April 20, 2019

Trump’s Nafta Revisions Offer Modest Economic Benefits, Report Finds

Kevin Hassett, the chairman of the president’s Council of Economic Advisers, said he believed that the report had underestimated some of the deal’s economic benefits, including provisions on intellectual property. But he said he was encouraged.

“I think that should be reassuring to anyone who is on the fence on this bill,” he said.

Since negotiations began in August 2017, the administration has secured some substantive changes to Nafta, including modernizing protections on digital trade, adding labor and environmental protections, opening up the Canadian dairy market and adding rules to restrict governments from manipulating their currency.

Many of the changes have been updates to Nafta’s existing framework. Other improvements were drawn from the Trans-Pacific Partnership. Mr. Trump withdrew the United States from that agreement days after taking office, before Congress could act on it.

The Trump administration has also tightened regulations on how cars are manufactured — for example, raising the percentage of a vehicle that needs to be made in North America for it to be tariff-free — to encourage automaking in the United States.

The commission’s report projected that rule changes in the automotive sector would result in many of the largest economic changes from the pact. It estimated that rules meant to bolster American automotive manufacturing would add more than 28,000 jobs and increase investment by $683 million per year.

But by raising the cost of producing cars, the auto provisions would actually reduce American car exports and weigh on the economy over all, the report said.

Those figures clashed with a rosier analysis of the automotive effects of the deal released by the Trump administration. Based on information provided by North American automotive manufacturers, Mr. Lighthizer’s office estimated Thursday that the rule changes would result in $34 billion in investments in the United States, as well as $23 billion in annual purchases of American-made parts and 76,000 American jobs, all within five years.

Article source: https://www.nytimes.com/2019/04/18/business/economy/trump-nafta-trade.html?partner=rss&emc=rss

Treasury Issues Rules on Tax Breaks for Opportunity Zones

Even before the administration has finished issuing its rules, the zones have become a boon for real estate developers and drawn criticism from people who say they will mostly enrich well-heeled investors and speed up the displacement of low-income residents in gentrifying areas.

Treasury officials have developed a series of tests, in the regulations they began releasing in October, for which investments should qualify for the tax breaks. One key test many local officials use to evaluate the zones is whether the tax breaks encourage job-creating businesses, not just condos, retail stores, hotels and other real estate projects that often don’t create many permanent jobs with opportunities for advancement.

Mr. Scott and others have urged officials to set rules that encourage investment in entrepreneurship, and to attract a wide variety of investors, including venture capitalists who could establish funds that would back multiple projects in various zones.

The rules released on Wednesday, ahead of a White House meeting on the program, seek to meet that request in several ways.

They include provisions that will allow investors to qualify for the breaks even if the businesses they fund focus on exported goods or services or the domestic market outside the zone. Long-vacant properties will immediately qualify for the tax breaks. Investors will be allowed to share their stakes in funds that invests in the zones, and to sell, say, a start-up in an Opportunity Zone as long as the money is reinvested in another qualifying business or asset. Real estate investors will be allowed to lease and refinance their properties.

Mr. Trump heralded the regulations and the program, calling the zones “really a crucial part of our new tax law to help low-income Americans.”

“As you know,” he said at the White House, “this vital provision gives businesses a massive incentive to invest and create jobs in our nation’s most underserved communities.”

Article source: https://www.nytimes.com/2019/04/17/business/economy/opportunity-zones-treasury-regulations.html?partner=rss&emc=rss

Monica Crowley, a Fox News Fixture, Is Said to Get a Top Treasury Job

In the interview with Mr. Hannity, Ms. Crowley said members of the Washington establishment were trying to destroy Mr. Trump. “They want him in prison,” she said. “This is a war.”

The choice of Ms. Crowley is a surprising one for Mr. Mnuchin, who has been seen as a voice of moderation in the Trump administration. In recent years, Ms. Crowley has emerged as a conservative firebrand, assailing Democrats and amplifying conspiracy theories about President Barack Obama’s heritage.

In a collection of videos unearthed by the liberal group Media Matters, Ms. Crowley described Mr. Obama’s policies as “un-American” and said questions about his birth certificate were “very legitimate.” Mr. Trump was a leading voice of the so-called birther movement, which was built on questioning, without factual basis, where Mr. Obama was born.

“It all feeds into this idea that somehow, fair or not, Obama is not one of us,” Ms. Crowley told the Fox News host Bill O’Reilly, who said she was being unfair to Mr. Obama.

Ms. Crowley has been a fixture on Fox News and in conservative media for decades, having joined the network as an international affairs analyst in 1998. Before that, she worked as a foreign policy assistant and research consultant to former President Richard M. Nixon. She received her Ph.D. from Columbia University.

The Treasury appointment, which does not require Senate confirmation, is ultimately Mr. Trump’s to make. The White House did not immediately respond to a request for comment.

A second person familiar with the administration’s thinking about the decision said the White House wanted to add staff members who, like Ms. Crowley, could be counted on to fiercely defend Mr. Trump’s policies on television as the 2020 election season gets into full swing. It was not clear how much airtime Ms. Crowley would get, however, as Mr. Mnuchin likes to keep close control over the Treasury’s public communications.

Article source: https://www.nytimes.com/2019/04/17/business/economy/monica-crowley-treasury-mnuchin.html?partner=rss&emc=rss

The 2008 Financial Crisis as Seen From the Top

So why didn’t people see it coming? Part of it was hubris: “Serious economists were arguing that financial innovations like derivatives … had made crises a thing of the past.” (How serious were these economists, actually?) And the reality was that financial innovation made things worse, not better: Most of “the leverage in U.S. finance” — debt that was vulnerable to panic — had moved to “shadow banks” that, unlike conventional banks, were largely unregulated and lacked a financial safety net.


Also, as they say, “it’s hard to fix something before it breaks.” As long as the housing bubble was still inflating, defaults were few and everything seemed sound. A few Cassandras warned about the risks, but like the original Cassandra, they went unheeded. And BGP, to their credit, acknowledge their own failures to recognize the danger, including Bernanke’s notorious declaration that problems in subprime lending were “contained.”

Then it all fell apart. Most of the book is concerned with the increasingly desperate efforts of BGP and other officials to prop up financial dominoes before they could topple and collapse the whole system. It’s an intricate story, one whose details probably seem a lot more interesting to those who were involved than they will to a broader readership. And I don’t think there are any shocking new revelations.

There is, however, a unifying theme to all that complexity: Containing this crisis was so hard precisely because of all that financial innovation. Conventional banks are both overseen and guaranteed by the Federal Deposit Insurance Corporation, which has the power “to wind down insolvent banks in an orderly fashion while standing behind their obligations.” But “the federal government had no orderly resolution regime for nonbanks.”

So BGP and company had to engage in frantic innovation. For example, the Fed funneled money through conventional banks into the hands of nonbanks, in effect lending to institutions they weren’t really supposed to support. This exposed the Fed to new risks; Paulson effectively indemnified the Fed against those risks, apparently without real legal authority to do so. At another point, when a run on money-market funds — which would have been a complete catastrophe — seemed imminent, Paulson guaranteed those funds using money legally earmarked for a completely different purpose, defending the dollar’s foreign exchange value.

Sometimes all these efforts fell short. In a section that will no doubt cause a lot of controversy, BGP argue that there was nothing they could legally have done to prevent the bankruptcy of Lehman Brothers, the event that nearly broke the world. Was this true? I’m not enough of a lawyer to tell.

Still, by the late spring of 2009 the storm seemed to have passed. Recovery was slow, but at this point we are back to an economy with low unemployment and seemingly stable financial markets.

Article source: https://www.nytimes.com/2019/04/16/books/review/ben-bernanke-timothy-geithner-henry-paulson-firefighting.html?partner=rss&emc=rss

Face It: You (Probably) Got a Tax Cut

The SALT cap definitely had a bigger effect in those states. But that doesn’t mean most of their residents saw a tax increase.

For one thing, the two-thirds of Americans who took the standard deduction in previous years weren’t taking the SALT deduction, or any other itemized deduction. And most households earning less than $75,000 — as about two-thirds of households in New York State do — were comfortably under the $10,000 cap.

Paradoxically, many higher-income households weren’t getting the SALT deduction, either. That’s because the alternative minimum tax effectively wiped out many deductions, including SALT, for couples earning more than about $250,000 a year. The tax law significantly defanged the A.M.T., meaning most of those households ended up getting a bit of a tax cut.

The SALT cap did hurt families who earned enough to pay a lot of state and local tax but not enough to be affected by the A.M.T. (Other factors, like how people earned their money, also make a difference.) A Treasury Department audit estimated that 11 million taxpayers fell into that category.

But just because people were bitten by the SALT cap doesn’t mean they were net losers under the law. The law doubled the child tax credit, for example, and made it available to more taxpayers. It also cut marginal tax rates and changed the treatment of some business income.

“A lot of people who are very angry about the SALT were not thinking about it in the context of the stuff that actually benefited them,” Mr. Gleckman said.

“You can construct specific examples of situations” where people paid more, he added, “but they are very specific and over all pretty unusual.”

About the survey: The data in this article came from an online survey of 9,716 adults conducted by the polling firm SurveyMonkey from April 1 to April 7. 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.

Article source: https://www.nytimes.com/2019/04/14/business/economy/income-tax-cut.html?partner=rss&emc=rss

Costs for Boeing Start to Pile Up as 737 Max Remains Grounded

And when the Max is approved to fly again, it remains unclear whether passengers will feel comfortable on the planes. In the days after the crash of Ethiopian Airlines Flight 302 in March, before the Max was grounded, the travel booking website Kayak.com added a filter that allowed customers to filter by plane type.

Yet for all the uncertainty facing Boeing today, analysts believe there is little long-term risk to the company. Boeing and its European rival Airbus are the only significant manufacturers of commercial aircraft. And the 737 Max, for all its problems, remains one of two midsize fuel-efficient passenger jets on the market, along with the Airbus A320neo.

“Boeing’s best protection is that this is a supply-constrained industry,” Mr. Aboulafia said. “There are only two modern airplanes that offer fuel savings. The risk of defection is minimal because of that.”

Nor is there much risk that airlines that have already placed orders with Boeing will walk away, analysts said. With Airbus also backlogged, airlines looking for new planes have no real alternatives.

“Boeing’s ability to modify the aircraft effectively, the duopoly structure of the aircraft market, the large installed base of 737s, and Boeing’s deep and long-term relationships with its customers mean that demand for the Max will not change dramatically,” Mr. Seifman wrote.

Even if Boeing weathers the immediate financial storm, it faces other unknowns. The families of passengers and crew members killed in the Ethiopian Airlines crash and the crash of Lion Air Flight 610 in October have hired lawyers to pursue legal claims against the company.

The Transportation Department’s inspector general and the Justice Department are investigating the design, manufacturing and certification of the Max. And it may be months or even years before Boeing wins back the public’s confidence.

“The general flying public seems to be asking more questions about the airplane than they have with prior fleet groundings,” Mr. Poponak, the Goldman Sachs analyst, wrote in a recent note. “We see a risk that lasts in the order book moving forward over the next few years.”

Article source: https://www.nytimes.com/2019/04/12/business/boeing-planes-economy.html?partner=rss&emc=rss

U.S. Retail Stores’ Planned Closings Already Exceed 2018 Total

“It happened very quickly,” Ms. Blair said, adding that the store was packed with customers in its final weeks. “I had a few customers complaining about my attitude not being 100 percent, and I was just kind of like: We’re all losing our jobs. I can’t help but walk in here and slowly see it being emptied out and just sort of feel sad.”

And even during the liquidation process, e-commerce looms large.

“The biggest thing we’ve had to do is figure out how to sell stuff online,” Mr. Mulcunry said. Great American has been exploring ways to maximize sales through company websites, ads on Facebook and Instagram, and by offers on Amazon.

“A going-out-of-business sale is exciting: People want to go, it’s fun and drives energy, and that’s what we made money on for a long period of time,” he said. “But if the customer changes, so must the liquidator.”

Mr. McGrail views the power shifts in retail as a “slow and steady” evolution. “Even though we’re seeing this bump of store closures now, it’ll slow down a bit and then we’ll see another wave,” he said. Still, he said that he expected retail square footage to continue to shrink and a widening of the gap between the best malls and more mediocre locations.

Many retailers have been exiting their least profitable mall locations. Gap recently said that it would close 230 stores in the next two years, mostly as leases expire, as it tries to balance its online, outlet and regular sales. Victoria’s Secret plans to close 53 stores in North America this year, up from its usual culling of about 15 stores annually. The chain will still have more than 900 stores.

Payless plans to close 2,300 stores in North America by the end of May, in what is expected to be the biggest liquidation of a retailer by store count. Gymboree started closing 749 Gymboree and Crazy 8 stores in the United States in January. The personalized engraving retailer Things Remembered, which filed for bankruptcy this year, has closed more than 200 stores.

“It’s not really a recession-driven or, even to an extent, management-driven change — it’s a change in the way people are buying,” Mr. Mulcunry said. “Retail is not dying. It’s just changing, so we’re a part of that change.”

Article source: https://www.nytimes.com/2019/04/12/business/retail-store-closings.html?partner=rss&emc=rss

With Brexit Delayed, British Businesses Say: Enough Already

An extension to the negotiations “comes with costs and uncertainty,” Josh Hardie, the deputy director-general of the Confederation of British Industry, said in an interview. Businesses “place their bets on other countries” if Britain is no longer perceived as a gateway to Europe.

“That’s already happening — it’s not something that will just happen with Brexit,” he said.

Roni Savage, the director at Jomas Associates, an engineering consulting firm with 15 employees, has already seen the knock-on effect of the Brexit impasse.

Her firm surveys ground conditions for construction companies. Half of her construction clients, she said, have started slowing new projects, like housing, because it is not clear whether demand will hold up after Brexit.

“We get affected very quickly by issues with the economy, and Brexit is a huge one,” Ms. Savage said.

“It’s a nightmare,” she added. “I’m really saddened by having another extension, having to wait for longer. We’ll all be hoping to get this over soon.”

Farmers expressed the same concerns.

“We have crops and livestock in fields, with farmers and growers still in the dark about what trading environment they will be operating in, whether they will have access to a sufficient work force to carry out essential roles this season, or what the U.K.’s future domestic agricultural policy will look like,” Minette Batters, the president of the National Farmers’ Union, said in a statement.

Even an extension and a withdrawal agreement would be only the beginning of negotiations over Britain’s future relationship with the European Union, said Tim Durrant, a senior researcher at the Institute for Government, a think tank. “We’re in the long haul for Brexit, I’m afraid.”

Article source: https://www.nytimes.com/2019/04/11/business/brexit-business.html?partner=rss&emc=rss

Uber Is Said to Aim for I.P.O. Valuation of Up to $100 Billion

At $90 billion to $100 billion, Uber would be one of the largest American tech companies to go public in recent years. Its debut would be rivaled only by Facebook, which went public at $104 billion in 2012. Alibaba, the Chinese e-commerce giant, was the largest initial offering, at $168 billion in 2014. Lyft, by contrast, has a market capitalization of about $17 billion.

In recent weeks, brokers who sell shares on behalf of employees and early investors have offered Uber stock to buyers at the $80 billion to $100 billion valuation range, according to two people familiar with them. These sales, on what is known as the secondary market, mean sellers can lock in their returns without waiting for the I.P.O. lockup period to end, while avoiding uncertainty about how the stock will trade. In 2017, some of Uber’s early investors and employees sold portions of their stock to SoftBank as part of the Japanese conglomerate’s $7 billion investment in the company.

Although Uber’s debut is hotly anticipated, the company remains unprofitable. The ride-hailing service has released some of its quarterly earnings figures publicly, even though it was not obligated to do so as a private company. In February, Uber said it lost $842 million in the fourth quarter of 2018 on revenue of $3 billion.

How the company will get to a point where it makes more money than it loses is likely to be a key question when Dara Khosrowshahi, Uber’s chief executive, meets with investors to sell shares in the coming weeks. Mr. Khosrowshahi has pulled back from some markets where Uber was losing money, such as Southeast Asia. But he is also continuing to spend as the company expands into businesses such as food delivery and long-haul trucking.

Mr. Khosrowshahi has previously emphasized the importance of Uber’s business being able to generate cash. He has also said that the company does not need to be making money before going public, but that it must be able to show a path to profits.

“You need to demonstrate a very clear road to profitability,” Mr. Khosrowshahi said at the Fortune Brainstorm conference in July.

Article source: https://www.nytimes.com/2019/04/10/technology/uber-ipo.html?partner=rss&emc=rss

U.S. Readies $11 Billion in Tariffs on E.U.

The United States’ arguments at the W.T.O. have centered on billions of dollars of “launch aid” that the European Union has given Airbus to develop new products. The United States has long argued that such aid gave Airbus an unfair advantage, allowing it to gain market share in Europe, Australia, China, South Korea and elsewhere at Boeing’s expense.

European criticism of the American aviation sector has mostly focused on government research contracts granted to Boeing through agencies like the Defense Department and NASA, as well as tax breaks at the federal, state and local levels.

While the subsidy dispute predates Mr. Trump’s trade war by many years, the conflict has recently taken on some of the same tone that has characterized relations between the United States and Europe during the last two years, including reciprocal threats, radically different interpretations of the same facts, and an undercurrent of hostility among the NATO allies.

The two governments announced plans in July to negotiate an agreement that would reduce tariffs and other barriers to trade on both sides of the Atlantic, but have since disputed exactly what would be included in the agreement.

Chad Bown, a senior fellow at the Peterson Institute, said the list being drawn up by the United States was notable because it targeted European aircraft sales, which have not typically been included on past retaliation lists. “If Trump goes first, expect the E.U. to respond by hitting Boeing’s sales in Europe,” Mr. Bown said.

He added that tariffs on Airbus would also affect American companies, since it purchases many components for its aircraft from the United States.

Trade experts suggested the organization was likely to decide in the United States’ favor on the tariffs, which they described as significant but not surprising.

Article source: https://www.nytimes.com/2019/04/09/us/politics/boeing-airbus-tariffs.html?partner=rss&emc=rss