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Trump’s Trade Dilemma: Export Growth Or National Security

U.S. President Donald Trump waves as he and China’s President Xi Jinping walk along the front patio of the Mar-a-Lago estate after a bilateral meeting in Palm Beach, Florida, U.S., April 7, 2017. REUTERS/Carlos Barria

 

Trump’s Trade Dilemma: Export Growth Or National Security

According to the U.S. administration, Chinese tech giant ZTE violated sanctions by selling equipment to Iran and North Korea. In April, this led to a ban on U.S. companies selling to ZTE—a move that would cripple the Chinese company. This week, Trump reversed that decision in what he describes as part of a negotiation for a larger trade deal.

The sudden about-face is in line with Trump’s pattern of attempting to gain leverage, bringing things to a fever pitch and then re-negotiating—but this time we’re talking about a major national security threat, and the trade-off is more exports.

Almost exactly a year ago, ZTE agreed to plead guilty and pay nearly $900 million for U.S. sanctions busting. This was the culmination of a five-year investigation into the tech equipment maker, which conspired to evade U.S. embargoes by buying U.S. components, incorporating them into ZTE equipment and then illegally selling them to Iran and North Korea.

In other words, they were getting sensitive American technology to hostile regimes.

There is no question that ZTE was, and still represents, a threat to national security. It was the most obvious target in a trade war that has been strongly focused on China’s theft of American technology secrets.

And as the Wall Street Journal notes, “U.S. concerns about ZTE go beyond its evasion of sanctions. For years, the U.S. has accused equipment made by Shenzhen-based ZTE and its larger crosstown rival Huawei Technologies Co. of being a national security threat, an accusation that both companies have denied. The U.S. has largely blocked both companies from selling telecommunications gear in the U.S.”

For this reason, the sudden promise by Trump to help ZTE out of a major bind that would likely have brought it to its knees is perplexing.

(Click to enlarge)

Trump insists that it is part of negotiations for a larger trade deal, suggesting that the U.S. is going to get something big in return (presumably the U.S. as a nation, not the Trump Organization), but details have been vague at best. And it would have to be something big, indeed, if the administration is simply going to ignore sanctions violations with rogue regimes like Iran and North Korea, especially given that Washington is again on the sanctions warpath with the former.

Now that ZTE is facing bankruptcy, Trump is promising to turn things around because “too many jobs in China [will be] lost”.

(Click to enlarge)

So now, suddenly, Washington is ostensibly worried about Chinese jobs rather than American jobs, and Trump’s sudden reversal led to some serious blowback.

(Click to enlarge)

The senator followed that up later with this statement: “The toughest thing we could do, the thing that will move China the most, is taking tough action against actors like ZTE. But before it’s even implemented, the president backs off. This leads to the greatest worry, which is that the president will back off on what China fears most – a crackdown on intellectual property theft – in exchange for buying some goods in the short run. That’s a bad deal if there ever was one.”

The issue intensified on Tuesday and Wednesday, when media reports emerged about a Chinese loan for a Trump Organization project in Indonesia.

Last Thursday, China’s state-own MCC Group construction company announced it had formalized plans to develop a theme part in Lido, Indonesia in part of a project for which the Trump Organization has licensing agreements, CNN reported. On May 11, the Indonesian project got a $500-million development loan from MCC, right before Trump’s ZTE reversal.

The issue here is that the Trump Organization will benefit from the project though, though not directly, and only some of this will go to facilitate the construction of Trump-branded properties here.

Trump has branded it all ‘fake news’, and the story itself hasn’t gained significant traction, largely because regardless of whether or not the deal in Indonesia is a blockbuster for the Trump Organization or not and represents a conflict of interest, the likelihood is that the Chinese realize this sweetens the deal, but it’s not at the heart of the negotiations.

The problem is that ZTE is a national security threat and flip-flopping on this without anyone knowing why makes it seem that we’re not getting the upper hand in this trade deal. It also leads many to question Trump’s ability to strategize beyond the immediate term.

As the Financial Times put it: “If Mr Trump has bargained away a serious threat to US national security for some short-term gimmicks from Mr Xi such as ordering Chinese state-owned companies to buy more American exports, it is one of the worst deals he has ever struck. It is entirely possible that Mr Trump will quickly U-turn on his U-turn, particularly if he does not quickly get what he wants on trade from Mr Xi.”

China is definitely desperate for a deal on ZTE. So from that perspective, Beijing is probably willing to negotiate. China has already said it was “willing in principle” to import more U.S. agricultural products in return for an easing of penalties on ZTE.

The question then, in other words, is: should the U.S. be willing to risk national security for the sake of exports? We’ll find out more this week as Chinese officials continue trade talks in the U.S.

By Fred Dunkley for Safehaven.com

Published at Wed, 16 May 2018 21:00:00 +0000

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NAFTA math may not add up to more U.S. auto jobs

by manfredrichter from Pixabay

NAFTA math may not add up to more U.S. auto jobs

DETROIT (Reuters) – Trump administration demands in NAFTA trade negotiations meant to push auto jobs back to the United States may not be enough to spark a shift in where automakers build cars and trucks.

New math to determine what qualifies as vehicle content, what limits apply to allow tariff-free auto imports and how long companies would have to comply under a new NAFTA agreement will likely not move the needle for Detroit automakers in particular, industry executives and supply chain experts said.

Automakers are unlikely to uproot billions of dollars of investments in plants and supply chains. And those that cannot comply with standards for passenger cars could simply pay tariffs of around $800 to $900 per vehicle and buy low-cost parts from Asia to offset the cost, industry experts said.

“Broadly speaking the (tariff) increase isn’t big enough to make a wholesale change,” said Mark Wakefield, head of the North American automotive practice for consultancy AlixPartners. “No one is likely to shut down an active factory in Mexico and build a new one to replace that in the U.S.”

Tough U.S. proposals on autos are meant to bring back U.S. manufacturing jobs and central to the Trump administration’s approach to renegotiating the North American Free Trade Agreement between Canada, Mexico and the United States.

General Motors Co, soon to be the only Detroit Three automaker building pickup trucks in Mexico, is confident it could comply with content requirements for trucks the United States proposes without shifting production, a person familiar with the company’s plans said.

But GM’s Mexican-made trucks already have a significant share of their value, such as engines, produced in the United States at United Auto Workers union-represented factories, and GM would get another boost if it is allowed to tally engineering done in Michigan.

GM is retooling a high-volume factory to build a new generation of large Chevrolet and GMC pickups in Silao, Mexico. Pickup trucks that do not have enough U.S. or North American content under NAFTA rules could be hit with a crippling 25 percent tariff.


Last year GM churned out more than 400,000 large pickup trucks from Silao, more than 40 percent of its 2017 U.S. pickup truck sales.

Fiat Chrysler Automobiles NV Chief Executive Sergio Marchionne said on Friday a revised treaty could prompt FCA to “redirect” some Mexican production but would not cause it to further dial back its presence in Mexico.

In January FCA had said it would shift production of heavy-duty pickup trucks from Mexico to Michigan in 2020 to reduce the profit risks should the United States pull out of NAFTA.

Senior U.S., Canadian and Mexican officials on Friday ended a week of talks without a deal to modernize NAFTA, agreeing instead to resume negotiations soon, ahead of a deadline next week.

RUBIK’S CUBE OF RULES

The United States wants 40 percent of the value of light-duty passenger vehicles and 45 percent of a truck’s content to be built at hourly wages of $16 to qualify for tariff-free import from Mexico.

Those demands are aimed at preserving relatively higher-wage U.S. and Canadian production and pressuring Mexico’s low auto wages.

Mexico wants 70 percent of a vehicle’s content to be made within North America, less than the 75 percent U.S. negotiators propose.

Automakers that do not comply with tougher U.S. or North American content and wage rules, if adopted, could face 2.5 percent tariffs on cars or sport utility vehicles shipped to the United States from Mexico. That may be a level of pain they can live with.

Automakers producing sedans, SUVs and crossovers in Mexico include Ford Motor Co, Toyota Motor Corp, Mazda Motor Corp, Nissan Motor Co Ltd, Honda Motor Co Ltd and Volkswagen AG (VOWG_p.DE).

The U.S. proposal would allow automakers to count salaries for engineering, research, sales, software and product development jobs, a provision favoring Detroit automakers versus foreign brands.

And companies would have two, four or nine years to comply, depending on the specific condition involved.

Still, some automakers are more of a question mark, especially when it comes to trucks. Toyota plans to expand production in Mexico of its Tacoma pickup trucks, part of a realignment of its North American manufacturing that includes a new $1.6 billion assembly plant in Alabama.

It also makes Tacomas in San Antonio, Texas, so could in theory switch production. The automaker declined to comment.

And the Trump administration proposals could complicate matters for electric vehicles and self-driving cars automakers want to build in Mexico. The U.S. proposals call for 75 percent of an electric or autonomous vehicle’s value to be made within North America to avoid tariffs.

Since much of those vehicle’s value can come from batteries made overseas, that means automakers must make up for the content largely on the human side.

At nine years, electronic vehicles are subject to the longest period until they must comply.

“EVs and AVs have so much electronic content and there is no electronics industry here,” said Kristin Dziczek of the Center for Automotive Research in Ann Arbor, Mich. “Nine years is not enough to build up an electronics industry to that scale.”

Reporting By Nick Carey; Editing by Meredith Mazzilli

Published at Mon, 14 May 2018 05:05:53 +0000

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Proxy adviser ISS backs call for gun safety report at Sturm Ruger

Proxy adviser ISS backs call for gun safety report at Sturm Ruger

BOSTON (Reuters) – Proxy adviser Institutional Shareholder Services on Wednesday recommended investors vote to support a shareholder proposal calling for gunmaker Sturm Ruger & Co to report on gun safety, which could put new attention on so-called “smart gun” technology.

In a note to clients, ISS also backed the election of all director nominees at Sturm Ruger ahead of its shareholder meeting scheduled for May 9.

The board of Connecticut company Sturm Ruger had recommended investors vote against the call for the safety report. Its proxy statement said that “the intentional criminal misuse of firearms is beyond our control. Similarly, the constitutional right of firearms ownership carries with it certain responsibilities and the Company has long advocated the safe and responsible ownership and use of firearms.”

Sturm Ruger representatives did not immediately respond to a request for further comment.

Second-ranked proxy adviser Glass Lewis made the same recommendations to Sturm Ruger investors on April 14, citing gun violence as a risk to the company’s reputation.

Just what additional steps if any weapons makers should take on safety has drawn renewed interest in the wake of a shooting at a Florida high school in February in which 17 people were killed.

Banks including Citigroup Inc and Bank of America Corp lately have restricted lending to clients involved with firearms. Also, asset managers including BlackRock Inc and Vanguard Group have said they would raise safety concerns with gunmakers whose stocks they own.

BlackRock and Vanguard are the top two investors in Sturm Ruger, together with about 25 percent of shares.

Representatives for both firms declined to discuss how they might vote at Sturm Ruger.

The shareholder proposal was filed by the Sisters of the Holy Names of Jesus and Mary in Oregon. It asks the company report on gun safety such as how it monitors violence, research on safer guns, and its assessment of risks to its reputation.

The proposal mentions smart guns, designs with electronic limits on their ability to fire, which it says could help reduce accidental shootings and suicides.

Smart guns have faced opposition from gun rights groups concerned about their practicality and legislative implications.

ISS wrote the technology could make guns safer, and that a market for smart guns could help overcome engineering problems. ISS noted the proposal does not call for the production of smart guns, but only seeks evidence that Sturm Ruger’s board is properly assessing risks.

Reporting by Ross Kerber in Boston; editing by Grant McCool

Published at Wed, 25 Apr 2018 23:02:23 +0000

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Wells Fargo will be fined $1 billion

Wells Fargo draws bipartisan anger from Congress
Wells Fargo draws bipartisan anger from Congress

Wells Fargo will be fined $1 billion

The hefty penalty will be announced as early as Friday by the Consumer Financial Protection Bureau and the Office of the Comptroller of the Currency, according to a person familiar with the enforcement action.

It will be the harshest action taken by the Trump administration against a Wall Street bank.

Wells Fargo(WFC) apologized last year for charging as many as 570,000 clients for car insurance they didn’t need. The bank warned last week that it may revise its first quarter earnings results because of the fine. The New York Times first reported that the fine would come this week. Wells Fargo declined to comment.

An internal review by Wells Fargo found that about 20,000 of those customers may have defaulted on their car loans and had their vehicles repossessed in part because of those unnecessary insurance costs.

Representatives from the CFPB and the OCC declined to comment on the pending action.

In October, the bank revealed that some mortgage borrowers were inappropriately charged for missing a deadline to lock in promised interest rates, even though the delays were Wells Fargo’s fault.

Such a large fine would be a noteworthy move for the CFPB under Mick Mulvaney, the acting director appointed by President Trump.

As a congressman, Mulvaney called for the bureau’s destruction. And under his leadership, the bureau has delayed payday-loan rules, dropped lawsuits against payday lenders and stripped a fair-lending division of its enforcement powers. He told a House hearing this week that the bureau has not launched any enforcement actions since he took over last fall.

In February, the Federal Reserve handed down unprecedented punishment to Wells Fargo for what it called “widespread consumer abuses,” including its creation of as many as 3.5 million fake customer accounts.

Under that penalty, Wells Fargo won’t be allowed to get any bigger than it was at the end of last year — $2 trillion in assets — until the Fed is satisfied that it has cleaned up its act.

In a conference call last week, CEO Tim Sloan told analysts that he can’t promise no new scandals will emerge.

“We’ve certainly had a thorough look in every nook and cranny in the company, and we’re continuing on that process,” he said. “[But] in terms of declaring victory and walking ahead, we’re not at that spot right now.”

— CNN’s Matt Egan contributed to this report.

Published at Thu, 19 Apr 2018 22:09:03 +0000

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Arming the world: Inside Trump’s ‘Buy American’ drive to expand weapons exports

FILE PHOTO: A Danish delegation walks pass Lockheed Martin’s F-35 Lightning II, at the Farnborough Airshow in southern England, July 11, 2012. REUTERS/Luke MacGregor/File Photo

Arming the world: Inside Trump’s ‘Buy American’ drive to expand weapons exports

WASHINGTON (Reuters) – In a telephone call with the emir of Kuwait in January, U.S. President Donald Trump pressed the Gulf monarch to move forward on a $10 billion fighter jet deal that had been stalled for more than a year.

Trump was acting on behalf of Boeing Co, America’s second-largest defense contractor, which had become frustrated that a long-delayed sale critical to its military aircraft division was going nowhere, several people familiar with the matter said.

With this Oval Office intervention, the details of which have not been previously reported, Trump did something unusual for a U.S. president – he personally helped to close a major arms deal. In private phone calls and public appearances with world leaders, Trump has gone further than any of his predecessors to act as a salesman for the U.S. defense industry, analysts said.

Trump’s personal role underscores his determination to make the United States, already dominant in the global weapons trade, an even bigger arms merchant to the world, U.S. officials say, despite concerns from human rights and arms control advocates.

Those efforts will be bolstered by the full weight of the U.S. government when Trump’s administration rolls out a new “Buy American” initiative this week aimed at allowing more countries to buy more and even bigger weapons. It will loosen U.S. export rules on equipment ranging from fighter jets and drones to warships and artillery, the officials said.

Reuters has learned that the initiative – which industry sources said will be announced on Thursday – will provide guidelines that could allow more countries to be granted faster deal approvals, possibly trimming back to months what has often taken years to finalize.

The strategy will call for members of Trump’s cabinet to sometimes act as “closers” to help seal major arms deals, according to people familiar with the matter. More top government officials will also be sent to promote U.S. weapons at international air shows and arms bazaars.

Shares of major U.S. defense contractors added to gains after the news and Raytheon hit an all-time high.

Human rights and arms control advocates warn that the proliferation of a broader range of advanced weaponry to more foreign governments could increase the risk of arms being diverted into the wrong hands and fueling violence in regions such as the Middle East and South Asia.

The Trump administration stresses that the main aims are to help American defense firms compete better against increasingly aggressive Russian and Chinese manufacturers and give greater weight than before to economic benefits of arms sales to create more jobs at home.

One Trump aide, speaking on condition of anonymity, said the new initiative is also intended to ease human rights restrictions that have sometimes led to an effective “veto” over certain arms deals.

“This policy seeks to mobilize the full resources of the United States government behind arms transfers that are in the U.S. national and economic security interest,” a White House official said, responding to a request for comment on the story.

“We recognize that arms transfers may have important human rights consequences,” the official said. “Nothing in this policy changes existing legal or regulatory requirements in this regard.”

One of the main architects of the new policy has been economist Peter Navarro, a China trade skeptic ascendant in Trump’s inner circle. His effort to boost arms exports has drawn little resistance within the White House, officials said.

‘WHOLE OF GOVERNMENT’

The initiative has been in the works for months and some of its expected components have already been reported. But with the rollout nearing, more than a dozen industry sources and current and former U.S. officials have provided Reuters with the most complete picture yet of Trump’s policy, though they caution that last-minute changes are still possible.

The policy will call for a “whole of government” approach – from the president and his cabinet on down to military attaches and diplomats – to help drum up billions of dollars more in arms business overseas, U.S. officials said.

It will also call for cutting red tape to secure faster deal approval on a broader range of weaponry for NATO members, Saudi Arabia and other Gulf partners as well as treaty allies such as Japan and South Korea, among others, they said. Many details will remain classified.

Companies that stand to benefit most include Boeing and the other top U.S. defense contractors, Lockheed Martin Corp , Raytheon Co, General Dynamics Corp and Northrop Grumman Corp. All of their shares have surged by double-digit percentages, led by the doubling of Boeing’s stock price, since Trump took office in January 2017.

Trump’s aides also want more senior officials to attend major international arms shows, including cabinet members such as Defense Secretary Jim Mattis and Commerce Secretary Wilbur Ross, to promote U.S.-made weapons the way countries such as France and Israel pitch their companies” wares.

“If you go to the Paris air show, you see the French foreign minister standing in front of the Airbus pavilion,” one U.S. official said. “We’re getting outplayed so we have to change our culture.”

In addition to the broad arms export initiative, Trump is expected to sign a separate document easing exports of military drones, an item high on foreign governments’ shopping lists, officials said.

U.S. foreign military sales totaled $42 billion last year, according to the U.S. Defense Security Cooperation Agency. Experts say exports from Russia, the largest U.S. competitor, are typically half those of the United States.

The Aerospace Industries Association trade group said it had first lobbied Trump during the 2016 presidential campaign on the need for “bolstering U.S. manufacturing” and encouraging allies to take more responsibility for their own security.

SALESMAN-IN-CHIEF

While many presidents have helped promote the U.S. defense industry, none is known to have done so as unabashedly as Trump, a former real estate developer who seems sometimes at his most comfortable when he is promoting U.S. goods.

Trump regularly discusses specific arms sales with foreign leaders in meetings and on the phone, according to White House statements. And on a trip to Japan last November, he publicly urged Prime Minister Shinzo Abe to buy more American weapons.

More recently, at an Oval Office meeting with Saudi Crown Prince Mohammed bin Salman last month, Trump held up posters with pictures of U.S. jets, ships and helicopters and other armaments sold to Saudi Arabia. “We make the best military product in the world,” he boasted to reporters as the prince sat smiling beside him.

Other presidents, including Richard Nixon, Bill Clinton and George W. Bush stressed the need to strengthen the defense industrial base, but they did it more subtly, said William Hartung, director of the arms and security project at the Center for International Policy, a non-partisan think tank.

“Nobody’s been as blatant about it as Trump,” he added. “Nobody has yelled it from the rooftops.”

Former President Barack Obama would sometimes talk to allied leaders about weapons systems that he felt suited their security needs, but aides said he preferred to keep weapons salesmanship at arm’s length.

The Trump administration’s plan to overhaul the Conventional Arms Transfer policy, the framework for evaluating foreign sales, goes well beyond Obama’s relaxation of rules in 2014 that enabled U.S. arms contractors to sell more overseas than ever before. Obama drew a clear line, however, requiring each sale to meet strict human rights standards – though he was criticized at times for allowing some controversial sales.

Trump has already gone ahead with several deals that Obama blocked, including the sale of $7 billion in precision-guided munitions to Saudi Arabia despite human rights groups’ concerns they have contributed to civilian deaths in the Saudi-led campaign in Yemen’s civil war.

ANATOMY OF A TRUMP-ERA DEAL

How Boeing’s Kuwait deal got on Trump’s agenda for the Jan. 17 call with Kuwait’s Emir Sheikh Sabah Al-Ahmad Al-Jaber al-Sabah illustrates how seriously the administration is taking the arms export push.

The State Department granted approval in November 2016, in the final months of the Obama administration, for Kuwait to buy 40 F/A-18 Super Hornet strike fighters.

But Kuwait, a U.S. Gulf ally, appeared to drag out negotiations, U.S. officials and industry sources said, and the purchase was still not finalized by the time the emir visited Trump at the White House last September.

Trump told reporters at the time that, at the Kuwaiti leader’s request, he had intervened and won State Department authorization for the deal – a false claim since that approval had already been granted nearly a year earlier.

Months later, Boeing’s request for a presidential nudge to Kuwait was channeled to National Security Council aides, who included it among Trump’s “talking points” for the January phone call, two people close to the matter said.

This time, Trump did make a difference. Just days later, Kuwaiti state media reported the deal was done.

The Kuwaiti government did not respond to requests for comment. A Boeing spokesman declined comment.

Reporting By Mike Stone and Matt Spetalnick; Editing by Chris Sanders and Ross Colvin

Published at Tue, 17 Apr 2018 20:21:44 +0000

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Mick Mulvaney defends CFPB role: ‘I have not burned the place down’

What you need to know about the CFPB

Mick Mulvaney defends CFPB role: ‘I have not burned the place down’

Mick Mulvaney says he’s not trying to destroy the Consumer Financial Protection Bureau, which he once pushed to abolish and now leads.

“I have not burned the place down,” Mulvaney, the acting director of the watchdog agency, told a House hearing on Wednesday.

Democrats disagreed, loudly. They repeatedly bashed Mulvaney for defanging the agency.

“You are clearly out to destroy the CFPB — and you really make no bones about it,” said Representative David Scott, a Democrat from Georgia.

Representative Carolyn Maloney of New York said: “We have essentially taken the cop off the beat.”

Maloney asked Mulvaney to explain how many enforcement actions the CFPB has launched since he took over, amid controversy, last fall.

“We have initiated none,” said Mulvaney, who also serves as President Trump’s budget director.

He pointed to about 100 investigations under way at the CFPB, and 25 cases being litigated.

“Are you telling me that every single financial institution in America has suddenly snapped into full compliance?” Maloney asked.

Mulvaney insisted that the CFPB continues to supervise financial firms and conduct enforcement actions set in motion before he got there. However, he said “regulation by enforcement is done. We’re not doing it anymore.”

Republicans on the panelwelcomed Mulvaney’s efforts to dial back the CFPB and pushed for more to be done to rein in the power of the agency’s director.

“I still maintain that the CFPB is the most powerful and unaccountable agency in the history of the republic,” said Representative Jeb Hensarling of Texas, the Republican chairman of the House Financial Services Committee.

As a Republican lawmaker, Mulvaney called the CFPB a “joke.” He even endorsed abolishing the CFPB, casting it as a renegade regulator that hurts Americans by crippling access to credit.

The CFPB was created in 2010 by Congress and former President Obama to safeguard Americans from financial predators. The agency rolled out mortgage and payday-lender rules and cracked down on bad behavior by penalizing Citigroup(C), Wells Fargo(WFC) and many other lenders.

Under Mulvaney, the CFPB has reversed course. It has delayed the payday-loan rules, dropped lawsuits against payday lenders and stripped enforcement of fair-lending protections.

Yet there was little evidence that the CFPB’s rules were crippling the economy. In reality, America’s banks are notching record profits and household debt is at all-time highs. Since the CFPB opened, bank loans to businesses have also risen to all-time highs.

Representative Gregory Meeks, a Democrat from New York, accused Mulvaney of becoming acting director just to undermine the agency.

“The best way to get rid of the bureau would be to take it over and get rid of it,” Meeks said.

Mulvaney explained that although he wants to reform the CFPB, “I haven’t blown the place up.”

He also denied rumors that he’s eyeing House Speaker Paul Ryan’s job when he retires next year.

“I’ve got two jobs. That’s enough for me,” Mulvaney said.

Published at Wed, 11 Apr 2018 17:27:30 +0000

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Why are US cranberries repeatedly threatened with tariffs?

 

Richard Quest: The US-China trade war has begun
Richard Quest: The US-China trade war has begun

 Why are US cranberries repeatedly threatened with tariffs?

When the European Union was trying earlier this year to avoid US tariffs, its leaders threatened to strike back by targeting American products including cranberries, orange juice, whiskey and tobacco.

The same four products — cranberries, orange juice, whiskey and tobacco — were included on a list of 106 goods that China plans to hit with heavy new tariffs as part of its escalating trade dispute with the United States.

What’s so special about cranberries and whiskey?

Experts say that the seemingly random array of US products in line for retaliation are actually carefully selected. The goal is to heap both economic and political pressure on politicians in Washington, and convince them to reverse course.

“Everybody looks at this very scientifically, and they have a lot of political science in this,” said Ross Denton, a partner and trade specialist at the law firm Baker McKenzie.

He said the European Union pioneered the modern trade retaliation system, whereby officials identify products that have the most economic importance to a target country and then “cross reference that with where they think the most political pain will be caused.”

The exercise yields a broad list of potential targets, which is narrowed by considering the economic impact that tariffs would have on consumers at home.

“They definitely do look at the impact on the consumer,” said Denton. “They always try to make sure there’s an alternative supply for [their] consumers.”

Which leads us back to cranberries and whiskey

Wisconsin — a swing state that voted for President Donald Trump in 2016 — produces more than half of the world’s cranberries. It’s also the home state of Paul Ryan, the top Republican in the US House of Representatives.

China imports $50 million worth of US cranberries a year — or 15% of America’s global exports — according to the US Department of Agriculture. The European Union imports $130 million in cranberries, or 38% of US exports.

Beijing and Brussels both know that the public threat of retaliatory tariffs puts political pressure on Ryan, and other Republicans in Wisconsin. They may even lobby the Trump administration to reverse course.

Meanwhile, if Chinese and European consumers had to pay more for cranberries, or forgo them altogether, the pain wouldn’t be so severe.

“Trading partners are trying to understand how to influence President Trump,” said Chad Bown, a senior fellow at the Peterson Institute for International Economics. “There really is no definitive tried-and-true track record that we think could ‘work.’ ”

us import click image text 3

Senate Majority Leader Mitch McConnell, another influential Republican, hails from Kentucky, where the sixth largest export is whiskey and 63% of voters went for Trump.

A tariff on whiskey could seriously hurt American producers. But consumers in China and the European Union have plenty of alternatives — they can get premium whiskey from Ireland, Scotland or Japan without too much trouble.

Bown said the ultimate goal is to put pressure on multiple Republicans in the hopes that some of them will be able to influence Trump.

“President Trump is a very different kind of president. It’s really unclear … who he listens to for policy advice,” he said.

After weeks of lobbying, the European Union was able to win a temporary exemption to tariffs the Trump administration placed on steel and aluminum products. That means cranberries and whiskey have been spared, for now.

But trade tensions with China show no sign of letting up.

Beijing announced its list of 106 American products that will be hit with 25% tariffs on Wednesday. On Thursday, Trump said he was considering new tariffs on another $100 billion worth of Chinese goods.

Mark Muro, a senior fellow at the Brookings Institution, estimates that about 2.1 million American jobs could be affected by the retaliatory tariffs that China has announced so far.

Published at Fri, 06 Apr 2018 16:51:47 +0000

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Dow tumbles 572 points as trade war fears pummel stocks

 

Dow tumbles as trade war fears pummel stocks
Dow tumbles as trade war fears pummel stocks

Dow tumbles 572 points as trade war fears pummel stocks

Stocks tumbled Friday as trade tensions between the United States and China heated up.

The Dow closed down 572 points, a drop of 2.3%, after President Trump threatened to escalate a confrontation with China over trade. It fell as much as 767 points earlier in the day. The S&P 500 and the Nasdaq each declined more than 2%.

Friday’s losses wiped out gains for the week, and the Dow sank back into correction territory — 10% below its all-time closing high in January.

Trump said late Thursday that he was considering tariffs on $100 billion more in Chinese exports, which would triple what the United States is already planning.

“The fear of a policy mistake on trade is increasing,” said Art Hogan, chief market strategist at B. Riley FBR.

All 30 companies on the Dow lost ground on Friday. Caterpillar(CAT), Boeing(BA) and Nike(NKE), giants with heavy exposure in China, were among the biggest losers in the index.

“The ratcheting up of trade tensions clearly carries risks. The tariff threats, even if only intended as bargaining tools, will be difficult to back down from if talks fail to deliver results,” Capital Economics’ Julian Evans-Pritchard wrote in a research note Friday.

Anxiety returned to Wall Street after three days of gains. The VIX,(VIX) a measure of market volatility, spiked 12%. CNNMoney’s Fear and Greed index sank further into “extreme fear” territory.

Wary investors had been holding out hope that the two sides will reach a deal before the proposed trade barriers go into effect.

White House officials, including top economic adviser Larry Kudlow, have sought in recent days to soothe business leaders’ fears of a trade war that would constrain economic growth.

Earlier this week, the Trump administration announced plans for tariffs on $50 billion worth of Chinese goods in retaliation for China’s alleged theft of US intellectual property. Beijing fired back hours later by threatening tariffs on $50 billion worth of US goods, including cars, planes and soybeans.

The market had been interpreting Trump’s proposed tariffs as negotiating tactics meant to extract concessions out of China rather than a rigid position. But Wall Street began to reassess that view as the administration sent conflicting signals throughout the day.

“We’ve gone from Larry Kudlow trying to calm the markets down to the administration saying, ‘Hey, ignore the markets,'” Hogan said.

In a radio interview Friday morning, Trump said, “I’m not saying there won’t be a little pain, but the market has gone up 40%, 42%, so we might lose a little bit of it.”

Kudlow, speaking to reporters shortly after the markets opened, said, “Now, we’re not running a trade war.” He stressed that the US tariffs on China were simply proposals, still to be vetted by trade officials and open to public comment.

Selling accelerated later in the day after Treasury Secretary Steve Mnuchin told CNBC, “There is the potential of a trade war.”

Investors had been operating under the assumption China and the United States were negotiating to avoid a trade conflict, but Mnuchin avoided questions about whether the two countries were actively talking.

“As no one came out to pull this back, there was a gradual realization that this was something that might be a little more serious,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

Analysts said the market also responded to Federal Reserve Chair Jerome Powell, who said that the US economy was growing and a turbulent stock market would not change the Fed’s course to gradually raise interest rates.

The Fed is on track to raise rates three times this year, but it could speed up the increases to keep the economy from overheating.

“Markets are forced to confront the idea that rates are going up and the stock market is not going to derail that process,” McMillan said.

Stocks were mostly unaffected by the March jobs report, which showed that the US economy added 103,000 positions, down from a much bigger gain in February and well below what analysts were expecting.

Wages grew 2.7% in March compared with a year earlier, in line with expectations. Investors were watching that number because it’s a barometer of inflation. In February, an unexpected jump in wage growth set off inflation alarm bells and caused stocks to plunge.

The combination of the hiring slowdowns and modest wage growth temporarily eased Wall Street’s concerns that the economy was getting too hot.

The yield on the 10-year US Treasury note, which has been steadily climbing as investors’ inflation expectations rise, dipped to 2.78% after the jobs report.

“Investors breathed a sigh of relief,” said Sam Stovall, chief investment strategist at CFRA Research. “Now we only have one issue to deal with, and that’s trade.”

—CNNMoney’s Paul R. La Monica contributed to this report.

Published at Fri, 06 Apr 2018 20:06:15 +0000

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Trump isn’t as pro-business as he claims

President Trump vs Amazon CEO Jeff Bezos
President Trump vs Amazon CEO Jeff Bezos

 Trump isn’t as pro-business as he claims

Amazon, Apple, Ford and Goldman Sachs are among America’s largest employers and most iconic brands. They have something else in common: They’ve all been attacked by the CEO president.

President Donald Trump styles himself a business-friendly leader. But just this month his administration imposed tariffs on steel, aluminum and Chinese goods. It went to trial to block a vertical merger on antitrust grounds. And this week, Trump attacked Amazon(AMZN) — a major driver of the stock market rally and the jobs market.

The president has targeted many other companies and industries. He repeatedly accused Ford (F)of moving jobs from Michigan to Mexico, claims that Ford has said were incorrect. And last summer, Trump lashed out at Ken Frazier and the pharmaceutical industry’s “ripoff drug prices” after the Merck (MRK)CEO quit Trump’s manufacturing council.

Trump’s attacks on major American companies can hardly be considered business-friendly. Nor are they helpful to the stock market, which Trump himself views as a barometer of his success.

The president’s anti-business actions undermine his pro-business achievements, such as the huge corporate tax cut, a push to rip up regulations and booming small business optimism.

“There is this implicit paradox because he has been waving the flag as the champion of American enterprise,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management. “It’s a very confused portrait.”

An Axios report on Wednesday that described a president plotting to “go after Amazon” wiped $32 billion from the company’s market value. Rather than deny the report, Trump doubled down with a pair of misleading tweets about Amazon’s tax and shipping tactics.

Never mind that Amazon accounts for about 12% of the Trump rally. Or that it’s responsible for about 5% of last year’s hiring boom. Plus, as CNBC’s Jim Cramer pointed out on Twitter, Amazon “lowers prices for consumers!”

Yet Trump is a frequent critic of Amazon CEO Jeff Bezos, who also owns The Washington Post. Amazon does not own the newspaper, though Trump misleadingly calls it the “Amazon Washington Post.”

“Our sense is that the Washington Post’s coverage is the driving force behind his antipathy,” Isaac Boltansky, senior policy analyst at Compass Point Research and Trading, wrote in a report.

In 2016, Trump told Fox News that he believes Bezos is using the Post as a “tool for political power against me and against other people.”

The White House has denied that’s why Trump is taking on Amazon. Raj Shah, Trump’s deputy press secretary, told Fox News on Thursday “this is really about policy,” not Bezos.

Meanwhile, Trump’s Justice Department sued to block the AT&T-Time Warner megadeal. (Time Warner owns CNN.) The administration has taken the rare step of trying to block a “vertical merger,” one between two companies in different lines of business. The federal government hasn’t fought a vertical merger in court to its conclusion since 1979.

For Trump, what seems to matter most has been the verdict the stock market delivers.

The results were very positive last year as stocks boomed thanks to Trump’s tax cuts.

More recently, Trump’s policies — specifically his trade crackdown — drove repeated sell-offs in March. The Dow ended with its worst quarter since 2015.

That means even Wall Street is being forced to confront the anti-business portions of the Trump agenda.

— CNNMoney’s Chris Isidore and David Goldman contributed to this story.

Published at Fri, 30 Mar 2018 17:59:06 +0000

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Nobody gets off ‘scot-free’ from Trump tariffs, White House adviser says

Navarro: Exemption is not 'a get out of tariff free card'
Navarro: Exemption is not ‘a get out of tariff free card’

 Nobody gets off ‘scot-free’ from Trump tariffs, White House adviser says

President Trump granted tariff exemptions to six countries and the European Union, initially easing fears of a global trade war.

But it’s increasingly clear those countries will still face a penalty.

“It’s not an exemption like it’s a Get Out of Tariff Free card,” White House trade adviser Peter Navarro told CNN’s Richard Quest on Wednesday. The White House has said “nothing about letting countries off scot-free.”

Last week Trump imposed a 10% tariff on imported aluminum and a 25% tariff on imported steel — except for the countries granted exemptions. Beyond Europe, the countries were Mexico, Canada, Brazil, Argentina, Australia and South Korea.

Together, they account for about two-thirds of steel exports to the United States.

Initially, some outside investors and economists thought that the exemptions put those countries in the clear. In 2002, President George W. Bush imposed a global tariff on steel, but exempted Canada and Mexico.

But the exempted countries will probably still face a quota — a limit on how much steel or aluminum they may ship to the United States each year. It’s a tool President Ronald Reagan used on Japan in the 1980s.

The White House revealed its first quota on Tuesday. South Korea must cut its annual steel exports to the United States by 30% between the two countries, which just renegotiated a trade agreement. The quota takes the place of the 25% steel tariff. South Korea will still pay the 10% aluminum tariff.

Tariffs are generally worse than mutually agreed-upon quotas. But quotas are still a barrier that can sour trade relations, and they put more teeth in Trump’s trade action on steel and aluminum than some investors expected.

The other exempted nations have until May 1 to negotiate deals with the Trump administration. White House officials said Tuesday that each country’s exports will be judged separately. The 30% reduction that South Korea received may not apply to the others.

Despite stock market volatility triggered by fears of a trade war, Navarro said no one should be surprised by Trump’s trade policy. He noted that the investigations that resulted in the tariffs took several months. He also pointed out that Trump himself promised as a candidate that he would be tough on trade.

“The president said he was going to come in and get fair and reciprocal trade, so why is anyone surprised he’s actually doing it? What a concept,” Navarro told Quest. “Nobody didn’t see this coming.”

Published at Wed, 28 Mar 2018 21:39:06 +0000

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New US deal with South Korea: What you need to know

Korea flag

by Big_Heart from Pixabay

New US deal with South Korea: What you need to know

President Donald Trump has his first trade deal.

Senior US officials on Tuesday gave details on an agreement in principle with South Korea to revise a trade deal that originally went into effect in 2012.

The officials said the agreement was an example of Trump delivering on his promise to voters to negotiate better trade deals for the United States.

“This agreement is visionary and innovative,” one senior administration official, speaking on background, told reporters.

The US officials made their case for why the revised deal is an improvement on the one that’s currently in effect, which Trump has slammed as “horrible” and a “job killer.” The South Korean government first announced details of the agreement on Monday.

Some economists have suggested the new deal isn’t significantly different from the old one. South Korean exporters will be relieved that none of the tariffs that were lifted under the original agreement have been brought back, according to Krystal Tan, an economist at research firm Capital Economics.

Experts point out that the negotiations lasted only a few months, far shorter than trade talks typically take. Striking a deal quickly, they note, has the advantage of removing a potentially divisive issue between the two military allies at a time of tensions and delicate talks with North Korea.

Here are some of the main takeaways from the new agreement:

Auto exports

The Trump administration says some of the key changes affect the auto industry, which accounts for a big chunk of the trade deficit the United States runs with South Korea.

Under the revamped deal, each US carmaker will be allowed to export 50,000 vehicles per year to South Korea that meet American safety standards, up from 25,000 previously. Beyond that threshold, cars shipped from the United States will have to comply with South Korean safety rules, which American companies say put them at a disadvantage.

But analysts say the increased quota is unlikely to make much difference anytime soon. No US automaker sold more than 11,000 cars in South Korea last year.

Trump administration officials argue, though, that US car companies should benefit from an agreement by South Korea to ease “burdensome” auto regulations more broadly. That includes reducing additional tests and getting rid of labeling requirements that, the administration argues, hinder American automakers’ ability to sell in South Korea.

The revised deal also postpones the phasing out of a US tariff of 25% on pickup trucks from South Korea. It will now end in 2041 rather than 2021. Capital Economics says no Korean automaker exports pickup trucks to the US at the moment.

Steel tariff exemption

The US government has linked the agreement on a revised trade pact with the decision to cut South Korea some slack on Trump’s recent broad tariffs on steel and aluminum imports.

South Korea will still be subject to the 10% tariff on aluminum that was imposed on most nations. But it is largely exempt from the 25% tariff on steel.

Under the arrangement, 70% of the average amount of steel that South Korea exports to the United States each year will be permanently exempt from the new 25% tariff, officials said. Anything above that amount will still be subject to it.

Several other US allies — including Canada, Mexico and the European Union — have been granted temporary exclusions from the tariffs.

Currency clause

The United States and South Korea also agreed to try to make sure neither country devalues its currency intentionally to gain an unfair advantage on trade. But the measure lacks teeth.

When a currency is weaker, it makes exports cheaper — and more attractive — to foreign buyers. It also makes foreign imports more expensive for local consumers. On the campaign trail, Trump repeatedly railed against other countries that he accused of purposely devaluing their currencies to get an unfair edge over the United States.

The United States has never included a provision on currencies in a trade negotiation before, according to Trump administration officials.

But the devil is in the detail. The currency provision is not actually in the official agreement and has no enforcement mechanism. Including it in the text of the deal would have required a lengthy legislative approval process, a path that administration officials indicated they did not want to go down.

In effect, both countries are just agreeing to act in good faith with their currencies.

Published at Wed, 28 Mar 2018 03:27:48 +0000

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Cambridge Analytica CEO claims influence on U.S. election, Facebook questioned

Cambridge Analytica CEO claims influence on U.S. election, Facebook questioned

LONDON/SAN FRANCISCO (Reuters) – The suspended chief executive of Cambridge Analytica said in a secretly recorded video broadcast on Tuesday that his UK-based political consultancy’s online campaign played a decisive role in U.S. President Donald Trump’s 2016 election victory.

His comments, which could not be verified, are potentially a further problem for Facebook Inc as it faces lawmakers’ scrutiny in the United States and Europe over Cambridge Analytica’s improper use of 50 million Facebook users’ personal data to target voters.

The social media network’s shares fell for a second day, closing down 2.5 percent, as investors worried that its dealings with Cambridge Analytica might damage its reputation, deter advertisers and invite restrictive regulation. The company has lost $60 billion of its stock market value over the last two days.

Cambridge Analytica’s board of directors suspended CEO Alexander Nix on Tuesday, shortly before the second part of British broadcaster Channel 4’s expose of the firm’s methods.

In the program Nix describes questionable practices used to influence foreign elections and said his firm did all the research, analytics and targeting of voters for Trump’s digital and TV campaigns. He also boasts he met Trump when he was the Republican presidential candidate “many times.”

Nix’s comments “do not represent the values or operations of the firm and his suspension reflects the seriousness with which we view this violation,” Cambridge Analytica said in a statement on Tuesday.

Brad Parscale, the 2016 Trump campaign’s main digital adviser who dealt regularly with Cambridge Analytica, did not immediately respond to a request for comment on Nix’s claims.

Jared Kushner, Trump’s son-in-law and now senior adviser, oversaw the Trump campaign’s digital operations. One former Trump adviser said Kushner brought Cambridge Analytica into the 2016 campaign effort. Kushner’s lawyer did not immediately respond to a request for comment.

U.S. law bans foreigners from making contributions or spending money on behalf of a U.S. election campaign but it was not illegal for the Trump campaign to retain Cambridge Analytica’s services, according to Bradley Smith, a former Republican member of the U.S. Federal Election Commission.

“The fact that they are a British company doesn’t add anything to the analysis unless they were giving their services away for free or charging below-market rates,” said Smith, now a professor at the Capital University Law School in Columbus, Ohio.

FTC REVIEW, LAWSUIT

U.S. and European lawmakers have demanded an explanation of how Cambridge Analytica gained access to user data in 2014 and why Facebook failed to inform its users, raising broader industry questions about consumer privacy.

Facebook said it had been told by the Federal Trade Commission (FTC), the leading U.S. consumer regulator, that it would receive a letter this week with questions about the data acquired by Cambridge Analytica. It said it had no indication of a formal investigation.

“The entire company is outraged we were deceived,” Facebook said in a statement on Tuesday. “We are committed to vigorously enforcing our policies to protect people’s information and will take whatever steps are required to see that this happens.”

The FTC is reviewing whether Facebook violated a 2011 consent decree it reached with the authority over its privacy practices, a person briefed on the matter told Reuters.

If the FTC finds Facebook violated terms of the consent decree, it has the power to fine the company thousands of dollars a day per violation, which could add up to billions of dollars.

People walk past the building housing the offices of Cambridge Analytica in central London, Britain, March 20, 2018. REUTERS/Henry Nicholls

Facebook was also hit on Tuesday in a San Francisco court by the first of what could be many lawsuits by shareholders claiming to suffer losses because the company misled them about its ability to protect user data. The company could also soon face lawsuits on behalf of users whose personal information was exposed.

Facebook and its peers Alphabet Inc’s Google and Twitter already face a backlash from users and lawmakers over their role during the U.S. presidential election by allowing the spread of false information that might have swayed voters toward Trump.

Fear of increased regulation hurt other social media firms on Tuesday. Shares of Snap Inc fell 2.5 percent and Twitter Inc fell more than 10 percent.

FOREIGN INFLUENCE

U.S. Senator Dianne Feinstein, the top Democrat on the Judiciary Committee, called on Tuesday for Facebook CEO Mark Zuckerberg to testify in Congress. Congressional staff said the company would brief U.S. Senate and House aides on Wednesday.

Slideshow (6 Images)

A Congressional official said House Intelligence Committee Democrats plan to interview Cambridge Analytica whistleblower Christopher Wylie. The committee interviewed Nix by video teleconference, according to the Congressional official, but a transcript of that interview has not yet been made public.

The Senate Intelligence Committee, which is conducting a long-term investigation of alleged Russian interference in U.S. politics and a detailed examination of U.S. election security precautions, would carry out its own inquiry of Cambridge Analytica, a Congressional official with direct knowledge of the investigation said.

The White House said it welcomed inquiries, and that the President believes that Americans’ privacy should be protected.

PERSONAL INFORMATION

In Britain, the Information Commissioner’s Office, an independent authority set up to uphold information rights in the public interest, was seeking a warrant from a judge to search the offices of London-based Cambridge Analytica. It was unclear late on Tuesday whether it had obtained it.

Created in 2013, Cambridge Analytica markets itself as a source of consumer research, targeted advertising and other data-related services to both political and corporate clients.

According to the New York Times, it was launched with $15 million in backing from billionaire Republican donor Robert Mercer and a name chosen by the-then future Trump White House adviser Steve Bannon.

Facebook says the data were harvested by a British academic, Aleksandr Kogan, who created an app on the platform that was downloaded by 270,000 people, providing access not only to their own personal data but also their friends’.

Facebook said Kogan then violated its policies by passing the data to Cambridge Analytica. Facebook has since suspended both the consulting firm and SCL (Strategic Communication Laboratories), a government and military contractor.

Facebook said it had been told that the data were destroyed. Kogan was not immediately reachable for comment.

Cambridge Analytica has denied all the media claims and said it deleted the data after learning the information did not adhere to data protection rules.

Reporting by David Ingram in San Francisco, Kate Holton and Paul Sandle in London, David Shepardson, Susan Heavey, Mark Hosenball, Jonathan Landay and Sarah N. Lynch in Washington, Jonathan Stempel in New York; Additional reporting by Munsif Vengattil; Writing by Susan Thomas; Editing by Nick Zieminski and Bill Rigby

Published at Tue, 20 Mar 2018 22:42:54 +0000

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Wall Street would freak out if Trump fired Mueller

Trump takes on Mueller in tweetstorm
Trump takes on Mueller in tweetstorm

Wall Street would freak out if Trump fired Mueller

Wall Street would probably flip out if President Trump tried to fire Special Counsel Robert Mueller.

Market analysts warn the stock market would drop sharply, at least at first, because trying to oust Mueller would create immeasurable uncertainty and could even ding the economy.

“That would be stepping on the rule of law and a potential constitutional crisis,” said Art Hogan, chief market strategist at B. Riley FBR.

“That’s a real difficult one to model,” he said, “but it’s sure as heck not a positive.”

Firing Mueller could also raise the odds of a blue wave in the midterm elections that would leave Democrats in charge of Congress.

Isaac Boltansky, director of policy research at Compass Point Research and Trading, said in a report that firing Mueller would represent a “dramatic escalation in political risk.”

The White House has repeatedly said Trump is not planning to fire Mueller. A spokesman repeated that stance on Monday, saying it’s “pretty clear there are no conversations or discussions about removing Mr. Mueller.”

Still, analysts cited Trump’s more aggressive stance against Mueller, as a contributing factor behind Monday’s Facebook(FB)-led market tumble. The Dow dropped 336 points.

“The drumbeat has gotten louder,” Hogan said.

Brad McMillan, chief investment officer at Commonwealth Financial Network, said Trump’s tweets about Mueller over the weekend “raised some uncertainty.”

For the first time, Trump mentioned Mueller by name in a tweet over the weekend, calling the special counsel’s investigation a “WITCH HUNT!”

His legal team also announced the hiring of Washington lawyer Joseph diGenova, an outspoken critic of the Russia investigation. “A group of FBI and DOJ people were trying to frame Donald Trump of a falsely created crime,” diGenova said on Fox News in January.

To be sure, ordering the firing of Mueller would be legally complicated and risk a challenge from within Trump’s own party.

Republican Senator Lindsey Graham told CNN’s Jake Tapper on Sunday that firing Trump would mark the “beginning of the end of his presidency. Because we are a rule-of-laws nation.”

House Speaker Paul Ryan said on Tuesday that Mueller “should be free to follow through his investigation to its completion without interference, absolutely.” And Senate Majority Leader Mitch McConnell said Mueller “should be allowed to finish his job.”

For the most part, Wall Street has shrugged off the Russia investigation. Investors have instead focused on Trump’s agenda, booming corporate earnings and strengthening economic growth.

There have been a few exceptions, though. For instance, last May, the market fell sharply on concerns about the circumstances surrounding the firing of FBI Director James Comey. That proved to be a fleeting sell-off.

Another question is how Mueller’s firing would affect the midterm elections in November. A takeover of Congress by Democrats could spook the market because of the prospect of the reversal of Trump’s tax and regulatory agenda.

The key would be whether the economy would be hurt by a political crisis. Analysts said a prolonged period of uncertainty could slow growth by hurting consumer and business confidence.

“What the market would not be fine with is a drawn-out constitutional crisis,” said Ed Mills, Washington policy analyst at Raymond James.

On the other hand, a quick resolution could be a nonevent, economically speaking.

“I believe a decline would be short-lived,” said Sam Stovall, chief investment strategist at CFRA Research. “If the fundamentals have not changed, I would tend to think it would be a buying opportunity.”

Given the great uncertainty that ousting Mueller would spark, Ed Yardeni, president of Yardeni Research, suggested the best outcome for the market would be for the investigation to continue.

“If you really have nothing to hide, then why not let the investigation move along?” he asked.

—CNN’s Nathaniel Meyersohn, Kristin Wilson and Allie Malloy contributed to this report.

Published at Tue, 20 Mar 2018 18:25:03 +0000

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Trump spending spree may speed up the Fed

Who is Jerome Powell?
Who is Jerome Powell?

Trump spending spree may speed up the Fed

1. Will the Fed pick up the pace: Everything seems to move faster in the Trump era. Perhaps even the deliberative Federal Reserve.

The US central bank has long telegraphed a no-rush attitude about lifting interest rates from historic lows.

But the Fed may be forced to pick up the pace over the next two years, in part because of a spending spree by President Trump and Congress — spending aimed at stimulating the already healthy American economy.

If the Fed doesn’t raise rates more quickly, it risks falling behind. The $1.5 trillion Republican tax cut, as well as a bipartisan $300 billion spending plan, could overheat the robust labor market.

That extra stimulation for the economy will push inflation higher and lead the Fed to raise interest rates four times this year instead of the expected three, Capital Economics chief economist Jonathan Loynes predicted in a recent report.

Wall Street will be hunting for clues on Wednesday, when the central bank wraps up its first meeting under new chief Jerome Powell.

Virtually everyone expects the Fed to raise rates this week, and at least twice more later in the year.

The real drama is over whether the Fed will signal a more aggressive stance, perhaps by adjusting higher its “dot plot” of projected rate hikes. And if it does, will that spook a stock market accustomed to low rates.

The strong economy, coupled with the burst of spending and tax cuts from Washington, will likely prompt the Fed to raise its rate hike projections in March, according to Goldman Sachs chief economist Jan Hatzius.

Powell, Trump’s pick to lead the Fed, recently told Congress he doesn’t want to “get behind the curve of inflation and have to raise rates quickly and cause a recession.” For now, Powell said he sees “no evidence” that the economy is “overheating.”

Trump has made no secret of his desire for the Fed to take it nice and slow. “I’d like to see rates stay low,” Trump told The Wall Street Journal last summer. At the time, he called then-Fed chief Janet Yellen a “low-interest-rate person.”

All this raises questions about the wisdom of borrowing more money to stimulate an economy with low unemployment and high budget deficits.

“I’m not sure whether the tax cuts were necessary,” said David Leduc, chief investment officer of active fixed income at BNY Mellon Asset Management. “But people forget this expansion has been so anemic and unsatisfying.”

Rick Rieder, BlackRock’s chief investment officer for fixed income, was loudly calling for help from Washington — years ago, when growth was sluggish.

“The timing has been off,” Rieder wrote in a recent report.

“It is almost as if the economic party was well under way, and then the punch bowl was just spiked (rather than taken away),” he said. “It will be fun for a while and then maybe tougher afterward.”

2. Tense time for a global summit: Frictions over global trade loom over the G20 meeting of major world economies, which opens Monday in Buenos Aires.

Trump’s plan to impose tariffs on steel and aluminum sent a tremor through global markets and angered US trade partners, who said they aren’t afraid to retaliate. The administration has offered exemptions to Canada and Mexico. It’s unclear whether other countries will be spared.

China, which has been the target of frequent attacks from Trump over its trade practices, could be hit with separate tariffs on its products. How China reacts will go a long way toward determining whether a trade war breaks out.

If it does, American companies will suffer. Boeing(BA) in particular has a lot to lose. It’s the nation’s single largest exporter, and China is a critical market. The Chinese government has signaled that it will consider ordering jets from Airbus instead of Boeing if the United States steps out of line on trade.

3. AT&T trial begins: Corporate America will be paying attention when the Justice Department’s lawsuit to block AT&T(T) from buying Time Warner(TWX) goes to trial thisweek. Opening statements are scheduled for Wednesday in Washington.

The Justice Department argues that the deal would give AT&T the power to charge its competitors more for Time Warner content, or to block it entirely from other providers like Comcast(CCZ) and Verizon(VZ). The outcome of the case will help shape the media industry. (Time Warner is the parent of CNN.)

It could also influence the thinking of other companies considering deals. So far, they don’t seem to be afraid. Over the past few months, CVS(CVS) announced that it is buying Aetna(AET), Disney(DIS) said it would buy Fox(FOXA), and Cigna(CI) put in a bid for Express Scripts(ESRX). The deals are all massive in scale and could pose antitrust problems.

4. Food news: General Mills(GIS) plans to report earnings on Wednesday, and Darden Restaurants(DRI), which owns Olive Garden, reports on Thursday.

General Mills has been struggling to sell yogurt and cereal, although cereal sales ticked up last quarter. Darden, on the other hand, is enjoying success with Olive Garden. We’ll see next week how the food giants fared last quarter.

Starbucks(SBUX) holds its annual shareholder meeting on Wednesday.

5. Coming this week:

Monday — Oracle(ORCL) earnings; G20 starts

Tuesday — FedEx(FDX) earnings

Wednesday — General Mills earnings; AT&T trial opening statements; Powell’s first press conference

Thursday — Darden, Nike(NKE) earnings

Published at Sun, 18 Mar 2018 12:12:15 +0000

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Larry Kudlow is usually wrong

Larry Kudos is usually wrong

by Bill McBride on 3/13/2018 01:29:00 PM

With all the discussion that Larry Kudlow might be named the new director of the White House’s National Economic Council, I’ve been asked to repost a post I wrote in 2016 “Larry Kudlow is usually wrong“. On Kudlow, see from Bloomberg: Trump Says Kudlow Has ‘Very Good Chance’ at Taking Cohn’s Job and CNN Trump tells people he is selecting Larry Kudlow to replace Gary Cohn

Most of the following is a repeat of the 2016 post …

Larry Kudlow is usually wrong and frequently absurd, as an example, in June 2005 Kudlow wrote “The Housing Bears are Wrong Again” (link has been replaced) and called me (or people like me) “bubbleheads”.

Homebuilders led the stock parade this week with a fantastic 11 percent gain. This is a group that hedge funds and bubbleheads love to hate. All the bond bears have been dead wrong in predicting sky-high mortgage rates. So have all the bubbleheads who expect housing-price crashes in Las Vegas or Naples, Florida, to bring down the consumer, the rest of the economy, and the entire stock market.

I guess I was one of those “bubbleheads”!

In December 2007, he wrote: Bush Boom Continues

There’s no recession coming. The pessimistas were wrong. It’s not going to happen. At a bare minimum, we are looking at Goldilocks 2.0. (And that’s a minimum). Goldilocks is alive and well. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come. Yes, it’s still the greatest story never told.

Note the date of the article. The recession started in December 2007!

Note: At the beginning of 2007 I predicted a recession would start that year – made it by one month.  It seems I’m always on the opposite side from Kudlow of each forecast – and one of us has been consistently wrong.

In 2014, Kudlow claimed: “I’ve always believed the 1990s were Ronald Reagan’s third term.”

In that piece, Kudlow was rewriting his own history.  Near the beginning of Clinton’s first term, Kudlow was arguing Clinton’s policies would take the economy into a deep recession or even depression.  Kudlow was wrong then (I remember because I was on the other side of that debate), so he can’t claim he “always believed” now.  Nonsense.

Also in 2007, right before the crash during President George W. Bush’s 2nd term, Kudlow wrote: A Stock Market Vote of Confidence for Bush:

“I have long believed that stock markets are the best barometer of the health, wealth and security of a nation. And today’s stock market message is an unmistakable vote of confidence for the president.”

Well, maybe Kudlow had a point … about President Obama!

Now Larry Kudlow might be the new director of the White House’s National Economic Council. Oh my.

Read more at http://www.calculatedriskblog.com/2018/03/larry-kudlow-is-usually-wrong.html#2Wfov55DmX7ecFIy.99

Published at Tue, 13 Mar 2018 17:29:00 +0000

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Trade War Fears

Trade War Fears

by THE MOLE

The MSM hasn’t exactly been short of clickbait lately as one supposed global crisis is chasing the next. But suddenly a purported ‘trade war’ between the United States and China is all rage now, and I mean that in the literal sense since everyone seems to be getting their panties in a twist about an issue that in my not so humble opinion has been on the forefront of Chinese/U.S. relations for many years now.

At the same time the loss of about 50,000 factories and the impact on U.S. employment since NAFTA took effect on 1/1/1994 apparently has never been worth much media attention. And sure, of course there are various arguments challenging that perspective. And not being an economist by trade nor ambition my simple response would be: Just take a trip to Baltimore or Detroit and talk to anyone you meet in the streets. Then come back and let’s go over your gripes with the fact that U.S. workers have been squeezed hard over the past few decades.

Whether or not import tariffs on steel and various other products will be a net negative for the U.S. economy and labor remains to be seen. But what clearly does not work is business as usual as has been practiced without care or regard for workers and their families over the past quarter century.

Anyway, be this as it may – all that clickbait cost me a perfectly well running E-Mini campaign. I got out at about 2R in profits which is fine but a long shot from where it was yesterday afternoon.

If I wasn’t leaving tomorrow I would be tempted to grab a long position here but looking at the mess of the past few weeks on the short term panel makes me appreciate the fact that we’re banking profits in equities in the first place. And I’m not going to push my luck ahead of my little trip.

Plus the Dollar keeps dropping (and by extension the EUR is rising). Suffice to say I am not amused. Look at that hourly panel and share your thoughts if you would. All I’m seeing is a market turning on a dime on various  fronts. Could lead to quite a bit of ugliness if buyers don’t start taking shit seriously instead of chasing every single headline. I know, I know – who am I kidding?

Tired Of Winning?

Seems to me that market participants are tired of winning, but not in a Trumpian fashion. Maybe after a ten year bull market investors are subconsciously longing for a big market correction wiping out a big chunk of their assets in the process. A growing cultural malaise that now seems to be seeping into our financial markets as well.

I say bring it on! Bring on the pain! Honestly I’ve grown sick of all the snow-flaking and imaginary threats lurking behind every corner. Some cultural crisis or scandal chasing the next all across the Western hemisphere. A mindset apparently prevalent among a generation that has had the luxury of never experiencing war or true hardship (yes I know there are exceptions). No sweetheart – losing WiFi access or a shortage of soy milk at your favorite Starbucks does not constitute a personal tragedy. Again my previous advice applies, take a road trip to B-more or Detroit and we talk.

So hey, what’s with all the bitching? First up a bit of venting here and there is healthy. But I’m trying to make a point and for once it’s more anthropological than down to business and technical. Although I pride myself as being a no-nonsense kind of guy there are times when you have to heed those intangibles, the nagging voices in the back of your head (your mileage may vary based on your lithium dosage).

Look, we obviously don’t live in the 1990s anymore. Things have changed quite a bit, and perhaps I’m a bit jaded but to me it feels like as if the whee are coming off. I actually think what we all desperately need actually is a large market correction, a big cleansing of sorts. There would be a lot of pain in the short term but I think we all would be better off over the long term. Let’s just get it over with and then look forward perhaps with a bit of hope and optimism in our hearts. Too much to ask? Probably.

Alright let me climb off my soap box. My crude campaign was also rudely interrupted at about 0.6R in profits. Grrrr…  Okay, a win is a win – we executed perfectly and perhaps we trailed a bit too early. Here as well a re-entry would be on my radar but as I’m traveling tomorrow I don’t want to worry about open positions.

Now gold for one is behaving well and I just moved my stop to break/even. I really like that formation and I got big plans for precious metals going forward. Especially if equity traders continue to screw around as discussed above.

What do ya know? The ZB campaign just got another lease on life and has reversed upwards breaching my entry range. That’s very positive but it’s time it’s getting out of the gate.

Alright, this will be my last post for this week and per the above it looks like I clearly need a vacation! Scott has promised to post here tomorrow and as often as he can over the next 10 days or so. No worries – I’ll be popping by as well but don’t expect extended contributions as I’m working off a lappy and being spoiled by 30 glorious inches of screen estate over the years my perspectives will be more narrow.

And yes, once again all services will run as usual, no worries. If you run into any trouble/issues then just email me at admin@. See you once I’m settled near my ocean hide out.

Published at Wed, 07 Mar 2018 13:53:26 +0000

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Wall Street is asking: Which Trump will we get?

Wall Street is asking: Which Trump will we get?

1. Trump vs. Trump: It’s been 16 months since the election, but Wall Street is still trying to figure out which President Trump it will get.

Will it be pro-business Trump? His big corporate tax cuts and deregulation agenda fueled the stock market boom.

Or populist Trump? He demonized Goldman Sachs(GS) and hedge funds on the campaign trail and attacked American icons like Ford(F) on Twitter.

More recently, there’s been protectionist Trump, whose love of tariffs and tirades against trade deals have raised the specter of an unwinnable trade war.

The pro-business crowd has been sounding the alarm about Trump the trade hawk since the White House proposed steep tariffs on aluminum and steel imports. They are set to go into effect in two weeks.

The Business Roundtable, a powerful business lobby, called the tariffs a “major unforced error” by Trump that will put “tens of thousands of American jobs at risk.”

The Wall Street Journal’s editorial page went a step further, saying Trump’s “protectionist eruption” is a “dangerous moment” for his presidency. The risk, the paper said, is that he “veers into the Herbert Hoover ditch.”

Wall Street seems to be betting that pro-business Trump will win, or at least that his tax cuts will provide a cushion against trade turbulence.

That bet may be based in part on Trump’s own obsession with the performance of the stock market. Surely he wouldn’t do anything to risk that, right?

Stocks climbed on Thursday after Trump softened his tariff stance by offering indefinite exemptions for Mexico and Canada. Trade fears were firmly in the rearview mirror by Friday as the Dow surged after a “Goldilocks” jobs report revealed strong employment gains coupled with modest wage increases.

But the risk of trade trouble is hardly over. Much will depend on how trading partners, especially the European Union, respond if they don’t get exemptions of their own.

S&P Global Ratings warned in a report on Friday that Trump’s tariffs raise the risk of a “retaliatory spiral.” While a “full-scale trade war” isn’t expected, the report said, “such an outcome is not assured.”

And don’t forget: Trump has signaled a bigger trade crackdown more squarely aimed at China is coming.

Chris Krueger of Cowen Washington Research Group lamented in a recent report that “predicting what is going to happen on trade policy is impossible.”

The path for a more muscular trade agenda has been cleared by the resignation of Gary Cohn, Trump’s top economic adviser and a staunch defender of free trade.

Cohn’s eventual replacement could offer clues to Trump’s next steps.Will he tap a defender of free trade like Larry Kudlow or even a Cohn-like deputy and Wall Street veteran, such as Shahira Knight?

Or will he go the other way and select a trade hawk like Peter Navarro?

If it’s Navarro, Wall Street may be forced to prepare for protectionist Trump.

2. Inflation watch: On Tuesday, the Labor Department plans to release the Consumer Price Index for February. Wall Street will pay close attention to the inflation indicator.

In January, inflation rose faster than economists expected. That’s bad news for investors, who fear that inflation could prompt the Fed to raise interest rates more quickly — and steeply — than it had planned. The Dow dipped slightly in early morning trading when the inflation figure was reported last month.

The market also reacted wildly following January’s jobs report, which revealed that wages grew at the fastest pace in eight years.

Inflation fears have receded in recent weeks, especially after the February jobs report showed strong employment gains but a slowdown in wage growth. The Dow surged 441 points on the news.

3. Consumer snapshot: The Commerce Department on Wednesday will release February’s retail sales. On Friday, the University of Michigan will reveal its consumer sentiment index for March.

Taken together, the two will shed light on how American consumers are feeling.

In January, US retail and food services sales ticked down 0.3% from December, but were 3.6% higher than in January 2017. And Michigan’s index showed that Americans were out shopping in February: consumer sentiment was at its second highest level since 2004.

4. Jewelers report earnings:Signet Jewelers(SIG) is set to report earnings on Wednesday, and Tiffany(TIF) on Friday. The two jewelers are facing very different challenges.

Signet, which owns mall-based Kay, Jared and Zales, reported weak sales last quarter and over the holidays. Mall closures are hurting the affordable jewelery brands, and will likely continue to pose a threat.

Tiffany, on the other hand, had a good third quarter and great holiday sales. But the luxury jeweler is worried about this year — in January, the company lowered its expectations for 2018.

5. Coming this week:

Tuesday — Consumer Price Index; Dick’s Sporting Goods(DKS) earnings

Wednesday — Signet Jewelers earnings; US retail sales

Thursday — Dollar General(DG), Broadcom(AVGO) earnings

Friday —Tiffany(TIF) earnings

Published at Sun, 11 Mar 2018 13:29:51 +0000

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Trump sets steel and aluminum tariffs but exempts Canada, Mexico

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By Capri23auto from Pixabay

Trump sets steel and aluminum tariffs but exempts Canada, Mexico

WASHINGTON (Reuters) – U.S. President Donald Trump pressed ahead on Thursday with import tariffs of 25 percent on steel and 10 percent for aluminum but exempted Canada and Mexico and offered the possibility of excluding other allies, backtracking from an earlier “no-exceptions” stance.

Describing the dumping of steel and aluminum in the U.S. market as “an assault on our country,” Trump said in a White House announcement that the best outcome would for companies to move their mills and smelters to the United States. He insisted that domestic metals production was vital to national security.

“If you don’t want to pay tax, bring your plant to the USA,” added Trump, flanked by steel and aluminum workers.

Plans for the tariffs, set to start in 15 days, have stirred opposition from business leaders and prominent members of Trump’s own Republican Party, who fear the duties could spark retaliation from other countries and hurt the U.S. economy.

Within minutes of the announcement, U.S. Republican Senator Jeff Flake, a Trump critic, said he would introduce a bill to nullify the tariffs. But that would likely require Congress to muster an extremely difficult two-thirds majority to override a Trump veto.

Some Democrats praised the move, including Senator Joe Manchin of West Virginia, who said it was “past time to defend our interests, our security and our workers in the global economy and that is exactly what the president is proposing with these tariffs.”

Trump’s unexpected announcement of the tariffs last week roiled stock markets as it raised the prospect of an escalating global trade war. He appeared to have conceded some ground after concerted lobbying by Republican lawmakers, industry groups and U.S. allies abroad.

Canada, the largest supplier of both steel and aluminum to the United States, welcomed the news it would not immediately be subject to the tariffs, but vowed to keep pressing Washington until the threat of tariffs had disappeared.Trump offered relief from steel and aluminum tariffs to countries that “treat us fairly on trade,” a gesture aimed at putting pressure on Canada and Mexico to give ground in separate talks on renegotiating the North American Free Trade Agreement.

Mexican Economy Minister Ildefonso Guajardo said NAFTA talks were “independent” of Trump’s tariff actions and should not be subject to outside pressure.

In Beijing, China’s Commerce Ministry said on Friday it “resolutely opposed” the tariffs and that they would “seriously impact the normal order of international trade.”

While Chinese steel exports to the United States have been suppressed by previous anti-dumping duties, the broad “Section 232” national security tariffs are widely seen as aiming to pressure Beijing to cut excess steel and aluminum production capacity that has driven down global prices.

U.S. steel stocks, which have gained for weeks on anticipation of the tariffs, fell after the announcement, with the Standard and Poor’s composite steel index .SPCOMSTEEL ending down 2.53 percent against a half percent gain in the broad S&P 500 .SP500 index.

Century Aluminum (CENX.O) shares fell 7.5 percent, while Alcoa (AA.N) dipped 0.9 percent. The Canadian dollar and Mexican peso gained slightly against the U.S. dollar.

SEEKING CLARITY

A senior Trump administration official said other countries could seek talks with U.S. Trade Representative Robert Lighthizer to find “alternative ways” to mitigate the threat to U.S. national security posed by their steel and aluminum exports to the United States.

It was unclear whether they would involve quotas or voluntary export restraints, but the official said that permanent exemptions for Canada and Mexico might result in higher tariffs on other countries to maintain 80 percent capacity usage targets for domestic producers.

European Union Trade Commissioner Cecilia Malmstrom said: “The EU is a close ally of the U.S. and we continue to be of the view that the EU should be excluded from these measures. I will seek more clarity on this issue in the days to come.”

U.S. steel- and aluminum-consuming industries sharply criticized the tariffs as damaging them with higher costs.

“The U.S. will become an island of high steel prices that will result in our customers simply sourcing our products from our overseas competitors and importing them into the United States tariff-free,” the Precision Metalforming and National Tooling and Machining associations said in a joint statement.

COUNTERMEASURES?

Several major trading partners have said they might respond to the tariffs with direct action.

Countermeasures could include European Union tariffs on U.S. oranges, tobacco and bourbon. Harley-Davidson Inc (HOG.N) motorcycles have also been mentioned, targeting Republican U.S. House of Representatives Speaker Paul Ryan’s home state of Wisconsin.

Even as Trump threatened tariffs and prodded his NAFTA partners, 11 nations gathered in Chile to sign a landmark Asia-Pacific trade pact, one that Trump withdrew from on his first day in office last year.

Trump, who won the White House after a career in real estate and reality TV, has long touted economic nationalism, promising to bring back jobs to the United States and save the country from trade deals he views as unfair. That has put him at odds with many in his Republican Party, traditionally a supporter of free trade.

(For a graphic on ‘Global trade and GDP growth’ click reut.rs/2FtPzhW)

(For a graphic on ‘U.S. visible trade balance’ click reut.rs/2Fmon8N)

(For a graphic on ‘U.S. steel imports by country’ click reut.rs/2Fkjb5g)

Additional reporting by Antonio De la Jara and Dave Sherwood in Santiago, Michael Martina, Elias Glenn, Kim Coghill, Brian Love, Nichola Saminather, Doina Chiacu and Andrea Hopkins; Writing by David Stamp, David Chance and David Lawder; Editing by Jonathan Oatis and Peter Cooney

Published at Fri, 09 Mar 2018 02:21:00 +0000

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11 countries sign TPP trade pact without the United States

 

TPP explained
TPP explained

11 countries sign TPP trade pact without the United States

President Trump is going one way on trade. The world is going very hard in the other direction.

Trump imposed tariffs on steel and aluminum Thursday only a couple hours after 11 nations signed the Trans-Pacific Partnership, a sweeping trade agreement that was once thought to be dead after Trump withdrew the United States from talks.

Leaders from Mexico, Canada, Japan and other nations officially signed TPP on Thursday at a ceremony in Santiago, Chile.

TPP’s revival stands — and its very nature as a multi-country trade pact — defies Trump’s trade views. His administration has sought one-on-one trade pacts, initiated dozens of trade investigations and started to renegotiate existing deals.

In January 2017, Trump withdrew the United States from TPP discussions before it became law, arguing that it was an unfair deal for the country. At the time, some leaders, such as Japanese Prime Minister Shinzo Abe, declared TPP “meaningless.” But eventually, world leaders revived the agreement that encapsulates 14% of the global economy.

The TPP countries are Australia, Brunei, Chile, New Zealand, Peru, Singapore, Vietnam, Japan, Malaysia, Canada and Mexico.

Some of these countries — particularly Japan, Mexico and Canada — may get entangled in a tit-for-tat trade war with the Trump administration. It imposed a 25% tariff on steel and a 10% tariff on aluminum from all countries except Canada and Mexico. Despite their exemptions, Trump has hinted they may be subject to the tariffs if there isn’t major progress in the renegotiation of NAFTA, the three-nation trade pact. So far, Mexico, Canada and the United States have made little progress after seven months of negotiations.

Japan accounts for 5% of US steel imports, double the share from China, the world’s largest steel producer. Although there is widespread agreement that China has produced and exported too much steel worldwide, other nations and even Republican leaders on Capitol Hill asked Trump not to impose the tariffs, fearing it would risk retaliation.

Trump said the tariffs would take effect in 15 days.

Published at Thu, 08 Mar 2018 20:28:58 +0000

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For most workers, the tax cut windfall will disappear

For most workers, the tax cut windfall will disappear

Millions of workers have received a small cut of Corporate America’s tax cut bonanza. Unfortunately, the windfall for most workers will be fleeting.

53% of the investments in workers announced by Russell 1000 companies have been one-time bonuses, according to an analysis shared exclusively with CNNMoney by the nonprofit group JUST Capital.

In other words, most of the benefit to workers will beshort-lived.

Another 6% of the worker windfall has been in the form of one-time contributions to employee 401(k) plans, JUST Capital found after examining announcements by 93 companies in the Russell 1000. The index is home to 1,000 of the largest US public companies.

Less than one-third of the investment in workers will be permanent. JUST Capital found that 29% of the money is going toward wage hikes, while another 2% is being set aside for ramping up 401(k) programs by raising matching contributions.

“A permanent wage increase sends a stronger signal of investing in your workforce than a one-time bonus,” said Martin Whittaker, CEO of JUST Capital, which fights for equal treatment of workers. The nonprofit was founded in 2013 by a group that includes hedge fund billionaire Paul Tudor Jones, Arianna Huffington and Deepak Chopra.

“If you’re struggling to make ends meet stacking shelves at Home Depot, would you rather get a one-time bonus or a permanent wage increase?” Whittaker said.

Home Depot(HD) is among dozens of major companies that announced $1,000 tax cut bonuses for workers after the tax cut became law in late December. Bank of America(BAC), Verizon(VZ), Comcast(CCZ) and Pfizer(PFE) did the same.

Goldman Sachs CEO Lloyd Blankfein recently told CNN the one-time bonuses won’t make a lasting difference for workers.

“I think a lot of it is symbolic and making a statement,” Blankfein said. “We’re dealing in a world of sentiment. Symbolism matters.”

President Trump pointed to these one-time bonus payments during his State of the Union address as evidence that the tax cuts are trickling down to workers.

Other companies, such as Wells Fargo, FedEx(FDX) and JPMorgan Chase(JPM), have opted for a more lasting benefit in the form of higher wages. And some companies including Starbucks(SBUX), Walmart(WMT) and PNC Financial(PNC) handed out one-time bonuses as well as pay raises.

About 10% of the worker investments announced so far aregeneral benefits such as improved vacation policy, health care policies or skills training. For instance, Boeing(BA) announced plans to spend $200 million on retraining and other worker benefits.

Of course, any benefit from employers is on top of personal tax cuts Americans have seen from the tax law.

The nonpartisan Joint Committee on Taxation has estimated that in 2019, more than half of filers making $40,000 and up will see an average tax cut of more than $500.

Still, the biggest winners from the tax law so far are companies and shareholders.

companies spending tax windfall chart

Companies in the Russell 1000 are distributing 61% of their tax savings to shareholders via fatter dividends and booming share buybacks, JUST Capital found in a recent analysis.

Only 6% of the windfall is going directly to workers, while another 20% is being set aside for jobs. The rest is being allocated for customers, products and communities.

JUST Capital wrote a letter to the CEOs of all 1,000 companies in the Russell 1000 requesting estimates on their tax windfall and plans to spend it.

“Companies will hopefully realize that people are taking notice of what they’re doing with their money. They would be advised to be thoughtful about how they allocate it,” Whittaker said.

Critics of the tax law complain that Wall Street is cleaning up while workers are getting the scraps.

“That tax cut was made on the promise that money would be used for wages,” former Labor Secretary Robert Reich told CNN.

Wells Fargo(WFC), Cisco(CSCO) and many more companies have showered Wall Street with $214 billion worth of stock buyback announcements so far this year, according to research firm TrimTabs.

When companies buy back their own stock, it raises the stock price for shareholders because fewer shares are available. But stock buybacks do little to create jobs or reduce America’s inequality problem.

“Stock buybacks are purely for the shareholder,” said Ian Winer, head of equities at Los Angeles-based Wedbush Securities. “It is very difficult to argue buybacks are good for the overall economy or average worker.”

— CNN’s Jeanne Sahadi contributed to this report.

Published at Thu, 08 Mar 2018 16:13:06 +0000

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