In The Headlines

Sluggish Growth Ignites Trade Restrictions Around the World

President-elect Donald Trump has pledged to scrap the Trans-Pacific Partnership, renegotiate the North American Free Trade Agreement, and penalize Chinese imports when he takes office. But protectionism is already rising around the world, and global trade is slowing.

Responding to an outcry from local steelmakers, the European Union this year has punished Chinese competitors for allegedly selling steel below cost. The EU has announced antidumping duties as high as 81.1% on Chinese steel. “Free trade must be fair, and only fair trade can be free,” European Commission Vice President Jyrki Katainen said in a statement on Nov. 9, adding that some 30 million European jobs depend on free trade.

Around the world, many companies that binged on easy credit after the global financial crisis have excess capacity and are struggling to find buyers, since economic growth in the U.S., Europe, and Japan is relatively weak, and China’s economy is cooling. “The pie is growing more slowly, and that makes domestic producers more defensive about their share of it and more willing to fight when threatened,” says Tim Condon, chief Asia economist in Singapore with ING. Bloomberg Intelligence chief Asia economist, Tom Orlik, points out that over the past two decades, consumers and businesses have spent heavily on laptops, tablets, and smartphones, but despite efforts by Apple and others to popularize smart watches, there is no new must-have device to boost global trade. Stagnant income growth in the West also forces politicians to show they understand voters’ worries. “The pressure grows for governments to appease those voices by giving them the things they want,” says Orlik, “and the things they want are trade restrictions.”

The Obama administration in June raised U.S. tariffs on steel from China, India, Italy, South Korea, and Taiwan. In July, China accused Japan, South Korea, and the EU of dumping electrical steel used in generators and announced penalties of its own. India on Nov. 2 slapped antidumping duties on Chinese steel imports. Smaller nations are engaged in their own trade spats. Malaysia in May announced penalties on Chinese, Korean, and Vietnamese steel. Peru placed antidumping duties on imports of biodiesel from Argentina in October.

In the five months leading up to mid-October, members of the world’s 20 major economies, the Group of 20, implemented an average of 17 trade constraints a month, the World Trade Organization (WTO) reported on Nov. 10. “The continued introduction of trade-restrictive measures is a real and persistent concern,” WTO Director-General Roberto Azevêdo said in a statement. The curbs come while global commerce is sputtering. World trade volume has grown a little more than 3% a year since 2012, the International Monetary Fund reported last month, less than half the average expansion rate over the prior three decades. According to the IMF, “Between 1985 and 2007, real world trade grew on average twice as fast as global gross domestic product, whereas over the past four years, it has barely kept pace. Such prolonged sluggish growth in trade volumes relative to economic activity has few precedents during the past five decades.”

Japan’s biggest shippers—Nippon Yusen, Mitsui OSK Lines, and Kawasaki Kisen—expect combined operating losses of 85 billion yen ($780 million) for the fiscal year ending March 2017. The industry is seeing the “highest ship-scrapping level ever,” Nicolás Burr, Chief Financial Officer of German container line Hapag-Lloyd, told a conference in Hamburg on Nov. 10. In Singapore, which relies heavily on trade, gross domestic product shrank an annualized 4.1% in the third quarter from the previous three months. The city-state has one of the world’s biggest ports, but shipping container movement fell 8.7% in 2015 and 1.7% in 2016 through October.

China’s entry into the WTO in 2001 set off a surge in investment as companies moved manufacturing to the mainland. That helped growth in global trade, with Chinese factories importing more components and exporting completed products to the U.S. and other nations. China’s WTO entry “basically reshaped the global production chain,” says Harrison Hu, chief Greater China economist with Royal Bank of Scotland in Singapore. Today, more Chinese companies can make parts themselves: Components and raw materials accounted for 52% of China’s imports in 2007, but that’s now 42%, says Hu. Under President Xi Jinping, the government is trying to steer the economy away from export-driven growth, focusing on domestic demand. That will help China have more sustainable growth, but for now it puts a damper on trade. China’s exports for the first 10 months of the year totaled $1.7 trillion, according to China’s General Administration of Customs, a 6.3% drop from the same period in 2015. Imports were down 7.5%. “China had a great run, but it’s over,” says ING’s Condon.

Citations

1. http://bloom.bg/2g0G7W3 – BusinessWeek
2. http://econ.st/2ef2F9F – The Economist

Tesla’s “Two-fer” Bet on the Solar Roof

After Tesla shareholders approved the acquisition of SolarCity, the new company is now an unequivocal sun-to-vehicle energy firm. And Chief Executive Officer Elon Musk did not take long to make his first big announcement as head of this new enterprise. Minutes after shareholders approved the deal—about 85% of them voted yes—Musk said that he had just returned from a meeting with his new solar engineering team. Tesla’s new solar roof product, he proclaimed, will actually cost less to manufacture and install than a traditional roof—even before savings from the power bill. “Electricity,” Musk said, “is just a bonus.”

If Musk’s claims prove true, this could be a real turning point in the evolution of solar power. The rooftop shingles he unveiled just a few weeks ago are made of textured glass and are virtually indistinguishable from high-end roofing products. They also transform light into power for your home and your electric car. “So the basic proposition will be: Would you like a roof that looks better than a normal roof, lasts twice as long, costs less and—by the way—generates electricity?” Musk said. “Why would you get anything else?”

Make no mistake: The new shingles will still be a premium product, at least when they first roll out. The terra cotta and slate roofs Tesla mimicked are among the most expensive roofing materials on the market—costing as much as 20 times more than cheap asphalt shingles. Much of the cost savings Musk is anticipating comes from shipping the materials. Traditional roofing materials are brittle, heavy, and bulky. Shipping costs are high, as is the quantity lost to breakage. The new tempered-glass roof tiles, engineered in Tesla’s new automotive and solar glass division, weigh as little as a fifth of current products and are considerably easier to ship, Musk said.

From the start, Musk and SolarCity executives have declined to give any pricing details about the new solar roof. And Musk did not go into specifics in his comments. Nor did he specifically say how the expected price of the roof could drop so much, but he did give some clues. Part of it has to do with what Musk described as an inefficient roofing market, with roofing materials going through several different suppliers and service providers, each adding their own mark-up to the price, before it reaches a consumer. “The roofing supply chain is incredibly inefficient,” Musk said. “The whole supply chain from where they are made to where they are finally installed is really inefficient. So just by cleaning all that up, there are huge gains, it turns out.”

Tesla thinks it can do better by making and installing the roof itself. Musk is hoping the solar roof can be a big-selling product for the combined company, since it looks like a conventional roof and opens up the potential for selling rooftop solar to homeowners with aging roofs. Until now, rooftop solar has been limited to homeowners with relatively new roofs that are not likely to need repairs or replacing during the estimated 20-year life of the solar panels. The solar roof also is a step toward Musk’s vision of integrating SolarCity’s solar panels with the batteries that Tesla makes – all sold through Tesla’s network of nearly 200 electric vehicle stores nationwide. That combination will allow homeowners with a solar roof to store the excess power its shingles generate during the day in a Tesla Powerwall battery that homeowners can tap into at night, when they’re making dinner, doing laundry or watching television. That self-contained setup also would reduce Tesla’s reliance on subsidies that are pegged to the value of the electricity those solar arrays generate. And if Tesla is able to bring the price of a solar roof down to the cost of a conventional roof, it would eliminate the need for other subsidies, including a 30% federal tax credit that analysts believe could be threatened during the new administration.

There are challenges for the solar shingles, however. Tesla’s solar shingles appear disadvantaged in the battle for efficiency. The shingles have color added so that they do not look like solar panels from street level. This gives the shingles the appealing look of a traditional roof. But the tinting also blocks the absorption of light from certain angles, making them less efficient. This could be especially problematic on cloudy or humid days when light rays bounce off cloud cover and other objects, rather than making a beeline from the sun to the shingles. Another challenge with a solar roof is that roofs are generally not angled to best absorb sunlight. When companies add solar panels on top of roofs, they direct the panels so that they are best positioned to take in sunlight.

To some, solar roofs are an ingenuous way to kill two birds with one shingle. Installation costs should fall. Rather than pay someone to install your roof, and someone else to install solar panels, the tasks can be combined. “Definitely this is an innovation,” said Shashank Priya, Virginia Tech professor researching energy harvesting. “You’re potentially putting solar panels over a roof system that’s seen its better days,” said Dean Jagusch, the President of the Mid Atlantic Roofing Contractors Association. “By installing a completely integrated roof product that not only weather proofs the building but produces electricity, it’s a very smart way to go.”

Citations

1. http://bloom.bg/2gnTiVW – Bloomberg
2. http://bit.ly/2gvqAmh – The Buffalo News

The Good News Is . . .

• The Leading Economic Index (LEI) rose 0.1 percent in October, the Conference Board said. Economists expected the leading indicators index to hit 0.1 percent, according to a Thomson Reuters consensus estimate. The results suggest that the economy will continue expanding into early next year, said Ataman Ozyildirim, director of business cycles and growth research at The Conference Board.

• Foot Locker Inc., a specialty athletic retailer, reported earnings of $1.13 per share, an increase of 13.0% over year-earlier earnings of $1.00 per share. The firm’s earnings topped the consensus estimate of analysts by $0.02. The company reported revenues of $1.89 billion, an increase of 5.1%. Management attributed the results to a strong same store sales and improvements in its overall gross margin.

• Samsung, the South Korean electronics giant said that it has agreed to buy Harman International Industries, an American automotive technology company, for $8 billion. Harman is best known for making car audio systems under brand names popular with audiophiles such as Harman/Kardon and JBL. But Harman’s appeal to Samsung comes from what it calls its connected car business—an operation that supplies a car’s navigation services, its onboard entertainment systems and its connectivity to the rest of the world. With cars likely to get more screens and more computers, the purchase gives Samsung a stake in what could be an industrywide boom.

Citations

1. http://prn.to/2g5GSNv – PR Newsire
2. http://cnb.cx/1gct3xa – CNBC
3. http://prn.to/2g6PIya – Foot Locker Inc.
4. http://nyti.ms/2ffaCtz – NY Times Dealbook

Planning Tips

Tips for Staying Safe from Tax Scams

The end of the year and the run up to tax day is one of the most active times for scammers. Cases of scammers trying to steal consumers’ tax refunds or falsely representing themselves in order to get a “tax payment” are widespread. Every year, the Treasury Inspector General for Tax Administration receives notice of hundreds of thousands of scam attempts. Unfortunately, most of these scams are very advanced and believable, resulting in nearly thousands of victims that have collectively lost over tens of millions of dollars. One of the most effective tools to protect yourself is knowledge. With that in mind, below are some helpful tips to avoid putting yourself at risk. Be sure to consult with your tax advisor regarding all communications with the Internal Revenue Service (IRS).

Avoid email scams – The IRS will never reach out to anyone via email. If you receive an email, do not reply to the message, do not open any attachments, and do not click any links. Forward the email as-is to the IRS at phishing@irs.gov. Delete the original email.

Know how the IRS uses phone calls – The IRS will rarely contact anyone by phone. Many scammers are contacting taxpayers claiming to be IRS officials. It is important to know that a call will not be the first form of contact for the IRS. First, the IRS will send you a letter or bill outlining any action you need to take. A call will rarely follow. Scammers often alter the caller ID to make it look like the IRS or another agency is calling. If you receive a phone call from the IRS, take down the individual’s name and badge number, then call the IRS back at 1-800-829-1040 to determine if the IRS has a legitimate reason to contact you.

Be suspicious of threatening calls – The IRS will not demand immediate payment. The IRS will not demand “Urgent” payment or apply excessive pressure for any outstanding payments. For example, some scammers threaten to arrest you, deport you, or revoke your license if a payment is not made immediately. If you owe tax, the IRS gives you the right to question or appeal the amount you owe. Phone threats are not how they enforce the tax code.

Request for a specific method of payment could signal a scam – The IRS does not require you to pay a certain way. The IRS will not ask for credit or debit card numbers over the phone. Normally scammers try to persuade the victim into sending cash, usually through a prepaid debit card or wire transfer.

Do not give out personal information on the phone – The IRS does not ask for detailed personal information. This includes requests for PIN numbers and passwords, or access information for credit cards, banks or other financial accounts.

Citations

1. http://bit.ly/2bzWiYm – Internal Revenue Service
2. http://bit.ly/1RP2AGM – CreditKarma.com
3. http://bit.ly/2fGhG3i – Investopedia
4. http://intuit.me/1mslkLw – TurboTax.com
5. http://bit.ly/1RlHBZj – Money-zine.com