February 22, 2018

Britain’s Jobless Rate Rises, to 4.4%, for First Time in 2 Years

Households lost spending power last year because of a jump in inflation, caused by the fall in the pound after the British vote to exit the European Union.

But the Bank of England expects pay to pick up soon, a big reason it says interest rates are likely to rise faster and to a greater extent than it thought until recently.

“With wage growth stuck in neutral, policymakers will need to think very carefully about a rate hike in May,” said Maike Currie, an investment director at Fidelity International.

The number of Britons in work grew less than expected, rising by 88,000, about half the consensus forecast in a Reuters poll of economists.

The O.N.S. attributed the rise in unemployment to fewer economically inactive people — those neither working nor looking for a job — entering unemployment, rather than employed people losing their jobs.

Workers’ total earnings, including bonuses, rose by an annual 2.5 percent in the three months to December, as expected and unchanged from the three months to November.

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Officials from the Bank of England may take encouragement from pay increasing 2.8 percent on the year in December alone. But that was still weaker than the 3 percent reading of British consumer price inflation for December.

Excluding bonuses, earnings rose by 2.5 percent year on year against expectations for a 2.4 percent rise.

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The O.N.S. said the number of European Union nationals working in Britain rose by an annual 4.5 percent over the fourth quarter, the smallest increase since the third quarter of 2013. The number of Eastern European workers fell.

Overall migration data have shown a drop in net migration from the bloc into the Britain since the “Brexit” vote.

The O.N.S. also published its first estimate for productivity in the fourth quarter.

Output per hour — the main measure of productivity — rose 0.8 percent in the three months to December from the previous three months, slightly slower than the third quarter’s 0.9 percent rise. That marked the strongest two quarters for productivity since the 2008-9 recession, the O.N.S. said.

Separate figures showed that Britain’s government recorded a January budget surplus of 10 billion pounds (about $14 billion), slightly bigger than forecast, helped by a surge of income tax receipts that typically comes at the start of the calendar year.

With two months left in the 2017-18 financial year, cumulative borrowing now stands at 37.7 billion pounds (about $52 billion), down 16 percent on the same point a year ago.

In November, the official budget watchdog had forecast borrowing of 49.9 billion pounds (about $69 billion) for the full year.

The finance ministry said Wednesday’s figures were considered strong.

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Article source: https://www.nytimes.com/2018/02/21/business/economy/uk-jobless-rate-wages.html?partner=rss&emc=rss

The Economy Is Getting Hotter. Is a Productivity Boom Next?

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Feb. 21, 2018

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Self-serve kiosks are already a familiar sight at the supermarket or in airports. But more settings, like restaurants or casinos, might start to find them cost-effective as workers grow harder to find, and this infusion of technology might in turn increase productivity.CreditNicole Bengiveno/The New York Times

Two of the most important facts about the global economy over the last decade are these: A giant financial crisis led to mass unemployment in many countries and years of disappointing growth. And despite a seeming barrage of technological innovation, productivity growth has been the weakest in decades.

Maybe it’s not a coincidence.

That is the provocative conclusion of new research from the McKinsey Global Institute, the in-house think tank of the consulting giant, that suggests we should change how we think about the advancements that make society richer over time. It implies that as the economy returns to full employment, an outburst of faster growth in productivity — and hence economic growth — is a real possibility.

This idea should excite both conservatives and liberals.

It suggests that the Trump administration’s ambitions for faster growth driven by rising productivity aren’t as outlandish as warier forecasters have argued. And it tends to back arguments by liberal-leaning commentators that the Federal Reserve ought to move cautiously in raising interest rates, in hope that the economy will more fully repair itself from damage caused by the 2008 recession and its aftermath.

For years, McKinsey researchers have tried to understand what drives productivity growth from the ground up. They’ve studied how innovations that enable a company to make more goods and services per hour of labor spread across the economy.

The latest wrinkle is that the researchers now believe that productivity growth depends not just on the supply side of the economy — what companies produce and what technologies they use to do it — but also significantly on the demand side. That is to say, productivity advancements don’t happen in a vacuum just because technology is available. They also happen because companies need to increase production to match demand for their goods, and a shortage, either of workers or of materials, forces them to think creatively about how to do so.

“We have always looked at this from the supply side to a large extent,” said James Manyika, a partner at the firm and a co-author of the study. “You look at companies and the introduction of technology and business processes, the adoption of best practices. We’ve always kind of assumed away the demand side of the equation.”

From the mid-1980s through 2008, that seemed like a reasonable approach. Recessions in that period, sometimes called the Great Moderation, tended to be short and mild. But the deeper and more prolonged downturn that affected the United States and Europe since has made at least some economists rethink their assumptions.

Productivity growth in the United States was 3.8 percentage points lower in the period from 2010 to 2014 compared with the 2000-2004 period. Part of that, McKinsey found, was a result of the information technology boom of the 1990s — which paid continuing productivity dividends into the first years of the 21st century — having run its course. But 1.1 percentage points of the drop was due, in its analysis, to aftereffects of the financial crisis. Those effects sapped even more productivity growth, 1.3 percentage points, from the British economy.

Take the auto industry. Automobile production in the United States fell 50 percent from 2007 to 2009, meaning the sector had tremendous excess production capacity in the ensuing years even as the sector recovered. “Companies could fulfill a lot higher demand without having to make any new investments,” said Jaana Remes, a McKinsey partner and a co-author. “Typically the newest technology is implemented in the latest factories. People don’t upgrade a factory that can fulfill demand perfectly well.”

Or consider how this dynamic might apply in the restaurant industry (or retail, or tourism).

The basic technology for self-serve kiosks has been around for years. But when the unemployment rate was at its post-crisis highs, employers could have their pick of good workers at relatively low prices. Now, with the jobless rate at 4.1 percent, good workers are harder to find. And, perhaps unsurprisingly, companies have been more open to installing technology that may have a significant upfront cost and require reworking how a restaurant is organized, but allow more sales without hiring more workers.

“A consequence of a really tight labor market is a higher turnover rate,” said Liah Luther, marketing manager at Nextep Systems, a Michigan company that sells self-ordering kiosks to restaurants, casinos and corporate facilities. “Once you eliminate the need for extensive training on a point of sale system, you can focus on soft skills like customer service, and reduce the cost of turnover.”

The optimistic case for both productivity and overall economic growth goes like this: For the last several years, a lack of demand and plenty of spare capacity of both workers and equipment made businesses complacent and unwilling to invest in new equipment, software or new ways of doing things that might allow more output per hour of labor.

Now, with companies having a harder time finding qualified workers and with demand for their products rising, they’ll have no choice but to re-engineer how they work to try to increase productivity. Higher productivity will in turn make it easier to justify higher wages, creating a self-reinforcing cycle of higher economic growth.

There are some risks to that rosy forecast, which Ms. Remes and Mr. Manyika warn about.

They see a great deal of potential from digitization of businesses that have been slow to embrace the lessons of the cutting-edge companies in their industry. But this might be slow to generate the kinds of big productivity gains that are possible.

Even as more retailers adapt to an age of digital commerce and learn from Amazon, for example, they may in the near term end up simply doubling up traditional retail and e-commerce-focused workers, making such companies less productive rather than more.

And if automation leads to more income going to owners of capital, who already tend be wealthy, that could hollow out middle-class jobs and fuel higher inequality.

“Unless displaced labor can find new highly productive and high-wage occupations, workers may end up in low-wage jobs that create a drag on productivity growth,” the McKinsey researchers wrote.

So it’s not worth pulling out Champagne bottles for productivity yet. First we have to see if the theory holds up — that a tighter economy will feed into higher capital investment and experimentation by businesses about finding new efficiencies. Then we have to see whether that feeds into a virtuous cycle in which more productivity creates more growth and vice versa. And then we have to hope that it turns into wage gains for workers who haven’t seen many of them in the last decade — or else it just may not last.

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Article source: https://www.nytimes.com/2018/02/21/upshot/the-economy-is-getting-hotter-is-a-productivity-boom-next.html?partner=rss&emc=rss

Economic Scene: Come the Recession, Don’t Count on That Safety Net

The federal debt burden is now the heaviest it has been in 70 years. And it is expected to get progressively heavier, as the budget deficit swells.

To top it off, a Republican president and a Republican Congress seem set on completing the longstanding Republican project to gut the safety net built by Presidents Franklin D. Roosevelt and Lyndon B. Johnson, which they blame for encouraging sloth, and replace it with a leaner welfare regime that closely ties government benefits to hard work.

Graphic

It’s an Unequal World. It Doesn’t Have to Be.

Global inequality, after widening for decades, has stabilized. The share of the world’s income captured by the top 1 percent has shrunk since its peak on the eve of the financial crisis.

As noted in a new set of proposals by leading academics to combat poverty, published Tuesday by the Russell Sage Foundation, anti-poverty policies and related social-welfare benefits over the last quarter-century “have largely shifted from a system of guaranteed income support to a work-based safety net.”

The economists Hilary Hoynes of the University of California, Berkeley, and Marianne Bitler of the University of California, Davis, pointed out in a recent paper that “the safety net for low-income families with children has transformed from one subsidizing out-of-work families into one subsidizing in-work families.”

And yet, as many unemployed Americans discovered the last time recession hit, government benefits that require recipients to hold a job become worthless when there is no work to be had.

Consider what happened the last time around, when the bursting of the housing bubble pushed millions of workers out of their jobs. The Fed quickly slashed interest rates to zero. Months later it started buying billions of dollars’ worth of bonds from financial institutions to lower long-term interest rates and encourage borrowing.

The Obama administration hurried to cobble together an economic stimulus package of more than $1 trillion to get money to families that needed it most. It expanded the eligibility for unemployment insurance to its longest duration ever, 99 weeks. It raised the earned-income tax credit for low-wage workers. It more than doubled the budget for food stamps — the poor’s last line of defense.

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The economy failed to snap back as the administration hoped. Unemployment remained at 9 percent or more for over two years. But the administration’s intervention to bolster the nation’s welfare programs made a decisive difference for millions who otherwise would have fallen through the cracks of the nation’s threadbare safety net.

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Using a broad definition of income and poverty that includes the effects of the complete array of government tools to support low-income families, Professors Hoynes and Bitler concluded that food stamps were critical to stem poverty.

Had food stamps not been available, they estimated, the share of Americans under 65 living below the poverty line would have exceeded 11 percent in 2010, almost 1.5 percentage points more than was the case. The share of Americans in extreme poverty — with less than half the resources of the simply poor — would have exceeded 4 percent, about a third more than it turned out to be. Unemployment insurance had a roughly similar impact on poverty levels.

Photo
A New Jersey shopper paying for groceries with food stamp benefits. A study found that the program was crucial to alleviating poverty in the last recession. Credit Seth Wenig/Associated Press

What is critical to note is that each of the two programs did more to relieve extreme poverty during the depths of the Great Recession than even the earned-income tax credit, the main source of government support for low-income Americans.

Indeed, expenditures per capita from the earned-income tax credit increased only modestly after the recession hit. And spending by Temporary Assistance for Needy Families, the patchwork of state-run programs that emerged from welfare reform in 1996 to replace the poor’s entitlement to federal cash assistance, did not respond to the recession at all.

This is a problem for vulnerable Americans bracing for the next economic shock, because if Mr. Trump and his colleagues in Congress have their way, the only surviving bit of the social safety net when the next recession hits will probably require beneficiaries to work. The earned-income tax credit is likely to survive unscathed. Food stamps are not.

Assiduously looking for places to cut spending to temper a growing budget deficit, the White House seems more than willing to pare the safety net. The budget it unveiled this month called for a 27 percent cut to the food stamp budget and a 20 percent cut to Section 8 housing assistance by 2028.

The administration already allows states to impose work requirements on Medicaid beneficiaries to shave the program’s costs. And the latest White House budget requested a 22.5 percent cut to Medicaid and Obamacare subsidies by 2028 by repealing and replacing the Affordable Care Act.

While the Trump administration is unlikely to end unemployment insurance, the Emergency Unemployment Compensation program expired at the end of 2013. In some states, benefits expire in as little as 12 weeks.

Policy could change in the face of a new economic downturn, to be sure. There are plenty of places where the social safety net could be improved. The Russell Sage proposals include everything from a universal child allowance to a renter’s tax credit; from subsidizing employment to a public works program paying a living wage.

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Yet somehow I can’t see Mr. Trump and Republican allies like the House speaker, Paul D. Ryan of Wisconsin, allowing able-bodied Americans off the hook. They may not quite endorse the infamous words attributed by President Herbert Hoover to his Treasury secretary, Andrew Mellon, as the Great Depression bore down on the economy — “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate” — but I wouldn’t be surprised if all they have to say when the next recession liquidates work is “Get a job.”

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Article source: https://www.nytimes.com/2018/02/20/business/economy/recession-safety-net.html?partner=rss&emc=rss

Tax Overhaul Gains Public Support, Buoying Republicans

Over all, 51 percent of Americans approve of the tax law, while 46 percent disapprove, according to a poll for The New York Times conducted between Feb. 5 and Feb. 11 by SurveyMonkey. Approval has risen from 46 percent in January and 37 percent in December, when the law was passed.

A Warming Reception

Since the Republican tax plan became law in December, public opinion of it has improved, though few are expecting a tax cut this year.

Do you approve or disapprove of the tax plan?

Strongly/somewhat

approve

Strongly/somewhat

disapprove

90%

89%

REP.

80%

79%

57%

50%

TOTAL

45%

37%

19%

17%

DEM.

9%

8%

DEC.

JAN.

FEB.

DEC.

JAN.

FEB.

Do you, yourself, expect to get any of the

following as a result of the new tax law?

FEB. SURVEY

53%

REP.

Income

tax cut

33%

TOTAL

19%

DEM.

20%

Salary

increase

14%

9%

13%

Bonus or

increased

bonus

8%

4%

Notes: Party identifications include those who identify as “leaning” toward a particular party. Dec. data collected Dec. 11-13; Jan. data collected Jan. 1-5; Feb. data collected Feb. 5-11. | Source: SurveyMonkey | By The New York Times

“Public opinion is moving in the direction of this bill,” said Jon Cohen, chief research officer for SurveyMonkey. “Considering where it was, it is dramatically different.”

Mr. Cohen cautioned that the bill still was not particularly popular, and opposition among Democrats remained strong. Still, support has grown even among Democrats, from 8 percent just before the bill passed in December to 19 percent this month. For Democrats, Mr. Cohen said, running on opposition to the bill has become more of a political gamble.

“It’s less of a sure bet than it seemed in December,” he said. “This isn’t a problem yet for Democrats, but the movement isn’t a positive one.”

Other recent polls have shown similar upswings for the law, including a Monmouth University Poll in late January that found support for it had risen to 44 percent nationally, from 26 percent in December.

“I think we are essentially seeing Republicans ‘come home’ on the tax plan in our data,” said Lori Weigel, a partner with Public Opinion Strategies, a Republican polling firm. “That is certainly in part due to consistent communications about the tax plan and the news coverage of prominent companies investing in workers.”

Democrats have done little to counter the Republican messaging and concede it has had an effect, along with a series of high-profile company announcements of bonuses, raises or other benefits attributed to tax savings.

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But they are ramping up efforts to rebrand the law as disproportionately helping shareholders and the wealthy, and they contend the boost from bonus announcements will fade.

“There’s only so long you can push a one-time bonus,” said Nicole Gill, executive director of Tax March, a liberal group that has organized rallies and protests against the new law. “The fundamentals of the bill remain the same. The bill that passed is the bill that polled at 35 percent in December, and Democrats should keep talking about that.”

Photo
President Trump signing the tax bill in December. Support for the law — though not for Mr. Trump himself — is growing even among Democrats. Credit Doug Mills/The New York Times

The Times polling suggests that Americans are overestimating the degree to which the benefits of the law’s corporate tax cuts are flowing straight to workers — while underestimating the likelihood that the law will reduce their individual taxes.

Just under one in five respondents expect to see either a raise or a bonus thanks to the law’s business tax cuts. Early returns from public companies indicate that’s an overshot. Just Capital, a nonprofit research organization, analyzed the 90 largest public companies that have announced how they will spend the combined $45 billion in savings they stand to receive from the tax bill this year. It found that those companies planned to pass 6 percent of those savings directly on to workers, with more than half of that spending in one-time bonuses.

“That does not really track to how the public thinks the companies should be spending that money,” said Martin Whittaker, Just Capital’s chief executive.

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Only one in three respondents expects to receive a tax cut from the law. The independent Tax Policy Center in Washington estimates that four in five Americans will actually see a tax cut from the law this year, though that number is projected to shrink sharply in 2027 if individual tax cuts expire as scheduled in the law.

Republicans are confident that support will continue to grow as more Americans see lower taxes reflected in their paychecks. Their confidence was reflected last week by Representative Kevin Cramer of North Dakota, who cited Senator Heidi Heitkamp’s vote against the tax bill when announcing he would run for her seat.

“There is no question the tax bill has fundamentally improved the overall political environment for Republicans,” said Josh Holmes, a former campaign manager and chief of staff for Senator Mitch McConnell of Kentucky, the majority leader, who is now president of the public affairs firm Cavalry in Washington.

Close to half of Americans now expect some direct benefit from the law — either a tax cut or a salary increase or bonus. Support for the bill is far stronger among that group: More than three-quarters of Americans approve of the law, compared with fewer than a third who don’t expect a benefit or aren’t sure.

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Gina Coats, a project manager for a plumbing company in Springfield, Mo., said she didn’t follow the tax debate closely last fall. But in January, when she began preparing the company’s payroll systems to handle the new law’s provisions, she realized almost every employee would take home an extra $20 to $40 per week.

“Everyone seems to be a little more upbeat,” Ms. Coats said. “It’s causing people to let go of their money a little more easily.”

Ms. Coats puts herself in that category. A few days ago, she called a contractor to move forward with a long-delayed plan to replace the roof on her house. That decision reflected her tax savings, she said, but also the strength of the local economy, which has meant lots of projects for her company, and stability for its employees.

“If we have more work in the bag, then I feel more comfortable,” Ms. Coats said.

Republicans have long promoted tax cuts as a way to encourage economic growth. Many economists are skeptical of that approach when unemployment is low and the Federal Reserve is moving to tamp down inflation. Rising support for the bill has coincided with an uptick in consumer confidence, although there aren’t yet clear signs that Americans are spending more.

Edging Upward

SurveyMonkey’s consumer confidence index, which combines five questions on Americans’ financial and economic outlook, rose in January and held onto those gains in February.

Note: Partisan categories include people who lean toward a particular party. | Source: SurveyMonkey

Colleen Doering, who runs a small facilities maintenance business outside Orlando, Fla., said she and her husband were paying several hundred dollars a month less in taxes because of the new law. As a result, they recently decided to spend $10,000 on a landscaping project and started to plan a vacation.

“My paycheck has increased, and if I see it in my paycheck, then I know my employees are seeing it in theirs,” Ms. Doering said.

And the law’s corporate tax cuts are giving the Doerings more money to spend on marketing, which they hope will allow them to expand their three-year-old business and hire more people. That may not be easy, however. Ms. Doering said it was already hard to find good workers, and the stimulus provided by the tax cuts could make it even harder.

“It was becoming more challenging to find good, solid employees with the right skill sets,” Ms. Doering said. “It’s even more challenging because some of these larger companies are grabbing up even more employees.”

About the survey: The data in this article came from an online survey of 10,255 adults conducted by the polling firm SurveyMonkey from Feb. 5 to Feb. 11. The company selected respondents at random from the nearly three million people who take surveys on its platform each day. Responses were weighted to match the demographic profile of the population of the United States. The survey has a modeled error estimate (similar to a margin of error in a standard telephone poll) of plus or minus 1.5 percentage points, so differences of less than that amount are statistically insignificant.

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Article source: https://www.nytimes.com/2018/02/19/business/economy/tax-overhaul-survey.html?partner=rss&emc=rss

For Taiwanese, Tests of Loyalty to China Bring Trouble in Workplace

But along with Chinese money has come Chinese migration. Hundreds of thousands of mainland Chinese have immigrated to Australia in the past decade. Many of them have brought ideas for businesses, but also an ideology that stresses the unity of China, viewing Taiwan as a rebellious territory that broke away in 1949.

And as China’s government has intensified a crackdown on those who fail to recognize its One China policy — from human rights advocates to corporations like the Marriott hotel chain — members of the Chinese diaspora have similarly taken up the cause on a more personal scale.

Their efforts have added to a sense of Chinese ubiquity: For anyone who identifies as Taiwanese, supports Taiwan’s independence — or even inadvertently refers to Taiwan as a country — Chinese nationalism has become a threatening and unrelenting presence, like a smog that never lifts.

In Australia, service workers, professionals and students from Taiwan have all described gatherings with mainland colleagues and acquaintances where the default setting is that Taiwan and China are one country.

Disagreement is not encouraged.

“Even people who are very pro-Taiwan often don’t want it to be known publicly,” said Roger Huang, 35, a Taiwanese academic who helped organize last year’s Sydney Taiwan Festival. “Self-censorship is very real.”

Australia’s China Challenge?

Some people from Taiwan explain that the most nationalistic Chinese often have a “glass heart,” meaning they are easily offended by disagreement.

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Others note that many people in Taiwan consider the island part of China and that, given the economic benefits, good relations are necessary.

“Discussing politics is bad for business,” said Antonio Guo, 65, the Taiwanese owner of a restaurant in a north Sydney suburb. “People get agitated.”

But for many, silence is the spawn of fear. There are widening concerns in the Australian government and in immigrant communities that the Chinese government is watching and listening, ready to apply pressure on those who do not toe the Communist Party line.

Paul Lin, president of the Australian Taiwanese Friendship Association, said several people believed to be Chinese agents were snapping photos of people at the Sydney Taiwan Festival in 2016.

Chinese students at Australian universities have also reported close monitoring by their peers, and say the pressure to conform on the issue of Taiwan has been intense in classrooms, at work and on social media.

Photo
Children at the Sydney Taiwanese School. Weekend classes focus on language and culture. Credit David Maurice Smith for The New York Times

“The problem is they think Sydney is Beijing,” said Mr. Lin, a businessman who moved to Australia in 1990, referring to the Chinese government and its loyalists. “They’re doing more and more watching and interfering. And they’re getting better at it.”

Australia’s mainland-born population has grown rapidly — doubling since 2006 to about 510,000 people — and with the Taiwanese population hovering at less than a tenth of that, an imbalance has emerged. Chinese business owners can easily make Taiwanese workers feel marginalized and vulnerable.

Mr. Lin said that for Chinese immigrants who still have family and business interests in China, discriminating could be “an entry point,” a way to show loyalty to Beijing.

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Ms. Tuan’s experience provides a glimpse of how that power dynamic works.

Her story became public when Ms. Tuan, who goes by Winnie in Australia, published a Facebook post about her experience on Jan. 9, the day she was fired. That post, in which she named the restaurant, HuTong Hot Pot, and a supervisor she called Mr. Ha, quickly went viral on Chinese social media.

China’s Global Times — a state news media outlet — published an article the following day, asking readers: “What do you think about this incident, mainland netizens?”

The editors, leaving little to chance, added that The Global Times “would like to go to Sydney, and give ‘Mr. Ha’ a thumbs up!”

Photo
The Sydney suburb of Chatswood is popular with Chinese immigrants. Australia’s mainland-born population has more than doubled since 2006 to about 510,000 people. Credit David Maurice Smith for The New York Times

More than a dozen Chinese news outlets republished the article.

Later that week, a post from the restaurant appeared on Weibo, China’s version of Twitter: “It is fate and a privilege,” the message said, “to have people who respect us coming to dine at our restaurant.”

The comments section was filled with praise and promises to visit.

During the lunch rush one day last week, the restaurant was packed.

Asked about Ms. Tuan’s departure, a young manager said, “The company told us we’re not commenting.”

Ms. Tuan, 29, said in an interview that other comments on social media were supportive of her cause.

“People could relate,” she said.

They included Daniel Chang, 28. A hairdresser working in Melbourne, Mr. Chang said he never received a callback from a salon that had seemed eager to hire him until he mentioned he was Taiwanese.

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Jade Liao, 26, ran afoul of a customer. She said that in 2016, at a shoe store where she worked, a Chinese student berated her after she answered a question about whether Taiwan was part of China.

“She started yelling, and pointed a finger at me,” Ms. Liao said. “I couldn’t hold back my tears after she left.”

Many other Taiwanese workers described similar experiences — mostly young women on working holiday visas.

More than 12,000 of these visa holders come to Australia each year from Taiwan, and they are known to be part of a vulnerable cohort that is regularly paid below the minimum wage — an issue that Australia’s Fair Work Ombudsman has made a priority, assessing penalties against employers of various backgrounds.

A spokesman for the agency, however, said it had not undertaken any enforcement actions for discrimination against Taiwanese workers, or any other group, based on their political opinions.

Mr. Li, of the Australian Taiwanese Friendship Association, and many others in the Taiwanese community said Australia must do more to address the issue.

Without more effort, Mr. Lin said, China will continue to erode Australia’s “fair go” culture of democracy and equality.

“They are helping China erase the values that Taiwan and Australia share: democracy, human rights and the rule of law,” Mr. Lin said in a Sydney shopping mall flush with signs in Mandarin. “This is invisible. But this is fundamental.”

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Article source: https://www.nytimes.com/2018/02/18/world/australia/china-taiwan-discrimination.html?partner=rss&emc=rss

In Australia, Staying Loyal to Taiwan Can Mean Losing a Job

But along with Chinese money has come Chinese migration. Hundreds of thousands of mainland Chinese have immigrated to Australia in the past decade. Many of them have brought ideas for businesses, but also an ideology that stresses the unity of China, viewing Taiwan as a rebellious territory that broke away in 1949.

And as China’s government has intensified a crackdown on those who fail to recognize its One China policy — from human rights advocates to corporations like the Marriott hotel chain — members of the Chinese diaspora have similarly taken up the cause on a more personal scale.

Their efforts have added to a sense of Chinese ubiquity: For anyone who identifies as Taiwanese, supports Taiwan’s independence — or even inadvertently refers to Taiwan as a country — Chinese nationalism has become a threatening and unrelenting presence, like a smog that never lifts.

In Australia, service workers, professionals and students from Taiwan have all described gatherings with mainland colleagues and acquaintances where the default setting is that Taiwan and China are one country.

Disagreement is not encouraged.

“Even people who are very pro-Taiwan often don’t want it to be known publicly,” said Roger Huang, 35, a Taiwanese academic who helped organize last year’s Sydney Taiwan Festival. “Self-censorship is very real.”

Australia’s China Challenge

Some people from Taiwan explain that the most nationalistic Chinese often have a “glass heart,” meaning they are easily offended by disagreement.

Advertisement

Continue reading the main story

Others note that many people in Taiwan consider the island part of China and that, given the economic benefits, good relations are necessary.

“Discussing politics is bad for business,” said Antonio Guo, 65, the Taiwanese owner of a restaurant in a north Sydney suburb. “People get agitated.”

But for many, silence is the spawn of fear. There are widening concerns in the Australian government and in immigrant communities that the Chinese government is watching and listening, ready to apply pressure on those who do not toe the Communist Party line.

Paul Lin, president of the Australian Taiwanese Friendship Association, said several people believed to be Chinese agents were snapping photos of people at the Sydney Taiwan Festival in 2016.

Chinese students at Australian universities have also reported close monitoring by their peers, and say the pressure to conform on the issue of Taiwan has been intense in classrooms, at work and on social media.

Photo
Children at the Sydney Taiwanese School. Weekend classes focus on language and culture. Credit David Maurice Smith for The New York Times

“The problem is they think Sydney is Beijing,” said Mr. Lin, a businessman who moved to Australia in 1990, referring to the Chinese government and its loyalists. “They’re doing more and more watching and interfering. And they’re getting better at it.”

Australia’s mainland-born population has grown rapidly — doubling since 2006 to about 510,000 people — and with the Taiwanese population hovering at less than a tenth of that, an imbalance has emerged. Chinese business owners can easily make Taiwanese workers feel marginalized and vulnerable.

Mr. Lin said that for Chinese immigrants who still have family and business interests in China, discriminating could be “an entry point,” a way to show loyalty to Beijing.

Advertisement

Continue reading the main story

Ms. Tuan’s experience provides a glimpse of how that power dynamic works.

Her story became public when Ms. Tuan, who goes by Winnie in Australia, published a Facebook post about her experience on Jan. 9, the day she was fired. That post, in which she named the restaurant, HuTong Hot Pot, and a supervisor she called Mr. Ha, quickly went viral on Chinese social media.

China’s Global Times — a state news media outlet — published an article the following day, asking readers: “What do you think about this incident, mainland netizens?”

The editors, leaving little to chance, added that The Global Times “would like to go to Sydney, and give ‘Mr. Ha’ a thumbs up!”

Photo
The Sydney suburb of Chatswood is popular with Chinese immigrants. Australia’s mainland-born population has more than doubled since 2006 to about 510,000 people. Credit David Maurice Smith for The New York Times

More than a dozen Chinese news outlets republished the article.

Later that week, a post from the restaurant appeared on Weibo, China’s version of Twitter: “It is fate and a privilege,” the message said, “to have people who respect us coming to dine at our restaurant.”

The comments section was filled with praise and promises to visit.

During the lunch rush one day last week, the restaurant was packed.

Asked about Ms. Tuan’s departure, a young manager said, “The company told us we’re not commenting.”

Ms. Tuan, 29, said in an interview that other comments on social media were supportive of her cause.

“People could relate,” she said.

They included Daniel Chang, 28. A hairdresser working in Melbourne, Mr. Chang said he never received a callback from a salon that had seemed eager to hire him until he mentioned he was Taiwanese.

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Jade Liao, 26, ran afoul of a customer. She said that in 2016, at a shoe store where she worked, a Chinese student berated her after she answered a question about whether Taiwan was part of China.

“She started yelling, and pointed a finger at me,” Ms. Liao said. “I couldn’t hold back my tears after she left.”

Many other Taiwanese workers described similar experiences — mostly young women on working holiday visas.

More than 12,000 of these visa holders come to Australia each year from Taiwan, and they are known to be part of a vulnerable cohort that is regularly paid below the minimum wage — an issue that Australia’s Fair Work Ombudsman has made a priority, assessing penalties against employers of various backgrounds.

A spokesman for the agency, however, said it had not undertaken any enforcement actions for discrimination against Taiwanese workers, or any other group, based on their political opinions.

Mr. Li, of the Australian Taiwanese Friendship Association, and many others in the Taiwanese community said Australia must do more to address the issue.

Without more effort, Mr. Lin said, China will continue to erode Australia’s “fair go” culture of democracy and equality.

“They are helping China erase the values that Taiwan and Australia share: democracy, human rights and the rule of law,” Mr. Lin said in a Sydney shopping mall flush with signs in Mandarin. “This is invisible. But this is fundamental.”

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Article source: https://www.nytimes.com/2018/02/18/world/australia/china-taiwan-discrimination.html?partner=rss&emc=rss

Trump Administration Proposes Stiff Penalties on Steel and Aluminum Imports

Mr. Ross also proposed an alternative for the steel industry that involved no tariffs, but would set a quota limiting steel imports from all countries to roughly two-thirds the level they were at last year.

For aluminum, the Commerce Department also outlined three alternatives, including a flat 7.7 percent tariff on imports from all countries, or a targeted 23.6 percent tariff on aluminum from China, Hong Kong, Russia, Venezuela and Vietnam. A third option involved putting into effect quotas to limit aluminum imports to lower levels than were shipped to the United States last year.

Mr. Ross did not indicate which way Mr. Trump might go, saying the president could pick a separate path, or reject the penalties altogether. But the president’s longstanding support for tariffs and his recent remarks suggest he is likely to support some kind of action.

In a meeting with lawmakers of both parties on Tuesday, Mr. Trump played down objections to the trade measures, and said that the United States was considering tariffs, quotas or both. “You may have a higher price, but you have jobs,” Mr. Trump told the bipartisan group.

Supporters of the trade action, including American steel companies and the United Steelworkers union, say American metal makers badly need the White House to step in and halt the flood of cheap imports, which has depressed the price for steel and aluminum. Many American steel and aluminum plants are struggling to compete in an oversaturated market and some have had to scale back production and eliminate jobs.

“This is a step in the right direction, and hopefully the president responds sooner than later,” said Todd Leebow, the chief executive of Majestic Steel USA, which buys American-made steel from mills to sell to customers in construction, agriculture and other industries. Mr. Leebow said he had seen a troubling decline in the industry in recent years, and he was hopeful Mr. Trump’s measure might reverse that.

But the investigation has also prompted criticism from American industries that use steel and aluminum to make their products, including automakers and food packagers. These businesses say tariffs or quotas will cause their prices to rise and shrink their profits, and could end up costing American jobs.

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Christine McDaniel, a senior research fellow at the Mercatus Center, a think tank that supports free markets, said that for every one steelworker that may be helped by trade restrictions, more than 38 workers in other sectors that could be harmed by it. “There is ample evidence that import taxes will harm economic growth and cost American jobs,” she said.

In a call with reporters on Friday, Mr. Ross played down any negative impact from the trade actions, saying that any increase in the cost of steel and aluminum for products like soft drinks and canned soup would be “trivial.” “We really don’t buy that argument,” Mr. Ross said.

Shares of American steel companies, including United States Steel, Nucor and AK Steel, rose following the release of the report. Stocks of Ford Motor Company and General Motors, which purchase aluminum and steel for their cars, declined.

Photo
Steel wire to be used in the manufacturing of tires at the Zhong Tian Steel Group Corporation in Changzhou, Jiangsu. China produces roughly half of the world’s steel and aluminum. Credit Kevin Frayer/Getty Images

United Steelworkers, which strongly supported the tariffs, commended Mr. Ross’s announcement. “These recommendations have the potential to focus on the bad actors in the world that historically and systemically cheat in international trade,” said Leo W. Gerard, the president of United Steelworkers International.

Companies with operations outside of the United States were more circumspect. Aluminum companies including Alcoa, Rio Tinto Aluminum and Constellium issued statements urging the administration to exempt Canada, a major supplier of aluminum, from the rule, and focus on the issue of Chinese overcapacity instead.

Mr. Trump will have authority to determine which countries should be subject to any trade action, in part because of way in which the investigation was started. In April, the administration opened an investigation into steel and aluminum imports with a little-used provision of trade law that gives the president broad discretion to act to protect national security.

Drastically remaking American trade has been one of Mr. Trump’s defining political promises. But his first year in office delivered a mixed record on trade. He withdrew the United States from the Trans-Pacific Partnership, an Obama-era trade deal, and began renegotiating trade pacts with South Korea, Canada and Mexico. Those talks now look likely to take longer than he anticipated.

The administration is also weighing a series of trade cases this year that would protect American industries against imports. In January, the Trump administration decided to impose tariffs on washing machines and solar cells and modules to help domestic industries. It has also started an investigation into claims that China infringed on American intellectual property, which could result in investment restrictions or further tariffs.

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The Trump administration has said that its steel and aluminum investigation would help address a global issue created by China, which has used generous state subsidies to dominate the global metals trade. China now produces roughly half of the world’s steel and aluminum, after making little two decades ago. That surge in production has helped push down global metal prices to a point where American companies say they can no longer compete.

But American options for aiming at China directly are limited. Because the United States has already imposed a raft of restrictions on Chinese steel in previous years, only 2 percent of American steel imports came directly from China in 2015.

That means that any measures from the Trump administration are likely to weigh more heavily on other countries, including some close allies. In 2016, Canada accounted for the largest proportion of United States steel imports, about 17 percent, followed by Brazil, South Korea, Mexico, Turkey and Japan.

Allies including the European Union, South Korea and Japan have also pushed back against the United States curbing imports, saying their products support the American military by providing a secure supply of metals, rather than harming it.

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Article source: https://www.nytimes.com/2018/02/16/us/politics/trump-administration-recommends-stiff-penalties-on-steel-and-aluminum-imports.html?partner=rss&emc=rss

If a Law Bars Asking Your Past Salary, Does It Help or Hurt?

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Feb. 16, 2018

Laws prohibiting employers from asking job candidates about their past compensation before making a salary offer are gaining momentum, aimed at reducing pay disparities and other obstacles confronting women and minorities.

The premise is simple: Judging an applicant’s worth from his or her previous salary can perpetuate pay gaps that arise from discrimination — or make it hard to get in the door at all.

Laws banning the practice have taken effect in New York City, Delaware and California in recent months. But the way some researchers see it, such laws are likely to be ineffective or even backfire. For example, employers who can’t ask about prior salary might assume that a female candidate would accept less money than a man, because women make less on average.

“It seems like the general social impulse is, ‘We don’t like employers using particular information, so we’ll tell them they can’t use it any more and assume that’s the end of the conversation,’” said Jennifer Doleac, an economist at the University of Virginia. “But if they cared enough about it to ask it to begin with, they probably care about it enough to try to guess.”

Ms. Doleac pointed to some recent studies, including one on which she was an author, showing that employers engaged in precisely this kind of guessing after several cities and states prohibited questions about candidates’ criminal records early in the application process. In her study, employers appeared to assume that young black and Hispanic men were more likely than members of other groups to have a criminal conviction and hired fewer of them once the policies were in place.

But the consequences may not be as clear when it comes to salary history. Some academic evidence suggests that the new laws may help women in certain circumstances.

To anticipate the effects of such laws, it’s worth exploring why employers ask about a candidate’s salary history in the first place. Here are a few reasons.

Employers may want to minimize payroll expenses.

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CreditChristoph Hitz

If employers know what a candidate previously made, they effectively know how little that person will accept.

“On one level, I’d like to pay people the least amount of money to get the most amount of benefit from that person,” said Adam Klein of the employment law firm Outten Golden, who has represented many workers in discrimination cases.

“Under that market-efficiency construct, why wouldn’t you pay women less?” Mr. Klein said, channeling a hypothetical employer who can ask lower-paid women about their salaries. “It makes business sense.”

Several economists said a ban on questions about salary history would probably prompt such employers to engage in what’s known as statistical discrimination — relying on group averages in place of information they were previously able to obtain about an individual.

(Alternatively, employers may try to get the information in slightly less direct ways, like asking candidates about their minimum salary expectation, Mr. Klein said.)

In doing so, employers will be further enabled by another feature of the recent salary history laws: They typically allow job applicants to disclose their previous salary voluntarily. As a result, some employers may feel comfortable making lowball offers to women, because they assume applicants will speak up if they make significantly more than the employer’s offer. Those who don’t speak up will be deemed to have made less.

This could, in turn, leave women worse off than before, since they tend to be more reluctant to bargain than men, as a range of studies have documented.

“By adding that hoop — putting them in a position where they have to negotiate more — I imagine it widening the gender gap,” Ms. Doleac said.

Employers may be trying to determine how to pay fairly.

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CreditChristoph Hitz

By asking what the candidate currently makes and paying the same or slightly more, an employer may simply want to ensure that an offer is accepted and that the new hire is satisfied — but may be oblivious to the risk of perpetuating pay disparities.

“What we are seeing is the myth of the sneaky employer,” said Andrew Hoan, president of the Brooklyn Chamber of Commerce.

“In Brooklyn, a high percentage of all firms in the borough are 50-person firms or less,” Mr. Hoan added. “The C.E.O. is the person making the offer. Frankly, he or she has no time to go around and create comparable stats. All this stuff they’re doing now is simply streamlining the process.”

Where this is true, banning salary-history questions could help substantially, advocates say.

“In companies that are treating people the same, and not thinking about how their behavior might differentially harm people, this type of law raises awareness of it,” said Joelle Emerson, the founder and chief executive of Paradigm, a firm that advises employers on promoting diversity. “It forces companies to sit down and say: ‘O.K., why were we doing this before? How should we set compensation now that we don’t do it this way?’”

At Dime Community Bank, which employs about 400 people at 29 branches in the New York City area, the standard job application asked candidates for their salary history until shortly before the New York ban took effect in October.

Angela Blum-Finlay, the bank’s head of human resources, said that she had already begun de-emphasizing salary history in determining compensation beforehand, and that she was asking hiring managers to use competitive benchmarks for different positions instead.

Ms. Finlay said that it was counterproductive for employers to try to squeeze candidates on compensation, especially in a tight labor market.

“We are, at Dime, trying to be an employer of choice, a place people want to come,” she said. “If I lowball you coming in, I’m not going to make you feel valued.”

Employers may be seeking to gauge productivity.

Image
CreditChristoph Hitz

Standard economic theory holds that workers are paid in line with their productivity, so a higher salary should imply a better worker.

In effect, employers may also be using salary on the front end of the hiring process — to help determine whom they want to interview — rather than solely on the back end, when preparing an offer.

But restrictions on asking for salary information can play out very differently in those situations. When employers want to know how little money a worker will accept, and the law prevents them from asking, they may rely on cruder information, like stereotypes.

But when employers want to know how good a worker is, they have several alternatives to considering salary history, many of them more revealing. They can, for example, interview the candidate, read letters of recommendation, and talk to former employers and co-workers.

In a recent study, the economists John Horton of New York University and Moshe Barach of Georgetown University conducted an experiment on a prominent online freelancing platform and found that employers responded in precisely this way.

During a roughly two-week period in 2014, half the employers in the experiment were no longer able to view the wage history of prospective workers, as they had in the past, while the other half could continue to see workers’ wage history.

Compared with employers who had the wage information, those without it ended up interviewing and hiring workers who, on average, had made significantly less money in the past. When employers could no longer consult salary history, they expanded the pool of workers they considered and went to greater lengths to evaluate them.

“You’re widening the top of the hiring funnel,” Mr. Barach said. “It doesn’t allow you to as easily throw people away.”

He and Mr. Horton acknowledged that because this approach required spending more time collecting information, employers might not find it worthwhile when filling a low-skilled or entry-level job. In those cases, they might retreat to stereotypes involving gender or race, as other economists have suggested.

But “for some range of jobs,” Mr. Barach said, “more upfront costs could have benefits down the road. If you actually talk to someone, interview them, it will allow you to locate a high-quality candidate.”

Follow Noam Scheiber on Twitter: @noamscheiber.

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Article source: https://www.nytimes.com/2018/02/16/business/economy/salary-history-laws.html?partner=rss&emc=rss

Trump Administration Recommends Stiff Penalties on Steel and Aluminum Imports

Mr. Ross also proposed an alternative for the steel industry that involved no tariffs, but would set a quota limiting steel imports from all countries to roughly two-thirds the level they were at last year.

For aluminum, the Commerce Department also outlined three alternatives, including a flat 7.7 percent tariff on imports from all countries, or a targeted 23.6 percent tariff on aluminum from China, Hong Kong, Russia, Venezuela and Vietnam. A third option involved putting into effect quotas to limit aluminum imports to lower levels than were shipped to the United States last year.

Mr. Ross did not indicate which way Mr. Trump might go, saying the president could pick a separate path, or reject the penalties altogether. But the president’s longstanding support for tariffs and his recent remarks suggest he is likely to support some kind of action.

In a meeting with lawmakers of both parties on Tuesday, Mr. Trump played down objections to the trade measures, and said that the United States was considering tariffs, quotas or both. “You may have a higher price, but you have jobs,” Mr. Trump told the bipartisan group.

Supporters of the trade action, including American steel companies and the United Steelworkers union, say American metal makers badly need the White House to step in and halt the flood of cheap imports, which has depressed the price for steel and aluminum. Many American steel and aluminum plants are struggling to compete in an oversaturated market and some have had to scale back production and eliminate jobs.

“This is a step in the right direction, and hopefully the president responds sooner than later,” said Todd Leebow, the chief executive of Majestic Steel USA, which buys American-made steel from mills to sell to customers in construction, agriculture and other industries. Mr. Leebow said he had seen a troubling decline in the industry in recent years, and he was hopeful Mr. Trump’s measure might reverse that.

But the investigation has also prompted criticism from American industries that use steel and aluminum to make their products, including automakers and food packagers. These businesses say tariffs or quotas will cause their prices to rise and shrink their profits, and could end up costing American jobs.

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Continue reading the main story

Christine McDaniel, a senior research fellow at the Mercatus Center, a think tank that supports free markets, said that for every one steelworker that may be helped by trade restrictions, more than 38 workers in other sectors that could be harmed by it. “There is ample evidence that import taxes will harm economic growth and cost American jobs,” she said.

In a call with reporters on Friday, Mr. Ross played down any negative impact from the trade actions, saying that any increase in the cost of steel and aluminum for products like soft drinks and canned soup would be “trivial.” “We really don’t buy that argument,” Mr. Ross said.

Shares of American steel companies, including United States Steel, Nucor and AK Steel, rose following the release of the report. Stocks of Ford Motor Company and General Motors, which purchase aluminum and steel for their cars, declined.

Photo
Steel wire to be used in the manufacturing of tires at the Zhong Tian Steel Group Corporation in Changzhou, Jiangsu. China produces roughly half of the world’s steel and aluminum. Credit Kevin Frayer/Getty Images

United Steelworkers, which strongly supported the tariffs, commended Mr. Ross’s announcement. “These recommendations have the potential to focus on the bad actors in the world that historically and systemically cheat in international trade,” said Leo W. Gerard, the president of United Steelworkers International.

Companies with operations outside of the United States were more circumspect. Aluminum companies including Alcoa, Rio Tinto Aluminum and Constellium issued statements urging the administration to exempt Canada, a major supplier of aluminum, from the rule, and focus on the issue of Chinese overcapacity instead.

Mr. Trump will have authority to determine which countries should be subject to any trade action, in part because of way in which the investigation was started. In April, the administration opened an investigation into steel and aluminum imports with a little-used provision of trade law that gives the president broad discretion to act to protect national security.

Drastically remaking American trade has been one of Mr. Trump’s defining political promises. But his first year in office delivered a mixed record on trade. He withdrew the United States from the Trans-Pacific Partnership, an Obama-era trade deal, and began renegotiating trade pacts with South Korea, Canada and Mexico. Those talks now look likely to take longer than he anticipated.

The administration is also weighing a series of trade cases this year that would protect American industries against imports. In January, the Trump administration decided to impose tariffs on washing machines and solar cells and modules to help domestic industries. It has also started an investigation into claims that China infringed on American intellectual property, which could result in investment restrictions or further tariffs.

Advertisement

Continue reading the main story

The Trump administration has said that its steel and aluminum investigation would help address a global issue created by China, which has used generous state subsidies to dominate the global metals trade. China now produces roughly half of the world’s steel and aluminum, after making little two decades ago. That surge in production has helped push down global metal prices to a point where American companies say they can no longer compete.

But American options for aiming at China directly are limited. Because the United States has already imposed a raft of restrictions on Chinese steel in previous years, only 2 percent of American steel imports came directly from China in 2015.

That means that any measures from the Trump administration are likely to weigh more heavily on other countries, including some close allies. In 2016, Canada accounted for the largest proportion of United States steel imports, about 17 percent, followed by Brazil, South Korea, Mexico, Turkey and Japan.

Allies including the European Union, South Korea and Japan have also pushed back against the United States curbing imports, saying their products support the American military by providing a secure supply of metals, rather than harming it.

Continue reading the main story

Article source: https://www.nytimes.com/2018/02/16/us/politics/trump-administration-recommends-stiff-penalties-on-steel-and-aluminum-imports.html?partner=rss&emc=rss

The White House Is Very Optimistic on Growth. It Shouldn’t Be.

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Making its forecast come true would require productivity improvements not seen in decades and an atypical policy on interest rates.

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Feb. 14, 2018

President Trump has been nothing if not bold in his promises to generate supercharged economic growth.

When a report showed a strong 3.3 percent growth rate last fall, he said, “I see no reason why we don’t go to 4 percent, 5 percent, and even 6 percent,” and he has spoken wistfully of emerging economies where growth can reach higher than that.

Even if you treat those musings as presidential bombast, his administration is making detailed projections that the economy will expand much faster in the decade ahead than it has in recent years — a forecast that underpins the Trump policy agenda.

The administration forecasts growth in the neighborhood of 3 percent through the next decade, compared with around 2 percent projected by private forecasters and the economists at the Congressional Budget Office and the Federal Reserve. If the administration’s forecast comes true, it will imply an economy 12 percent bigger in 2028 than that projected by the more cautious forecasts — an extra $2.8 trillion in economic activity that year, in today’s dollars.

But when you look closely at the details of the forecast, not all of it quite adds up. To come true, it would require some of the strongest improvements in productivity seen in decades, yet also require that interest rates not react the way they have historically when growth strengthens.

To understand some of the Trump administration’s buoyant assumptions and the apparent contradictions buried within them, it helps to go step by step on where economic growth comes from and how it relates to interest rates, employment and inflation.

Capital spending can fuel higher growth, but not forever

Think of the simplest arithmetic on how a single company can produce more goods and services. There are three ways:

  • Workers can put in more hours of labor. If the company hires more people, or has current workers do longer shifts, it can increase production.

  • The business can invest in more capital to make workers more effective. The latest equipment or software can mean each hour of labor creates more stuff.

  • The business can adjust its management techniques and how it operates to try to get more productivity out of the same workers and equipment.

The same idea applies to the economy as a whole. Growth comes from either more hours being worked, or more capital for each worker, or the third, which is called “total factor productivity.”

The Trump administration leans heavily on the second of these — more capital — as justification for its optimism. With lower taxes on business, as well as regulatory policies that are more favorable to capital, the budget statement says, it will unleash “growth-enhancing policies” in terms of more capital in the economy per worker.

It is indeed plausible that these policies will encourage more capital investment in the next few years, said Joel Prakken, chief U.S. economist at Macroeconomic Advisers, with higher productivity growth as a consequence.

But that should be a one-time adjustment, after businesses increase their capital stock in response to more favorable policies. Once that process is complete and has resulted in higher productivity, there’s no reason to think that capital investment would keep rising as a share of the economy.

In other words, the benefits in terms of productivity growth and economic growth should fade over time, which the administration acknowledges.

“The new tax law would be a one-time shift, spread out over several years, after which there would be a new steady state growth path for labor productivity,” DJ Nordquist, chief of staff at the White House Council of Economic Advisers, said in an email. “Nevertheless, in that new steady state, faster growth than we have seen in recent years can still be expected because of the elimination of excessive regulations, to which this administration is committed and because of our infrastructure plan. This deregulation will have enduring benefits to the rate of growth.”

Some private economists are not persuaded these effects are powerful enough to account for continued strong growth a decade from now. “I try to fit these numbers into a mainstream paradigm and I can’t make them fit,” Mr. Prakken said.

What about other sources of growth?

But even if higher capital investment can’t do all the lifting of generating 3 percent growth, there remain those other two possibilities, of hours worked or total factor productivity, that could help achieve the 3 percent growth forecast even after the lift from tax cuts and capital investment fades.

But demographic trends are putting a lid on potential growth from more hours of work. The retirement of the baby boomers and stabilization of the proportion of women in the work force mean that potential hours worked will rise only 0.4 percent a year in the coming decade, according to the C.B.O.’s forecast (compared with 1.3 percent a year from 1950 to 2016).

Moreover, the Trump administration’s immigration policies, if anything, would tilt that number in a negative direction, as deportations, tighter border security and more restrictive issuance of work visas reduces the potential supply of labor.

Ms. Nordquist argued that Trump administration policies would help increase the labor force, and hence growth potential.

“We think that labor force participation has dropped in the past decade in part because of government policies that discourage work,” said Ms. Nordquist, including growth in Social Security disability insurance and the Affordable Care Act. “There is much room for the Trump administration to improve on those policies, for example through marginal individual income tax rate cuts,” citing evidence that older, near-retirement workers may be more likely to work when taxes are lower.

Then there’s total factor productivity, the black-box driver of growth. Economists don’t really understand it, and calculate it only as a residual — it is the number left over after calculating how much a rise in output comes from more hours worked or more capital.

It would be great for the long-term prospects for the economy — and for the Trump administration’s forecast — if total factor productivity started rising faster. But it’s hard to predict, and it doesn’t show much relationship with either corporate taxes or government regulation. For example, it was quite high from 1950 to 1973, when corporate income taxes were between 48 and 52 percent (they were recently cut to 21 percent). And it was quite low from 1982 to 1990, amid the Reagan era tax cuts and deregulation.

The interest rate paradox

Suppose the Trump administration’s growth forecast really does materialize: Tax cuts and deregulation fuel productivity-enhancing capital spending; some good fortune arises in terms of the labor force and total factor productivity; and economic growth returns to its pre-2000 norm of around 3 percent. That would be positive news for the economy. But it also would be likely to have other effects, particularly on interest rates.

Over time, interest rates tend to move in tandem with the nominal growth rate. Part of the reason interest rates have fallen sharply in the last decade is that low growth has translated into what economists call a low “natural rate” of interest and low inflation levels.

But the Trump administration projects similar interest rates to those envisioned by more cautious forecasters, despite projecting higher growth.

It implies something of an immaculate expansion: returning to pre-2000 growth rates without also returning to pre-2000 interest rates.

In the 1990s, for example, G.D.P. growth averaged 3.3 percent per year, and the 10-year Treasury bond yield averaged 6.7 percent. The administration projects economic growth nearly that strong, but rates peaking at 3.7 percent.

Even some who are on board with more optimistic forecasts of growth say that higher interest rates and inflation are likely to accompany it. Allen Sinai, a longtime forecaster, shares the administration’s view that businesses will invest in more capital because of the tax law, thus achieving higher productivity.

But in addition to that, he argues, the economy will be at risk of overheating. He sees inflation rising to between 2.5 percent and 3 percent by late 2019, which could send long-term Treasury bond yields up to 5 percent, well above the 2.9 percent today and the 3.1 percent the administration forecasts for 2019.

“At some point inflation gets high enough, and the market takes interest rates up,” said Mr. Sinai, the chief economist at Decision Economics. And higher rates, it’s worth adding, would raise the cost for the government to service the national debt, in turn making deficits higher.

Ms. Nordquist notes that the forecasts published Monday were developed in November, when interest rates were lower than they are now. “If we were to redo the interest rate forecast today, we would project higher rates,” she said.

The art of the forecast

Have some sympathy for those who build these forecasts. Predicting anything 10 years in advance is inherently hard, and no forecast is ever perfectly correct. As the last 10 years show, there is a lot that is just unknowable about the forces that will buffet the economy.

But you do want those forecasts to line up with what we already know about the economic and demographic forces that will shape the future. And a lot will have to go right for the Trump administration’s forecasts to come true.

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Article source: https://www.nytimes.com/2018/02/14/upshot/the-trump-administration-is-optimistic-about-economic-growth-be-skeptical.html?partner=rss&emc=rss