Day: April 19, 2018

The biggest danger from the U.S.-China trade dispute is the threat to global confidence and investment, International Monetary Fund Managing Director Christine Lagarde said on Thursday.

The IMF chief said the tariffs threatened by the world’s two largest economies would have a modest direct impact on the global economy but could produce uncertainty that choked off investment, one of the key drivers of rising global growth.

“The actual impact on growth is not very substantial, when you measure in terms of GDP,” Lagarde said of the tariffs, adding that the “erosion of confidence” would be worse.

“When investors do not know under what terms they will be trading, when they don’t know how to organize their supply chain, they are reluctant to invest,” she told a news conference in Washington where world financial leaders gathered for the start of the IMF and World Bank spring meetings.

In its World Economic Outlook released on Tuesday, the IMF cited 2016 research showing that tariffs or other barriers leading to a 10 percent increase in import prices in all countries would lower global output by about 1.75 percent after five years and by close to 2 percent in the long term.

In Beijing, China’s Foreign Ministry warned that the Trump administration’s tariff threats and other measures to try to force trade concessions from Beijing was a “miscalculated step” and would have little effect on Chinese industries.

In the latest escalations in the trade row, Washington said this week that it had banned U.S. companies from selling parts to Chinese telecom equipment maker ZTE for seven years, while China on Tuesday announced hefty anti-dumping tariffs on imports of U.S. sorghum and measures on synthetic rubber imports from the United States, European Union and Singapore.

The U.S. Trade Representative’s office also is planning to soon release a second list of Chinese imports targeted for an additional $100 billion of U.S. tariffs, tripling the amount of Chinese goods under a tariff threat.

Lagarde said the trade tensions would be a major topic of discussion among finance ministers and central bank governors at the IMF and World Bank meetings.

“My suspicion is that there will be many bilateral discussions to be had between the various parties involved,” Lagarde said, adding that the issue would also be discussed in larger sessions involving the Fund’s 189 member countries.

“Investment and trade are two key engines that are finally picking up. We don’t want to damage that,” Lagarde said.

If the tariffs go into effect, the hit to business confidence would be worldwide because supply chains are globally interconnected, she added.

 
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Russian aluminum giant Rusal is stockpiling large quantities of aluminum at one of its plants in Siberia because U.S. sanctions imposed this month have prevented it from selling the metal to customers, five sources close to the company said.

With the firm’s own storage space filling up with unsold aluminum, Rusal executives in Sayanogorsk, in southern Siberia, have had to rent out additional space to accommodate the surplus stock, one of the sources told Reuters.

“Aluminum sales have broken down. And now the surplus aluminum is being warehoused in production areas of the factory itself,” said someone who works on the grounds of one of Rusal’s two plants in Sayanogorsk.

Several people connected to Rusal said that Oleg Deripaska, the company’s main shareholder who along with the company was included on a U.S. sanctions blacklist, visited Sayanogorsk this week for a closed-door meeting with staff.

Asked if the firm was stockpiling aluminum in Sayanogorsk, a Rusal spokeswoman declined to comment.

Rusal and Deripaska were included on a U.S. sanctions blacklist this month, scaring off many of its customers, suppliers and creditors who fear they too could be hit by sanctions through association with the company.

A number of traders and customers of Rusal’s aluminum have stopped buying the firm’s products, citing the sanctions risk, and Rusal has stopped shipping some of its products for export, according to a logistics firm and a railway operator that used to carry much of its aluminum.

While shipments have stalled, Rusal cannot readily reduce its production of aluminum because the electrolysis pots that are at the heart of the manufacturing process can be irreparably damaged if they are shut down.

At Rusal’s two plants in Sayanogorsk — which together accounted last year for about a quarter of the firm’s production — aluminum is now stacking up in ad hoc stockpiles dotted around the factory grounds, the sources said.

An employee with a Rusal subsidiary described how the unsold aluminum ingots were being stored in garages in the plant. He said his company had just agreed to rent out space to Rusal so it could store more of the ingots.

A contractor at the Sayanogorsk plants said the stockpiled ingots, stacked on pallets, were building up fast. He said two days’ worth of production would fill up a five-car train, but already a week had gone by with aluminum piling up.

“Can you imagine a week?” he said. “There’s a hell of a lot there, a hell of a lot. It’s being stockpiled, it’s not being shipped.”

An electrician working for Rusal said the ingots were being squeezed into all available space.

“The storage is not quite full,” said the electrician, who spoke on condition of anonymity to discuss internal company affairs. “Something is still being loaded all the same, some stuff is being shipped.”

Deripaska, who started his metals industry career in Sayanogorsk in the 1990s, visited the town this week and held a closed-door meeting with staff, according to several people with links to Rusal.

Deripaska himself was included on the U.S. sanctions blacklist, along with Rusal and other businesses where he has a controlling stake.

Washington said it took the measure against Deripaska and others because, it said, they were profiting from a Russian state engaged in “malign activities” around the world.

Since the sanctions were imposed on April 6, Rusal’s share price has slumped, the value of its bonds has plummeted and partners around the world have distanced themselves from Deripaska and his business empire.

U.S. customers cannot do business with Rusal any more under the sanctions, while major Japanese trading houses asked Rusal to stop shipping refined aluminum and other products and are scrambling to secure metal elsewhere, industry sources said.

Rusal is encountering problems at the other end of its production cycle too, with the sanctions affecting the overseas operations that supply it with the raw materials it uses to produce metal.

Rio Tinto, which supplies bauxite to some of Rusal’s refineries and buys refined alumina, said it will declare force majeure on some contracts.

Further besieging Rusal, creditors and bond-holders are trying to offload the firm’s liabilities because many financial market players believe that to handle Rusal debt could leave them too susceptible to U.S. sanctions.
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Russia demanded compensation from the U.S. for its worldwide tariffs on foreign aluminum and steel Thursday, becoming the third influential member of the World Trade Organization to do so.

China, the European Union and India have also objected, arguing the tariffs are a “safeguard” measure to protect U.S. domestic products from imports, which require compensation for major exporting countries.

The Trump administration has rejected that argument and says the tariffs are for national security reasons and are therefore allowed under international law.

The U.S. has agreed to negotiate with China and has informed the EU and India it is willing to discuss any other issue, while maintaining their compensation claims are unwarranted.

It is unclear what Moscow’s demand means in practice because it did not challenge the tariffs through a WTO appeals mechanism through which the organization’s 164 members can negotiate solutions to trade disputes.

China is the only country that has pursued that course and India has asked to be present at negotiations with the U.S. on the issue.

U.S. allies Australia, Canada, the EU, Mexico and South Korea have received temporary exemptions from the tariffs, pending negotiations with the U.S.

 
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Global diamond giant De Beers is rolling out an app to help small-scale, artisanal diamond miners in Sierra Leone certify that gems they pry from the soil are legal, the Anglo American unit said on Thursday.

The initiative is the latest attempt by the industry to clean up its image and expunge the scourge of “blood diamonds” blamed for financing conflict, chaos and criminality in poor African countries, such as Sierra Leone and Liberia.

More widely, small-scale mining is often tainted by alleged links to insurgents or child labor, casting a cloud over supply chains for commodities such as cobalt, which is produced mainly in the conflict-prone Democratic Republic of Congo, and gold.

Called Gemfair, the De Beers’ pilot app project is a partnership with Diamond Development Initiative (DDI), an NGO, and will target several small-scale mine sites in Sierra Leone in a meeting of high technology and pre-industrial mining methods.

Miners enrolled in the project must be licensed, adhere to certain environmental standards, work sites that are free of violence and meet other requirements.

The app is on a tablet and has a software application that shows the GPS location where the diamonds have been extracted, allowing for a record of the production process. The software can work online or offline in remote areas.

The miners are also provided with digital scales to weigh their diamonds and a tamper-proof bag where they can be deposited and then passed safely through the supply chain.

“The app we developed to address some of the key challenges in logging and validating, to allow artisanal production to be traced from the mine site all the way through to export,” Feriel Zerouki, De Beers’ vice-president for ethical initiatives, told Reuters in an interview.

According to DDI, up to 20 percent of global gem-quality diamond supplies are produced by artisanal miners, who typically wash gravel by hand in conditions that are often unhygienic and dangerous.

Illicit diamonds were linked to funding civil wars and insurgencies in Sierra Leone, Liberia and Angola and the issue was popularized by the 2006 movie “Blood Diamond” starring Leonardo DiCaprio.

The main initiative to keep such gems from reaching the market is a regulatory program called the Kimberley Process but its focus is on conflict diamonds and does not directly address issues of poverty and exploitation.
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As India battled an inexplicable currency shortage across many parts of the country, the government has quickly moved to assure the nation that it is fixing the shortfall.

Hundreds of people this week have been encountering “Out of Cash” signs at automated teller machines which have run dry in some of the country’s largest states like Karnataka, Telangana, Andhra Pradesh and Bihar.

The Central Bank has said that printing of currency notes has been ramped up, supplies are being augmented to the worst-hit areas and there is enough cash in its vaults. It said ATM’s are emptying faster than usual as people withdraw extra cash at the start of the Indian financial year, which began on April 1.

But days after the shortages began to be reported, there are no clear answers as to what has caused the problem.

There is usually a spurt in demand for bills at this time of the year when Indians celebrate religious festivals and prepare for the harvest season, but this has never caused currency shortages in the past.

Without elaborating, Finance Minister Arun Jaitley attributed it to ‘sudden and unusual increase’ in some areas. In a statement earlier this week he said that there is more than adequate currency in circulation and available with banks.

“There is no reason to believe for anyone to have any fear or any apprehension. Please be completely assured that our banking is totally, totally safe,” said S.C. Garg, a top official in the Department of Economic Affairs.

Despite the assurances, the shortages this week brought back memories of the controversial currency ban of high value notes in 2016 that triggered a massive cash crunch. Prime Minister Narendra Modi said at the time that the move was intended to combat widespread tax evasion that led to people hoarding cash and to digitize India’s economy to make it more transparent. 

In a country where more than 75 per cent of transactions are done in cash, the government had announced incentives to nudge people toward online payments.

However the latest shortages suggest India has apparently not been able to shake off its addiction to cash.

“It is also a matter of habit, you are used to cash, so it is difficult to shrug it off unless you have an alternate system that is very efficient,” said D.K. Joshi, chief economist at rating agency Crisil in Mumbai. Economists have often underlined the challenge of shaking off a dependency on cash in a country where internet access is patchy, especially in rural areas.

However some saw a silver lining – the rising demand for cash could be due to an economy that has been picking up pace. 

The cash ban a year and a half ago had slowed India’s economy for months and led to widespread criticism that it had caused more pain than gain.

And while the latest shortages are expected to be a passing phase, they could embarrass the government and raise questions about its handling of the economy just ahead of a crucial round of state polls this year and national elections next year. At least one of the states grappling with cash shortages, Karnataka, heads for the polls next month.

 
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A bitterly divided House panel Wednesday approved new work and job training requirements for food stamps as part of a five-year renewal of federal farm and nutrition policy.

The GOP-run Agriculture Committee approved the measure strictly along party lines after a contentious, five-hour hearing in which Democrats blasted the legislation, charging it would toss up to 2 million people off food stamps and warning that it will never pass Congress.

The hard-fought food stamp provisions would tighten existing work requirements and expand funding for state training programs, though not by enough to cover everybody subject to the new work and training requirements.

Agriculture panel chair Michael Conaway said the provisions would offer food stamp beneficiaries “the hope of a job and a skill and a better future for themselves and their families.”

Food stamps

At issue is the Supplemental Nutrition Assistance Program, or SNAP, which provides food aid for more than 40 million people, with benefits averaging about $450 a month for a family of four.

The food stamp cuts are part of a “workforce development” agenda promised by GOP leaders such as Speaker Paul Ryan, R-Wis., though other elements of the agenda have been slow to develop.

“The timing is just perfect, given the fact that we have more than 5 million jobs that are open and available,” said Rep. Glenn Thompson, R-Pa., who said the GOP provisions would cement “a pathway to opportunity” for the poor and “give them better access to skills-based education.”

But Democrats said the provisions would drive up to 2 million people off the program, force food stamp recipients to keep up with extensive record keeping rules, and create bulky state bureaucracies to keep track of it all, while not providing enough money to provide job training to all those who would require it.

“This legislation would create giant, untested bureaucracies at the state level. It cuts more than $9 billion in benefits and rolls those savings into state slush funds where they can use the money to operate other aspects of SNAP,” said Rep. Collin Peterson of Minnesota, top Democrat on the panel. “Let me be clear: this bill, as currently written, kicks people off the SNAP program.”

Currently, adults ages 18-59 are required to work part-time or agree to accept a job if they’re offered one. Stricter rules apply to able-bodied adults without dependents between the ages of 18 and 49, who are subject to a three-month limit of benefits unless they meet a work requirement of 80 hours per month.

Under the new bill, that requirement would be expanded to apply to all work-capable adults, mandating that they either work or participate in work training for 20 hours per week with the exception of seniors, pregnant women, caretakers of children younger than 6, or people with disabilities.

Farm safety net

In addition to food stamps, the measure would renew farm safety-net programs such as subsidies for crop insurance, farm credit, and land conservation. Those subsidies for farm country traditionally form the backbone of support for the measure among Republicans, while urban Democrats support food aid for the poor.

The legislation has traditionally been bipartisan, blending support from urban Democrats supporting nutrition programs with farm state lawmakers supporting farm programs.

The measure mostly tinkers with those programs, adding provisions aimed at helping rural America obtain high-speed internet access, assist beginning farmers, and ease regulations on producers.

“When you step away from the social nutrition policy, much of this is a refinement of the 2014 farm bill. So we’re not reinventing the wheel. That makes it dramatically simpler,” said Rep. Frank Lucas, R-Okla., a former chairman of the committee. “Most folks are generally satisfied with the fundamentals of the farm safety net.”

That satisfaction has helped fuel speculation that this year’s renewal of food and farm programs will fail because just a short-term renewal of current policies would satisfy many lawmakers. The Senate is taking a more traditional bipartisan approach that’s sure to avoid big changes to food stamps.

The House measure also would cut funding for land conservation programs long championed by Democrats, prompting criticism from environmental groups. At the same time, it contains a proposal backed by pesticide manufacturers such as the Dow Chemical Company that would streamline the process for approving pesticides by allowing the Environmental Protection Agency to skip reviews required under the Endangered Species Act.

The panel adopted by voice vote a proposal by Rep. Jeff Denham, R-Calif., to prohibit the slaughter, trade or import or export of dogs and cats for human consumption in the United States.
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