffers From...Tariffs

♠ Posted by Emmanuel in , at 7/24/2018 04:36:00 PM
Whirlpool's tariff-loving geniuses are now having a hard time dealing with, er, tariffs draining away their profits.
Just today, the uber-protectionist Trump tweeted about his enduring love for taxes on imported goods. Which, of course, is a rather contradictory thing to do for someone purportedly wishing to minimize government intrusion on people's lives. That's not to say he had his supporters. Take the case of Whirlpool. Apparently unable to compete with foreign appliances, it successfully petitioned the government to hit imported washing with tariffs.

I suppose this story would be happier for Whirlpool had the Trump administration stopped there. However, it also hit imported steel with stiff 25% tariffs (and another 10% on aluminum). Apparently, Whirlpool didn't prepare for those tariffs on raw materials since it's now taking a large financial hit largely due to its increased manufacturing costs:
"Tariffs are the greatest!" President Donald Trump said on Twitter Tuesday morning. Whirlpool used to agree. In January, when Trump announced tariffs on imported washing machines, CEO Marc Bitzer told analysts, "This is, without any doubt, a positive catalyst for Whirlpool."

But the Trump administration didn't stop there. It imposed tariffs on steel and aluminum, sending raw material prices skyrocketing. Steel prices in the United States are 60% higher than the rest of the world, Bitzer told analysts on Tuesday. That has raised costs for Whirlpool by $350 million and squeezed its profit margins. Now Whirlpool is backtracking on its protectionist cheerleading. he company on Monday slashed its profit outlook for 2018 in part due to a "very challenging cost environment."

Whirlpool's (WHR) stock tanked 12% on Tuesday after it missed Wall Street's expectations. "The global steel costs have risen substantially, and in particular, in the US, they have reached unexplainable levels," Bitzer told analysts. "Uncertainty" around additional tariffs and global trade had disrupted Whirlpool's supply chain, he said.
Good job, Whirlpool. This episode perfectly illustrates the dangers with initiating trade war: where do they stop? One you go down that slippery slope, there's no telling how they will affect other business operations since you cannot expect Trump and his minions to do your bidding perfectly. It does serve them right, but American consumers would probably wish they'd never started down this road in the first place--especially those in the market for new washer/dryers.

All hail Trump and his "greatest" tariffs!

Trump’s New Anti-Immigrant Assault: Denaturalization

♠ Posted by Emmanuel in , at 7/18/2018 05:19:00 PM
If Trump had his way...[insert Pink Floyd lyrics of choice here].
I am simply astounded that a person purportedly engaged in the hospitality industry is the most incredibly inhospitable and, well, misanthropic person imaginable. How would foreign would-be patrons of Trump's businesses respond to blatantly discriminatory rhetoric and policies against any and all unfortunate enough to be of the *wrong* color or creed? Are there enough white Christians to staff and patronize Trump-owned and -licensed properties? The hypocrite's enterprises apparently don't believe so as they keep trying to hire foreigners, arguing there aren't enough natives to get the job done [1, 2].

Well, no matter: If it doesn't affect him or his enterprises, anything goes. UT Austin Prof. Ruth Allen Wassem warns that Muslim bans and family separations apparently aren't enough punishment for being foreigners and/or coloreds. Now, Trump will attempt to denaturalize recent US citizens. By finding technical violations before they were naturalized, they will be stripped of their American citizenship:
A few weeks ago, U.S. Citizenship and Immigration Services (USCIS) Director L. Francis Cissna told The Associated Press that his agency is hiring dozens of attorneys to form a task force to review the records of people who have become U.S. citizens since 1990, in order to identify people who deliberately lied on their citizenship applications. “We finally have a process in place to get to the bottom of all these bad cases and start denaturalizing people who should not have been naturalized in the first place,” Cissna told the AP.
The really galling things is that the bar is quite high to accumulate evidence sufficient for denaturalization. So, instead of using resources for more pressing matters, they're being used for an outright racist agenda despite the likelihood of limited "returns":
USCIS is going beyond the OIG’s recommended investigation of individuals identified in its report. It is unclear if the task force will again review all 17 million naturalization petitions approved from 1990 to 2016 (beyond those the OIG identified in its review), but he predicted that several thousand cases likely will be referred for denaturalization. Rather than requesting money for this task force, USCIS will reallocate funds from immigration application fee account, which is likely to slow the processing time for legitimate immigration and naturalization petitions.
The impression made is this: just as immigrants are less human in this administration's eyes, so are recently naturalized Americans (or so-called Americans from their perspective):
By going above and beyond the OIG report, the Trump administration is sending a clear signal to all naturalized citizens: They are under review and vulnerable. I have encountered citizens who fear that their use of a fake ID years ago may prompt denaturalization proceedings. This initiative fits into the Trump administration paradigm that views immigrants as criminals. Most disturbing, this initiative has a chilling effect on civic engagement.

France & Belgium: Football's Cases for Migration?

♠ Posted by Emmanuel in ,, at 7/15/2018 06:37:00 PM
Why can't the non-footballing talents of Belgium and France be spotted and nurtured too? That is the question.
Apologies for the light posting over the past few days. Like most of you probably, I've been following the World Cup rather too closely to have time to post. However, with the tournament over as I write--France has won and Belgium finished third--there is actually an IPE angle here. (Even fourth-place UK deserves mention here.)  Bloomberg op-ed writer Leonid Bershidsky penned an interesting commentary from a few days back asking whether immigration's case is bolstered by multicultural French and Belgian teams. Indeed, these teams are more diverse than the general populations of these nations:
France’s starting lineup in Tuesday’s semifinal against Belgium contained five players born overseas or to immigrant parents: Cameroonian-born Samuel Umtiti; N’Golo Kante, whose parents came from Mali; son of Guinean parents Paul Pogba; Kylian Mbappe, whose father is Cameroonian and mother Algerian; and Blaise Matuidi, son of an Angolan father and a Congolese mother. That’s 45 percent of the starting 11. Non-European Union immigrants and their children make up only 13.5 percent of France’s population, according to Eurostat.

Belgium’s starting 11 also had five players of immigrant background: Nacer Chadli, who started out playing for the Moroccan national team before he switched to Belgium; Marouane Fellaini, whose parents are also Moroccan; Vincent Kompany and Romelu Lukaku, whose fathers are Congolese; and Mousa Dembele, whose father is from Mali. Belgium’s population of first- and second-generation non-EU immigrants is 12 percent.
There is a meritocratic nature to footballing that you don't necessarily find in other walks of life in these nations:
In soccer, the son of a banker and a lawyer (that’s the background of French goalkeeper Hugo Lloris) is on an equal footing with someone like Lukaku, whose family couldn’t pay its electricity bills for weeks at a time and whose mother had to water down his milk to make it last longer. Or like Sterling, whose mother cleaned hotel rooms to put herself through school.
Therein lies the rub: Unlike their footballing counterparts, migrants haven't done as spectacularly well as these footballing stars without as established infrastructure for spotting and developing talent:
The odds are stacked against kids with the same background as the world-class soccer players in a number of important ways. Statistics show a higher percentage of second-generation immigrants than native-born people go to college in France and the U.K. (though not in Belgium) — but, according to a 2017 report from the Organization of Economic Cooperation and Development, an overwhelming majority of young people with low educational attainment in all three countries are second-generation, non-EU immigrants.
Then again, why is it not the case that similar mechanisms for spotting and developing talent are not available in other endeavors?
There’s a lesson in this for the rest of society. Soccer’s support networks for talented kids can and should be replicated in other areas of endeavor. Some of the boys and girls growing up in no-hope areas today could be the Mbappes and Lukakus of tech, finance or the arts. The national teams, multicolored as they are, exist to remind governments, businesses and educational institutions that they just need to look harder.

So football does provide an example in how migrants can achieve outstanding success. However, the real challenge from a societal perspective is to make similar means for advancement available for other migrants and their offspring who are not as blessed with sporting skills. That would seal the case for migration.
Let's be timely here: Although the Ugly American Donald Trump did his best to insult the Europeans for welcoming migrants, I would venture these nations would much rather have their first- or second-generation footballing talents for company instead of the US-based racist-in-chief. Why not make migrants' contributions as evident in other areas to shut up people like him for good? If it can be done in football...

Does Trade War Slow PRC Global Ambitions?

♠ Posted by Emmanuel in ,, at 7/05/2018 08:39:00 PM
How much should Indonesia and others the Chinese are providing infrastructure to fear its ambitions in this trade war era?
Here's a thoughtful rejoinder to a previous post in which it was opined that the Chinese are lending to various infrastructure projects worldwide--with less regard to their borrowers' financial conditions or the viability of these projects--for as long as the PRC can ultimately benefit. So what if the borrowers can't repay? They might be able to obtain prime infrastructure on favorable terms in strategic locations when the fools default.

Or, is that cynical viewpoint not really how the Chinese go about things? Certainly they'd want to rebut such characterizations. Apropos for the times we find ourselves in, the eve of global trade war--US tariffs kick in on $34B worth of Chinese goods on Friday, July 6--may mean the Chinese need to scale back grand ambitions. Delusions of grandeur forestalled and all that...
The value of the deals that Chinese companies are striking under the country’s big global plan — called the Belt and Road Initiative — is smaller than a year ago, according to new data. Chinese officials themselves are sounding a cautious note, voicing worries that Chinese institutions need to be careful how much they lend under the program — and make sure their international borrowers can pay it back.

“Current international conditions are very uncertain, with lots of economic risks and large fluctuations for interest rates in newly emerged markets,” said Hu Xiaolian, the chairwoman of the Export-Import Bank of China, a state-controlled lender that plays a big role in financing the projects, at a forum this month in Shanghai. “Our enterprises and Belt and Road Initiative countries will face financing difficulties.”

China has begun a broad, interagency review of how many deals have already been done, on what financial terms and with which countries, say people close to Chinese economic policymaking, who asked to speak on the condition of anonymity because the effort has not been made public.
The gist of the argument here contains the following: (a) foreign expansionism may be curbed by difficulties at home brought on by Trump's global trade war; and (b) foreign partners do not have infinite patience with being exploited for China's gain:
Under the initiative, Chinese government-controlled lenders offer big chunks of money — usually through loans or financial guarantees — to other countries to build big infrastructure projects like highways, rail lines and power plants. That money often comes with the requirement that Chinese companies be heavily involved in the planning and construction, throwing them a lot of business.

But even with its financial firepower, China has its limits. Its economy is showing signs of slowing, and it is in the middle of a trade war with the United States. Beijing is struggling to tame domestic debt problems — problems an international lending spree certainly hasn’t helped. Too much overseas activity risks creating wasteful white elephants that can drag down Chinese companies and local partners alike.
Which version of events is correct, of the PRC as the new imperialists or that of co-suffering developing countries on the eve of trade war? As with most things, reality probably lies somewhere in between. However, I veer more toward the version described above in that the PRC needs to maintain the trust of other countries as it seeks to build up its international relations, and failed projects cannot always be redeemed by the Chinese if their foreign partners fold.