Thursday, June 7, 2018

Solar, Facebook Down on China Worries

This year, a China connection is more likely to be unfavorable than favorable for stocks. Solar stocks are down this week after the announcement that China was dropping its solar farm initiative. The announcement was taken to mean that China would resume solar panel dumping on the global market. Separately, Facebook stock is down today after the company acknowledged it had shared user activity data with its customers in China.

Friday, April 20, 2018

Recycling Ban Hits Global Trash

China has banned imports of most recycling materials. The ban affects only low-grade recyclables, such as mixed paper. High-quality recyclables, such as sorted uncoated paper, are not subject to the ban. The initial ban of 24 categories of materials took place in September, and it was announced today that 32 more categories are being added at the end of 2018 and 2019. At CNN:

A narrow waste materials ban is not very big in financial terms. Perhaps China’s spending on scrap materials will decline from $5 billion to $4 billion annually. The back-up of waste materials around the world, though, shows the need to build recycling plants closer to the point of trash collection. It makes little economic sense for around one fifth of the world’s scrap materials to be sent to China for processing. Instead, the materials should be recycled into graded base materials that can be shipped more easily and can be sold to manufacturers in China and elsewhere at much higher prices.

The change also highlights the need for trash companies to clean up their act. Authorities cited garbage and hazardous materials mixed in with recyclables as the problem that prompted the ban. These waste materials need to be separated out more effectively and as early as possible in the trash-processing chain.

It may also be that the decline in manufacturing volume has reduced the demand for recycled plastic and paper. If this is the case, it makes sense that the lowest grades of materials would be diverted to incineration and other uses, while the better grades of materials were still in demand.

Sunday, April 8, 2018

Fallout From the Shock of a Trade War

In less than three weeks there have been at least ten steps into a trade war between China and the United States. The reaction from Wall Street has been contradictory: denial in one headline, worry in the next. Larry Kudlow, the Wall Street talking head pressed into service as an economic advisor in the White House, is one of the voices saying there is no trade war despite everything that has happened already. The Wall Street consensus, if there is one at this point, would be that the White House wouldn’t do something so dumb as to enact wide trade barriers against the source of largest part of manufactured goods in the United States. Meanwhile, U.S. stocks have fallen 10 percent on worries about the economic contraction that a trade war could cause.

I thought about the potential fallout from tariffs and quotas when I looked at the new sofa I put into my living room two days ago. The tag indicated that the sofa was made in China, but this was in small type that took me a minute to find. This may help to explain why there has not been much outcry against the tariffs from U.S. consumers. In theory, a tariff could raise the price of the sofa by $100. In practice, such tariffs would mean the sofa would be made in another country. The consumer would barely notice the difference. Supposing this particular sofa model were to be made in Hungary, Peru, or Ivory Coast instead of China. When you are buying a sofa, “China” is just a word a few millimeters long on a tag. If you replace “China” with “Latvia,” few consumers will even know that anything has changed. The price would surely be higher, but a $40 increase when it comes to a product like a sofa is barely enough to trigger a raised eyebrow, never mind a mass protest.

There are no winners in a trade war, so it’s important to consider what China and the United States have to lose. The United States, obviously, faces the prospect of higher prices across a wide range of goods and short-term shortages of hundreds of essential products. Less obviously. the United States may lose much of its reach in what otherwise could be its largest export market for products such as automobiles and software. The U.S. dollar will decline in value, raising the price of all imports and probably raising the interest rates that the U.S. government and citizens pay to borrow money.

China, on the other hand, could see structural changes in the global market for consumer goods if a trade war looks like it will last as long as a year. The collapse of Toys ‘R’ Us, the world’s largest toy retailer, is a hint of what could be coming in an extended trade war. Many of the products that were sold at Toys ‘R’ Us were made in China, and most were not merely consumer discretionary purchases, but whimsical purchases. That is, there is very little impact on the consumer if the purchase is never made. To expand on this dynamic, the United States has so many toys that there would still be plenty of toys 100,000 years out even if all toy factories were to shut down today. The same could be said for many of the other consumer goods sold by U.S. retailers. Based on that, imagine the impact if Walmart were to follow in Toys ‘R’ Us’ footsteps. It would be an inconvenience to some U.S. consumers, but millions of factory jobs would disappear, and of course, more than half of the lost jobs would be in China.

These scenarios point to a larger economic imbalance. Why is so much of the world’s effort, and indeed its debt, going to make products that purchasers barely care about? It’s a problem so large that it stretches the meaning of “consumer.” Can you said to be the consumer of a product if, after purchasing it, you forget to use it year after year, and ultimately you or your heirs just throw it away? Is “would-be consumer” the right term to use in the current era? How have manufactured products come along in such excess that the wealthiest one fourth of the world’s consumers now have a love-hate relationship with their stuff? These are questions that the world has mostly tried to avoid looking at, but the shock of a trade war might prompt us to take a look at where we are and make changes.

Thursday, March 22, 2018

U.S. Plans Tariffs on Imports from China

The United States is preparing large-scale tariffs on imports from China, supposedly in retaliation for China’s intellectual property practices. At Politico:

Details are not yet clear. The process of creating tariffs goes through several stages that determine what goods are covered and the tax rate.

Monday, March 19, 2018

Social Credit Means Being Banned From Mass Transit

“Social credit” seemed too vague to matter when the Chinese central government first introduced the idea. It has more teeth now that people who have been marked for a series of minor violations will be banned from riding mass transit, or airplanes and trains at least. It will not be hard to get on the social credit blacklist, though it is not clear exactly how the list is formed. Based on official examples, a person can get blacklisted for one year for not paying taxes, advocating violence or repeating fake news on social media, or smoking cigarettes on trains.

Wednesday, January 24, 2018

South Korea Restricts Cryptocurrency

South Korea has taken steps to limit cryptocurrency trading that go beyond measures adopted last year in China. First there was a hint of a complete ban on cryptocurrency trading in South Korea, but that now seems unlikely. Instead, there is a new tax on cryptocurrency exchanges and restrictions on customers and transactions. Under new rules, customers are not permitted to be anonymous or outside the country. Transactions cannot be cleared using credit cards. Separately, there have been enforcement actions against exchanges that failed to properly protect customer privacy, a requirement that goes across the entire financial sector. China may eventually adopt its own versions of some of the measures being taken in South Korea.

Halfway around the world, transaction processor Stripe says it will stop processing Bitcoin transactions. In a blog post, the company cites the high volatility of Bitcoin and the high cost of transactions. The long delays, typically around 19 hours, in validating transactions are a concern. In recent trading, the value of Bitcoin has has fluctuated more than 10 percent during the transaction-clearing window, and these fluctuations represent a considerable risk for anyone who accepts Bitcoin as payment for physical goods. Stripe compares Bitcoin transactions to wire transfers. Either mechanism costs about the same, but wire transfers typically clear in less than a second.

Monday, January 15, 2018

CNN Notes Demassification

An intriguing headline from CNNMoney, in a story about Etsy.