Category Archives: Economics

Lawrence Solomon: Who killed GM’s non-electric cars? The government did

Don’t blame General Motors or declining market demand for automobiles for the plant closings in Canada and the U.S. announced this week. The closings are largely the work of governments.

Demand for cars hasn’t plummeted, as some media outlets have reported. Sales on the whole are actually up this year, part of a steady trend of more vehicles sold over the past decade. Sales are dramatically down only for sedans, specifically the gasoline-powered species of sedans that governments have targeted. In contrast, sales are way up for SUVs and light trucks, vehicles that governments have favoured. Little wonder, then, that GM announced it would scrap many of its sedan models — along with the plants in Ontario and the U.S. that produce them — and switch to vehicles that governments either tolerate or bless. Ontario, doubly uncompetitive due to high taxes and high electricity costs, was inevitably a loser.

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China-Japan Summit Hopes to Produce a United Front Against US

With all the fanfare generated by Prime Minister Shinzo Abe’s visit to Beijing later this week, perhaps the most significant aspect is that it is happening at all.

Despite both taking office around the same time in 2012, Abe and his Chinese President Xi Jinping have never visited each other’s countries for a formal bilateral summit, with all of their previous encounters taking place on the sidelines of international conferences.

But after six years, Abe will finally make the trek, paving the way for a reciprocal visit by Xi to Japan at some point in the future.

“We want to use this opportunity to create momentum for us to map out and promote mutual cooperation and communication in various areas and to elevate Japan-China relations to a new level,” Chief Cabinet Secretary Yoshihide Suga said while announcing Abe’s visit to Beijing, which is scheduled to begin Thursday.

The meeting will likely be a cordial affair, with both sides eager to showcase the image of a rekindled friendship to commemorate the 40th anniversary of the Treaty of Peace and Friendship’s signing.

But among the parties, China appears to be the more desperate of the two.

China views Japan as an increasingly important partner in countering a protectionist United States led by President Donald Trump — while also realizing it could use the opportunity to alienate Tokyo from its top ally, Washington.

The Chinese government, analysts say, also seeks at least a semblance of an endorsement by Japan of Xi’s trademark — and increasingly criticized — “Belt and Road” initiative. It is looking to hammer out details on joint infrastructure projects in hopes of trumpeting Japan’s participation in the development strategy.

 

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A Stock Crash in China Could Be Much Worse

Perhaps the biggest financial market story in 2018 so far is the colossal fall from grace of the Chinese stock market, which has witnessed losses in excess of 30% since the start of the year.

The fall, which has seen the benchmark Shanghai Composite index drop to its lowest level in almost four years this week, is generally explained through the prism of investors realising that the blockbuster growth China has enjoyed over the last decade is on the wane, and that things are likely to slow down to a strong, but not stellar, rate.

Such a view has been exacerbated by the rise of the trade conflict between the US and China, which has seen the world’s two largest economies exchange tit-for-tat tariffs, which now apply to goods totalling close to a cumulative $300 billion.

Many economists see the trade war having a major negative impact on Chinese growth, with JPMorgan earlier in October saying a full-blown trade war could have a 1% shrinking effect on the economy.

While these two factors are evidently at play, there’s reason to believe that another factor could soon come into play, and force Chinese stocks even deeper into bear market territory — forced selling.

In China, hundreds of companies use their shares as collateral for loans, but when share prices fall they are forced to sell in order to maintain a certain level of balance in brokerage accounts, used to lend the companies money.

According to Bloomberg, about 4.18 trillion yuan ($603 billion,) worth of shares have been put up by company founders and other major investors as collateral for loans, accounting for about 11% of the country’s stock market capitalization, based on calculations using China Securities Depository and Clearing Corporation data.

The South China Morning Post, citing a report by Tianfeng Securities, said earlier in the week that more than 600 company stocks have fallen to levels where forced sales may kick in.

“It’s a vicious cycle: share drops lead to liquidation and liquidation leads to further share drops,” Wang Zheng, chief investment officer at Jingxi Investment Management told the South China Morning Post earlier in the week.

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Freeland Denies Being Pressured Into Making Last-Minute USMCA Deal

Sure, Chrystia. Sure:

Foreign Affairs Minister Chrystia Freeland says that anyone who thinks the new trilateral North American trade agreement limits Canada’s trade sovereignty is misguided.

Freeland told Chris Hall, host of CBC Radio’s The House, that the section of the United States-Mexico-Canada Agreement that lays out the rules for making pacts with “non-market” countries won’t limit Canada’s attempts to diversify its markets.

“It’s the one element of the modernized NAFTA that has not been fully understood by Canadians,” she said Thursday.

“There is nothing new in this clause and in the new agreement that restricts Canadian sovereignty in any way.”

Section 32.10 of the deal’s text states that a USMCA country must give three months’ notice to the other two parties before negotiating a free trade agreement with any country considered to be “non-market” — and therefore ineligible — by one of the USMCA partners.

Many have taken this to be a direct reference to China, as the U.S. has been engaged in a tariff battle with Beijing for months. Hundreds of billions of dollars worth of products have been affected, drawing retaliation from China.

U.S. President Donald Trump has taken aim at the dumping of foreign steel and aluminum by China. He also imposed steel and aluminum tariffs on Canada, Mexico and the European Union back in May, using a little-known U.S. law to declare those metals imports a threat to “national security.”

China has been critical of the new trilateral deal, saying the U.S. is trying to undermine its trade with Canada and Mexico.

 

In other news:

Canada’s embrace of American-style protectionist measures to prop up domestic steelmakers is set to increase costs for consumers and secondary manufacturers — assuming they can even find steel to buy amid current shortages.

It’s also offending key trading partners.

As of next Thursday, a 25 per cent surtax will be applied to all foreign imports of seven specific kinds of steel once they exceed historical average volumes. It’s an emergency tool the federal government’s never used before. Many manufacturers would love to stop it from being used now.

“It is going to kill businesses,” said trade lawyer Cyndee Todgham Cherniak. Her firm, LexSage, represents clients trying to persuade the Canadian International Trade Tribunal to reverse Finance Minister Bill Morneau’s decision at hearings scheduled for January.

“Exactly what we said shouldn’t be done to us, we’ve done to other countries. And, quite frankly, to our own businesses.”

Canada already has 78 different trade remedies (duties) in place for countries like China who’ve been caught dumping steel. This new surtax is part of a push to curb global overproduction and keep cheap steel from sneaking into North American supply chains.

But in the process, Canada’s surtax also hits fairly-traded steel from countries Canada normally counts as allies, including Japan and the European Union.

Companies already finding it hard to source quality, affordable steel are about to see more of their best options taxed.

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It’s Just Money

The Economist this week warns policy makers to “start preparing for the next recession” while they still can. The release of the government of Canada’s annual financial report for the 2017-18 fiscal year, however suggests the Trudeau Liberals have no notion of foregoing that most enjoyable of all entitlements: spending other people’s money.

The annual budget is an aspirational document, revealing what the government would like to do. But the annual report is a look in the rearview mirror at what it did in the year ending March 31, 2018.

This year is complicated by a restatement of the public finances going back years to factor in an accounting change. (The Auditor General ordered the restatement, related to discounted and unfunded pension obligations, and it adds an additional $20 billion to the federal debt, which now stands at $671 billion.) But the story is relatively simple — 2017-18 was a bumper year for government revenues, which rose by $20 billion, or 6.9 per cent, from the previous year.

Personal income tax increases accounted for half of that flood of new money coming into the coffers, around half of which was related to economic growth and the other half to the unwinding of tax planning that had suppressed revenues in 2016-17 (when the Liberals announced they were going to raise the top rate of income tax to 33 per cent in late 2015, there was a rush of filing by high-income earners to declare income at the lower rate).

Yet, rather than reduce the deficit and pay down debt in preparation for the next recession, creeping toward them as inevitably as mortality, the Liberals spent the lot. In 2017-18 expenses amounted to $332.6 billion — breaching the $300-billion mark for the second time — up $20.1 billion, or 6.4 per cent from 2016-17.

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‘Financially ruined’: Cryptocurrency investors learn hard lessons after Bitcoin boom busts

SAN FRANCISCO — Pete Roberts of Nottingham, England, was one of the many risk-takers who threw their savings into cryptocurrencies when prices were going through the roof last winter.

Now, eight months later, the US$23,000 he invested in several digital tokens is worth about US$4,000 and he is clearheaded about what happened.

“I got too caught up in the fear of missing out and trying to make a quick buck,” he said last week. “The losses have pretty much left me financially ruined.”

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Benefit or burden? The cities trying out universal basic income

For the first time in many years, Lance Dingman has food in his freezer.

Dingman, from Hamilton in Ontario, Canada, lost one of his legs in 1988 as a result of a bone infection and now has a prosthetic; he has also struggled with his mental health. He used to receive a disability benefit, but the amount was so low as to leave him no way out of poverty. Today Dingman, 56, is paid C$1,900 (£1,080) per month under the city’s basic income pilot project – and he says the difference is life-changing.

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Money problems: why Finland has given up on the basic income dream

When the Finnish government embarked on a trial of basic income it was lauded as bold, evidence-focused and innovative. The country became something of a standard bearer in a worldwide push towards basic income projects. In failing to commit to widening the scope of the trial in 2019 beyond its current group, however, that reputation is under threat.

Universal basic income (UBI) in its purest form is a payment that every citizen receives on a regular basis, without condition and as of right, in and out of work. Universal credit is paid on a household basis, is means tested and conditional, for example on recipients proving that they are actively searching for and accepting offers of work. The Finnish trial is not universal, as only 2,000 unemployed people were selected for it, but it is a basic income.


Oh Oh! Ontario’s basic income experiment would continue under Doug Ford

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Minimum wage hikes could cost Canada’s economy 60,000 jobs this year

Minimum wage hikes across Canada this year could cost about 60,000 jobs, despite the benefits they would bring, the Bank of Canada says in a new report.

The central bank published a report over the winter break, attempting to calculate what sort of economic impact a series of minimum wage hikes set to come into force this year will have on Canada’s economy.

As of Jan. 1, Ontario’s minimum wage is now $14 an hour, up from $11.60. By the end of 2018, Alberta, Quebec and Prince Edward Island are also expected to hike their minimum wages.

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Silicon Valley giant Y Combinator to give people varied amounts of cash in latest basic income trial

Start-up accelerator Y Combinator plans to roll out its initial cash handout trial to thousands of people across two U.S. states.

Its President Sam Altman has been one of many top Silicon Valley bosses to get behind the idea of basic income – the idea that all citizens should be paid a regular sum of money regardless of their employment status.

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Hawaii Considers A “Universal Basic Income” As Robots Seen Stealing Jobs, There’s Just One Catch…

Forget social security, medicaid and WIC, today’s progressives have moved well beyond discussing such entitlement relics of the past and nowadays dedicate their efforts to the concept of a “Universal Basic Income” for all…call it the New ‘New Deal’.  You know, because having to work for that “car in every garage and chicken in every pot” is just considered cruel and unusual punishment by today’s standards.

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Why Canadians need to debate immigration economics

Simon Fraser University political scientist Sanjay Jeram is bravely going where few Canadian scholars — and virtually no politicians — dare to go.

In the face of an unspoken taboo against seriously debating immigration policy in Canada, Jeram says the time has come for Canadians to start openly discussing the migration issues they’ve been avoiding.

Money Quote:

“But it just doesn’t add up, because a working immigrant comes with dependants. And with rising immigration rates, that can become expensive and unsustainable. It’s nothing to do with race. It’s just economics.”

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