How to *Really* Fix Massive US Trade Deficits

♠ Posted by Emmanuel in at 10/16/2017 04:58:00 PM
And the award for best trade villain goes to...
Trumpian idiocy is endangering perfectly good trade deals with Mexico and Canada [NAFTA] as well as with South Korea [KORUS FTA]. The anti-heroes here are two economic illiterates, the vulgarian ignoramus Donald Trump and his Reagan-era trade "enforcer" Robert Lighthizer. To them, the reason for massive US trade deficits is so easy to understand: other countries taking unfair advantage of "gullible" US leaders. For them, the golden age of America--when its manufacturing was strong--is just some kind of protectionist policy away:
For the administration, the core belief is that the trade deficit has caused widespread manufacturing job losses in the US and stagnant wages, which would be reversed by closing the deficit. The administration has set reducing the $64bn annual goods trade deficit with Mexico in particular as the main goal of the renegotiation of the North American Free Trade Agreement now under way. Mr Lighthizer, similarly, is pointing to a persistent bilateral trade deficit with South Korea as he seeks to renegotiate an agreement with Seoul that took effect in 2012. 
Economists possessing any intelligence, however, understand that massive US external deficits are more the products of the US dollar's unique position in the international monetary system and America's lack of savings. Once more, the US current account balance reflects a shortfall of savings relative to investment caused especially by government dissavings (expenditures far exceed income) and low household savings. In a highly integrated world economy, American firms which have become intertwined in global productions chains also stand to lose if Trump gets his way in walling off the US from international trade:
Anne Krueger, who served as the top US official at the IMF and as the World Bank’s chief economist, argues that the dollar’s status as the world’s reserve currency bears more responsibility for the current account deficit than any trade agreement. Also to blame, she says, are the US’s low savings rate and its persistent government budget deficits. The situation is made more complicated by the globalisation of supply chains, which has helped drive down the cost of complicated manufactured goods such as cars.

More than half of US imports are either parts or raw materials, making them crucial to exports. That means cracking down on imports — such as those of steel or auto parts — can hurt US manufacturers and exporters further up the value chain. “If we cut off our deficit with Mexico by cutting off imports of auto parts, then we’re going to be cutting off our own exports,” Ms Krueger says.
This "low savings" argument is well-known and is continually repeated by Stephen Roach. Krueger adds color to this argument by reiterating that, instead of blowing up the US budget deficit further with massive, unfunded tax cuts, Trump should aim to belt-tighten the government purse or--good heavens--raise taxes to narrow the external deficit:
If the trade deficit is the Trump administration’s primary concern, the better option, she argues, would be for Mr Trump and his administration to do the opposite of what they are planning to do and focus on incentives for consumers to save or to improve the US fiscal position — either by raising taxes, cutting spending or a combination of the two. Instead, the administration last week unveiled a plan for tax cuts that most economists expect to weaken the US fiscal position.

The frustrating reality for economists like Ms Krueger has long been that the politics of trade usually run counter to what they see as the obvious economic truths. But Mr Trump may be confronting a new lesson on the link between politics and economics. Nine months into his presidency his attempts to rewrite the rules of global commerce have done more to increase the US trade deficit than to cut it. And for that there may well be a political price.
It's the simplest of single-equation economics. Some people just don't get it...and probably never will.

Mexico, Screw Trump: Only Congress Undoes NAFTA

♠ Posted by Emmanuel in ,, at 10/11/2017 06:41:00 PM
Mexico should put Trump and his protectionista Lighthizer in their place by getting the US congress to stop this idiocy.
I make no bones that I am far more sympathetic to Mexico than Trump's USA at the ongoing North American Free Trade Agreement (NAFTA) "renegotiations." What US Trade Representative Robert Lighthizer is attempting to do is actually beggar-thy-neighbor masquerading as an "update" of NAFTA. Let's not mince words here: No self-respecting nation would agree to such one-sided stipulations--especially to replace ones that aren't so lopsided.

Among other things on the American negotiators' wish list:
  • A US proposal to protect its seasonal produce;
  • A sunset clause floated by the US that would kill NAFTA after five years unless the three parties renegotiated;
  • US insistence on using the pact to cut its $64.3bn trade deficit with Mexico;
  • US desire to see higher US [50%!] and North American content [85% from 60%], so-called rules of origin, in car parts
  • Also, a 5-year "sunset clause" if an extension is not successfully renegotiated
The last three are especially egregious for what is ostensibly a "free trade" agreement: Isn't the market supposed to determine where things are made by whom to sell to others? Moreover, why should a regional trade agreement have stipulations for minimum content from one country and not the others instead of having just regional rules of origin? Maybe they should rename it the NA4USAFTA if the Mexicans and Canadians are dumb enough to agree to such unfair giveaways. The sunset clause makes no sense to the others since it's only meant to facilitate piling on more stipulations favorable largely or solely to the US.

In short, the US wants the others to swallow "poison pills" that are thoroughly unpalatable for its benefit--the very definition of mercantilism. What, then, should Mexico do? I've written about the options it can use before, but also consider who will make the ultimate decision on behalf of the United States to leave NAFTA. That's right, it's not Trump but Congress according to international trade law specialist Joel Trachtman:
Many members of Congress work under the fundamental misunderstanding that the president has the power, on his own, to terminate NAFTA. They are unaware that under the Commerce Clause of the Constitution, while the president is the negotiator and signer of trade agreements, he is not the “decider.” Power to approve, and to terminate U.S. participation in, trade agreements is assigned to Congress[...]

And yet, the Supreme Court has said, in the 1994 case of Barclays v. California, that “the Constitution expressly grants Congress, not the president, the power to “regulate commerce with foreign nations.” If the president, acting alone, were to terminate U.S. participation in NAFTA, he would be imposing regulation on commerce, without congressional participation.
Having assented to these agreements, only congress can undo them. Indeed, the legislature should probably make it eminently clear to Trump that he should not pretend to be able to exit NAFTA using executive power:
While Congress can make specific delegations of powers to the president in the field of trade, it has steadfastly avoided delegating power to the president to terminate trade agreements. So there is little basis for an argument of implicit delegation by virtue of the inclusion in these agreements of clauses allowing the member countries to withdraw.

If President Trump proposes to give notice to terminate NAFTA without congressional approval, U.S. exporters, and U.S. consumers, and perhaps also U.S. members of Congress, should sue. Before we reach that point, Congress could pass legislation specifically denying the president authority to terminate these trade agreements, in order to avoid uncertainty. It has the power, and the responsibility, to do so. The Founders wisely determined that Congress, not the president, is the “decider” in the field of trade.
The Mexicans are right to lobby US firms with continental operations. However, they should also lobby lawmakers to assert their primacy on matters of undoing trade agreements. It is unlikely that a majority wound want to kill NAFTA, so Mexico should start the ball rolling in this respect, too. The Canadian President Justin Trudeau is doing so already even if his country has less to lose for reasons I'll discuss more in another post.

Aside from refusing to be force-fed Trump's s--t, they should appeal to those whose voice really matters for this issue.

Deport-o-Mania 3: Houston's (Non-)Rebuilding

♠ Posted by Emmanuel in , at 10/10/2017 08:32:00 PM
Trump voters ain't gonna fix this destruction.
There's an insightful op-ed in the Washington Post on why Houston's rebuilding is well off-track. Simply put, there are not enough construction workers at the current time. With Trump's various immigration-unfriendly policies in progress, things aren't going to improve anytime soon. The net result is that instead of aiding the reconstruction of the United States' fourth-largest city, Trump is putting it off indefinitely.

Actually, there's plenty of capital sitting on the sidelines but not enough labor to get the construction work going. This is one industry where automation won't be of much help for the foreseeable future:
Even before Hurricane Harvey made landfall, 69 percent of Texas contractors had trouble filling jobs. Now, it’s estimated that 200,000 Houston homes will require work or complete reconstruction. Who will build these houses? What about the commercial infrastructure and public schools, highways and bridges that also sustained so much damage?
We go back to the same old problem: instead of ramping up immigration to help (re-)build America, the Trumpian set is busy doing the opposite:
One way to do that is to completely overhaul our broken immigration system. The last comprehensive reform was in 1986. Our visa system fails to match supply with demand. Congress must rebalance the numbers and even consider increasing legal immigration so we can attract all the workers we need — high skill, low skill and no skill. As Sen. Jeff Flake (R-Ariz.) said in a recent op-ed, we can’t forget that the ability to work hard sometimes is the only skill a job requires.
The problem is that the likes of Trump and his supporters have the opposite perception: coloreds and other foreigners are "stealing" their jobs. The honest answer is, again, that gringos simply don't want to do construction work in sufficient numbers [1, 2]--otherwise you wouldn't have this problem to begin with. Ultimately, I do believe that Trump is setting the stage for lower potential US economic growth through these racist/protectionist measures.

Just wait and see as Houston remains literally underwater.

Euro Transport Consortia: First Airbus, Now "Railbus"

♠ Posted by Emmanuel in at 10/09/2017 06:19:00 PM
They are the European champions, my friend. They'll compete with the Chinese till the end...
Despite the imminent [?] withdrawal of the United Kingdom from the European Union, its time being considered a part of it can count as a clear success in at least one respect: Its participation in the pan-European aerospace consortium Airbus has more than lived up to expectations. British Aerospace together with France's Aerospatiale as well as their German and Spanish counterparts combined to produce a European powerhouse in civilian commercial aircraft with the resources to compete with American titan Boeing yearly for top sales honors in this lucrative business.

More recently, we've had a "one good turn deserves another" deal with European railway manufacturers Alstom (France) and Siemens (Germany) attempting to become a "European champion" in mobility. As with most mergers among manufacturing concerns nowadays, this attempt to increase scale stems from trying to compete with the upstart Chinese. Enter "Railbus":
Siemens AG and Alstom SA are expected to sign off on a merger of their rail equipment activities to create a new European champion, according to Bloomberg News. A deal has appeal for the German and French companies’ shareholders but governance, antitrust and cost-cutting could yet disrupt the journey. While a combined entity would control only about 14 percent of the 110 billion euro ($130 billion) rail equipment market, according to my rough calculation, the footprint would be bigger in parts of Europe.
An interesting argument in favor of activist European antitrust authorities permitting the merger is that, well, the Chinese have already merged together another rail mega-conglomerate in CRRC:
So will Europe’s antitrust authorities block it? That depends. After the 2015 merger of two Chinese rolling stock companies, the new entity CRRC Corp. dwarfs its international peers. Rail Giants CRRC has won rail contracts as far afield as Chicago and Kenya and China’s Belt and Road initiative will bring yet more international business its way. The fear is that the Chinese company's size plus access to cheap finance will let it crush rivals unless they bulk up too. In absolute terms, CRRC spends seven times more on research and development than Alstom, notes Morgan Stanley.

But it isn't unbeatable, at least not yet. International customers accounted for only 8 percent of CRRC sales last year, when its railway equipment sales declined. The Alstom and Siemens train businesses have performed quite well in the meantime, as rapid urbanization spurs demand for less polluting mass transit.
The great game is on in railways as the Europeans vie for business worldwide with the Japanese and now the Chinese. As with more efficient forms of transportation, sustainability may be the ultimate victor here compared to relying on more polluting road and air transport.

Can US Stocks Rise Still Despite Buyers' Strike?

♠ Posted by Emmanuel in at 10/02/2017 12:50:00 PM
Are companies flush with high-yield bond proceeds buying back stock no matter what?
There's an interesting article over at MarketWatch that brings up all sorts of questions about what really buoys the stock markets and who investors really are. The conventional understanding is that bonds--debt issued by corporations--move in the opposite direction of stocks since the former are regarded as relatively safer assets while the latter are riskier assets. However, bonds and stocks may not be coupled in this manner. Instead, large institutional investors, namely pension funds, tend to shy away from risky investments like equities. So, they buy high-yield corporate debt in large quantities. With many retirees to account for in the near future, they have few options nowadays:
Unlike so-called smart investors, who worry about fundamental influences including the economy, politics and even natural disasters, the nation’s public pensions trustees only care about one thing: “Their sole focus is on making 7.5% through the credit market,” [Cannacord's Brian] Reynolds wrote in a recent note to clients. “They are going to focus on that whether the economy speeds up or slows down, whether there is tax reform or not and whether the Fed raises rates more or has to bring them back down.”

As Reynolds explains, 7.5% is generally what pension trustees have to earn on assets to cover the gap between what pensions have promised to pay out and what they actually have. The general perception among pension trustees is that equities are too risky, and safe 10-year Treasury notes are currently yielding just 2.31%. And since their biggest worry is to not be too careful, pension funds have been gobbling up higher-yield corporate debt and credit instruments.

Through August, high-yield bond issuance reached $1.21 trillion, already just shy of the full-year record of $1.23 trillion in 2016, according to data provided by Fitch Ratings. Institutional leveraged loan issuance hit $1.07 trillion through August, already breaking the 2016 record of $973.1 billion. Assuming the pace of flows remains the same, the puts high-yield issuance on track to exceed $1.8 trillion and leveraged loan issuance to top $1.6 trillion.
Corporations issuing high-yield paper are therefore flush with cash from selling all this high-yield debt. For a long time now, many have chosen not to invest the proceeds, but rather buy back their shares on the open market. Therefore stock investors may understandably quit the stock market at these incredibly elevated valuations, but companies will continue buying back shares. It's said that "real" investors haven't been the main buyers of stocks since the end of the Great Recession, but rather companies buying back stock using bond sale proceeds:
Companies have used that cash to be the primary buyers during the current bull market, while what Reynolds described as the “main investors” have been net sellers. “Main investors” include mutual funds, insurers, hedge funds, households, foreign buyers, broker dealers, pension funds and exchange-traded funds.

Since the S&P 500 index hit its bear-market bottom in March 2009, it has soared nearly fourfold, even though “main investors” have sold a total of $9.89 billion worth of stock, Reynolds said, using Bloomberg data. That’s because the cumulative total of corporate stock repurchases has been about $3.2 trillion, he said.

And since the credit market has grown by $3.3 trillion since the credit crisis, Reynolds sees it as nearly a one-to-one correlation between the credit boom, share buybacks and the bull market.
I have my doubts about this version of events as to why stocks can thus keep rising indefinitely. Many of the gainers are not the sorts who issue boatloads of high-yield debt, but rather blue-chip corporations issuing investment-grade debt like components of the Dow Jones Industrial Average 30, the larger Standard and Poors 500 components, and giant tech stocks on the Nasdaq Index like Facebook, Amazon, Apple, Netflix and Google. If high-yield issuers were indeed the main beneficiaries, then you would expect smaller, less creditworthy companies to outperform large ones. However, that has not really been the case with the Russell 2000 index being outperformed by the aforementioned indices over this time frame.

It's food for thought, though, and shines a light on the role played by stock buybacks in buoying the market.

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

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

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

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

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

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

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

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

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

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

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

Kim Jong-Un [Hearts] Markets, Sort Of

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

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

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

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

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

Foreign Investment, Duterte Drug War Victim

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

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

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

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

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

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

Premier League Post-Brexit & Post-Free Movement

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

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

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

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

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

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

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

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

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

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

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

Deport-o-Mania: But Who'll Rebuild Houston?

♠ Posted by Emmanuel in , at 8/29/2017 06:52:00 PM
Who'll rebuild Houston? With an immigration crackdown underway, it's a pretty big question.
First off, I wish to extend my sympathy to the residents of the great American city of Houston. While the United States' fourth-largest city is mostly imagined to be an oil town, the truth is that it's been busy diversifying away from energy. Hence, even if oil prices are depressed, the city hasn't just muddled through in wait for another oil boom. Instead, it's broadened its economic based to become less reliant on oil and gas.

When Hurricane Harvey runs its course--as it eventually will--the city will be in some need of rebuilding. As it's still ongoing, the ultimate amount of the damage cannot be known. That said, there will be a huge need for construction workers and others in the building trade. Unfortunately, this being the first year of the Trump administration, the storm is occurring amidst a large crackdown on immigrants. Immigrants making up a large stock of would-be construction workers Stateside, this situation poses a quandary: Who exactly will rebuild Houston?
Houston will require a surge of employment—tens of thousands of people. It will have to find places for them to live, since so much of the housing stock is damaged. And it will likely have to pay them above-market wages, because it will need to lure them away from existing jobs.

And given the Trump administration’s hostility to Latinos and desire to ramp up deportations, it’s unlikely that what worked in previous disasters will work again. Back in 2007, the Washington Post reported on a Tulane and University of California, Berkeley, study that found some 100,000 Hispanic workers thronged into the Gulf Coast region in the wake of Katrina, many of them undocumented. Houston will need a similar migration for it to recover. In 2017, from where will those workers come?
Houston, we've got a problem of not having enough folks willing and able to help rebuild the city (i.e., immigrants). To make matters worse, the state of Texas has just implemented legislation making cities like Houston more responsible for deporting undocumented workers:
But the Texas labor market is tight, and incentives will be needed -- usually in the form of higher wages -- to pull in engineers, tradesman and laborers from around the region. The Federal Reserve district banks in Dallas, Atlanta and St. Louis already have reported hiring difficulties.

Gathering manpower could be further complicated by a newly passed Texas law requiring cities to be more aggressive in helping deport undocumented people. “If Houston is going to be rebuilt in a reasonable amount of time, it will be rebuilt with the contributions of undocumented immigrant workers,” said Mark Jones, a political-science professor at Rice University in Houston. “If undocumented immigrants are afraid or unwilling to come to Houston because of fears of deportation, that’s going to delay the recovery, as well as make it far more expensive.”
Let's just say the Republican-dominated state government and Trump--eager to show how he's supporting the effort to get Houston back on its feet--will have facing a dilemma in fairly short order. Will they continue to "act tough" on immigrants, or will they come up with some sort of kludge to allow undocumented workers to help in the city's repairs?  Ever a pragmatist, I'd expect to see more of the latter than you'd expect from the political rhetoric. 

Canada's Plan to Keep NAFTA Alive and Kicking

♠ Posted by Emmanuel in , at 8/24/2017 02:54:00 PM
The Yanqui villain is on the left. The Canadian [C] and Mexican [R] protagonists seek to defuse his worst tendencies.
The commencement of the NAFTA renegotiation has been, if nothing else, an opportunity for the Trump administration to engage in grandstanding about how the protectionist president is fed up with Canada and Mexico not competing on a level playing field. Aside from running trade surpluses with the United States (which reveals the extent America is being "taken advantage" of), both stand accused of stealing American jobs (i.e., whenever US multinationals hire workers anywhere except the US). Hence US Trade Representative Robert Lighthizer's tale of woe at the beginning of negotiations:
We cannot ignore the huge trade deficits, the lost manufacturing jobs, the businesses that have closed or moved because of incentives -- intended or not -- in the current agreement.

The numbers are clear. The U.S. Government has certified that at least 700,000 Americans have lost their jobs due to changing trade flows resulting from NAFTA. Many people believe that number is much, much bigger than that. In 1993, when NAFTA was approved, the United States and Mexico experienced relatively balanced trade. However since then, we have had persistent trade deficits – in the last year totaling nearly $57 billion. In the auto sector alone, the U.S. has a $68 billion deficit with Mexico.  Thousands of American factory workers have lost their jobs because of these provisions. In recent years, we have seen some improvement in our trade balance with Canada.  But over the last ten years, our deficit in goods has exceeded $365 billion.
[Sniff] the vile things these foreigners are doing! To no one's real surprise, though, it appears that the US grandstanders do not really have a game plan:
In this case, however, the entire NAFTA renegotiation process is happening only because Donald Trump campaigned on doing it and insisted on formally triggering the treaty’s renegotiation provision back in mid-May. But with the [Trump] administration in a state of semi-permanent chaos, top officials not focused on the issue, and the White House’s leading trade protectionist unceremoniously fired [Steve Bannon], Trump does not appear to be well-positioned to secure any kind of meaningful concessions from Canada.
The Canadians, on the other hand, are not fooling around since their mission is rather more serious than catering to the ego of an economic populist and his minions. They do have a game plan to preserve the benefits which have come through this agreement. In stark contrast to US ineptitude, they've designated a veteran team to respond rapidly to the mental disturbances of Trump and company. One of the ways to accomplish Canadian objectives is to appeal to Americans who have a stake in maintaining the current deal:
According to Alexander Panetta of the Canadian Press, Prime Minister Justin Trudeau “has created an election-style nerve center to handle White House-related challenges” during the NAFTA renegotiation process. The team features eight staffers, including “two former trade officials, two senior PMO officials, an ambassador, a writer, a cabinet minister.”

The goal is to be able to push back on both a strategic and tactical level to presidential negotiating ploys, including social media threats to pull out of NAFTA altogether in order to gain leverage. One of the goals of the team in the prime minister’s office is to coordinate follow-up, if necessary, with the broad and deep range of American stakeholders beyond Trump whom Trudeau has spent months cultivating.

As Max Fisher reported in June, “Canadian officials have fanned out across the United States, meeting with mayors, governors, members of Congress and business leaders on matters from trade to the environment.” At meetings with local officials, Canadian ministers “travel armed with data on the precise dollar amount and number of jobs supported by Canadian firms and trade in that area,” cultivating current and potential allies to push back against Trump’s demands. 

Canada also has a clear list of negotiating objectives, including both key NAFTA provisions that Trudeau’s government is committed to keeping and aspirations to win more access for Canadian companies to state and local government contracts and more access for Canadian professionals like computer programmers to jobs in the United States. The US negotiating posture, by contrast, heavily emphasizes a couple of demands that appear to be symbolic, meaningless, or unworkable.
Actually, the barbs from Trump have already begun as negotiations are underway. Trump told a Phoenix, Arizona rally that the US will probably withdraw from NAFTA. However, Canadians and Mexicans are taking him less seriously by the day, as they should. Remember, the US president does not have sole discretion whether to withdraw from a trade deal like NAFTA. Instead, congress does. As long as the Canadians strategically appeal to American benefiting from the arrangement--and congresspersons who represent them--it does not make sense to count NAFTA out.

The weight of evidence suggests the Canadians understand their predicament and how to get a favorable result by appealing to US constituencies who've benefited from regional trade. Alas, the same cannot be said for Trump and company.The good guys here, the Canadians, stand a good chance of winning since they are much better prepared.

How Trump the Vulgar Boosted the Hallmark Channel

♠ Posted by Emmanuel in at 8/23/2017 03:06:00 PM
The Hallmark Channel is everything Trump's America is not: civil, polite, and uplifting.
Despite his improbable appeal to certain segments of the American electorate--you'll have to point them out to me since I can't find any sensible reason why--I'll bet they would agree that Donald Trump is a walking obscenity. Insulting anyone and everyone--people of color, people of other faiths, foreigners, white people who don't agree with him and so on--he arguably sets new lows for public discourse. His exceedingly crass manner has dragged American public discourse and the rest of the world's views of the United States into the gutter.

However, there is a bright side. Sort of. Given the putrid state of American life, wouldn't it be nice to go to a place of civility, kindness, and people lifting each other up instead of tearing them down? Well, there is such a place. It's called "The Hallmark Channel." Personally, I do not watch it because the story lines are exactly the opposite of what Trump sees. Instead of American Carnage, it's American Fluff. Neither is quite an accurate portrayal of North American reality, but hey, when you have too much of the former, I guess people pine for the latter. That is, a bygone era that's largely conjured suits more and more people:
It’s been called feel-good fluff by both critics and viewers alike, but the fact of the matter is Hallmark Channel, with its sugary sweet TV movies and shows, is currently one of the highest-rated TV channels in the United States.  Shows like Chesapeake Shores (starring Jesse Metcalfe) and saccharinely titled movies like A Dash of Love and Love at First Bark provide the mindless, wholesome entertainment people are turning to in Donald Trump’s America[...]
So what’s the deal here? Why are people flocking so heavily to Hallmark?

“It makes sense that in an era of war and political conflict, people turn to their TVs for feel-good escapism,” said Amber Dowling, TV critic and former president of the Television Critics Association. “Historically that’s been true over the years, and has usually led to an increase in production on family comedies and stories. Hallmark churns this type of programming out, so they’re able to easily fit that current appetite.”

Indeed, it’s true: Hallmark shows and movies, for the most part, are squeaky clean. No swears, no sex, closed-mouth kisses, and enforced “family values” can go a long way when the rest of TV is a melange of excessive violence and sex. Many contemporary TV shows try to go the other way, towards whatever forbidden button needs pushing. Hallmark and channels like it are salves, oases away from the chaos of network and cable TV. It’s no surprise its tagline is “The heart of TV.”

Trump's America is not a happy place, and people need to escape somewhere:


“The environment is undeniably contentious,” said Bill Abbott, chief executive of Crown Media, which owns Hallmark. “We are a place you can go and feel good. We intentionally branded ourselves as the happy place.” While Hallmark’s ratings have been going up consistently over the last few years, it’s gotten a noticeable bump since late 2015, when the latest presidential election cycle started. 
 I'll bet you the owners of this channel are secretly wishing for the continued reign of Trump. Just as cable news channels keep blasting him but wish he remains in office to get more viewers, so do the owners of the feelgood, happy ending channel wish for the endless torrent of misery that is the Trump administration. 

Heaven help us all.

Leave Banking, Hawk Cryptocurrencies for a Living

♠ Posted by Emmanuel in at 8/03/2017 04:56:00 PM
There's plenty of these already--with boatloads more to come.
Manias in the business world are nothing new. In the technology realm, we've had any number of these already like the dot-com boom followed by the dot-com bust earlier in this century. In the realm of finance, the latest and greatest gold rush concerns the issuance of cryptocurrencies. Instead of initial public offerings of shares of stock, the marquee events here are initial coin offerings (ICOs). As no shortage of issuers and investors buy the gospel (or Kool-Aid for skeptics) that cryptocurrencies represent the future widely-used form of money, there is a lot to be made (or lost).

A surefire sign of optimism about opportunities is when folks leave otherwise well-paying if predictable jobs for the Wild West of trading these largely unregulated instruments. Bloomberg says that's already happening with many ex-bankers setting their sights on the larger promised returns of virtual monies:
From Hong Kong and Beijing to London, accomplished financiers are abandoning lucrative careers to plunge into the murky world of ICOs, a way to amass quick money by selling digital tokens to investors sans banks or regulators. Cut out of the action, a growing cohort of banking professionals are instead applying their talents toward buying or hawking cryptocurrency.

They’re going in with eyes wide open. For [ex-banker Richard] Liu, who put together some of China’s biggest tech deals in his old job, the chance to shape the nascent arena outweighs the dangers of a market crash or crackdown. Loosely akin to IPOs, ICOs have raised millions from investors hoping to get in early on the next bitcoin or ether, and their unchecked growth over the past year is such that they’ve drawn comparisons to the first ill-fated dot-com boom. Yet with stratospheric bonuses largely a thing of the past, the allure of an incandescent new arena far from financial red-tape has proven irresistible to some.

“Traditional investment banks and VCs need to monitor this space closely, it could become very big,” said the 30-year-old partner at $50 million hedge fund FBG Capital, which has backed about 20 ICOs. He’s off to a quick start, getting in on this year’s largest sale: Tezos, a smart contracts platform that raised $200 million to outstrip the average Hong Kong IPO size this year of around $31 million.
That said, the potential for huge gains trading these monies comes with correspondingly huge risks as their critics point out:
Critics say many ICOs are built on little more than hyperactive imaginations. A cross between crowdfunding and an initial public offering, they involve the sale of virtual coins mostly based on the ethereum blockchain, similar to the technology that underpins bitcoin. But unlike a traditional IPO in which buyers get shares, getting behind a startup’s ICO nets you virtual tokens -- like mini-cryptocurrencies -- unique to the issuing company or its network. That means they grow in value only if the startup’s business or network proves viable, attracting more people and boosting liquidity.

That’s a big if, and the sheer profusion of untested concepts has spurred talk of a bubble. The U.S. Securities and Exchange Commission signaled greater scrutiny of the red-hot sector when it warned on Tuesday that ICOs may be considered securities, though it stopped short of suggesting a broader clampdown. The regulator however did reaffirm its focus on protecting investors: part of the appeal of ICOs lies in the fact that -- for now -- anyone with a bold idea can raise money from anybody.
Actually, the dot-com boom may illustrate the future of these virtual monies. Most startups of course went bust. However, those that survived for the longer run eventually did well enough and have introduced widely-adopted consumer standards. The survivors are exceedingly well-known including the likes of Amazon, EBay, Google, and so on. Like before, these newfangled entities cannot survive on novelty alone but must offer some sort of unique selling proposition to customers.

It will take some time to sort the Amazons from the Pets.coms of the cryptocurrency world. Meanwhile, there apparently be many gamblers drawn to this realm--even from the relatively stolid world of banking.

Blockaded Qatar Takes Saudi, UAE to WTO

♠ Posted by Emmanuel in , at 8/01/2017 04:57:00 PM
Of course Qatar knows the WTO. The current [?] WTO negotiations were initiated in the capital of Doha.
I am fascinated with the blockade on Qatar by fellow Gulf Cooperation Council (GCC) countries Saudi Arabia, the United Arab Emirates, and Bahrain, supposedly for supporting "terror." For the country where most 9/11 attackers came from and which has funded fundamentalist education throughout the world, Saudi Arabia is particularly noteworthy. My belief is closer in line with those who believe Qatar acts more as a neutral ground for those wary of Middle East authoritarianism--even if these folks may include Hamas and Hezbollah who have representative offices in Qatar.

There is also the not-so-small issue of broadcast network al-Jazeera, which is widely viewed not just in the region but throughout the world. Its continuous criticism of other GCC countries rankles the others, and I must also point out that Qatar is not entirely faultless in its media coverage. After all, Qatar is just like the rest of them: As yet another absolute monarchy, Qatar is hardly a bastion of democracy. As al-Jazeera viewers would note, Qatar's leaders--who set up the network in the first place--are never criticized.

Having failed so far diplomatically in resolving this dispute--the United States which has bases in Qatar but nonetheless was bashed by Trump as a state sponsor of terror has been of little use--Qatar now turns to international organizations to help its cause:
Qatar has lodged a formal complaint with the World Trade Organisation against the “illegal siege” imposed by four Arab neighbours that have accused the Gulf state of sponsoring terrorism. The complaint, lodged with the WTO’s dispute-settlement body, described the embargo as “unprecedented”, accusing Saudi Arabia, the United Arab Emirates, Egypt and Bahrain of “violating the WTO’s core laws and conventions on trade of goods and services, and trade-related aspects of intellectual property,” the ministry of economy and commerce said in a statement on Monday.

On June 5, the quartet of Arab allies cut off air, sea and land links to their gas-rich neighbour, closing off airspace to Qatar-bound flights, refusing to handle goods bound for the gas-rich state and cutting diplomatic ties. While Qatar has shifted supply chains, bringing in food from Turkey and Iran and using Omani ports, its imports nonetheless slumped 40 per cent in June as the embargo hit home. “The arbitrary measures taken by the siege countries are a clear violation of the provisions and conventions of international trade law,” said Sheikh Ahmed bin Jassem bin Mohammed Al Thani, the minister of economy and commerce. “Furthermore, the illegal siege is unprecedented in the framework of economic blocs.”
The complaint at the ICAO will also mirror the WTO complaints since Qatar has had a very hard time sending and receiving Qatar Airlines and other flights with the likes of UAE closing their airspace to Qatar. While I have little doubt that Qatar's case is a fairly good one against such a wide range of sanctions without apparent cause--especially trade-related ones--you have to wonder: Given that WTO cases are usually resolved over a year's time, will there still be much of a commercial center left of Qatar if things take that long to resolve?

Ultimately, I believe that a diplomatic solution, whoever may broker it, will need to be found. Litigation will only get you so far and may leave a bad aftertaste besides.

Of China, Korean Missile Defense and Makeup Sales

♠ Posted by Emmanuel in , at 7/28/2017 04:03:00 PM
AmorePacific owns several internationally well-known cosmetics brands--especially among PRC buyers.
Whew! That post title is a bit of a mess, but believe me (Trump-style) it is accurate. A few weeks ago, I discussed the potential economic hit to South Korea from deploying the US-sourced THAAD missile defense system. The PRC does not want South Korea to deploy it on the Korean peninsula out of concern that its advanced detection capabilities potentially compromise China's military defenses. I like to think that South Koreans are a sensible sort not prone to provoking the Chinese without any sane reason...but maybe nuclear annihilation at the hands of North Korean crazies is just cause? Some (Chinese) people are being irrational and unreasonable IMHO.

At any rate, aside from the company that provided the land for the deployment of THAAD--Lotte--another Korean firm has had its business activities negatively affected as well to a significant extent. AmorePacific is the umbrella group of several top Korean makeup brands, which are all the rage here in Asia. Let's just say a PRC embargo on all things Korean as a result of the THAAD deployment has hit AmorePacific's bottom line...like a missile attack, in fact:
AmorePacific Corp, South Korea's biggest cosmetic company, reported a 58 percent slump in operating profit in the second quarter on Wednesday, as the once investor-darling bore the brunt of diplomatic tensions with China that dampened demand from Chinese tourists.

Chinese visitors, the largest population of the total tourists to South Korea, fell 66 percent in June from a year earlier, resulting in a significant plunge in the number of customers to domestic duty-free shops. Since mid-March, Beijing has banned travel agencies from selling trips to South Korea following Seoul's decision to deploy a U.S. missile system to counter North Korean threats, despite China's objections.

"Cosmetic giants such as AmorePacific tend to rely on profits produced from duty-free stores," said Cho Yong-sun, an analyst at HMC Investment Securities.
The gist of it is that PRC package tours to Korean have been discouraged by the government, resulting in the droves of Chinese tourists buying makeup at Korean duty-free outlets to drop precipitously. While unfair in many respects, you do have to wonder why such a major cosmetics group is so dependent on a certain type of foreign visitor to account for so much of their revenues.

Amorepacific, diversification would be good for you.