Month: February 2019

The Trump administration is set Thursday to resume high-level talks with Chinese officials, aiming to ease a trade standoff that’s unnerved global investors and clouded the outlook for the world economy.

A Chinese delegation led by Vice Premier Liu He will meet in Washington with a U.S. team led by Trade Representative Robert Lighthizer and including Treasury Secretary Steven Mnuchin and Commerce Secretary Wilbur Ross as well as Larry Kudlow, a key White House economic adviser, and Peter Navarro, a trade adviser. The talks are expected to end Friday.

The world’s two biggest economies are locked in a trade war that President Donald Trump started over his allegations that China deploys predatory tactics to try to overtake U.S. technological dominance. Beijing’s unfair tactics, trade analysts agree, include pressuring American companies to hand over trade secrets and in some cases stealing them outright. 

To try to force China to change its ways, Trump has imposed tariffs on hundreds of billions in Chinese goods. Beijing has retaliated with tariffs of its own. China rejects the allegations and complains that Washington’s goal is simply to cripple a rising economic competitor.

On March 2, the Trump administration has warned, it will escalate its import taxes on $200 billion in Chinese goods from 10 percent to 25 percent if the two sides haven’t reached a resolution by then. But in recent days, Trump has signaled that he may be willing to extend the deadline if negotiators are making progress.

The conflict has rattled markets. It’s also fanned uncertainty among businesses that must decide where to invest and whether Trump’s tariffs – which raise the cost of the affected imports – will be in effect long enough to justify replacing Chinese suppliers with those from countries not subject to the tariffs. 

The International Monetary Fund, the World Bank and the Organization for Economic Cooperation and Development have all downgraded their forecasts for the global economy, citing the heightened trade tensions.

After meetings last week in Beijing, Lighthizer said the two countries had “made headway.” 

And citing upbeat comments from the two countries, Xingdong Chen, chief China economist at BNP Paribas, said the negotiators are “likely to make progress, convincing Trump it is worth extending the tariff truce if necessary.”
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 U.S. Trade Representative Robert Lighthizer will testify next week at a U.S. House of Representatives hearing on U.S.-China trade issues, a spokesman for the House Ways and Means Committee said on Wednesday.

Lighthizer has been the lead negotiator in ongoing trade negotiations with Beijing as the world’s two largest economies seek to find agreement amid a bitter dispute that has seen both sides impose tariffs on imports.

In a statement, the committee said the hearing was scheduled for Feb. 27, just days ahead of President Donald Trump’s March 1 deadline that the Republican U.S. leader has said could slide.

China and the United States began their latest round of talks this week.

 
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A year ago, Russian President Vladimir Putin sailed to victory in what challengers dubbed a “filthy election.” Facing weak candidates — some likely encouraged to run by a Kremlin eager to give the poll a veneer of greater competitiveness — Putin basked in his re-election, promising a flag-waving rally of loyalists off Moscow’s Red Square that “success awaits us.”

But with less than a month to go before marking the anniversary of his re-election, Putin faces rising public frustration with his rule and unprecedented dips in his approval ratings. In a recent opinion poll, nearly half of those surveyed said the country is heading in the wrong direction.

Putin, who has held power since succeeding Boris Yeltsin in 1999, had always been guaranteed victory in an election timed to coincide with the fourth anniversary of the Russian annexation of Crimea. Many pro-Putin voters interviewed by VOA last year said they were backing him because he had restored Russian strength and transformed the country from a regional power to a global player.

The domestic political landscape has changed since then, and the spell of Russian foreign adventurism doesn’t have the pull it once had, say analysts. The 66-year-old Russian leader appeared to acknowledge that Wednesday in his first address to parliament since his re-election.

Shift in focus

He went much more lightly on foreign and military issues in contrast to his last annual address in which he saber-rattled and unveiled a raft of new missiles, bragging about their stealth and speed. This time, he focused more on domestic challenges.

In response to rising public anger at the country’s economic malaise, Putin pledged to increase spending on development and social benefits, announcing a jump in child benefits along with tax breaks for families. He also pledged to almost double disability support payments. Putin boasted that for the first time, the country’s currency reserves cover external debt obligations and said economic growth should exceed 3 percent by 2021.

“Thanks to many years of common work and the results achieved, we can now direct and concentrate enormous financial resources on our development goals for our country,” Putin said.

“Nobody gave these funds to us; we did not borrow them. These funds were earned by millions of our citizens, the whole country,” he added.

“In the near future, this year, people should feel real changes for the better,” Putin pledged.

A tough sell

Whether Putin can deliver and reverse his growing unpopularity waits to be seen.

Analysts say Russians are unlikely to be satisfied with just words when it comes to quality of life issues, including the delivery of public services, municipal amenities or, more often than not, their absence, and on health and safety issues. It is the everyday “parochial” issues that worry them, including the potentially deadly consequences of shoddy and unsafe municipal housing and the reckless discarding of trash as Russia runs out of landfill sites.

Last year, thousands protested when dozens of children, in the town of Volokolamsk near Moscow, were hospitalized with suspected poisoning, the result of noxious gases emanating from an overfull local landfill.

In the past, when his political star has waned, Putin has turned to adventurism abroad to shore up support, offering foreign policy triumphs to whip up his domestic standing. That is unlikely to work moving forward, say analysts such as Mikhail Dmitriev.

Urban-rural divide

Dmitriev says polling data suggest the Kremlin is heading for a rocky few months with signs that dissent is likely to mount, and not just among the usual middle-class Putin skeptics and critics in the Russian capital and St. Petersburg, but in non-metropolitan Russia, in the smaller towns and villages, which traditionally have been the backbone of his support.

Raising the retirement age last year triggered the slide in Putin’s popularity. Cuts to salaries and sluggish economic growth added to the drag on his approval ratings, pollsters say. Real incomes have fallen by more than 10 percent since 2014, and nearly 40 percent of Russians say their material well-being has worsened just in the last 12 months.

Alexander Baunov of the Carnegie Moscow Center, a research institution, noted in a commentary earlier this month that ordinary workers are becoming more vexed with the Kremlin’s failure to deliver higher standards of living, as Putin promised he would do during the election campaign.

“Increasingly he is getting into fights with real Russians who want to complain about government policies. Last September, when he visited the Zvezda shipyard in the Russian Far East, the president got into an argument with the workers there about their salaries. (The transcript of their conversation in which Putin massively overestimated what they were paid was subsequently removed from the Kremlin website),” according to Baunov.

Baunov says the Putin system is increasingly being found wanting and the Russian president will not be able to deliver on the growing demand for economic redistribution “at the expense of the country’s rich capitalists,” in effect the friends of Putin and businessmen close to the Kremlin.

 
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The U.S. decision last week to permit Vietnam to fly its commercial aircraft directly to American airports is seen as a continuation of improving relations and follows other signs of international recognition for Hanoi.

Observers say the breakthrough shows that major countries including the United States take Vietnam ever more seriously after more than three decades of brisk economic development and foreign policy that includes balancing relations with its communist neighbor China without worrying the West.

“It’s been a slow and progressive bringing back [of] Vietnam into the international community,” said Adam McCarty, chief economist with Mekong Economics in Hanoi. “It’s been this continual process from the Vietnamese side of being caught, as they have been historically for hundreds of years, between larger powers.”

The Federal Aviation Administration’s award of a “category 1” rating for Vietnam means the country meets international safety standards. Vietnamese airlines can get permits now from the administration to open flights to the United States and carry the codes of U.S. carriers, the FAA said in a statement February 14.

US officials see change

Vietnamese officials knew the significance of the U.S. market in 2012, when they started working toward the FAA category 1 rating, Communist Party news website Nhan Dah reported Monday. They set out to solve 49 safety problems that the FAA found a year later, the website added.

The FAA inspected Vietnam’s civil aviation schemes again last year and gave high marks in most areas. It found just 14 “individual and not systematic problems,” the report says.

Clinching category 1 status from the world’s largest economy follows other signs of growing recognition.

The U.S. ran a $29.3 billion trade deficit with Vietnam in the first nine months of last year, but Washington did not make it a big issue. China and the United States, however, have been locked in disputes for about the past year partly because of China’s trade surplus with the United States.

U.S. President Donald Trump, who praised Vietnam’s economic momentum in 2017, is scheduled to visit Hanoi next week for his second summit with North Korean leader Kim Jong-un. Both sides picked Vietnam as host because it’s seen as geopolitically neutral.

Trump and his “hawkish colleagues” will see Vietnam as distinct from China in terms of trade, McCarty said.

“The degree of economic and trade closeness between Vietnam and the United States is always increasing,” said Tai Wan-ping, Vietnam-specialized international business professor at Cheng Shiu University in Taiwan. “Apart from Vietnam having trade deals, in substance the degree of progress is extremely high.”

Bigger economy, more fliers

Foreign investment in Vietnamese manufacturing is fueling economic growth of 6 to 7 percent since 2012. That trend is growing the middle class to about one-third of the 93 million population by next year, the Boston Consulting Group estimates.

Citizens are spending some of their new wealth on airfares.

The country saw 94 million passengers in 2017, including 13 million foreign nationals, up 16 percent over 2016. The domestic civil aviation industry has grown 17.4 percent over the past decade and the International Air Transport Association projects Vietnam will become the world’s fifth fastest growing aviation market by 2035.

Foreign investors are expected to keep flying in, too. In January Vietnam formally joined the 11-country Comprehensive and Progressive Trans Pacific Partnership, a free-trade deal encompassing about 13.5 percent of the world economy. The European Union expects to ratify its own trade pact with Vietnam.

As part of a 10-member bloc of Southeast Asian countries, Vietnam trades freely with China. But political scientists say Vietnam avoids favoritism toward China, despite its having a similar political system and its significance as a source of raw materials. Vietnam has vied with China over territory for centuries and prefers a multi-country foreign policy today.

Loads of returnees, fewer tourists

Vietnamese in the United States are likely to pack the eventual direct flights as relatively few American tourists visit Vietnam, compared to other sources, McCarty said. Some Vietnamese-Americans go back to visit; others to invest.

The Migration Policy Institute estimates there are about 1.3 million people of Vietnamese heritage live in the United States today, many relocated after the U.S.-backed former South Vietnam lost to the Communist north in the 1970s. Foreign tourism to Vietnam surged to 14.1 million in the first 11 months of last year, led by citizens from China and South Korea.

“There are residents in the U.S. itself, so that alone would be good enough for airline connections if they see fit to,” said Song Seng Wun, regional economist in the private banking unit of CIMB in Singapore,  “Every country on the planet has representation in the U.S. population in one way or another. Obviously therefore it makes economic sense, commercial sense to have connectivity.”

Passengers on the eventual direct flights would avoid today’s stopovers in places such as Hong Kong and Taipei, Tai said.

 
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Ford Motor Co. said on Tuesday it will close its oldest factory in Brazil and exit its heavy commercial truck business in South America, a move that could cost more than 2,700 jobs as part of a restructuring meant to end losses around the world.

Ford previously said the global reorganization, to impact thousands of jobs and possible plant closures in Europe, would result in $11 billion in charges.

Following that announcement, analysts and investors had expected a similar restructuring in South America. Ford Chief Executive Jim Hackett said last month that investors would not have to wait long for the South American reorganization plan.

The factory slated for closure is in Sao Bernardo do Campo, an industrial suburb of Sao Paulo that has operated since 1967.

It first produced a number of auto models before being switched predominantly to trucks in 2001. It makes the F-4000 and F-350 trucks, as well as the Fiesta small car, a sales laggard.

The factory closure may mean Ford is refocusing on the core of its car business in Latin America’s largest economy, based in a much newer factory in the northeastern state of Bahia. But the job cuts in Brazil’s industrial heartland represent a psychological blow for the new administration of far-right President Jair Bolsonaro, which is battling an unemployment rate above 11 percent.

Ford’s latest cuts come as investors watch for signs of progress on the company’s alliance with Volkswagen AG, which already encompasses commercial vans and pickup trucks but may soon expand into electric and self-driving cars. The two automakers have also pledged to work together on other projects, which could include combining capacity in regions like South America.

Ford shares closed up 3.4 percent at $8.83 in New York.

“You can’t cost cut your way to prosperity in the long term,” said David Kudla, who heads Michigan-based Mainstay Capital Management, a firm that previously owned Ford stock. “We want to hear about the future, what you’re doing for mobility services and autonomous vehicles.”

The closure is also a blow to the industrial outskirts of Sao Paulo, where Brazil’s automotive industry was born and which long drove its industrial growth. It is also where imprisoned former President Luiz Inacio Lula da Silva came to fame as a union leader who organized massive strikes that helped harken the end of the military dictatorship.

The union in Sao Bernardo did not have an immediate comment.

But Sao Bernardo Mayor Orlando Morando complained angrily that Ford gave no warning and failed to discuss the closure with the workers.

“The 2,800 families directly affected and another 2,000 indirectly affected deserved a chance to react. This is an act of cowardice,” Morando’s office said in a statement.

A Ford spokesman declined to provide a precise figure for job cuts but acknowledged there would be “a significant impact” and said the automaker would work with unions and other affected parties on “next steps.”

Ford South America President Lyle Watters said on Tuesday the automaker remains “committed” to South America, a region where it is not currently profitable.

Slow Growth

Sales of Ford cars and light trucks grew by 10 percent between 2017 and 2018 in Brazil, lagging a 15 percent post-recession increase for the industry as a whole.

In the trucks business, it ranked fourth, with sales less than half those of Mercedes Benz and Volkswagen.

Ford said in October it would stop building its Focus compact cars in Argentina in May 2019 as part of efforts to end its losses in the region.

Kleiton Da Silva, an employee and union representative in Ford’s surviving Bahia plant, said the carmaker was in talks to cut 650 of its workforce there, which the automaker has said totals 4,604.

The No. 2 U.S. automaker expects to record pre-tax special charges of about $460 million, with most of that recorded this year, it said in the statement.
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Financiers who turnaround companies by injecting them with capital are increasingly considering the environmental and social impact of their investments, according to a survey published Tuesday by consulting firm PwC.

The survey found a growing cohort of these financiers, called private equity firms, have embraced this ethical investment strategy, known as responsible investing or environmental, social and governance (ESG) investing.

For a long time, responsible investing was a niche strategy within finance. But increasingly, investors are waking up to the fact that they can do good as well as achieving financial returns.

PwC polled 162 finance companies from 35 countries, including 145 private equity companies, for its fourth Private Equity Responsible Investment Survey.

It found 91 percent of respondents have adopted or are developing responsible investment policies, up from 80 percent in 2013.

Meanwhile, 35 percent of the firms polled have formed in-house teams to ensure their investments are responsible.

“This is really showing they are taking responsible investment seriously and it is becoming more mainstream,” Phil Case, a director at PwC and co-author of the report, told Reuters.

Development goals

The survey also showed a growing awareness among financiers of the United Nation’s Sustainable Development Goals (SDGs), a series of targets to combat global problems, such as poverty, hunger, gender inequality and climate change.

According to the survey, 67 percent of respondents selected development goals to tackle that are relevant for the businesses they invest in. In 2016 — the year after the SDGs launched — just 38 percent did this.

“What we are seeing in the market, including private equity, is more and more firms hang their sustainability strategies — or ESG strategies — around the SDGs, so they are being seen as a very useful framework,” said Case.

However, he warned that there is scope for financiers to exaggerate their allegiance to the development goals.

“Not all firms are taking the SDGs as seriously as others,” he said.

Human rights, climate change

The survey showed that human rights and climate change were also high on the agenda for the private equity community.

It found 76 percent of respondents said they were concerned about human rights issues, such as poor labor practices within supply chains.

Meanwhile, 83 percent are concerned about the impact climate change could have on the businesses they invest in.
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America’s auto industry is bracing for a potential escalation in President Donald Trump’s tariff war with the world, one that could weaken the global auto industry and economy, inflate car prices and trigger a backlash in Congress.

Late Sunday, the Commerce Department sent the White House a report on the results of an investigation Trump had ordered of whether imported vehicles and parts pose a threat to U.S. national security. Commerce hasn’t made its recommendations public, and the White House has so far declined to comment. If Commerce did find that auto imports imperil national security, Trump would have 90 days to decide whether to impose those import taxes.

Trump has repeatedly invoked his duty as president to safeguard national security in justifying previous rounds of tariffs. An obscure provision in trade law authorizes a president to impose unlimited tariffs on particular imports if his Commerce Department concludes that those imports threaten America’s national security.

Whatever Commerce has concluded in this case, Trump has made clear his enthusiasm for tariffs in general and for auto tariffs in particular. Some analysts say they think Commerce has likely endorsed the tariffs, not least because the president has conveyed his preference for them.

‘Tariff Man’

Among Commerce’s recommendations “will certainly be tariffs because, hey, he’s a Tariff Man,” said William Reinsch, a former U.S. trade official and now a senior adviser at the Center for Strategic and International Studies, referring to a nickname that Trump gave himself.

Industry officials took part in a conference call Tuesday to discuss the possible steps Trump could take. They include tariffs of up to 25 percent on imported parts only; on assembled vehicles only; or on both vehicles and parts — including those from Mexico and Canada. The last option would be an especially unusual one given that the United States, Mexico and Canada reached a new North American trade deal late last year, and the legislatures of all three nations must still ratify it.

In public hearings last year, the idea of imposing import taxes on autos drew almost no support. Even U.S. automakers, which ostensibly would benefit from a tax on their foreign competitors, opposed the potential tariffs. Among other concerns, the automakers worry about retaliatory tariffs that the affected nations would impose on U.S. vehicles. Many U.S. automakers also depend on imported parts that would be subject to Trump’s tariffs and would become more expensive.

A similar Commerce investigation last year resulted in the Trump administration imposing taxes on imported steel and aluminum in the name of national security. The administration has adopted an extraordinarily broad view of national security to include just about anything that might affect the economy.

In addition to steel and aluminum, Trump has imposed tariffs on dishwashers, solar panels and hundreds of Chinese products. Targeting autos would further raise the stakes. The United States imported $340 billion in cars, trucks and auto parts in 2017.

‘Economic fallout’

If the administration imposed 25 percent tariffs on imported parts and vehicles including those from Canada and Mexico, the price of imported vehicles would jump more than 17 percent, or an average of around $5,000 each, according to estimates by IHS Markit. Even the prices of vehicles made in the U.S. would rise by about 5 percent, or $1,800, because all of them use some imported parts.

Luxury brands would absorb the sharpest increase: $5,800 on average, IHS concluded. Mass-market vehicle prices would rise an average of $3,300.

If the tariffs were fully assessed, IHS predicts that price increases would cause U.S. auto sales to fall by an average of 1.8 million vehicles a year through 2026. Auto industry officials say that if sales fall, there almost certainly will be U.S. layoffs. Dealers who sell German and some Japanese brands would be hurt the most by the tariffs.

“The economic fallout would be significant, with auto tariffs hurting the global economy by distorting prices and creating inefficiencies, and the impact would reverberate across global supply chains,” Moody’s Investors Service said in a report. “The already weakening pace of global expansion would magnify global growth pressures, causing a broader hit to business and consumer confidence amid tightening financial conditions.”

Congress could resist the auto tariffs. Sens. Pat Toomey, R-Penn., and Mark Warner, D-Va., have introduced legislation to reassert congressional control over trade. Their bill would give Congress 60 days to approve any tariffs imposed on national security grounds. It would also shift responsibility for such investigations away from Commerce to the Pentagon.

Some analysts say they suspect that Trump intends to use the tariffs as leverage to pressure Japan and Europe to limit their auto exports to the United States and to prod Japanese and European automakers to build more vehicles at their U.S. plants.

Reinsch notes that Trump’s top trade negotiator, Robert Lighthizer, worked in the Reagan administration, which coerced Japan into accepting “voluntary” limits on its auto exports.

“This is the way Lighthizer thinks,” Reinsch said.

Even if the tariff threat resulted in negotiations, Europe and Japan would have demands of their own. A likely one: Compelling the U.S. to drop its longstanding 25 percent tax on imported light trucks.

Trump is “pursuing something that, as near as I can tell, the domestic [auto] industry doesn’t want,” Reinsch said. “Once he pursues it, he is going to be under pressure to give up the one thing the auto industry really does want” — the U.S. tariff on imported light trucks.

‘Cloud of uncertainty’

For now, many in the industry are upset that the Commerce Department report remains secret, feeding uncertainty.

“The 137,000 people who work for Toyota across America deserve to know whether they are considered a national security threat,” Toyota said in a statement Tuesday. “And the American consumer needs to know whether the cost of every vehicle sold in the U.S. may increase.”

The American International Automobile Dealers Association this week called the Commerce Department’s investigation “bogus.”

“Now, dealerships must continue to operate under a cloud of uncertainty, not knowing if at any moment their products will be slapped with 25 percent tariffs, raising vehicle and repair costs by thousands of dollars and slashing sales,” the association’s CEO, Cody Lusk, said in a statement.
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