Day: April 25, 2017

President Donald Trump and Commerce Secretary Wilbur Ross on Tuesday said they did not fear a trade war with Canada after American punitive action on lumber and milk.

“They have a tremendous surplus with the United States,” Trump said, adding “people don’t realize Canada’s been very rough on the United States. … They’ve outsmarted our politicians for many years.”

Trump added that he wanted “a very big tax” on Canadian lumber and timber.

He made the comments at a meeting with American farmers where he signed an executive order aimed at helping agriculture and rural areas.   

Trump also talked to Canadian Prime Minister Justin Trudeau Tuesday. Trudeau “refuted the baseless allegations by the U.S. Department of Commerce and the decision to impose unfair duties,” according to a summary of the call released by Trudeau’s office.

“The prime minister stressed that the government of Canada will vigorously defend the interests of the Canadian softwood industry, as we have successfully done in all past lumber disputes with the U.S.,” the statement said.

The White House later issued its own brief, three-sentence readout of the call, which it called “very amicable.”

The Canadian dollar fell to a 14-month low against the greenback after the United States imposed preliminary tariffs averaging 20 percent — more than $1 billion of countervailing duties — on imported Canadian softwood.

Earlier in the day, Trump vowed moves to protect the American dairy industry.

On Tuesday morning, he tweeted: “Canada has made business for our dairy farmers in Wisconsin and other border states very difficult. We will not stand for this. Watch!”

Against NAFTA

Trump, since his time campaigning for the presidency, has voiced his strong displeasure with the 1994 North American Free Trade Agreement (NAFTA), but until now he has vented most of his ire southward, toward Mexico.

Ross, speaking to reporters on the White House podium, would not explicitly characterize the actions on lumber and dairy as the opening shots on renegotiating NAFTA, but he did say: “Everything relates to everything else when you’re trying to negotiate.”

He described Canada as “generally a good neighbor,” asserting that its allegedly unfair trade practices regarding lumber and dairy were not very neighborly.

Asked on Tuesday in Kitchener, Ontario, about the U.S. trade actions and the fate of NAFTA, Canadian Prime Minister Justin Trudeau replied, “Standing up for Canada is my job, whether it’s softwood or software.”

Trudeau added, “Any two countries are going to have issues that will be irritants to the relationship and, quite frankly, having a good, constructive, working relationship allows us to work through those irritants.”

Some other Canadians were less diplomatic in their reactions.

“In Canada, the perception is that we’re always very nice,” said Unifor President Jerry Dias, representing forestry workers across the country. “But we can’t get trampled by this guy [Trump].”

‘Ignore, do not engage’

The majority of Canadians, including the prime minister and his colleagues, “understand that President Trump is prone to making ill-informed, off-the-cuff and arbitrary comments about a host of domestic and foreign policy issues,” Donald Abelson, the chairman of the political science department at the University of Western Ontario in London, told VOA.

“Canada will likely respond to Trump’s Tuesday tweet in a manner similar to how a competent parent responds to a child’s temper tantrum — ignore, do not engage,” added Abelson, who is also director of the school’s Canada-U.S. Institute.  

Other Canadians displayed wry humor — a traditional reaction to irritations from south of the border (at least since the last U.S. invasion during the War of 1812), considering the asymmetry of power.   

The president’s messages prompted immediate puns on Canadian social media, with tweets referencing “sacred cows” and calling the American trade action on dairy “udderly stupid” and “cheesy,” Sparkle Hayter, veteran Canadian journalist and author, told VOA.

The dairy dispute goes back decades. Currently, there is an overproduction of milk, according to dairy farmers on both sides of the border.

The U.S.-Canada lumber squabble is rooted in a couple of centuries of history.

In response to the proposed tariff on softwood lumber, “Canada to strike back by charging duties on exported Cdn actors,” tweeted the account of 22 Minutes, a satirical news program on national public broadcaster CBC.

Cows are No. 1

The Twitter account also noted the U.S. president “tweeted about Canadian dairy industry first thing this morning, so on his list of priorities: 1. Canadian Cows. 2. North Korea.”  

Trump’s attention on Canada comes amid indications he is pivoting away — at least temporarily — from the southern border and his quest to quickly fund his border wall with Mexico.

“We have plenty of time” to complete the wall during his first term, Trump assured reporters Tuesday afternoon.  

The presidential desire for border protection might find a better reception to the north, considering the comments from some Canadians.

“Some [in Canada] would like to separate from the U.S., like literally,” by digging a two-mile moat at the border “and filling it with beavers and mosquitoes,” quipped Hayter from her home province of Alberta.   

But many Canadians see themselves confronting a cross-border creature bigger than a beaver.

“Sleeping with an elephant” is how the late Pierre Trudeau, the current Canadian prime minister’s father, once characterized relations with the United States, “affected by every twitch and grunt.”
…

U.S. President Donald Trump is set to call for a sharp reduction in the nation’s corporate tax rate, the highest among the world’s industrialized countries.

Trump is planning to unveil his tax plans Wednesday, with aides saying he will ask Congress to slash the current 35 percent rate down to 15 percent, a pledge he first made during last year’s presidential election campaign.

White House spokesman Sean Spicer said the U.S. has been “uncompetitive” against other countries in attracting new businesses, “largely because of our rates.”

U.S. lawmakers have for years vowed to adopt broad tax reforms, but the efforts have foundered. Congress has been unable to reconcile competing demands to eliminate tax breaks for some corporate and individual interests and raise taxes on others.

Trump’s tax plans are likely to face months of hearings and debate in Congress, where his Republican colleagues have their own ideas on how the tax code ought to be reshaped. Some lawmakers have expressed concerns that Trump’s call for a big corporate tax cut would balloon the nearly $20 trillion in long-term debt the U.S. has accumulated if there are not corresponding measures to raise more revenue.

U.S. Treasury chief Steven Mnuchin said Monday, “The tax reform will pay for itself with economic growth” that would boost tax revenues. Mnuchin called for tax simplification as well, saying U.S. reforms ideally would let taxpayers file their annual tax returns on a “large postcard.”

The U.S. economy, the world’s largest, grew at a tepid 1.6 percent pace last year, a figure Trump is hoping to boost to 3 percent a year, which the United States has not reached since 2005.

Tax experts say the 35 percent U.S. corporate tax rate is the highest among the world’s 35 industrialized nations, although U.S. corporations rarely pay that much because they are permitted to deduct their business expenses from their revenues before paying the amount they owe.

When the 35 percent rate is added to the average state corporate tax rate, the figure reaches 38.9 percent, which ranks third in the world among 188 countries surveyed by the Washington-based Tax Foundation. The U.S. figure trails only that of the United Arab Emirates at 55 percent and the U.S. territory of Puerto Rico at 39 percent.
…

Canadian officials say a new tariff imposed by the Trump administration will raise the cost of new homes in the United States by $1,000 each, and shut 150,000 Americans out of home ownership. Washington’s decision also puts “thousands” of U.S. homebuilding jobs at risk, according to Canada’s ministers of natural resources and foreign affairs.

The comments follow preliminary action by the U.S. Commerce Department to impose a 20 percent tariff on $5.77 billion worth of soft wood imports from Canada to the United States. The wood is a key ingredient of family homes.

U.S. officials allege that Canada unfairly subsidizes exported wood. Subsidies could make the product cheaper, making it difficult for U.S. companies to compete on price.

Canada “strongly disagrees” with the decision to impose this “unfair and punitive” tax, says Canada’s resources minister, Jim Carr. Canada’s foreign minister, Chrystia Freeland, says Canada will take the issue to court, where the United States has lost similar cases in the past. 

U.S. Commerce Secretary Wilbur Ross says this has been “a bad week” in U.S.-Canadian trade relations, noting an additional dispute over Canadian milk exports.

While the dispute over wood tariffs might raise the cost of new homes in the United States, a report published Tuesday by the Census Bureau shows sales of newly-constructed homes jumped upward by 5.8 percent last month. If sales continue at that pace for a year, 621,000 homes would change hands. Prices also rose.

A separate report from a business group called the Conference Board showed consumer confidence declined in April. Economists at Wells Fargo say that despite the drop, consumer confidence remains near a 12-year high. Experts watch consumer confidence for clues about consumer spending, which drives 70 percent of U.S. economic activity.
…

The magnate behind LVMH is to incorporate Christian Dior into his luxury goods empire in a multibillion-dollar deal.

It’s the latest business coup for businessman Bernard Arnault, who has expanded his LVMH empire to include dozens of leading luxury brands — from high-end champagne and whiskies, to exclusive Vuitton handbags, Kenzo and Givenchy perfumes and Bulgari and TAG Heuer watches. Dior Couture, launched in 1946 and seen as the pinnacle of Paris style, would be a starring jewel in his empire.

Shares in Christian Dior and LVMH Moet Hennessy — Louis Vuitton rose after Tuesday’s long-awaited deal. The public offers values Dior at 260 euros per share. Shares in Dior spiked 12 percent to 253.95 euros by early afternoon trading Tuesday, while LVMH shares were up 4.3 percent at 223.95 euros.

According to the announcement, LVMH, which already owned Christian Dior cosmetics and perfumes, would buy Christian Dior Couture, its fashion business, for 6.5 billion euros ($7.1 billion). In addition, the Arnault Family Group is making a public offer for the Christian Dior shares it doesn’t currently hold.

The hope is that combining Dior’s entities under one roof and simplifying internal activities, savings will be generated.

The statement says the boards of both companies approved the transactions on Monday. The proposed deal will still need regulatory approval and consultations with workers. The companies also hope to issue the public offer in June, and finalize the purchase of Dior Couture in the second half of this year.

The companies laid out their hope that Dior’s fashion revenues and profit, which have risen in recent years, will be a  “source of growth” for LVMH, particularly with development in the U.S., China and Japan.

 
…

The financial industry is closely watching Alibaba affiliate Ant Financial’s attempt to acquire Dallas-based MoneyGram International, the world’s second biggest money transfer company after Western Union. Ant is offering $1.2 billion, more than U.S.-based competitor Euronet Worldwide.

If successful, the deal would turn Ant Financial into a financial behemoth with access to MoneyGram’s vast network of 350,000 outlets of retail shops, post offices and banks across 200 countries. At present, Ant’s business is largely based on the Chinese yuan. The acquisition would also give it access to U.S. dollar funds and escrow accounts for managing the funds.

“If you look at MoneyGram, what they might be doing here (to Ant Financial) is bringing a unique extra key that has much to do with that escrow account surplus and be able to hold a lot of dollars,” Jacob Cooke, chief executive officer of Web Presence in China, told VOA. “That, of course, will give them access to a whole bunch more opportunities to Ant’s financial services.”

Bidding war

As Euronet entered the race, Ant Financial hiked its bid by 36 percent, leaving no one in doubt about its determination to acquire MoneyGram and take on Western Union, the world’s biggest money transfer company, on its own terms. But Euronet has so far refused to give up, saying it is reviewing the new situation.

Euronet is also battling the Ant’s bid at another level. It has gone public in saying the Chinese acquisition bid poses serious security risks as payment companies hold vast amounts of financial data of their customers.

Protectionist moves

For Ant Financial, the biggest challenge would be obtaining approval of the Committee for Foreign Investment in the United States (CFIUS). Some analysts see it as the first major test for Chinese investments in the face of protectionist moves by the Trump administration.

“Getting approval from CFIUS might be more difficult this year. Plus, Chinese acquisitions are more on the media radar than before,” Jeffrey Towson, professor of Investments at Peking University’s Guanghua School of Management, said. “And finally, there is also a competing bidder, Euronet, and they will probably push for a regulatory denial based on security concerns”.

Two members of the U.S. House of Representatives, Kevin Yoder and Eddie Bernice Johnson, have written to Treasury Secretary Steven Mnuchin questioning the deal.

“The proposal merits careful evaluation as it would provide Chinese access to the U.S. financial infrastructure, a move that would pose significant national security risks if completed,” they said.

Allaying concerns

Ant Financial has tried to allay security concerns, saying that MoneyGram’s data will be stored in “iron-clad U.S.-based servers.”

In an open letter to MoneyGram’s shareholders, Douglas Feagin said MoneyGram will “continue to be headquartered in Dallas and run by its current U.S.-based management team after the deal closes.” He also promised Ant will “continue to invest in MoneyGram’s systems and compliance programs.”

Alibaba Group chairman Jack Ma was among the first to visit Trump Towers after Donald Trump won the U.S. presidency. Trump recently met Chinese president Xi Jinping, and later said he does not regard China as a currency manipulator anymore. Some analysts see these developments as positives for Ant Financial.

“Though CFIUS has given thumbs down to quite a few recent attempted Chinese takeovers, there isn’t an obvious national security case here as to why they should stop the transaction,” said Peter Fuhrman, chairman of consultancy firm, China First Capital.

Alibaba magic again?

An important question is whether it will also enhance the capabilities of the online shopping giant, Alibaba, and in turn pose a new challenge to similar players like Ebay. Ant Financial has served as a platform for carrying out Alibaba’s financial transactions in the past, analysts said.

“Ant Financial was born out of the fact that Alibaba’s e-commerce platforms were holding huge sums of money in escrow while transactions were completed between buyers and sellers,” Cooke of Web Presence in China, said. “So the natural assumption is that Alibaba can utilize MoneyGram’s escrow accounts and add to its own strengths”.

Jacob Kirkegaard, a fellow at the Washington-based Peterson Institute of International Economics, said, “Alibaba is arguably the world’s most sophisticated internet finance company. If they see a potential for MoneyGram in their product portfolio, I have no doubt that they can execute the deal and ensure integration.”

When contacted, Ant Financial did not reply to VOA’s questions and referred VOA to past statements by the company. A public relations firm representing Ant said the company has no relationship with Alibaba and refused further comment.

But several analysts, and most recent media reports, describe Ant Financial as a financial affiliate of Alibaba.
…

U.S. Senator Dan Sullivan on Monday called on both the American and Chinese governments to exercise “true reciprocity” in relations, including trade and diplomacy. 

The Republican senator from Alaska, in a speech concerning Chinese outbound investment, and in an interview with VOA afterward, said China has been aggressively buying companies in key sectors such as robotics, biotech, advanced machineries, software, entertainment and media “throughout America and Western Europe. But if you’re an American firm, or a firm from Germany, and you want to go to China and buy Chinese companies in those same sectors, you would be told ‘no;’ you would be prohibited.”

Making “true reciprocity” US policy

Sullivan’s proposed “true reciprocity” is rather simple and straightforward: “If Chinese companies want to invest in America’s biotech sector, then American companies should be able to invest in China’s biotech sector. It’s simple, it’s fair, it’s what China has said it wants to do but it doesn’t do, and we need to be much more serious about implementing it.”

Should China continue to ignore Washington’s calls for equal treatment and a level playing field, Sullivan says he is prepared to introduce legislation aiming at closing what he identifies as China’s “credibility gap,” and making sure that “true reciprocity” becomes official U.S. policy.

The Alaska Republican, who serves on both the Senate’s Commerce and Armed Services Committees, called on the U.S. government to reject “Middle Kingdom diplomatic practices” that fail to grant U.S. diplomats the same level of access Chinese diplomats receive in Washington. 

“Middle kingdom” diplomatic practices

Quoting from a study done by the New York-based Asia Society, Sullivan said “for a number of years, the U.S. ambassador in Beijing was only getting deputy minister level access while we, of course, give higher access to Chinese ambassadors here in Washington.”He called the solution to such unequal diplomatic treatments “a no brainer.” 

“If our ambassador in Beijing only gets deputy minister level access, then that’s what we should provide China’s ambassador in Washington, period. Middle Kingdom diplomatic practices should be firmly and aggressively rejected by the U.S. government everywhere,” Sullivan said.

He agreed that his proposed “true reciprocity” ought to also include issues such as granting journalists visas and access in both countries.

Growing domestic consensus

Sullivan said “there’s growing domestic consensus” in the United States that America’s strategic interests, including strategic economic interests, outweigh the market price of individual transactions, while acknowledging that each individual American businessman or woman naturally want the highest return for their individual product.

“The broader strategic interest of having a strong U.S. economy, and signaling to the next biggest economy in the world, China, that you need to play by the rules we play by, is also very important; and in my view, that importance strategically overrides the interest of the ability of American firms to sell to Chinese investment funds.”

Senator Dan Sullivan: China needs to play by rules we play by

Geo-economics

Daniel Twining, counselor and director of the Asia Program at the German Marshall Fund of the United States and an associate of the U.S. National Intelligence Council, thinks the U.S. economic power so far has not been sufficiently utilized to advance the nation’s overall strategic, political and economic interests. 

“The U.S. is used to this traditional foreign policy tool kit that involves the armed forces, the diplomatic corps and development (foreign aid), but there’s really a fourth link here, which is our economic statecraft,” he told VOA.

Twining said other major powers, including China, appear to be much more adept at what he called “geo-economics,” using trade and investment “quite actively” and “quite smartly” to advance overall national interests.“It may be smart for us to think more about our economic strategies in the world,” including acknowledging and adopting strategies accordingly based on the fact that “market forces are not working everywhere, including in an economy like China that is still somewhat closed or controlled in some respects.”

Daniel Twining: Market forces are not working everywhere

​

Forgoing short-term profit

A newly released report by Baker McKenzie put Chinese worldwide outbound investment at $200 billion in 2016, nearly half of which targeted assets in North America and Europe. 

According to Robert Shapiro, chairman of Sonecon and former U.S. Undersecretary of Commerce for Economic Affairs, the primary goal of China’s overseas investments does not lie in short-term profit but rather in gaining strategic advantage, and that means not necessarily in gaining immediate economic return.

Robert Shapiro: China playing the long game

​
…