May 23, 2019

Who will cash in on US trade wars & how to get around the tariffs? RT’s Boom Bust has the answer

RT’s Boom Bust talked to Richard Wolff, a professor emeritus of economics at the University of Massachusetts, to find out which nations may capitalize on the trade turmoil, and if China would inevitably lose its former markets, including the US.

According to the expert, domestic and foreign companies in China started looking for the cheapest labor across Asia and all over the world long before the tariffs due to the dramatic increase in wage costs in China. Professor Wolff stressed that there are many ways, legal or illegal, to get around the import tariffs.

Also on Mass exodus of US firms from China amid trade war won’t mean they’ll be coming home, survey shows

“For example, long before the US even recognized the People’s Republic of China, the quantity of goods coming into the US labeled ‘Made in Hong Kong’ was incredible,” the economist said, stressing that everybody understood that those products were made in China, shipped to Hong Kong, shipped out with changed labels, and “everybody gets along.”

Wolff believes that the Chinese are clever and have had a lot of experience in how to avoid tariffs and keep doing business.

”A lot of countries around the world, not just in Asia, but everywhere, are willing to cooperate, because then they get a piece of the trade between China and the US,” he said.

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Russia boosting gold reserves at a time of impending US dollar crisis – Peter Schiff

The greenback’s role as a reserve currency is going to be questioned soon, according to Schiff.

“I think what Russia is doing or other central banks are recognizing is that they need to increase their gold reserves because of the impending dollar crisis. Ever since the US led the world off the gold standard, the world has been on a dollar standard. That was fine when the dollar was backed by gold but now the dollar is backed by nothing…” said Schiff.

Also on Russia boosting gold dumping dollar from foreign currency reserves

“Up until now that hasn’t been a problem because people have still perceived the value of the dollar but I think that’s going to change,” he added.

Russia obviously wants to buy as much gold as it can while the price is still relatively cheap, Schiff said, adding: “That allows it to build up a bigger hoard of gold to replace the diminished value that the dollar is going to play as a reserve currency.”

READ MORE: Countdown to zero: Russia continues dumping US debt

The next recession of the US economy will occur when “the Fed goes back to zero and we launch QE4,” according to the expert. “The dollar’s role as a reserve currency will be questioned then,” Schiff said, noting that the central banks will need an alternative. “The only viable alternative to back up their currencies is real money which is gold.”

While other countries back their currencies with dollars, the US can’t do the same, and the problem is that “we [the United States – Ed.] don’t have enough gold relative to all the currency that we’ve been creating and are going to be creating.”

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Schiff suggested that no country likes that the “US uses the dollar as a weapon.” So, to move away from the greenback they increase their gold reserves now while “gold is still cheap because when the dollar really starts to tank the price of gold will soar.”

With its actions Washington is pushing countries toward accumulating gold, Schiff said, explaining that this is in fact what the US is “doing now with China with this trade war.”

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The art of trade war: Chinese firm bans workers from buying American goods & stateside travel

The Jinggang Motor Vehicle Inspection Station, located in the Chinese province of Jiangsu, has issued a strict warning to its employees, reports The Epoch Times. The New York-based, Chinese focused media site says the instruction, sent by corporate email, requires workers to boycott products produced in the US and stop traveling to the country under threat of dismissal.

Also on Mass exodus of US firms from China amid trade war won’t mean they’ll be coming home, survey shows

The unusual notice comes amid nation-wide calls to ignore American goods which are actively supported by Chinese local media. The harsh criticism followed the latest developments in the ongoing trade war between Beijing and Washington, when the parties failed to find a resolution on mutual trade deal.

As a result, the White House raised tariffs on $200 billion worth of Chinese imports from 10 to 25 percent, threatening to impose further levies on another $300 billion of goods imported from China. Beijing retaliated by increasing import duties on $60 billion worth of US products, starting June 1.

Moreover, the US administration added Huawei and 70 of its affiliates to a trade blacklist, citing non-specific concerns about “national security threats.” Shortly after that, Google confirmed it would sever its relationship with Huawei to comply with the requirements.

“To help our country win this war, company’s authorities have decided that all employees must immediately stop purchasing and using American products,” the note reads, as quoted by the media.

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The ban reportedly targets using iPhones, driving American vehicles, eating at the US food chains, as well as buying home US-branded care products.

“Employees are prohibited from purchasing or using iPhones; instead, they are recommended to use Chinese domestic brands of cell phones, such as Huawei,” the company wrote.

The firm stressed that its workers are not allowed to buy cars made by China-US joint venture manufacturers, but recommended “to purchase 100 percent Chinese-made vehicles.”

Eating in McDonald’s or Kentucky Fried Chicken is also forbidden.“Employees are not allowed to purchase PG Amway, or any other American brands. and mustn’t not go to the United States as a tourist.”

Also on China’s other nuclear option in trade war with US – Rare earth materials

The instruction has reportedly spread across Chinese social media, evoking a mixed response among users with some ironically urging people to stop using Windows operating system or planes made by US aircraft manufacturer Boeing.

Earlier this week, Chinese consumers took to online platforms, calling for a boycott of Apple products in favor of Huawei after the US ramped up pressure against the Chinese telecom giant. The step is expected to hurt Apple sales in China in the short-term.

Apple’s business in China accounted for more than 17 percent of its global sales in the second quarter, totaling $10.22 billion. The iPhone maker may lose 29 percent of earnings, if the Chinese government strikes back by banning its products, Goldman Sachs warned.

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Huawei’s own operating system could be ready this year if cut off from US tech, top exec says

The head of the company’s consumer division Richard Yu told CNBC the operating system could be ready for use in China by the fourth quarter of this year, while its international version will be available in either the first or second quarter of 2020.

“Today we [Huawei – Ed.] are still committed to Microsoft Windows and Google Android. But if we cannot use that, Huawei will prepare the plan B to use our own OS,” he said.

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The company’s own app store, known as the App Gallery, would be available on its own operating system, Yu added.

“We don’t want to do this but we will be forced because of the US government. I think this kind of thing will be bad news not only for us, but also for the US companies because we support the US business, so we will be forced to do this on our own,” the top executive said. “We don’t want to do this but we have no other solution, no other choice.”

Following accusations of spying for the Chinese government, US President Donald Trump issued an order barring US firms from supplying Huawei with parts or technology.

Also on Huawei CEO says company’s own OS will run Android apps – reports

The company was granted a 90-day grace period to continue doing business with US firms, but the order will see Huawei lose access to Google’s apps and services thereafter, and forbid the Chinese tech giant from using Intel and Qualcomm chips in its devices.

The Chinese communications firm has denied all the accusations of spying. Its founder and CEO Ren Zhengfei said on Sunday that Huawei has been “preparing for this” for a long time. The crackdown on the tech firm comes at a time of heightened trade tensions between Washington and Beijing.

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Auto industry will never let Tesla drive at high speed, analyst tells RT’s Boom Bust

The company has taken many attempts to remedy the tense situation. Earlier this week, Tesla said it would reduce the prices of its two most expensive models. Shortly after a weak first quarter report, the company announced plans to sell car insurance to Tesla owners.

Lauren Fix, an automotive analyst known as “The Car Coach” has shed light on what to expect from the producer of the world’s first massively produced electric vehicle.

Also on Tesla stock continues to crash as Morgan Stanley adds fuel to the fire

“I think we’re going to have a second-quarter loss with Tesla,” the expert told RT’s Boom Bust. “I mean it’s great to say that he’s got all these great ideas, but realize that this insurance idea that he has is great only as an idea.”

The analyst stressed that getting an insurance company approved takes passing through a lot of government hurdles. “Beyond that fact, you have to be able to get a reinsurance company back it up.”

“Plus the fact that we are looking at the product that’s not being purchased. Theу lost their federal tax credit here in the US and across other countries. They’re no longer getting that the same drive because of competitors, such as Jaguar and Audi and Mercedes, which are really taking up a chunk of that business,” Fix added.

The expert projects Tesla to face second-quarter losses with the company’s stock to drop well below $200.

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China’s other nuclear option in trade war with US – Rare earth materials

A routine visit by President Xi Jinping to a Chinese rare earths facility earlier this week came amid rising tensions between the two countries and shortly after the US turned up the heat on Chinese tech giant Huawei. Despite the lack of any official announcement from Beijing, the visit has triggered fears that China is ready to use the materials, specifically a ban on their export, as an advantage against the US.

© Global Look Press / Artur Widak US to face ‘deadly punch’ from ‘kung fu master’ China in response to trade war tricks – ex-official

Rare earth materials are indeed one more way China can retaliate, independent political analyst, Alessandro Bruno, told RT.

“It could put heavy restrictions on the rare earth metals that are necessary to make all kinds of electronic equipment, especially phones. This is a significant threat because the West does not have its own supply,” he explained.

The minerals are unsurprisingly not included on the US list of $200 billion worth of Chinese goods facing higher import tariffs. Shortly after Chinese and other media reported that Beijing is considering an embargo, shares of rare earth miners skyrocketed.

On Tuesday, the rare-earth sector jumped by 8.5 percent, according to Global Times. China Rare Earth Holdings Ltd enjoyed the biggest gains in the industry as its shares soared 108 percent.

The strategic importance of rare earth elements, which are mostly metals so the group is often referred to as “rare earth metals,” is hard to overestimate. We use them every day even without knowing it – from your smartphone to a laptop to hybrid or electric vehicles. Rare earths are also used in modern weapons, for example in missile guidance systems and fighter jets.

So it is obvious that American industries would suffer a painful blow should China cut the supplies. The most painful part for the US is that China has a virtual monopoly in the sphere, as it accounts for around 80 percent of the imports, according to the US Geological Survey. This could make Beijing’s ban on such materials a nuclear option against Washington.

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The US used to be the largest rare-earths-producing country in 1990, but China has stolen the crown long ago. In 2018, Beijing mined 120,000 tons of the materials – a 15,000-ton increase compared to a year earlier, while the US produced just 15,000 tons in total. China holds 44 million tons of the elements if its reserves, while the US just 1.4 million tons.

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Mass exodus of US firms from China amid trade war won’t mean they’ll be coming home, survey shows

“The negative impact of tariffs is clear and hurting the competitiveness of American companies in China,” a press release from the lobbying bodies reads.

However, less than six percent of the surveyed firms are ready to move their manufacturing facilities back to the US with 24.7 percent of those who are thinking of relocation expected to settle in South East Asia. Mexico is reportedly the destinations for 10.5 percent of the respondents. Nearly 8.5 percent may move their production lines to India, Bangladesh, Pakistan or Sri Lanka.

Also on Chinese farm stocks gaining as US-China trade war escalates

The poll, conducted jointly by the American Chamber of Commerce in Shanghai and the Beijing-based American Chamber of Commerce in China, covers 250 firms, 61.6 percent of which are manufacturing-related, 25.5 percent represent services, 3.8 percent retail and distribution, and the remaining 9.6 percent are focused on other industries.

The survey, held from May 16 to May 20, also shows that 75 percent of the respondents claimed that tit-for-tat tariffs, by the world’s two strongest economies over the past years, have had a negative impact on business. The increase in import duties reportedly dragged down demand for products, boosted manufacturing costs, and resulted in higher sales prices for products.

Also on Burden of Trump’s trade war to fall on US businesses consumers, expert tells RT’s Boom Bust

The latest round of Sino-American talks over reciprocal trade claims failed to find a resolution, with Washington taking another step towards escalating the dispute. The US hiked tariffs on $200 billion worth of Chinese imports from 10 to 25 percent. President Donald Trump threatened to impose further levies on another $300 billion of goods imported from China. Beijing retaliated by hiking tariffs on $60 billion worth of US products, starting June 1.

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Monsanto abused dominant position in India, overcharging farmers for GMO seed – probe

According to a report, MMBL also entered into pricing agreements directly aimed at overcharging farmers who use Bt cotton technology seeds. Bt cotton is a genetically modified organism (GMO) or genetically modified pest-resistant plant cotton variety, which produces an insecticide to bollworm.

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An equal joint venture of Maharashtra-based seed company Mahyco and Monsanto, MMBL sells genetically modified seeds to many Indian companies and charges a licensing fee called ‘trait fee’, or technology fee.

“It has been shown that trait fee was linked with the maximum retail price of seed packets by MMBL just to extract surplus as much as possible from the end consumer of Bt cotton seeds i.e. farmers,” said CCI report seen by Economic Times.

It noted that there were multiple instances where MMBL abused its dominant position in the market, most notably by charging higher trait fees from seed producers in Haryana, Punjab and Rajasthan compared with others as there was no price regulation in those states.

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“Charging different prices in different geographic locations in the light of local conditions especially when such variation is not related to costs can distort competition and is in the nature of third-degree price discrimination exercised by a monopolist. There is no evidence of welfare enhancement of consumers on account of the price discrimination.”

MMBL also charged a higher trait fee in states such as Maharashtra and Andhra Pradesh where the government had fixed trait fees “on the pretext of pendency of litigation.”

The investigation found that the trait fees charged by MMBL were not based on high costs incurred by MMBL as it is “merely a licensing entity with very limited fixed costs.” The company does not undertake any research and development activity which could push up its costs, said the report.

“MMBL, which holds patents for Bt cotton, insisted that partner organizations use proprietary hybrids and not public (government) released varieties. By doing so, the company tried to hold control not only on their technology but also the plants so that farmers cannot reuse them. This made farmers and the local companies perpetually dependent on them,” said GV Ramanjaneyulu, executive director, Centre for Sustainable Agriculture.

US agrochemical giant Monsanto, currently owned by Bayer, has been selling genetically modified cotton seed to India since 1998. Since that time it has established an absolute monopoly over Bt cotton production in the country. Some 90 percent of India’s cotton –11.8 million hectares of cotton fields – now cultivate Bt crops. However, the Indian authorities are trying to push Monsanto out of the market to create more favorable economic conditions for domestic farmers.

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In 2015, India’s agriculture ministry and Nuziveedu group filed a complaint with the CCI against Monsanto Group alleging abuse of its dominant position in the Bt cotton technology market, after which the investigation was started. Challenging the role of CCI, Monsanto had filed cases in the Delhi High Court.

CCI has asked MMBL and the complainants to file their replies. It will consider all the information before making a final ruling on the matter.

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Major Chinese airline demands compensation from Boeing over 737 MAX grounding

“The grounding of 737 MAX aircraft since March 11, 2019 has caused relatively big losses to China Eastern. With the passing of time, related losses will further expand,” the state-run People’s Daily cited the company as saying. “At the same time, delayed deliveries of planes ordered by China Eastern also caused economic losses.”

The Shanghai-based airline didn’t specify precisely how large the required compensation is. The company is reportedly closely monitoring Boeing’s work to fix safety risks of its 737 MAX aircraft.

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The carrier had to stop operating its 14 MAX jets after the Civil Aviation Administration of China (CAAC) halted the commercial operations of all Boeing 737 MAX planes in the country for an indefinite period, citing safety concerns. The measure was triggered by the second fatal accident involving Boeing’s best-selling aircraft in five months.

Boeing’s flagship plane crashed on March 10 not far from the Ethiopian capital of Addis Ababa six minutes after takeoff on the way to Nairobi, Kenya, killing 157 people. It was the second deadly crash involving the same jet model in less than six months. In October, the same type of aircraft, operated by Indonesia’s Lion Air, crashed in the Java Sea shortly after takeoff, claiming the lives of 189 people.

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Last week, media reports emerged that China’s airline majors, including Air China, China Southern and China Eastern Airlines were considering teaming up to seek legal compensation for the disruption caused by the global grounding.

The US Federal Aviation Administration, which was the last official body to ground the troubled jet on a nationwide scale, is currently hosting a conference for the world’s aviation regulators. The event is intended to review software and propose pilot training for Boeing’s customers before deciding whether to end the two-month grounding.

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Tesla stock continues to crash as Morgan Stanley adds fuel to the fire

Elon Musk’s company stock was down 3.5 percent in premarket trading and was down more than 2.6 percent after the opening bell on Tuesday. Thus Tesla shares have declined in 10 of the last 11 trading days.

The yet another negative start came just one day after the stock plummeted below $200 on intraday trading, hitting the lowest price since December 2016. Monday’s collapse came after Wedbush Securities cut its price target on Tesla stock from $275 to $230 per share, with its analyst citing “major concerns” about the company’s future.

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The new blow negatively affecting Tesla’s stock came from Morgan Stanley on Tuesday. A researcher from the investment bank slashed its bear forecast on Tesla’s stock from $97 to $10, stressing that the company misses the current Chinese volume forecast “by roughly half.” The electric cars’ producer may have over-saturated the retail market for battery electric vehicles outside of China, the analyst added.

“However, Tesla may now find itself in a cycle where a lower share price may itself contribute to a potential deceleration of employee morale as well as potentially increased counterparty risk with both customers and business partners … potentially further impacting fundamentals,” Adam Jonas of Morgan Stanley said in a note.

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Earlier, investors were spooked after Musk told employees that the company must review “literally every payment” from its bank account amid tough cost-cutting measures or it will run out of cash in about 10 months. This is despite the $2.7 billion Tesla recently raised from stock and convertible notes.

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