December 4, 2022

European Union Backs Down on China Tariffs

BRUSSELS — The European Union’s trade chief on Tuesday sought to ease trade tensions with China by lowering tariffs on the $27 billion worth of solar panels that China sells to Europe each year.

Germany had warned against imposing preliminary duties in the case, which risked inflaming trade relations with China.

Karel De Gucht, the European trade commissioner, had recommended average duties as high as 47.6 percent to last for up to six months. Those duties will be set at the far lower level of 11 percent until August, an official said ahead of a formal announcement later on Tuesday.

Mr. De Gucht is expected to warn China that he will ratchet up the levels dramatically in August if the government in Beijing does not address charges that Chinese firms sell solar panels in Europe below the cost of making them, a practice known as dumping.

Earlier, the trade commissioner had indicated he would stand firm in order to defend the credibility of European Union trade rules. But pressure had been mounting on him to back off.

Premier Li Keqiang of China bypassed Mr. De Gucht during a visit to Germany last week and persuaded Chancellor Angela Merkel to call for further negotiations. He then went over Mr. De Gucht’s head on Monday night with a phone conversation with the European Commission president, José Manuel Barroso.

Mr. Li warned that China was ready to retaliate if the European Union took action. The state-run Xinhua news agency said that Mr. Li had warned Mr. Barroso that “there would be no winners in a trade war.”

The solar panels represent one of the largest categories of Chinese exports to the European Union, worth more than 6 percent of China’s exports to the Continent.

Western governments and trade associations have long contended that Beijing has helped several Chinese industries take over global markets through a combination of huge loans from state-owned banks, extensive government research programs, protection of the domestic Chinese market from imports and sometimes even industrial espionage.

China’s rapid expansion in renewable energy, a national priority, has long been cited as an extreme example.

China went from a negligible player in the solar panel industry as recently as 2006 to the dominant world producer now, with two-thirds or more of global manufacturing capacity in the sector following $18 billion in loans from state banks.

That expansion contributed to the bankruptcy of or capacity cutbacks at a score of American and European solar companies in the last three years. Chinese solar panel companies have also suffered lately from overcapacity, with Suntech Power of Wuxi, China, putting its main operating unit into bankruptcy in March.

Li Junfeng, a senior Chinese government energy policy maker who is also the president of the Chinese Renewable Energy Industries Association, expressed delight when told that the European Union had sharply lowered its target for the preliminary tariffs.

“That’s really good news,” said Mr. Li, a senior energy official at the National Development and Reform Commission, China’s main economic planning agency. “At 11 percent, the Chinese companies can do very good business — it doesn’t affect them very much.”

The European Union’s decision to impose much lower initial duties than expected could greatly reduce the incentive for the Chinese government to offer concessions in further negotiations.

Yet individual Western companies, in the solar industry and other sectors, have been very wary of taking any public stand against China, which has become the world’s largest market in industries ranging from steel to cellphones to automobiles. Chinese officials have considerable discretion in issuing factory permits, export licenses and even visas for visiting executives, making most companies leery of publicly voicing any criticism whatsoever of China or any support for trade actions against it.

Mr. De Gucht has become so frustrated with the unwillingness of European companies to publicly support any trade action against China that he said last month that he was prepared to launch a trade case against China on certain kinds of telecommunications equipment even without the public support of any European companies in the sector.

SolarWorld, a German company, has brought anti-dumping and anti-subsidy cases against China in the United States and the European Union in the past two years. But its executives waited to file the cases until the company was already financially struggling. SolarWorld is also unusual in that it is not a diversified company but dependent on a single narrow sector in which China’s market is still a small although growing share of global demand.

Keith Bradsher reported from Hong Kong.

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Today’s Economist: Nancy Folbre: Minimal Wages, Minimal Families

Nancy Folbre, economist at the University of Massachusetts, Amherst.

Nancy Folbre is an economics professor at the University of Massachusetts, Amherst. She recently edited and contributed to “For Love and Money: Care Provision in the United States.

Announcing his support for an increase in the federal minimum wage to $9 an hour, President Obama called attention to the needs of children: “Even with the tax relief we’ve put in place, a family with two kids that earns the minimum wage still lives below the poverty line. That’s wrong.”

Today’s Economist

Perspectives from expert contributors.

Many Americans share his concerns: 71 percent of Americans polled in mid-February by the Pew Research Center for the People and the Press support the proposed increase, including 50 percent of Republicans.

Influential economists have announced their support as well, including many affiliated with the Initiative on Global Markets at the Booth School of Business at the University of Chicago. Of 38 economists in the group, 18 agreed, 4 disagreed, 12 were uncertain and 4 had no opinion or didn’t answer.

Every time increases in the minimum wage are proposed, a centuries-long history of concerns about the impact of the labor market on family life comes into play, setting the stage for fierce debates over regulation.

The classical political economists of the late 18th and early 19th centuries believed that the forces of supply and demand would always be constrained by the cost of subsistence, setting a floor under wages. After all, if the wages that workers received were not sufficient to keep them alive, the supply of labor would be reduced, driving wages back up again.

Because people don’t live forever, the costs of subsistence should include the costs of producing replacement workers, namely, raising children. But as many young children and unmarried women began entering wage employment in the 19th century, it became apparent that an increase in the supply of workers without family responsibilities could potentially drive average wages well below the level adequate to support children.

Market forces, in other words, could discourage, even penalize, family commitments.

In the United States, the “family values” argument for a minimum wage gained political traction on the state level long before federal legislation was passed in 1938. As the historian Alice Kessler-Harris explains, this argument bolstered efforts to reinforce traditional gender roles by discouraging the employment of married women. At the same time, it called attention to the difficulties wage earners faced in supporting dependents.

This historical legacy shows up in calculations, like the one President Obama offered above, that seem to presume that a minimum wage for one parent working full-time should be able to support not only two children but also a spouse who stays home to take care of them. Similar assumptions are often used in state-level estimates of the hourly wage required to bring a working family over the poverty line or a higher standard such as a locally designated living wage. On the other hand, these same estimates show that the costs of child care largely wipe out the net contribution of a second earner’s wage income.

As I emphasized in a previous post, conventional measures of poverty are seriously out of date. Application of the Census Bureau’s new Supplemental Poverty Measure suggests that a $9 minimum wage would not necessarily bring working families over the threshold.

Any way you look at it, adults taking responsibility for young children need considerably higher earnings than those who don’t, even taking into account the tax relief President Obama referred to (primarily the earned income tax credit).

As Lawrence Mishel of the Economic Policy Institute points out, the median worker’s real hourly compensation (real earnings plus benefits) has stagnated over the last 10 years, and the declining real value of the minimum wage has contributed to increased income inequality.

The resulting economic stresses are bad for children, bad for working parents and bad for family formation and stability. In 2010, children represented 24 percent of the United States population, but 34 percent of all those living in poverty.

Critics of the proposed increase in the minimum wage object that it would increase unemployment. But proponents point to considerable evidence, nicely summarized by Brad Plumer at The Washington Post’s Wonkblog, that this potential effect would be small or nonexistent,

Critics like the economist David Neumark also insist that the policy is not effectively aimed at poor families, because many individuals earning the minimum are young people living with their parents. But proponents like Natalie Sabadish and Doug Hall of the Economic Policy Institute emphasize that about 80 percent of workers who will be directly affected are over age 20.

Many young people earning the minimum wage are living at home. Some can’t afford to do otherwise. And while their parents may be helping them out with living expenses, the wages they earn will determine their opportunity to enroll in college, pay off their debts, save money and start a family of their own.

So, the debate circles back to the dilemma acknowledged by classical political economy in the 19th century. The forces of supply and demand, left to themselves, treat labor like any other commodity. But labor itself is produced outside the market, by families and communities who must struggle to find ways to support their contributions to the future.

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Europe Seeks to Ratchet Up Effort on Debt

Waves of fear that Greece could default on its mounting debts, and that other European countries might follow, have repeatedly sent global markets plunging in recent weeks. Investors are also increasingly concerned that uncertainty itself is freezing and disrupting economic activity around the world, slowing growth.

Olli Rehn, the European Union’s monetary affairs commissioner, said Saturday that there was “increasing political will” among European leaders for a new effort to soothe investors. He said they were discussing a plan to multiply the financial impact of an existing bailout fund designed to make up to 440 billion euros ($600 billion) in loans to troubled nations and banks, so that it could instead insure a few trillion euros in loans.

French and German officials here continued to insist publicly that they were focused on the July plan, but in private meetings this weekend they made clear that they now understand the need for a new plan, according to a senior American official who described the private conversations on condition of anonymity.

The shift in European strategy comes after several days of intense public pressure from world leaders gathered here for the annual meetings of the World Bank and the International Monetary Fund. One after another, they have warned publicly and privately that Europe’s problems are dragging down their nations, too.

“We are in a precarious situation,” said Singapore’s finance minister, Tharman Shanmugaratnam, chair of the fund’s steering committee. “And contributing to that is a problem of lack of confidence, in particular lack of confidence in the credibility of policy actions to arrest the crisis.”

The United States also has sharpened its rhetoric. “The threat of cascading default, bank runs and catastrophic risk must be taken off the table, as otherwise it will undermine all other efforts, both within Europe and globally,” the United States Treasury secretary, Timothy F. Geithner, said in a statement on Saturday. “Decisions as to how to conclusively address the region’s problems cannot wait until the crisis gets more severe.”

The Obama administration has been pressing European leaders, particularly the Germans, to act more forcefully, fearing that a continued deterioration of the continental economy, and instability in global markets, might undermine the fragile health of the American economy — and President Obama’s re-election prospects.

Perhaps the most obvious option would be an increase in the size of the bailout fund, which was created in 2010 by the 17 nations that use the euro currency. Independent analysts generally agree that the fund is not large enough to meet the borrowing needs for all the countries with problems, including Greece, Italy, Ireland, Portugal and Spain.

But political opposition to bailouts and the strained finances of some European countries make such an increase unlikely and, as a result, officials are focused instead on ways of making each euro go further.

One option under consideration, suggested by American officials, is to treat the fund as an insurance program. The European Central Bank, which has an unlimited ability to create money, would lend money to investors to buy the debt of troubled countries. The bailout fund would agree to absorb any losses but, as an insurance program, its capital would be sufficient to guarantee loans with an aggregate value several times as large.

This approach, too, faces some obstacles. Europe’s central bank, which is far more conservative than the Federal Reserve in the United States, would need to accept a new role as a direct lender to investors. Governments would need to embrace an idea that amounts to providing public subsidies for those investors. And the only precedent, an American effort called the Term Asset-Backed Securities Loan Facility, created during the 2008 financial crisis, is not regarded as a clear success.

The discussions among European officials are intense, reflecting the urgency of the situation, but they remain at an early stage. Mr. Rehn said that countries were focused first on approving the July plan, which allows the fund more flexibility, for example to make preemptive loans to nations that are not yet in distress. Legislatures in each country must approve the changes, and so far only 6 of the 17 have, but Mr. Rehn and other officials said they were confident the process would be done by mid-October.

European officials have already promised to unveil “a collective and bold action plan” together with other major economies in early November, when the leaders of the Group of 20 largest economies holds a scheduled meeting in France.

If financial markets continue to plunge this week, however, there will almost certainly be pressure for more immediate action.

The rest of the world appears to be watching and waiting impatiently.

The fund’s steering committee, which represents the 187 member nations, said Saturday that it was committed “to restore confidence and financial stability, and rekindle global growth.”

But it announced no new measures, reflecting in part the widespread conviction that Europe is the cause of the current problem, and that Europe needs to fix it.

“It is the responsibility of European policymakers to ensure that their actions stop contagion beyond the euro periphery,” Guido Mantega, the Brazilian finance minister, said in a statement Saturday. “Europe has a crucial role to play and needs to act swiftly and boldly.”

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DealBook: Morgan Stanley Posts $558 Million Loss but Beats Expectations

Despite showing improvement in its major divisions, Morgan Stanley reported a second-quarter loss of $558 million on Thursday, as it continued to deal with the aftereffects of the financial crisis.

The loss stems from a deal struck earlier this year with the Mitsubishi UFJ Financial Group, which had provided a much-needed cash infusion in the depths of the disaster. With the new agreement, Morgan Stanley freed itself of a costly continuing burden, but got saddled with a $1.7 billion one-time charge in the quarter.

The financial firm posted a loss of 38 cents a share. Still, the results were significantly better than a loss of 61 cents a share expected by analysts.

More important, Morgan Stanley’s underlying businesses all reported gains, and it posted revenue of $9.3 billion, up 17 percent from the first quarter. It was the first time since 2008 that Morgan Stanley’s quarterly revenue had exceeded that Goldman Sachs.

“While global markets remained challenging this quarter, the firm delivered higher year-over-year revenues across our three major business segments,” James P. Gorman, the bank’s chief executive, said in a statement.

Morgan Stanley’s largest business, Institutional Securities, got a significant boost from underwriting and deal-making activity.

The technology banking team, for example, has won coveted underwriting spots on the year’s hottest technology offerings, including LinkedIn, Groupon and Zynga. Underwriting revenues increased 57 percent in the period to $940 million.

Morgan Stanley has also been involved in some big mergers and acquisitions in recent months.

The firm represented BJ’s Wholesale in its deal to sell itself to a group of private equity firms for $2.8 billion. It also worked with Capital One Financial, which bought ING’s American online banking group for $9 billion. For the quarter, advisory revenue jumped 85 percent, to $533 million.

Morgan Stanley Smith Barney, the firm’s global wealth management division, continued to be a steady performer, posting net revenues of $3.5 billion this quarter, compared to $3.0 billion a year ago. Mr. Gorman tapped Gregory J. Fleming to run the division in January, as part of a move to beef up the firm’s less risky arms and make its bottom line less susceptible to market swings.

The bank also took steps this year to improve its asset management arm, which is also run by Mr. Fleming, and which has historically been a sore spot for the firm. This quarter, the division posted net revenue of $645 million, an increase of 57 percent over the same quarter last year. The increase was primarily due to gains in the firm’s real estate investments and higher results in its core asset management groups.

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DealBook: Nasdaq and ICE Drop Offer for NYSE Euronext

The Nasdaq OMX Group and IntercontinentalExchange announced on Monday they were withdrawing their bid for NYSE Euronext, after antitrust regulators said the deal would not gain the necessary approvals.

“We took the decision to withdraw our offer when it became clear that we would not be successful in securing regulatory approval for our proposal despite offering a variety of substantial remedies,” the Nasdaq chief executive, Robert Greifeld, said in a statement.

Nasdaq and ICE spent weeks on an unsolicited takeover effort that got heated at times.

In April, Nasdaq and ICE made an $11.3 billion takeover offer for the owner of the Big Board, topping a $10 billion friendly merger agreement with Deutsche Börse arranged in February.

But NYSE Euronext remained committed to its deal with the owner of the Frankfurt exchange, twice rejecting the rival bidders. The NYSE said that it worried a deal with the United States exchange operators would not clear regulatory hurdles and that it would necessitate unreasonable amounts of debt.

“Breaking up NYSE Euronext, burdening the pieces with high levels of debt and destroying its invaluable human capital would be a strategic mistake in terms of where the global markets are going, and is clearly not in the best interests of our shareholders,” the NYSE Euronext chairman, Jan-Michiel Hessels, said in a statement in April. “The highly conditional break-up proposal from Nasdaq/ICE would also require shareholders to shoulder unacceptable execution risk.”

Even so, Nasdaq and ICE pushed forward. Earlier this month, they vowed to take the offer directly to NYSE shareholders. On May 9, the two exchange operators issued a letter to NYSE investors, saying the board had failed to provide all of the facts to make an “informed decision” about the deal with Deutsche Börse.

“NYSE Euronext’s actions reflect corporate governance at its worst and falls far short of the governance standards they recommend for listed companies,” Nasdaq and ICE wrote.

Now, after discussions with the Justice Department’s antitrust division, the companies are pulling their offer for NYSE. Nasdaq and ICE said they had tried to assuage regulators’ concerns, in part by offering to sell off certain businesses, but it was not enough.

“We have said from the beginning that NYSE Euronext shareholders should not be forced to vote on their combination with Deutsche Börse while antitrust concerns continued to exist in both the U.S. and the E.U.,” Mr. Greifeld said in a statement. “While we are surprised and disappointed in the Antitrust Division’s conclusion, some of the uncertainty, at least as it relates to our joint proposal, has been resolved.”

Nasdaq and ICE have a mixed deal-making record. Nasdaq tried and failed to buy the London Stock Exchange, while ICE lost out to the CME Group in a battle to acquire the Chicago Board of Trade.

On Monday, shares of Nasdaq were down 2.27 percent in premarket trading.

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