Trump & Sending World Trade Back to the 1930s

♠ Posted by Emmanuel in at 1/30/2017 04:43:00 PM
The infantile Trump time travels back to the Great Depression and wishes things now are the way they were then.
Sales of dystopian novels have taken off as the ramifications of US President Donald Trump--I have to re-read that every now and again out of disbelief--become clear. Having pushed through with quite frankly anti-Islamic policies to ban citizens of seven countries whose citizens have never caused a single fatality Stateside from entering the US, it's probably only a matter of time before his isolationist-protectionist policies are unleashed at a time you least expect it.

We are getting a flavor of it already with Mexico and the tweet war. The question is, when does Trump's administration begin implementing discriminatory policies against the likes of China and Mexico? Unfortunately, much power has been vested in the executive for the sensible reason that, prior to Trump, no postwar American president has tempted fate by inviting a trade war. With Trump at the controls, however, there's no telling what depths of protectionism he'll sink to and how far down he'll drag down the rest of the world.

The Sydney Morning Herald imagines the not-so-unimaginable scenario of Trump dragging the world back to the interwar years between WWI and WWII. When countries could not obtain what they needed by trade, they did by war. How far back in time Trump takes the world can be measured by the tariff levels he sets:
A retreat to protectionism would indeed mark a stark reversal of the trend of the past half-century, which has, since the signing of the General Agreement on Tariffs and Trade in 1947, been marked by countries cutting tariffs and other trade barriers. Average tariffs have fallen to about 5 per cent, down about 22 per cent in the immediate post-World War II era.

Trump's 20 per cent Mexican tariff would transport the world back 70 years. A 45 per cent China tariff would take us back almost a century to the 1930 Smoot-Hawley Tariff Act, which imposed tariffs in excess of 50 per cent. This protectionist act – named after two Republican senators and signed by a Republican president, Herbert Hoover – caused a slump in US exports as other countries retaliated and is widely accepted to have prolonged the Great Depression.
It then goes with the discretion of the president over trade matters...
Various US laws grant the President the unilateral power to impose tariffs, including the hundred-year-old 1917 Trading with the Enemy Act. What would happen then? Well, retaliation would be swift. As a member of the World Trade Organisation (the great-great-grandson of GATT), any move by the US to impose a discriminatory tariff would trigger rights for other countries to retaliate. It'd be 1930 all over again. If other countries slap tariffs on American goods, this would hurt US exports and tend to increase the US trade deficit, the very thing Trump seeks to shrink.
...before ending with the obvious point that nobody really "wins" in a trade war:
While some special interests may be protected, global consumers – Americans foremost among them – would pay more to live, while also missing out on the opportunity to be employed by genuinely productive firms, specialised in what their country is relatively best at producing, and thus with long-term prospects and the ability to pay higher wages. It would be one of the biggest deliberate campaigns to destroy wealth in modern history. We must hope President Trump keeps his finger off the trade war trigger. Only time will tell how MAD this president really is.

Fightback: Mexico's Options in a 'Post-NAFTA' Age

♠ Posted by Emmanuel in , at 1/27/2017 06:53:00 PM
It's time to get it on?
And so what was perhaps inevitable has finally broken out: Mexican President Pena Nieto's fruitless efforts to get on the good side of his American counterpart have come to an impasse. Appointing a Trump-friendly foreign minister and sending him to Washington ahead of time before a meeting between North American leaders didn't work. In recent days, Trump made an executive order concerning the construction of a US-Mexico wall and tweeted that Pena Nieto shouldn't bother coming to the White House if his country didn't intend to pay for the wall. Perhaps preserving a shred of dignity, Pena Nieto then counter-tweeted that he didn't intend to go.

OK, things are pretty bad between the US and Mexico. However, what sorts of cards does Mexico have to play against Trump implementing, say, a 20-40% tariff to help defray the costs of building a border wall? Keep in mind that Mexico sends nearly 80% of its exports to the US, while the US *only* sends less than 15% of its exports to Mexico. If trade were to cease full stop or were to be hampered in a significant way, the loser is obvious. What, then, are the cards Mexico can play?

[1] Cease security cooperation with the United States. In other words, allow sinister types to bring drugs, crime and so on to their heart's content to America. [You know, there are these things called "air transport," "digging below the fence" and "going over the wall".]
“We will bring to the table all themes,” [Pena Nieto] said in a speech. “Trade, yes, but also migration and the themes of security, including border security, terrorist threats and the traffic of illegal drugs, weapons and cash.”

His hope is that by introducing broader uncertainty about the bilateral relationship — Will Mexico still cooperate in the fight against drug trafficking? Will it stop foreign terrorists from using Mexico as a way station into the United States? — Mexico can raise the stakes enough for Mr. Trump to reconsider his “America first” approach to commerce.
[2] On the economic front, there's always [nearly] all-out economic conflict. This may actually be a sensible strategy since it's highly unlikely that the WTO would approve of the US singling out Mexico for tariffs for such blatant, unilateral trade discrimination. 
If Mexico stands its ground and even allows Nafta to dissolve, it would send its own signal to China: Resistance is not futile. And Mr. Trump’s threat to raise tariffs against Mexico to 35 percent could easily be challenged under the rules of the WThe time orld Trade Organization.

This being a political economy site, you also have to consider whether Pena Nieto can weather the further discontent that would come his way in the meantime. With a less than 15% approval rating, can he stick around waiting for things to get better eventually?

PRC Stocks: China's Own Plunge Protection Team

♠ Posted by Emmanuel in at 1/23/2017 05:02:00 PM
Waning stocks? China has its own version of this fellow.
Financial markets are not known to be an especially humorous topic given how much is at stake. More so now with so many persons' savings invested in them, panics and crashes have become anathema to the public at large and the officials who seek to curry their favor. In the United States, this dynamic has given rise to the so-called "Plunge Protection Team" that supposedly stands at the ready to buoy financial markets if they are headed south:
A colloquial name given to the Working Group on Financial Markets. The Plunge Protection Team was created to make financial and economic recommendations to various sectors of the economy in times of economic turbulence. The team consists of the Secretary of the Treasury, the Chairman of the Board of Governors of the Federal Reserve, the Chairman of the SEC and the Chairman of the Commodity Futures Trading Commission...
"Plunge Protection Team" was the nickname given to the Working Group by The Washington Post in 1997. The team was initially perceived by some to have been created solely to shore up the markets or even manipulate them. The team was created in response to the 1987 market crash.
It's quite conspiratorial in nature given the alleged involvement of so many different actors in a vast, highly fragmented market who nevertheless have supposed powers to keep these markets away from crashing. 

Nowadays, the world's greatest worries over a stock market plunge have gone to China, whose stock markets combined have the world's second-largest market capitalization. Although PRC officials like to ascribe "market status" to themselves, in the realm of equities trading at least, this claim is highly dubious. Witness current efforts to prop up Chinese stock market indices in the run-up to the 19th National Congress in H1 2017. Insofar as Xi Jinping regards tanking markets as a negative verdict on his economic stewardship, he's supposedly ordered state bodies to help prop up PRC stocks. Others also reason that he doesn't want to be embarrassed at Davos:
Volatility in Chinese shares waned amid speculated state efforts to ensure market stability during President Xi Jinping’s appearance at the World Economic Forum in Davos.

The Shanghai Composite Index added 0.1 percent at the close, with 10-day volatility at the lowest level since September. State-owned investors bought shares to steady the market on Monday, while some funds were guided on Tuesday not to sell holdings with big weightings in benchmark indexes, people familiar with the matter said, asking not to be identified because they aren’t authorized to discuss the matter publicly...

Chinese authorities have been known to intervene in markets before events of political importance, with government funds stepping in to boost share prices before a key meeting of the National People’s Congress last year and before a 2015 military parade celebrating the 70th anniversary of the World War II victory over Japan.
And there you have it: China's own plunge protection team. With such levels of market interference to prop up companies that are heavily weighted in stock indices, especially state-owned blue chips, you start to wonder where the "market" has gone in all of this.

Trump & Autos: Koreans Suck Up, Germans Don't

♠ Posted by Emmanuel in ,, at 1/18/2017 03:13:00 AM
BMW seemingly says, "Yo Trump, remember our yuuuge Spartanburg, South Carolina plant?" 
I just wanted to update you on this mildly disturbing trend of various multinational concerns actually paying attention to what the trade troglodyte Trump has to say. Invariably, his complaint will have something to do with automaker x moving production to Mexico, presumably at the expense of American jobs. I will not get into a long spiel about how global supply chains are so interconnected that most things are no longer "made" in a single country. Rather, let's focus on the misguided actions stemming from those responding to such naive (Trumpian) views.

LG and Samsung were among the Trump toadies in trying to curry favor with the president-elect. Not to be outdone, Hyundai and sister company Kia are now doing the same:
Hyundai Motor Co. and affiliate Kia Motors Corp. said they will spend $3.1 billion in the U.S. in the next five years, joining other vehicle manufacturers in announcing investment plans amid threats from President-elect Donald Trump of higher levies on auto imports from Mexico.

The planned U.S. investment by South Korea’s two largest automakers is about 50 percent more than the $2.1 billion they spent in the previous five-year period, Hyundai Motor President Chung Jin-haeng told reporters in Seoul on Tuesday. The group is considering building a new factory in the U.S. and may produce Hyundai Motor’s upscale Genesis vehicles and a U.S.-specific SUV in the country, said the executive, who also oversees the strategic planning for Kia.
What's even more curious is that this move is a pre-emptive one since they haven't been "scolded" by Trump yet:
Hyundai Motor and Kia join a growing list of automakers announcing investments in the U.S., even though they have yet to be singled out by Trump.
How about the Germans? Stung by criticism that they're putting a plant in Mexico instead of the US for carms primarily destined for the US market, BMW has struck back by pointing out the vast amount of its North American production which actually occurs Stateside:
German carmakers pushed back Donald Trump’s threats of import duties on the autos they make in Mexico, pointing to extensive production expansion in the U.S. in recent years.

BMW AG, which the president-elect singled out in an interview with German newspaper Bild on Sunday, sought to defuse potential tensions by stating that its largest factory is in South Carolina and that cars made at a planned, smaller factory in Mexico will be exported globally. Trump said BMW will face a 35 percent import duty on vehicles it exports to the U.S. from Mexico.

“We take the comments seriously, but it remains to be seen if and how the announcements will be implemented by the U.S. administration,” Matthias Wissmann, president of German auto industry association VDA, said in an e-mailed statement. The U.S. Congress will probably show “substantial resistance” against the duty proposals, he said.
It's a stereotypical German reaction to nonsense like Trump's: factual and to the point. The real question is whether the Koreans are simply bull***tting the bull***t artist by publicizing plans to ramp up US production capacity that was already on the drawing board. As before, I'd be most dismayed if they diverted investment originally bound for Mexico due to Trump's verbal emissions.

As an extenuating factor, 2016 was a really bad year all around for the Koreans and their multinational firms, so they probably are wary of starting 2017 on the wrong foot as well.

Davos Elite No Better Predicting 2017 Than Anyone Else

♠ Posted by Emmanuel in at 1/16/2017 02:35:00 PM
There's a fine line between what you want to believe in and what really happens that even Davos attendees fail to appreciate. At the start of 2016, the conventional wisdom was that neither Trump's election nor Brexit were on the cards. We know how those things turned out. The interesting question is, how much better at prediction were the creme de la creme at Davos than the rest of us mere mortals? Alas, the answer was that they were no better:
“If you bother to read some of the serious analysis of Trump’s support, you realize that it’s a very fragile thing and highly unlikely to deliver what he needs in the crucial first phase of the primaries,” said Niall Ferguson, a senior fellow at Stanford University’s Hoover Institution. “By the time we get to March-April, it’s all over,” Ferguson said at a panel last year co-hosted by Bloomberg. “I’m really looking forward to it: Trump’s humiliation. Bring it on.”

Almost as confident was Martin Sorrell, the chief executive officer of WPP Plc, who expressed surprise at Trump’s early successes. “It doesn’t matter who the Republicans put up,” he said. “Hillary will win.”
On Brexit, there seems to have been no lesser a consensus:
The year’s other big politico-seismic event, of course, was the U.K.’s decision to quit the European Union. There, too, the Davos crowd didn’t get it right. Many pundits at last year’s meeting -- Eurasia Group President Ian Bremmer, former Italian Prime Minister Mario Monti, then-French Prime Minister Manuel Valls – said Brexit was highly unlikely.

Cameron, of course, offered an optimistic view. “My aim is absolutely clear,” he said in a keynote address at the forum. “I want to secure the future of Britain in a reformed European Union.”
Yeah whatever, bub. To be fair, Trump's election and the Brexit referendum result were fairly close-run events. Trump lost the popular vote decisively even if he won the electoral vote. The vote to leave the EU won by a slender margin, too. That said, the Davos folks seem to be less confident in predicting crucial political-economic events in 2017, having been proven wrong the year before.

In short, they too are struggling to see what will happen in 2017. Or maybe they simply don't want to see further de-globalization as elites that have benefited the most from the reduction of barriers globally to movements of goods, services, capital and labor:
Beneath the veneer of optimism over the economic outlook lurks acute anxiety about an increasingly toxic political climate and a deep sense of uncertainty surrounding the U.S. presidency of Donald Trump, who will be inaugurated on the final day of the forum.

Last year, the consensus here was that Trump had no chance of being elected. His victory, less than half a year after Britain voted to leave the European Union, was a slap at the principles that elites in Davos have long held dear, from globalization and free trade to multilateralism.

Trump is the poster child for a new strain of populism that is spreading across the developed world and threatening the post-war liberal democratic order. With elections looming in the Netherlands, France, Germany, and possibly Italy, this year, the nervousness among Davos attendees is palpable.

"Regardless of how you view Trump and his positions, his election has led to a deep, deep sense of uncertainty and that will cast a long shadow over Davos," said Jean-Marie Guehenno, CEO of International Crisis Group, a conflict resolution think-tank.
Moises Naim of the Carnegie Endowment for International Peace was even more blunt: "There is a consensus that something huge is going on, global and in many respects unprecedented. But we don't know what the causes are, nor how to deal with it."
As for me, I am hoping for the best, preparing for the worst--and you should too, probably, than putting your faith in "professional" prognosticators. 

Taiwan's Tab for 21 States Still Recognizing It as "China"

♠ Posted by Emmanuel in at 1/15/2017 02:35:00 PM
Every country still recognizing Taiwan has its price--except perhaps for the Holy See.
With the possible exception of the Vatican which does not really need to be bought off--it's a comparatively affluent microstate with strong objections to communism, atheism, and PRC-arranged ordination of (fake) Catholic clergy--Taiwan has paid a price for it still being recognized as "China" by a few states. 21, to be exact. For a historical overview, the culmination of US efforts to bring the PRC in from the cold is best represented by it gaining a UN Security Council seat as "China" on October 25, 1971. Since that day, Taiwan has fought an uphill battle to maintain its recognition as the one, true China. After all, if the United Nations says it is, who are we to argue?

Donald Trump fielding a call from Taiwanese President Tsai Ing-Wen of the independence-minded Democratic Progressive Party once again brought attention to the matter. Especially after Sao Tome was lost to the mainland very reccntly, Taiwan has been acting to shore up its claim to nationhood. That is, it's difficult to claim to be a nation when fewer and fewer nations recognize you as such:
Taiwan accused São Tomé of making “excessive” financial demands and “playing both sides of the Taiwan Strait while holding out for the highest bidder”. Mr Lee insists his government will no longer “engage in money diplomacy”. Ms Tsai is due to set off for a trip to four Central American allies next month to shore up ties.
In the past both sides competed to buy the support of developing countries, leading to a notorious incident in 2006 when Taiwan lost $30m to middlemen who claimed to be able to establish ties with Papua New Guinea. Taiwan’s formal diplomatic allies have little money or power. The total population of all 21 countries is just 84m, from the African nation of Burkina Faso, with 19m, to the Pacific island nation of Tuvalu, with 11,000, and the Vatican, with just 800. 
As per the wisdom of Cyndi Lauper, money changes everything:
Ambassadors from Taiwan’s allies, many of whom are friends and live in the same apartment block adjoining their Taipei office, say they are keen to defend Taiwan in international organisations such as the United Nations. But they want more investment and development assistance to solidify the relationship.
“Taiwan needs to focus more on Central America,” says Rafael Fernando Sierra Quesada, the Honduran ambassador to Taiwan. “We don’t want cash but we need Taiwanese companies to invest and for Taiwan to help us become as prosperous in 50 years as they are now.”
Under the circumstances as a non-partisan (unlike the Vatican),  I'd have done what the non-Vatican recognizers of Taiwan have done: try to extract maximum concessions from both Taiwan and China by waving around the prize of diplomatic recognition. In a more recent article commenting more on Tsai's swing through Central America, the role of financial incentives cannot be underestimated:
President Tsai Ing-wen of Taiwan has been hopscotching across Central America this week, attending the inauguration of Nicaragua’s president, Daniel Ortega, touring Guatemala’s colonial city of Antigua and visiting the shrine of Honduras’s patron saint.

From a global perspective, it is the sort of tour that looks like a diplomatic asterisk. But there is nothing trivial about it for Ms. Tsai, who is in Central America to shore up relationships amid increasing pressure from China.

Taiwan, which China considers a breakaway province, has diplomatic relations with only 20 countries, along with the Vatican; the largest cluster of those is in Latin America and the Caribbean. These relationships, complete with embassies, trade agreements and foreign aid, strengthen Taiwan’s effective sovereignty.
Historically, the Central American countries, like others with formal ties to Taiwan, have found the arrangement favorable because Taiwan spent heavily to maintain them. But the money has sometimes ended up in the wrong hands. “Until the late 1990s, this was all about state bribery,” Mr. Alexander said.

Former President Alfonso Portillo of Guatemala admitted in United States Federal Court in 2014 that he had received $2.5 million in bribes from Taiwan between 1999 and 2002 — ostensibly intended to buy books for school libraries — in exchange for diplomatic recognition.

Before his death last year, Francisco Flores, a former president of El Salvador, was charged with channeling $10 million in donations from Taiwan for victims of a 2001 earthquake to his political party. An additional $5 million in donations also disappeared.

There is a darker side to the relationships, too, going back to the Cold War. In the 1970s, Taiwan trained Guatemalan and Salvadoran military officers involved in rights violations in brutal civil wars.
Taiwan has since ended its “checkbook diplomacy,” in a tacit acknowledgment that it could never outspend China. That has been clear in the Caribbean, where China has invested in expensive projects, sometimes in exchange for switching diplomatic recognition from Taiwan.
For all the criticism leveled against the Catholic Church, it's relatively incorruptible when it comes to recognizing Taiwan as the one, true China. With the PRC highly unlikely to permit wider religious participation organized by an external "Western imperialist" institution, a detente meaningful enough to result in the Holy See transferring recognition won't happen anytime soon.

Despite the huffing and puffing, the international situation remains the same: Taiwan and the PRC still compete in buying diplomatic recognition, no more, no less. If not through outright bribery, then it must proceed through ostensibly more legitimate means.

Jack Ma & The Legend of Alibaba's 1M US Jobs

♠ Posted by Emmanuel in , at 1/11/2017 02:39:00 PM
The guy on the right can pretend to be a huckster like the guy on the left...when it suits.
[DISCLAIMER: The blogger is an investor in Alibaba.] Well, here's another entry in this seemingly never-ending parade of international businesspersons pledging jobs Stateside for American workers. If you don't know Jack Ma, you really should. He's the Chinese founder of Alibaba, the world's largest business-to-business ["B2B"] site, bar none. It's quite an accomplishment considering that he's not American, although China is arguably better-placed as a producer nation as opposed to a consumer nation like the United States.

That said, Alibaba is seeking to extend its foothold elsewhere, including the United States. Clearly, it would make sense for more US-based firms to use Alibaba's B2B portal since it's the most extensive one worldwide. Also, Alibaba is seeking to make inroads as well into the business-to-consumer ["B2C"] markets. In the American context, it means to encroach on Amazon's turf in other words. Conversely, Ma's also been promoting its consumer platforms for US retailers seeking an Internet presence in China.

Recently, Jack Ma--worth north of $30 billion and far eclipsing Donald Trump's wealth--nevertheless went to Trump Tower to lobby for his company. By introducing lines of business to US firms and consumers, Ma suggests he will be creating a million jobs Stateside:
On Monday, Alibaba BABA, Chief Executive Jack Ma became the latest CEO to tout job creation after a 40-minute meeting with Trump in the newly-minted politician’s gold-plated tower. There’s no better music to President-elect Donald Trump’s ears than pledges from CEOs to keep jobs in the U.S. or to create new ones. Trump ran much of his campaign on ensuring U.S. jobs are kept away from foreigners and aren’t outsourced to other countries, and he’s gone through great, highly-publicized lengths to prove his election is the reason why jobs are coming to or staying in America.

However, Ma’s assertion that he’s going to create a million new jobs in the U.S. by helping small businesses sell products and services to China is a stretch. The Chinese e-commerce giant is merely upping its own investments to appeal to U.S. small businesses, providing them with incentives, such as user data and logistics capabilities, in hopes that more American brands will sell items on its e-commerce sites. The increased demand on those U.S. goods from the Chinese middle class will prompt, it hopes, increased hiring as U.S. brands expand to meet the heightened demand.
Ma beats the BS artist Trump at Trump's own game. What is Alibaba really doing for its US customers? It's essentially providing expanded data analytics: who buys what, when, where and how. Does doing so create American jobs? At the most, very indirectly. Still, it's assuredly not a waste of Jack Ma's time if he [i] stops Trump from tweeting negatively about Alibaba, [ii] helps get Alibaba off the US blacklist of counterfeiter-friendly outlets, and [iii] forestalls measures to close US cyberspace to non-American service providers like Alibaba as per Trump's protectionist leanings.

Jack Ma didn't become a multibillionaire being stupid--even if he does have to suffer a fool like Trump once in a while.  

1/13/2017 UPDATE: Amazon and its marketplaces may have been the inspiration for Ma's rather dubious US job creation math. That said, Amazon is still more modest about the jobs it estimates are attributable to it acting as an online marketplace. Amazon is actually more believable since it has other offerings like acting as a distributor of e-books and so forth:
Amazon said that its Marketplace is the “indirect” creator of 300,000 jobs for those who have started or are growing these businesses by selling on the e-commerce giant’s site. Last year, more than 100,000 sellers generated more than $100,000 each in sales, the company said.

The company attributes this same sort of job and sales creation to its Kindle Direct Publishing feature, which allows users to self-publish books, Amazon Web Services, and the Amazon Flex program, which gives people the chance to earn up to $25 per hour delivering Amazon packages.

Earlier this week Alibaba Group Holding Ltd. promised something similar: 1 million new U.S. jobs by helping small businesses. However, the number of actual full-time jobs these sorts of marketplaces create are small, MarketWatch found.

LG & Samsung's Trump Trade Appeasement Strategy

♠ Posted by Emmanuel in , at 1/09/2017 02:11:00 PM
Another University of Birmingham graduate (like myself) is rather well-known for his appeasement strategies.
The year is 2017, and instead of military conflict, the matter foremost on the minds of many is trade conflict. Rhetorically at least, the new American leader begrudges almost everything made elsewhere by foreigners (or even US-based corporations). What's a profit-oriented business concern to do? We've heard of automakers being pressured to keep or add plant capacity Stateside. Ditto for telecommunications firms.Trump is not even in office yet and these sorts of headlines just keep rolling in.

The latest case in point is the Nikkei Asian Review reporting that Korean conglomerates (chaebol) LG and Samsung are keen on building plants Stateside instead of Mexico in order to appease the angry gods...I mean, Trump:
South Korea's two largest electronics companies are considering building factories in the U.S. for the production of home appliances in view of incoming President Donald Trump's "Make in America" pledge. LG Electronics is set to announce its plan to invest in the U.S. to construct production lines for washers and refrigerators while Samsung Electronics is mulling a similar plan ahead of the real estate billionaire's inauguration on Jan. 20.
Let's start with LG. With significant manufacturing facilities south of the border meant to service the vast US market, it's said to be reconsidering future sites based on what policies Trump enacts while in office:
"We are likely to wrap up our discussions on the matter by the end of the first half of this year," said LG Vice Chairman and CEO Jo Seong-jin at a press conference at the Consumer Electronics Show in Las Vegas on Jan. 6. "We are checking ways of productions in the plants, including whether it is okay to assemble parts there."

LG's Chief Technology Officer Skott Ahn also said that his company was keeping an eye on Trump's policy. "We should pay attention to it," Ahn said in an interview with Nikkei Asian Review at the event.

South Korean media reported that LG is considering building a home appliance production line in Tennessee. The company has three production factories in Mexico -- Reynosa, Mexicali and Monterrey -- and most products from these plants are exported to the U.S. tariff-free, thanks to the North American Free Trade Agreement, or NAFTA.
Meanwhile, Samsung is said to be doing the same. Instead of appliances, it's mulling whether to locate electronics assembly operations Stateside:
Previously, he said he would levy a 35% tax on products from Mexico. As Trump pressures foreign companies to invest in the U.S., Samsung Electronics is also discussing ways to establish new plants in the country. The company declined to comment on its plans. Samsung also produces home appliances for the U.S. market in Mexico.

The Trump presidency is a headache for Samsung, which is already embroiled in a political scandal in South Korea.
It seems LG and Samsung are keeping their options open as to what policies Trump will actually enact while in office. That said, they may be miscalculating about giving indications of possibly building Stateside since Trump may call them on it should they ultimately decide to set up shop in Mexico like they've done in the past. Unlike the Japanese who've pooh-pooed Trump dumping on Toyota for planning to build a plant in Mexico, the Koreans may be more...pragmatic.

Historically speaking, however, appeasement strategies aiming to calm would-be tyrants have not been found to work.

Trump the Trade Comic: GM Small Cars in Mexico

♠ Posted by Emmanuel in , at 1/05/2017 04:17:00 PM

American nagger-in-chief Doanld Trump has made a habit of criticizing any and all American firms having manufacturing activities overseas. From his nuance-free viewpoint, all such manufacturing is a net loss for the United States, especially in terms of foreigners "stealing jobs." Although there are literally hundreds of economically sensible reasons for doing so--many of which actually benefit Americans overall--the latest Trumpian idiocy takes the cake. Let us consider the ways. Rick Newman of Yahoo Finance has the lowdown...

(1) The latest target of Trump's ire is the manufacture of a small car in Mexico that is sold in very small quantities Stateside--hardly a mass exodus of carmaking activity.
The incoming president lashed General Motors (GM) on Twitter recently for making its Chevrolet Cruze subcompact in Mexico. Whoops. The Cruze sedan—which accounts for 97.6% of all US Cruze sales—is actually built in Lordstown, Ohio. The slow-selling Cruze hatchback is built in Mexico, but annual sales of just 4,400 units are virtually negligible.
(2) Of the cars GM actually does sell a lot of Stateside--big cars to fit big Americans--almost all of the models with the most American content are made by General Motors:
While GM has three factories in Mexico, Trump may not be aware that it also builds some of the most “American” cars on US roads. In an annual “made in America” index calculated by American University’s Kogod School of Business, 9 of the 10 vehicles with the most American content are GM models, including the Buick Enclave, Chevy Corvette and Chevy Equinox. The Ford F-150 pickup is the only non-GM vehicle in the top 10. The Kogod rankings are meant to capture the value that accrues to the US economy from all aspects of automotive production, including not just manufacturing but also things like research and development and where the automaker’s profits are likely to be spent.
(3) If GM sells so few Cruzes in the US, why does it even bother making them? Actually, more of its sales are in Europe.
The Ford news overshadowed Trump’s blunder regarding the Chevy Cruze, but Trump’s confusion on that is understandable. Automobiles are complex products that typically include components from all over the world. And most automakers sell their cars in dozens of countries, which means they have to base production decisions on a multitude of factors including consumer tastes, labor and material costs, exchange rates, transportation efficiency and where a given model is likely to sell the most. Hatchbacks aren’t popular in the United States, for example, but European drivers love them, which is part of the reason GM builds the Cruze hatch in Mexico—it can export from there to Europe with no tariffs, while the same car shipped from the United States would face a 10% levy.
Given his hatred of trade deals of any kind, Trump should note that a sensible reason why the Cruze is made in Mexico is not because the United States is a large market for the model. Rather, one of its bigger markets, Europe, has an existing trade deal with Mexico allowing automobiles made there to be sold duty-free in Europe.

So Trump makes no sense on all counts:
  • it is too expensive to make small-margin budget models in the US;
  • the model in question, the Cruze, is not really saleable Stateside, so why make it there;
  • the last I checked, GM was in business to make money rather than lose it--least of all due to intervention from government that Trump professes to abhor (at least rhetorically); 
  • The US loses out as a manufacturing location if others have preferential access to key export markets like Europe which it doesn't have (the US-EU TTIP is likely dead with Trump); 
  • in the 21st century, cars are rarely "made" in a single country but typically have different; components made and activities performed where there is a comparative advantage.
Trump's Amerocentric worldview seems to have stopped evolving around 1980. While Trump is a pretty sad case of economic illiteracy, his appointees are hardly any better. More later...

First Train Bound for London Leaves Yiwu, China

♠ Posted by Emmanuel in , at 1/03/2017 02:53:00 PM
The land leg of the "One Belt, One Road" initiative keeps reaching farther.
Your initial thought might be, "That post title is a typo," but I assure you that it's not. Current Premier Xi Jinping has been championing a "One Belt, One Road" initiative to replicate the old Silk Road through which goods flowed throughout the Eurasian landmass--with China obviously playing an important role. The modern initiative seeks to not only consolidate trade with its existing partners but also create new trade linkages with frontier markets. Think of Afghanistan, Iran, etc. that China is courting favor with which haven't been as open to world trade for one reason or another.

In this sense the UK is already a "secured" market. Still, ensuring that substantial exports to the UK remain so is the objective here:
China has launched its first freight train to London over 12,000 kilometres away as part of efforts by the world's second largest economy to expand rail links to different areas across the globe to improve its dwindling exports and stabilise slowdown. The train departed from China's international commodity hub Yiwu in Zhejiang Province on Monday. It will travel for about 18 days and more than 12,000 kilometres before reaching its destination in Britain, the China Railway Corporation said.
Yiwu is known for producing small commodities, and the train mainly carried such goods, including household items, garments, cloth, bags and suitcases. It will pass through Kazakhstan, Russia, Belarus, Poland, Germany, Belgium and France before arriving in London, state-run Xinhua news agency reported.

London is the 15th city in Europe added to China-Europe freight train services. The service will improve China-Britain trade ties, strengthen connectivity with western Europe, while better serving China's Belt and Road Initiative, an infrastructure and trade network connecting Asia with Europe and Africa along ancient trade routes, the CRC said.
Distance-wise, it beats maritime shipping, and therefore shipping costs should be lower. Hence the attraction for this mode of transportation. So in a little over two weeks' time, containers leaving from the manufacturing hub of Yiwu will reach London.

Will 2016's Record PRC FDI in US Continue in 2017?

♠ Posted by Emmanuel in , at 1/02/2017 03:36:00 PM
2016 was a banner year for Chinese investment in the United States.
Unbeknownst to many amid the China-bashing engaged in by Donald Trump and others is that, actually, investment by China-based companies in the United States hit an all-time high in 2016. As is often the case, rhetoric often does not match up to reality. That is, the Chinese have actually found the US to be a good place to invest that's fairly receptive to PRC money (outside of "national security"-related sectors):
Chinese companies invested a record $45.6bn in the US in 2016 despite a presidential campaign heavy on Beijing bashing. But Donald Trump’s imminent arrival in Washington is among factors making the feat unlikely to be matched this year, according to a new report.

The surge in Chinese foreign direct investment into the US documented by Rhodium Group, a research firm, led the annual flow of corporate acquisitions to triple over 2015 levels. It also took the stock of China’s long-term investment in physical assets over $100bn for the first time, with Chinese companies now employing more than 100,000 people in the US.
Now, however, the fear is that president as opposed to candidate Trump may put a halt to further PRC investment in the United States:
That pattern has led to an imbalance. In a November study backed by the National Committee on US-China Relations and the China General Chamber of Commerce, Rhodium said US companies had invested $228bn in China since 2000. In its latest report the group said cumulative Chinese investment in the US over the same period had reached $109bn, with almost half of that coming last year alone.

The rapid increase in 2016 came despite rising political scrutiny of Chinese investment in Washington and a presidential campaign in which Mr Trump, the eventual winner, threatened a trade war with China and blamed Beijing for the loss of industrial jobs in key US states.
What's the basis for the Trump fear? He supposedly has a bevy of China-bashing advisers and prospective appointees for government posts:
But Rhodium’s analysts said the new uncertainty surrounding Mr Trump’s administration and particularly his appointment of China hawks to oversee trade policy meant Chinese companies were unlikely to repeat that level of investment in 2017.

Chinese companies are waiting for regulatory approval for acquisitions worth $21bn and have committed more than $7bn to announced greenfield projects that have not yet started construction, according to Rhodium.
As for me, I do not believe that Trump would discourage Chinese investment. I expect the opposite, in fact. To begin with, his rhetorical concern--economically insensible as it may be--revolves around US companies taking their operations and hence jobs with them abroad. What if foreign companies instead set up shop in America and hired American workers? In the past, especially during the 80s when Trump became a public figure, he's been no less critical of Japan as he is now of China. Remember though that he's now touting Softbank founder Misayoshi Son's promises to increase US-based jobs at its Sprint subsidiary:
Speaking to reporters at his Mar-a-Lago resort in Florida, Trump said telecom giant Sprint, which is owned by Tokyo-based Softbank, would take 5,000 jobs from other countries and move them to the United States. But Sprint said the effort is more complex, and nearly all of its roughly 30,000 employees already work here.
What's the difference if Chinese instead of Japanese firms want to "bring" jobs to America for Trump? I think he'd welcome those equally. There is no reason to bash Chinese firms simply for being Chinese if the objective is job creation Stateside in Trump's logic. It may be convoluted and economically suspect (Sprint is a money loser for its parent company), but hey, that's how his reasoning would pan out with regard to Chinese FDI.

We'll see; it won't be much longer now. Also see the rest of the Rhodium report which has more interesting tidbits.