THE DAILY EDGE: 27 NOVEMBER 2018

Trump Expects to Move Ahead With Boost on China Tariffs President, in interview, calls it ‘highly unlikely’ that U.S. would hold off on increase to 25% on $200 billion of goods

(…) “If we don’t make a deal, then I’m going to put the $267 billion additional on” at a tariff rate of either 10% or 25%, Mr. Trump said. (…) Later Monday, as he left the White House for a trip to Mississippi, Mr. Trump said of a China deal: “It could happen.” (…)

“Maybe. Maybe. Depends on what the rate is,” the president said, referring to mobile phones and laptops. “I mean, I can make it 10% and people could stand that very easily.”  …)

“I think the Fed right now is a much bigger problem than China,” he said. (…)

Mr. Trump said the U.S. wouldn’t be hurt if a deal wasn’t reached with China. He argued that the country would benefit from the tariffs collected on Chinese imports. He also repeated his threat to levy tariffs on auto imports, which could batter the European, Japanese and South Korean car industries. “I happen to be a tariff person,” he said. (…)

• While US tariffs are relatively low, other trade restrictions make the US import market more restrictive than the EU, Japan, and China (according to Deutsche Bank). (The Daily Shot)

  

  Source: Deutsche Bank Research

• Gavekal’s Hope:

(…) in the past six weeks, the massive outperformance of US equities has stalled. Instead, US stocks have been heading lower, along with equities in most other markets. This is awkward for the administration, given that until recently Donald Trump had been hailing the US stock market’s successive new highs as proof of the success of his policies. In response to this negative turn for US equities, Trump therefore has two possible responses:

1) Blame the Federal Reserve and its tightening of monetary policy for the recent equity losses. Clearly, Trump has not hesitated to venture down this particular rabbit hole.
2) Come out of this coming weekend’s G20 meeting in Buenos Aires signaling that a “beautiful deal” with China is in the works.

(…) if Trump is really so keen to make the US equity market his score-card, then he has now almost pigeon-holed himself into walking out of Buenos Aires holding hands with Xi Jinping, and announcing some kind of deal with China on tariffs and trade.

MAKING AMERICA GREAT AGAIN!

This is right in Trump country, post USMCA, steel and aluminum tariffs:

GM Closings a Fresh Sign of Worry for Economy Recession seen as unlikely, but boom period looks ‘long in the tooth’

General Motors Co.’s plan to cut up to 14,800 North American jobs is a fresh sign the U.S. economy may be slowing after strong growth in the middle of the year. (…) The auto maker had about 180,000 employees world-wide at the end of 2017, including approximately 103,000 in the U.S., according to a regulatory filing.

Nonsupervisory workers at auto manufacturers in the U.S. earned $29.64 an hour in October, the Labor Department said. That’s well more than the pay earned by similar workers in transportation and in warehousing and retail, two other sectors that frequently employ Americans without college degrees. (…)

GM plans to end production at large assembly plants in Michigan and Canada as well as at a few smaller facilities, which could result in up to 6,700 factory workers being let go. The company plans to cut another 8,100 salaried workers in North America, many in its product-development ranks. (…)

The company said the cuts announced Monday would reduce its overall annualized spending on capital investments by about $1.5 billion, to a level about 18% below the amount spent in 2017. (…)

The expected $4.5 billion in annual cost savings by the end of 2020 will allow GM to steer more money into electric and autonomous vehicles. As sales of small cars have shrunk, the company is also betting on trucks, crossovers and SUVs. It will also stop producing the Chevrolet Volt hybrid, the Cadillac CT6 and the Buick LaCrosse. (…)

Fiat Chrysler Automobiles NV already phased out most small-car and sedan lines for the U.S., and Ford Motor Co. intends to follow suit, ending production of several car models within the next few years, including the Fusion and Taurus sedans.

Ford also is restructuring its operations in the U.S. and overseas, including making deep cuts to its salaried workforce. The actions are aimed at improving profitability and helping it invest in new technologies that it believes are core to its long-term survival.

• Trump in Ohio on July 25, 2017: “They’re all coming back. Don’t move, don’t sell your house”.
• The company has said tariffs on imported steel, imposed earlier this year by the Trump administration, have cost it $1 billion. Ford said same.
• About 970,000 people worked in the United States auto industry in October, an increase of 12,800 since Mr. Trump took office. Most of that growth, however, came among manufacturers of recreational vehicles and trailers, as well as in auto parts. Through October, automakers like G.M. had cut about 7,000 jobs under Mr. Trump, government figures show. (Those numbers don’t include the hundreds of thousands of workers employed by auto dealers, repair shops and related industries.) (NYT)

Simply put: lack of understanding, vision. Not only among politicians:

• “We recognize the need to stay in front of changing market conditions and customer preferences,” explained GM CEO Mary Barra. Said yesterday, not 3 years ago as this chart might suggest:

Some 70% of all new vehicles sold last year were trucks and SUVs. The U.S. industry is betting this will continue, while also trying to go electric green. Different shades of greens!

GM is killing 41% of its North American car production. The idea is that selling a higher percentage of trucks vs cars will boost margins. Time will tell. Meanwhile,

Americans are paying off their SUV loans at rising interest rates. Subprime delinquency rates have jumped from 13% in 2014 to nearly 17%, only slightly lower than at its worst point during the financial crisis. Can’t imagine where it will end up next. Lenders also appear concerned as they are gradually tightening standards for auto loans, even demand is waning:

Friday in WHERE’S THE BEEF?, I wrote that manufacturing was among the few remaining area of strength for the U.S. economy and that the consumer was the only really strong support. This is another blow to manufacturing as the whole automobile ecosystem will be impacted by GM’s move. And so will consumers in affected areas. Finally, note that GM actually did not announced plant closures in the U.S., only that 3 assembly plants and 2 propulsion plants will be “unallocated product by end of 2019”, leaving the door open for other utilization of those plants…right before the industry-wide renegotiation of its labor contract…

Other examples of short or no vision today:

• France and Germany Step In to Circumvent Iran Sanctions France and Germany have joined forces to rescue a European effort to create a payments channel to keep trade flowing with Iran, defying U.S. attempts to take the air out of the plan, senior diplomats said.

• Trump Says He Doesn’t Believe Climate-Change Report’s Predictions President Trump said he doesn’t believe the central finding of a report by his administration that global climate change could cause U.S. economic losses of hundreds of billions of dollars a year by the end of the century.

(…) The federal report concluded “that the evidence of human-caused climate change is overwhelming and continues to strengthen, that the impacts of climate change are intensifying across the country, and that climate-related threats to Americans’ physical, social, and economic well-being are rising.”

(…) “I’ve seen it. I’ve read some of it. And it’s fine.” but “I don’t believe it.” (…)

You can decide that you do not believe in God, or in any gods. But as in finance, there is also a probability game in this. Nearly 400 years ago, French philosopher Blaise Pascal rationalized that “a rational person should live as though God exists and seek to believe in God. If God does not actually exist, such a person will have only a finite loss (some pleasures, luxury, etc.), whereas he stands to receive infinite gains (as represented by eternity in Heaven) and avoid infinite losses (eternity in Hell).^{” (Wikipedia)}

Not a bad idea to apply the same Pascal’s wager to climate change. If only for the sake of our grand children.