Tag: FINANCE
America’s trade strategy has many risks and few upsides
AMERICA’S president claims to view China as a friend. But the friendship is going through a rocky patch, to say the least. America’s trade deficit with China, “the largest deficit in the history of our world”, is “out of control”, Donald Trump groused on March 22nd. “A tremendous intellectual-property theft situation” also irks him. And so, after laying out his concerns, he announced plans for some tough love. Litigation against China at the World Trade Organisation (WTO), investment restrictions and tariffs are all on the cards.
The announcement early in March of tariffs on steel and aluminium imports to America was chaotic, even prompting the resignation of Gary Cohn, the head of Mr Trump’s National Economic Council. The latest targeting of China, by contrast, is the culmination of months of planning and commands broader support. It was masterminded by Robert Lighthizer, the United States Trade Representative (USTR) and a seasoned trade lawyer. As a deputy USTR under Ronald Reagan…Continue reading
Asia’s small open economies may suffer in America’s trade war
CHINA is the stated adversary in Donald Trump’s incipient trade war. But 30% of the value of the goods China exports to America is added elsewhere. If the row escalates, countries entwined in Chinese supply chains will suffer.
In absolute terms, Japanese suppliers will fare worst. Japan is the country that exports most to firms in China that export onwards to America. But relative to economic size, such suppliers are a bigger part of several small, open Asian economies (see chart). Between 1% and 2% of some countries’ total output is shipped first to China and then on to America. If Chinese exports to America were to fall by 10%—an extreme but not impossible scenario—it could…Continue reading
The average American is much better off now than four decades ago
JUST how bad have the past four decades been for ordinary Americans? One much-cited figure suggests they have been pretty bad. The Census Bureau estimates that for the median household, halfway along the distribution, income has barely grown in real terms since 1979. But a recent report by the Congressional Budget Office (CBO), a non-partisan think-tank, gives a cheerier rise of 51% for median household income between 1979 and 2014. Which is nearer to reality?
The gap between the two is accounted for by three methodological differences (see chart). First, the CBO takes demography into account. This seems sensible: more Americans are living alone and American women are having fewer…Continue reading
China wants to reshape the global oil market
TRADITIONALLY, to count as an oil power a country had to be a big producer of the black stuff. China is the world’s biggest importer but still wants to break into that exclusive club. On March 26th it launched a crude futures contract in a bid to gain more clout in the global market. Some think that, if successful, the yuan could start to displace the dollar in oil trading. For now, though, that is fanciful.
A previous attempt by China to introduce oil futures, in the early 1990s, failed because of unstable pricing. This time regulators prepared methodically. To ward off speculators, notorious in Chinese markets, they made the storage of oil very expensive. Volumes were light in the first few days of trading—less than a tenth of the averages for similar contracts in New York and London. But all went smoothly. It was a good, if modest, start.
China has two goals. The basic one is to help its companies hedge against volatility. Chinese refiners and traders have struggled to…Continue reading
India’s economy is back on track. Can it pick up speed?
IT IS easy to be awed by the Indian railway network. The 23m passengers it carries daily travel, in total, over ten times the distance to the sun and back. It is just as easy to find it unimpressive. Delays are frequent and trains antiquated. It takes 14 hours to get from India’s capital, Delhi, to its commercial hub, Mumbai. The equivalent trip in China—from Beijing to Shanghai, a similar distance—takes just over four hours.
Similarly, India’s economy can be seen in two lights. Its long-term growth rate of 7% a year has proved far more dependable than the rail timetable. GDP has doubled twice in the past two decades. Yet deep poverty still lingers and jobs are scarce. And Indian growth has been left in the dust by the Chinese express (see chart).
After slow running for much of 2017, India is now near to full throttle. Growth of 7.2% in the three months to December put it ahead of China (which grew at a relatively leisurely 6.8%) and…Continue reading
Insurers and undertakers profit as people prepay their last bill
“WHEN are you thinking of dying?” asks John Cleese, a British comedian, in a recent television ad. Dressed as the Grim Reaper, he addresses the viewer as he prepares a cup of tea. “Your loved ones could be left all alone and distressed and facing a whacking great bill,” he warns. His advice? Phone in and buy a funeral plan.
As populations age, ads of this sort, imploring people to make financial preparations for their demise, are appearing on both sides of the Atlantic. Some 1.3m Britons now have a pre-paid funeral plan, up from just over 400,000 in 2005. An estimated 2.5m more have a funeral-insurance policy. Millions of Americans prepay some or all of their funeral costs.
The average American funeral now costs nearly $9,000, according to the National Funeral Directors Association (NFDA). In Britain prices have risen by 5.5% on average each year over the past decade, faster than inflation. Add to that stories in the press of…Continue reading
More market volatility seems likely
“FASTEN your seat belts. It’s going to be a bumpy night.” Those famous lines of Bette Davis in “All About Eve” may turn out to be the motto for the markets in 2018. After the “volatility vortex” in February, sparked by concerns about inflation, markets have thrown a “tariff tantrum” after President Donald Trump sparked fears of a trade war with China.
In February stocks sank on heavy hints of American levies on imported steel and aluminium. The prospect of trade measures against China, signalled on March 22nd, again hit shares. Then reports that China and America were making progress in trade talks caused the S&P 500 index to rise by 2.7% on March 26th, its best day since August 2015. It promptly fell again by 1.7% the next day (see chart).
Further volatility seems likely, not least after the appointment of John Bolton, an ultra-hawk on foreign policy, as Mr Trump’s national security adviser. That raises the possibility of increased tension with North Korea, despite the…Continue reading
Why tariffs on steel and aluminium are easier said than done
HISTORY will rhyme on March 23rd, when Donald Trump’s tariffs on steel and aluminium imports are due to come into force. Several previous presidents, from Ronald Reagan to Barack Obama, also used tariffs in an attempt to protect America’s steel producers from foreign competition. (There are historical echoes, too, in Mr Trump’s plans to slap tariffs on a range of Chinese imports; in the 1980s Japan was the target.) A rhyme is not a repeat. But past experience is not encouraging.
The central problem for America’s policymakers is that trade is like water. Block its flow in one place and pressure builds elsewhere. When many countries are covered by tariffs, trade may simply be diverted through those countries that are let off the hook. Importers will howl for exemptions. As a result, whatever the Trump administration’s broader ambitions with respect to trade, bellicose unilateralism will make them harder to achieve.
In 1982 America browbeat the European Community, the forerunner of the European Union, into limiting its steel exports…Continue reading
Europeans fret that Chinese investment is a security risk
“WE ARE not naive free traders. Europe must always defend its strategic interests,” said Jean-Claude Juncker, the president of the European Commission, last year as he introduced plans to screen foreign investment into the European Union. America has had such rules since the 1970s; they are set to tighten further. The EU used to be more relaxed about acquisitions by foreigners. Now it too is toughening up.
The target is China, whose firms have been on a shopping spree (see chart). Purchases of fripperies such as football clubs and hotels have been curbed by the Chinese authorities, but investment continues to flow into technology and infrastructure, notes James Zhan of the UN…Continue reading
The EU wants to make finance more environmentally friendly
TO GAUGE an issue’s importance, a guest list is a good place to start. The one for a conference in Brussels on March 22nd to discuss the European Union’s “action plan” on sustainable finance features heavy-hitters including Emmanuel Macron, France’s president, and Michael Bloomberg, a former mayor of New York who campaigns on climate change. Given that sustainable finance is well-established, what action does the EU think is needed?
Investing with an eye to environmental or social issues, not just financial returns, has become mainstream in the past decade. According to the Global Sustainable Investment Alliance (GSIA), $23trn, or 26% of all assets under management in 2016, were in “socially responsible investments” that take account of environmental, social and governance (ESG) issues. New asset classes have sprung up. According to SEB, a Swedish bank, the issuance of green bonds, the proceeds of which are invested in environmental projects, reached $163bn in 2017, up from less than $500m in 2008.
Yet standards are a…Continue reading