Friday, March 23, 2018

China Has To Grow Up

China has become the world’s second largest economy based largely on the ability to churn out cheap consumer goods in vast numbers. It could do so because of a) very low wages, b) cheap land and c) nearly zero regulatory costs (i.e. pollution and labor safety regs).  Couple that with an artificially low foreign exchange peg, and it’s no wonder that  low and medium value-added industries moved there en masse.

However, China is now very keen to move up towards more sophisticated, tech heavy industries like autos, aerospace and high end electronics, heretofore the domain of Western companies and institutions that have created a huge pool of proprietary R&D and the mechanisms to transform it into high-end products.

The problem of safeguarding such Intellectual Property has been around since at least the early 1990s and has never been addressed properly.  As the US economy moves more and more towards a Fourth Stage (ie knowledge-based) leaving behind its manufacturing roots, IP is today’s fortune and must be protected.

China needs to realize that the US will no longer turn a blind eye to IP exploitation.  Furthermore, it needs to “grow up” and institute developed country norms:

  • Its currency must float
  • Its markets must open up
  • Its government must impose western-level regulations on pollution and worker safety
  • It needs to institute a comprehensive pension/social security system.
Trump’s opening salvo on possible import sanctions is a warning: join the globalization party as an equal on ALL terms, or suffer the consequences.

Tuesday, March 6, 2018

Trade War Over Steel? Gimme A Break...

So Trump throws up this firecracker about import duties on steel (25%) and aluminum (10%).  It’s a non-issue folks, despite hot air from Brussels about retaliation via Levi’s, Harleys and Jack Daniels. (Notice that the Chinese haven’t said a word - and rightly so).

Fact is, the US hardly imports any steel from the EU or China, as you can see from the graphic below.

Now, if Mr. Trump starts talking about consumer electronics, that would be an issue.  But in an economy completely dominated by the likes of Apple, Google, Microsoft and Amazon imposing duties on their products would be plain suicide and it won’t happen.

Monday, March 5, 2018

Greek GDP And PMI

Greek 4Q GDP rose 1.9% YOY, the fastest in 10 years. Similarly, manufacturing PMI rose to the highest level on record in February.

Friday, March 2, 2018

Steel Duties, Seriously?

Imposing import duties on steel and aluminum is akin to protecting the horse buggy business when Ford set up his car production line... completely useless and meaningless.

The US economy is long past it’s heavy, metal-basing industrial era.  Trump is just playing up to his lowest common denominator electoral base, that’s all.

For proof, just look at the makeup of the DowJones Industrial Average in 1980 (even 2000) and today.  Unlike the past, the US economy today is all about Google, Amazon, Apple, Microsoft and a couple pharma companies.

Move on...