Should Anti Dumping Laws be dumped

Anti dumping refers to the process by which governments levy extra costs and taxes to imports to protect domestic manufacturers. Dumping is the process by which foreign exporters make into an international market by providing goods for significantly lower prices. Foreign exporters are both willing to do so can do it because of several reasons.

Firstly, foreign competitors might have comparative advantage over local manufacturers. Comparative advantage gives foreign importers the chance to produce the same goods more effectively because of better natural resource availability, better climate, productive skills, cheaper labor and other conditions that might provide a better environment for the same product to be made faster. Secondly, exporting to other countries is both accessible and profitable for many companies. Also, many companies are often able to find a huge demand for their product outside of their home country.

However, when these countries enter foreign markets, they have a huge impact on the foreign country and provide competition for domestic producers. Governments hence create anti dumping laws, trade barriers, and other legal restrictions towards foreign imports to improve their trade deficit, to safeguard niche and newly developing industries, and to give these companies a chance to grow and be ready to become competitive.

It is argued that international trade dumping is often occurred at the cost of domestic workers and domestic companies loosing market share. However trade barriers can also be detrimental to the overall efficiency of the economy. Trade barriers can also affect developing nations differently, because if developed nations have trade barriers, this would lead to them over producing and then dumping their products in developing nations for cheaper prices. Also, because the more richer and developed nations set the fundamental trade policies, developing nations face high barriers from these countries and cannot export from these countries to improve their own trade deficit.

Anti dumping laws and trade barriers and weather they should be implemented have always been a subject of controversy. Anti-dumping laws can sometimes be a barrier to innovation and progress, because if new advanced products are not allowed to enter the market, then domestic producers might not have the incentive to research and develop their products because of lack of competition. Also, providing more choice and higher quality to consumers is also crucial for the economy. Trade restrictions also however improve the current account balance of a country, by improving trade deficit and net exports.

The debate on weather anti-dumping laws and trade barriers should be encouraged or dumped is not one that can be resolved easily, and this debate falls under the umbrella of the debate of Keynesian versus classical economics. However a balanced argument that considers arguments of both sides would convey that government intervention and trade barriers are required to an extent, because free markets would only work in an ideal world of perfect competition, where demand and supply would purely control the market. However, in the real world, some degree of government involvement and laws are required to ensure fair competition and balance of trade across nations.

 

 

Should Americans Kick Shoe Tariffs?

nike-rereleases-forrest-gump-nike-cortez-colorway-2-202x300Last year, Nike brought back their Air Cortez sneaker in the White/Varsity Royal-Varsity Red color scheme– the very same style Tom Hanks was seen donning in the 1994 movie Forrest Gump. Producing this shoe is incredibly labor-intensive– its leather stitching, exposed padding on the nylon tongue, and crisp white laces have undoubtedly been produced in one of hundreds of Nike’s manufacturing plants outside of the United States. However, a significant portion of what consumers pay for when purchasing shoes like the “Forrest Gump sneaker” go not only towards manufacturing costs, wages, and shipping, but also tariffs and shoe taxes. Unbeknownst to many, outdated shoe tariffs have been contributing to the rising costs of shoes and have led to many Americans, like Forrest Gump, running their shoes into the ground.

With a globalized economy and companies increasingly outsourcing plants to take advantage of cheaper labor, brands produced in the United States have difficulty competing with low prices. In order to counter the low costs of the textiles and apparel imports, the United States government has imposed tariffs of up to 67.5 percent compared to an average 1.4 percent on most other goods to protect the United States’ dwindling domestic manufacturing supply chain (The Hill). However, with only one percent of shoes manufactured in the United States, American consumers could be the ones suffering the burden through unnecessarily high costs of shoes.

The shoe tariff was created in 1930, when the United States boasted a large domestic footwear manufacturing base (The Hill) that needed protection from foreign companies. Back then, footwear manufacturing was even more labor intensive than it is now, with each stitch handmade and leather meticulously done. Numerous European craftsmen brought with them knowledge and credibility in the art of shoemaking, which helped the United States manufacturing base flourish. Since the rapid globalization of the shoe industry, cheaper labor across seas made manufacturing in the United States less practical. Today, European shoemakers are not competing with the United States for shoe manufacturing, but counterfeits and cheaper goods from countries like Vietnam and China.

Generally, imposing high tariffs are meant as a supportive measure for the domestic manufacturing market. Raising prices of incoming goods keeps prices competitive for imports and domestic products, thereby encouraging United States consumers to continue supporting the United States economy on a local level. In the United States, over 99 percent of shoes are imported, mostly from Asia (Wall Street Journal). However, these tariffs still exist to protect the remaining one percent, whilst most Americans cannot name one American shoe companies manufactured in the United States.

An example of a company benefitting from the high tariffs is New Balance, an American sneaker company, and one of the last to continue manufacturing in the United States. Even New Balance, however, says that it is struggling to keep manufacturing in the United States. Though Robert DeMartini, CEO of New Balance, insists on keeping manufacturing in the United States, stating that New Balance’s U.S. plants are “twice as effective” as Asian plants, and that “we learned a lot because we had to in order to survive” (Wall Street Journal), the company is still facing difficulties to keep work at home. Manufacturing in the United States costs 25 to 35 percent more than to manufacture abroad in Asia (Daily News), and a majority of New Balance’s shoes have parts manufactured outside of the United States. In fact, the company manufactures two-thirds of its shoes across waters and relies heavily on machinery in order to keep costs low. Though the main argument for maintaining the high shoe tariffs is to keep manufacturing jobs at home, are they simply supporting jobs that we can no longer afford to keep in the United States?

Nike is one company protesting the high tariffs. Nike claims that current money going towards tariffs and taxes could go towards research and development advancing sustainability and innovation. The company argues that lowering tariffs can actually increase manufacturing jobs in the United States by allowing the company to develop advanced manufacturing methods that would make keeping jobs in the U.S. more practical. However, many Americans are skeptical of Nike’s promises to create jobs if tariffs are cut, especially as the company continues to move jobs overseas. Lori Wallach, the director of Public Citizen’s Global Trade Watch, is one skeptic. She says, “Nike’s job creation claim mimics the broken job creation promises that multinational corporations have used to push for past controversial trade pacts, only to turn around and offshore U.S. jobs after the pacts took effect” (NPR). Though Nike is viewed as having the financial and political backing to end shoe tariffs in the United States, the reality is that many Americans would rather trust a company like New Balance on an issue concerning American jobs due to its positive association of being made by Americans, for Americans.

footwear-tariff-pic-impacting-childrens-shoes-1024x829The 99 percent of shoes manufactured abroad pay a significant portion of their budget towards shoe taxes, which in turn ups the prices of shoes for unsuspecting Americans. Shoe tariffs are enforced based on shoe classification, which are assigned in a complicated process based on the shoe material, function, target gender, size, construction, and value. Generally, shoes that are more likely to have been produced through cheap, foreign labor have a higher tariff imposed. These shoe tariffs range from zero percent for men’s golf shoes, to 84 percent for cheap sandals and are implemented by volume, per shoe (Harmonized Tariff Schedule). Annually, these shoe tariffs provide an additional 2.7 billion dollars for Congress (NPR). Because most Americans purchase 7.3 pairs of shoes annually each regardless of age, the estimated 2.4 billion dollars that Americans could be saving according to industry analysis could be going towards other household expenses.

Due to the fact that shoe tariffs disproportionately affect prices on the cheapest shoes to manufacture — children’s shoes and low-cost-to-produce sneakers, the Americans hit hardest by shoe tariffs are often those who cannot afford to pay the extra costs. According to Economist Bryan Riley, shoe tariffs increase costs of the cheapest shoes by about one-third. For example, if shoe tariffs were removed on a $10 shoe, they would be reduced by $3. This in turn impacts how families living paycheck-to-paycheck end up spending money in other household necessities like groceries. Purchasing goods and services to support their children and their family’s health are affected unnecessarily.

Though the 1930s shoe tariffs were intended to protect the United States shoe manufacturing industry, the tariff is now outdated as American manufacturing work has since traveled overseas. Americans are left paying the costs of keeping a slim number of manufacturing jobs at home. Most Americans are unaware of the shoe tariffs, and with companies like Nike and New Balance arguing both sides of whether or not to keep them, Americans who are informed are decidedly split on the issue. As tariffs come to the forefront of politics, it will be interesting to see whether or not Americans decide to kick the tariffs costing them so much.

Sources:

New Balance Opposes Push to End U.S. Shoe Tariffs

https://hts.usitc.gov/?search_txt=shoes&query=shoes

Importing Shoes : HTS Shoe Import Duty and Shoe Tariffs

http://fdra.org/key-issues-and-advocacy/legislative-initiatives/

http://www.usalovelist.com/american-made-shoes-ultimate-source-list/http://www.aei.org/publication/the-us-has-imposed-protective-shoe-tariffs-on-americans-for-decades-even-with-no-domestic-shoe-industry-to-protect/

The Economy and a Pair of Shoes

http://www.npr.org/sections/itsallpolitics/2015/05/08/405196569/would-lower-shoe-tariffs-actually-encourage-american-jobs

http://thehill.com/blogs/congress-blog/economy-budget/264019-footwear-needs-tariff-relief

http://www.wsj.com/articles/SB10001424127887323764804578312461184782312

http://money.usnews.com/money/personal-finance/articles/2011/10/28/how-consumers-and-communities-can-benefit-from-buying-local

http://www.usnews.com/opinion/blogs/economic-intelligence/2012/09/21/the-wasteful-culture-of-forever-21-hm-and-fast-fashion

http://www.forbes.com/sites/danikenson/2013/07/23/textile-protectionism-in-the-trans-pacific-partnership/#275d91d593a8

http://www.wsj.com/articles/SB10001424127887324735104578123523795505336

http://hypebeast.com/2016/7/nike-classic-cortez-og-forrest-gump

War Crime to Business Model: The Bloody Business of Arms Trade

arms-trade-pension-scheme

Armed conflict has been responsible for more than 231 million deaths in the last century. The nature of the arms trade has intensified this conflict (A.B., The Economist).

The line between the formal arms trade and the black market is entirely ambiguous. Lax enforcement has contributed to unfathomable human suffering and violence throughout the globe. Often there is a relationship between a country’s department of defense and major arms producers as well as a relationship between their intelligence community and illegal dealers.

banana-image-for-site_0

The last figures on the arms trade, recorded in 2003, show that it is liable for 40% of all corruption in world trade. Corruption that is systematic and perpetuated by leading nations. In 2006, former UK Prime Minister Tony Blair halted an investigation into the largest-ever arms deal, the al-Yamamah deal, which began under Prime Minister Margret Thatcher’s government in the late-1980s. The deal between the UK and Saudi Arabia was estimated around $7.4 billion in commissions paid on the deal alone. Mark Thatcher, the Prime Minister’s son, allegedly made 14.8 million as a broker on the deal (Castle, Independent).

Similar controversies and questions over corruption have been raised in the United States. For instance, former Vice President Dick Cheney, was the CEO of Halliburton before taking office. Halliburton [and its subsidiary KBR, Inc.], is a name practically synonymous with war profiteering, acquiring billions of dollars in new business thanks to non-existent weapons of mass destruction and U.S. noncompetitive government contracting-practices. Due in part to a consolidation trend during the 1990s, the company is one of the 5 largest firms in the US, which account for 44% of the industry’s market share. Not to mention that campaign contributions on behalf of private defense contractors are large enough to keep many lawmakers in complacent support of costly militaristic projects (A.B., The Economist).

After 9/11, private military contracts in the US rose from $145 billion in 2001 to $390 billion by 2008 under the Bush administration (Lawson).

Political will and greater transparency are viable conduits in reducing the corruption that lie within the arms trade market. The UN has attempted to do something about it putting forth a global Arms Trade Treaty [ATT] approved by over 150 countries in April of 2013. The treaty went into action in December of 2014 and prohibits arms trade that would facilitate genocide, crimes against humanity and war crimes. It continues to grapple with the regulation of international trade of conventional weapons and countries like the US and UK, which both spend considerably large amounts on defense budgets, have failed to ratify the treaty.

141212092057-arms-trade-who-sells-620xa

The United States military spending, at $598.5 billion, accounted for 54% of the nation’s spending in 2015. That’s approximately $2000 for every US citizen, in one year alone. The US is also a top supplier of major conventional weapons trading 31% share of the global arms exports to ally nations. Arms exporters commonly only consider the impact of exporting on their own welfare and fail to consider the impact and possible negative externalities that may arise from trading with another nation. Other abstainers include China and Russia, major arms exporters and importers like Saudi Arabia and Egypt (A Killer Deal, The Economist).

“Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and are not clothed. The world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children… This is not a way of life at all, in any true sense. Under the cloud of threatening war, it is humanity hanging from a cross of iron.” – Former U.S. President, Dwight D. Eisenhower

 

Wars have a dirty habit of making companies and private interest groups billions of dollars. Maintaining a highly militarized defense industry will continue to remain vogue as long as there are profits to be made.

 

Sources:

http://www.economist.com/news/international/21575751-vote-un-week-arms-trade-treaty-could-save-many-lives-killer-deal

http://www.economist.com/blogs/prospero/2011/11/quick-study-global-arms-trade

http://www.independent.co.uk/news/mark-thatcher-accused-sources-say-he-got-12m-pounds-from-arms-deal-signed-by-his-mother-1441851.html

The economics of arms trade and arms control – University of Kent

http://www.rollingstone.com/politics/news/the-stoner-arms-dealers-20110316

Brexit and Breadwinners: What leaving the EU means the future of the UK workforce

Behind the Vote

Brexit. A term that filled newsrooms, Facebook feeds, and local pubs all summer long.

It’s the word that became a reality on June 23rd, 2016, when the UK voted to revoke its membership from the European Union with a 52% majority vote. The decision sent shockwaves around the world, as countries questioned what the future of Europe would look like. With such a slim victory margin from the “Leave” campaign, the decision was highly controversial and has continued to cause political, social, and economic anxiety in the months since.

The official campaign for Britain was called Vote Leave, and was built on the notion that the UK had to leave the EU in order to protect its borders, strengthen its economy, and increase employment and wages for British nationals. Immigration was one of the most important components of the Vote Leave campaign, as proponents argued that until the UK had full control of its own immigration policy, it would not be able to handle the influx of European immigrants that arrive each year. However, according to the Office for National Statistics, of the 636,000 people who immigrated to the UK in 2015 only 270,000 were EU citizens. “Leave” voters also argued that immigrants were driving down wages in certain sectors and taking away many low-level jobs from British workers.

As for the economy, “Leave” voters claimed that Britain’s ties to the EU were preventing it from formulating trade relationships in emerging markets, such as China and India, where there is no major trade deal at present. Furthermore, these voters argued that leaving the EU would not affect London’s position as one of the world’s leading financial centers nor would banks relocate their headquarters. This is largely because Britain has very low corporate tax rates. Lastly, the Vote Leave campaign argued that an exit from the EU would mean that UK tax payers would no longer have to subsidize and bail out European countries that use the Euro and already have a majority in the Union. Instead, this money would be used to fund and support domestic issues such as the education system, NHS, and affordable subsidized housing.

picture1

“Remain” voters, however, argued that Brexit would seriously hurt UK trade levels and foreign direct investment. These voters believed that a decision to leave could prove extremely challenging for the UK, as it would sever the existing economic, social, and political relationships that it had with many EU nations. As for the question of jobs, the “Remain” side claimed that around three million jobs were linked to the EU which, if taken away, would destabilize the economy. Additionally, “Remain” voters insisted that businesses would be less likely to invest in the UK if they were not in the EU. This would be extremely disruptive because, according to a report by the Bank of England, foreign direct investment accounted for 10% of UK’s assets and liabilities in 2015 equaling around £10.6 trillion ($13.1M). The feeling of uncertainty surrounding Brexit was clearly felt in the UK’s financial market in the months leading up to the vote, as the Financial Times reported that UK investment declined by 2.1% in the final three months of 2015, despite growing by an average of 1.4% in the previous quarter.

 

 UK Job Market on the Ballot

 The implications of Brexit on the workforce was a key issue heading into the vote. Many economists argued that a decision to leave would trigger an economic downturn in the UK which could significantly weaken the British pound and lower employment levels. The British Treasury released a report in May 2016, which claimed that if Brexit were to happen, unemployment would be 520,000 higher, wages 2.8% lower and house prices 10% down. These statistics demonstrate why there was a high anxiety throughout the UK, as economists and citizens alike were trying to predict what the future of the UK may or may not look like.

picture1

 

 

 

 

 

 

 

However, because no other country had left the EU before there was no precedent for economists to compare the UK with. This meant that many of the arguments from both sides involved an element of speculation.

When the European Union was formed, it was created with the idea that there would be “free movement of labor” across all member nations. This meant that any citizen of the EU would be able to travel to Britain and seek employment without any formal job offer. Therefore, “Leave” voters viewed Brexit as an opportunity to gain back the jobs given to those immigrants and to increase national employment levels. According to research by Oxford University’s Migration Observatory, as of June 2016, there were 2.2 million EU workers in the UK composing for 6.6% of the total workforce.

The referendum drove voters to ask serious questions about long-term job security and availability. Would Brexit make it easier for young people to find jobs in the UK? Would wages increase as the result of a decreased supply of labor? What would happen to those jobs of migrants forced to leave? Where will the UK stand in terms of the international workplace?

Some economists predicted that in the short term, companies would choose to either transition their operations overseas or put a hold on hiring new employees until there was more economic certainty. The “Leave” campaigners argued that certain sector jobs, previously given to migrants, would now be available to British nationals.

However, there is very little evidence proving that immigration lowers wages or increases unemployment. According to Jonathan Wadsworth, an economist at the Center for Economic Performance at the London School of Economics, he says: “there is still no evidence of an overall negative impact of immigration on jobs or wages.” His claim was further supported research published by the UK Office for Budget Responsibility in 2015, which found that there was a small negative effect of migration on wages of workers in the semi-skilled and unskilled service sector such as shop assistants and restaurant and bar workers.

 

But do UK nationals really want those jobs?

While many argue that that Brexit will supply a large number of low-level jobs for UK nationals, the question must be asked of whether or not people are actually going to be willing to take them.

As seen below, EU workers are predominantly industry based with the manufacturing, retail, and health services accounting for the largest number of workers. Because the UK relies heavily on migrants to fill these low-skilled roles, the vote brought anxiety to employers in these industries, as they had to determine whether or not they will be able to fulfil their quotas if their workers were to be deported because of Brexit. While “Leave” campaigners argued that British nationals would seek these jobs if the referendum happened, “Remain” voters countered this by saying that British workers had not sought out these jobs before… so why would they now?

picture1

Amy Smith, a student at the University of Sheffield, expressed her concern, saying:

“Having grown up in Germany, I witnessed the benefits of immigration first-hand. Immigrants are vital for filling the low level positions German natives are less willing to take. I think the UK needs to recognize that the same implications can and will happen here.”

This issue was further discussed by economist Jonathan Porte, who described the demand for immigrant jobs as not being just a zero-sum game. In an article published by the Guardian he explained, “it’s true that, if an immigrant takes a job, then a British worker can’t take that job – but it doesn’t mean he or she won’t find another one that may have been created, directly or indirectly, as a result of immigration.”

Porte’s argument stands exactly opposite to that of the Vote Leave campaign, as he argues that a rejuvenation in the UK workforce will not occur simply by deporting migrants. Rather, it will happen with innovation and the exchange of ideas – which are a direct result of migration.

 

 Current State of the Workforce

 It has been four months since the vote, and economic numbers are showing more promise than expected. Although there was fear from the ‘remain’ voters that a decision to leave the EU would cause widespread job losses, economic data following Brexit is saying the opposite.

picture1

October figures from the Office for National Statistics (ONS) show that the UK unemployment rate remains steady at 4.9%, its lowest rate since 2005. According to the Guardian, this number remained unchanged since August, despite a 10,000 increase in unemployment.

Furthermore, the employment rate has remained at a record high of 74.5%. However, employment growth slowed from 173,000 in the three months leading up to July to 106,000 in August, with a large proportion of these being part-time workers.

So with these economic forces showing positive signs for the UK, does this mean that the workforce still has to worry?

Maybe not so fast.

While UK employment continues to rise, the country has seen a sharp rise in inflation which poses a major threat to job levels and wages. According to the ONS report, the UK’s inflation rate increased from 0.6% in August to 1% in September – the highest it has been since November 2014.

The issue of inflation is further exacerbated by the decreased value of the pound, which hit a new 31-year low against the dollar in October, and now exchanges at $1.22. This is largely driven by the uncertainty surrounding the terms of Britain’s exit from the EU, as financial markets lack confidence in the UK’s long term economic prospects.

An increase in inflation could potentially affect the UK’s unemployment rate going forward, as market anxiety can lead to decreased investment and lower economic growth in the workforce.

Furthermore, because the drop in the pound’s value has increased the cost of imports for British manufactures, certain sector jobs may be taken away as companies adjust to higher costs and decreased demand for goods.

But for now, until an official decision is made on Brexit’s terms, workers and immigrants across the UK must patiently wait… and hope that the decision to leave didn’t take their jobs with them.

 

 

 

SOURCES:  

https://www.ft.com/content/953671ba-b784-37f6-8f29-45402e846d50

https://www.theguardian.com/business/2016/aug/17/uk-unemployment-claimant-count-falls-after-brexit

http://www.telegraph.co.uk/business/2016/08/19/what-brexit-apocalypse-no-sign-of-economic-woe-after-the-referen/

http://www.independent.co.uk/news/business/news/brexit-uk-economy-eu-referendum-result-jobs-employers-hiring-a7191381.html

https://www.ft.com/content/3d0de756-1764-11e6-b197-a4af20d5575e

http://www.independent.co.uk/news/uk/politics/points-based-immigration-system-theresa-may-explained-brexit-referendum-australia-a7227001.html

http://www.voteleavetakecontrol.org/why_vote_leave.html

http://www.telegraph.co.uk/business/2016/06/28/brexit-will-foreign-investment-dry-up/

http://www.bankofengland.co.uk/publications/Documents/speeches/2015/euboe211015.pdf

https://www.ft.com/content/cca62354-e052-11e5-9217-6ae3733a2cd1

http://www.ons.gov.uk/peoplepopulationandcommunity/populationandmigration/internationalmigration/bulletins/migrationstatisticsquarterlyreport/may2016

https://www.ft.com/content/0deacb52-178b-11e6-9d98-00386a18e39d

http://ukandeu.ac.uk/fact-figures/where-do-eu-migrants-in-the-uk-work/

 

 

 

The Fate of the U.S Trade Embargo on Cuba

Since 1960, our trade relationship with Cuba has been severely limited. The effort to isolate Cuba by preventing trade and travel has backfired and has not lead to the implementation of Democracy or improved human rights violations. The Cold War mentality that Cuba must be forced to change its communist ways has been unsuccessful. Therefore, if the embargo is not helping anyone, the U.S. should fully lift this trade blockade on a country that has more than paid the price.

In 2013, Cuba urged the U.S. to end the embargo during a U.N. General Assembly. According to Cuban Foreign Minister Bruno Rodriguez, the economic damages due to the embargo amounts to $1.126 trillion. This includes decreases in tourism, costs of exports into the U.S., and loss of exports from the U.S. Instead of punishing the corrupt regime which existed during the 1960’s, the people of Cuba as a whole suffered.

Since President Obama’s election in 2009, he has actively discussed the goal to have better relations with Cuba. In 2009, the Council on Foreign Relations reports that the Obama Administration reversed limitations on travel and telecommunications. However, it has taken the administration not one but two terms to finally make moves towards lifting the embargo entirely, mostly due to conflicts within Congress.

In October 2016, the strict limits on Cuban cigars and rum were lifted.  The previous $100 limit on alcohol and tobacco no longer stands, along with open collaboration to research and sell pharmaceutical products in the U.S. These are all great steps forward, but the U.S (aka congress) still remains hesitant to lift the embargo.

Another dramatic change this October was the U.S. abstaining from the U.N. vote to lift the Cuba embargo. After 50 years of strict sanctions, the U.S is slowly moving towards full engagement with Cuba. Hopefully, this could go into full effect by the end of 2016.

Although the embargo negatively affected Cuba the most, there is evidence of positive trade impacts we have missed out on if the reversing of the embargo occurs. According to a study by the George Washington University, “Economic and Strategic Impacts of U.S Sanctions in Cuba,” the estimated trade impacts in agricultural exports could be anywhere from $400 million to $1 billion annually. In medical exports, $20 million to $600 million annually. If all restrictions are lifted, we could earn $1.6 billion in aggregate exports and create up to 20,000 jobs. The U.S is number one in agriculture production, and yet we are no longer the main supplier of meat, dairy, and grains to Cuba. This means that not only have we isolated Cuba, we have isolated ourselves due to the embargo.

Overall, allowing more Cuban imports and open trade with Cuba could bring many benefits to our economy. We must proceed with caution, for the concerns regarding human right violation in Cuba is valid. However, we might as well not be the country that worsens their economic situation and fight to help them. If we feel the need to overly involve ourselves in every other country (the countries that don’t even want our help,) what is stopping us from moving forward with Cuba?

The Student Debt Crisis: How Your Degree is Causing Economic Unease

The Problem

Pursuing a degree in higher education is often romanticized. Education is revered as the investment of a lifetime, and a staple of the American dream. However, the price tag associated with this dream has either left millions in anxiety-inducing debt or deterred people from pursuing a degree at all.

In 2016, The White House released a study that evaluated the benefits and challenges of student debt. According to the study, “the average full-time worker over age 25 with a bachelor’s degree earns nearly $1 million more than those with a high school diploma.” Therefore, those with more debt due to pursuing a master’s degree, M.D., or J.D. will have greater ability to pay off their debt over time. This should make us feel better; it is statistically proven we will not be in debt forever. Despite this, it might as well be forever as paying off student loans can take decades. Additionally, the benefits of a degree still do not justify the rise in student debt, as there are many issues within the Federal system of student loans.

According to the “Student Loan Servicing” report by the Consumer Financial Protection Bureau (CFPB), student loan debt is up to $1.2 trillion (a decade ago it was $300 billion,) spread among 40 million borrowers, with an average debt of $30,000 per borrower. The annual report “Trends in Student Aid” by the College Board, revealed a 48% increase in loan borrowing from 2000-01 and 2005-06 (in inflation-adjusted dollars.) This increased to 65% by 2010-11. Although loan borrowing decreased by 23% from 2011-12 to 2015-16 student debt has only continued to increase.

screen-shot-2016-11-04-at-5-15-02-pm

Looking at those who received their degree from a public four-year, the average debt level went from $11,300 in 1999-00 to $15,900 in 2014-15, a 40% increase overall. For a private four-year, the average debt went from 15,000 in 1999-00 to 19,900 in 2015-16, a 32% increase overall. Those who did not complete college had even higher debt averages.

screen-shot-2016-11-04-at-5-26-39-pm

To some, it is too soon to call the student loan debt issue a crisis. The White House study acknowledges there are changes to be made, but public concern should be low. Additionally, economists such as Joel Elvery from the Federal Reserve Bank of Cleveland agree with this. According to the CFPB, the average monthly payment for those in the 20 to 30-year-old range is $351. Despite statistics like this, Elvery believes that post-grad earnings and repayment options offset these charges.

So how did we get here? Why has this happened? I will do my best to answer these pressing questions. However, the most important question is why should you care? If everyone eventually pays back his or her student loans, how does this affect the economy?

The Economy

If you take a step back and look at the big picture student loan debt affects everything in one way or another. Consumer spending and the housing market are the main concerns. Barbara O’Neill, a specialist in financial resource management for Rutgers University, believes student loan debt has slowed down the economy. As student loan payments become a priority, major life decisions (aka the ones that cost you the most) such as purchasing a car, and buying a home are put off for longer spans of time. Living to witness the entire U.S. financial system collapse does not help one’s views on financial well-being. If people doubt their financial ability, it is only logical that frugality will be the result.

The Census Bureau revealed that the housing market has dramatically shifted from owner-occupied to renter-occupied, which is mostly thanks to millennial’s (the most recent college graduates.)

screen-shot-2016-11-07-at-12-17-39-am

When looking at homeownership trends, the Federal Reserve found that fewer 30-year-olds have bought homes since the recession. Millennial’s join the work-force, wages rise, but purchases of single-family homes were down 6.0% in May according to the Commerce Department. Although this rose in September by 3.2%, the combination of high housing demand and low supply (you can only build so many homes) has increased housing prices.

One of the largest investments Americans will make in their lifetime is the mortgage. Mortgages are an important part of our GDP, and if purchasing of mortgages continues to decrease, there are consequences. For example, those who are currently trying to sell their homes are forced to sell below value, or worse off, not sell at all. We can’t blame millennial’s and their student debt entirely for issues in the housing market. Nonetheless, there is no denying that millennials are the future of our economy, and their halt in spending will have long-term negative effects.

Another concern is the fact that not everyone pays back student loans. In 2015, The Federal Reserve Bank of New York performed an analysis on repayment. They found that only 37% of borrowers were actively making payments, and 17% were delinquent. From the pool of borrowers that were struggling, 70% were from lower income zip codes. However, 35% of people from higher income zip codes also struggled with repayment. Higher delinquency rates are associated with not finishing school, but default rates still exist for those who did complete school. The highest percent of people who default (35%) have loans for $5,000 or less. This just goes to show that everyone is struggling with student loan debt in some shape, way, or form. It’s not fair to blame the borrowers entirely when all they wanted was the opportunity to get an education. Allowing more access to student loans was a good idea overall, but it is time we face the reality that the government may have been too generous.

The Screwed Up System

The main problem with student loan debt is that as tuition prices rise, a number of loans distributed must rise too. It is a continuous, vicious cycle. Private universities who have strong financial aid programs claim the right to have high tuition prices to make up for the deficit of those covered by aid. The problem is no better in public universities. Back in the 1970’s, public four-year institutions were the cheapest alternative. Although they are still cheaper than private universities, it is unknown how long it can stay this way. According to the College Board’s “Trends in College Pricing” from 1986-87 to 1996-97 there was a 3.9% average annual increase in tuition; from 1996-97 to 2006-07 there was a 4.2% increase, and by 2016-17 a 3.5% increase. As you can see, this is a pretty steady increase per year. Today, tuition plus room and board at a public four-year costs around $20,000, when it was closer to $10,000 in 1996.

screen-shot-2016-11-07-at-4-37-53-am

One of the reasons for this is the decrease in state funding. According to the Center on Budget and Policy Priorities, the average state is spending 18% less per student post-recession. The worst part is that these tuition spikes only make up for the deficit due to less state funding. The opportunities for students are not as plentiful as they could be when faculty must be fired to make a tight budget work.

A more obvious reason for tuition increase is economics 101: supply and demand. As more people enroll in college, the demand goes up. Despite there being plenty of colleges for every American, the supply or availability of spots at high ranking universities decreases. Colleges love to see how much they can charge before demand goes down. So far, we have all given into this experiment and paid the price. Additionally, the promise of a wonderful education from an affordable state school creates even more demand, but at some point, there must be cut-offs.

Finally, the main concern is the system itself. According to U.S. Department of Education, undergraduate students are allowed to defer loans if they have half-time enrollment in school, graduate school, face economic hardship, or a period of unemployment. Deferment is available for up to three years in most cases. Although this is a way to help students, some students use it as a way to put off loan payment for long periods of time. The current interest rate for direct loans is 3.76%. However, if the average borrower has $30,000 in undergraduate loans, $40,000+ in graduate loans, and interest, this can lead to repayment issues. Perhaps not default in every case, but it only takes a few late payments to hurt your credit score. If your credit score drops, eligibility for other loans such as for cars and mortgages are negatively affected.

Thankfully, there are precautionary measures that exist. The Obama Student Loan Forgiveness program provides many solutions for loan repayment. This includes income-based payments and interest rate reductions. Better yet, loans can be forgiven after 20 years if enrolled in the corresponding payment plan Pay As You Earn. Even with options of Pay As You Earn, the people in lower income regions are the ones who are still struggling with repayment. All these preventative measures will likely help, but it will take years to see the results. If tuition continues to rise at a steady rate, the need for student loans will increase ten-fold, and only so many steps can be taken to aid students in repayment.

There is no perfect solution, but ideally, putting tighter restrictions on loan availability and deferment could lower student loan debt. In addition, many borrowers are not fully aware of the binding loan contracts they are signing. If our high schools prioritized loan counseling as a part of college advisement, students may feel less inclined to borrow or make the effort to attend a more affordable university. Student loan debt is something that will most likely haunt us for decades to come, but hopefully, a decrease in student loan debt over time will jumpstart the economy. The economy may be doing well now, but the reality is the student loan debt crisis is a bubble waiting to burst. If we can decrease student loan debt, then the spending habits of young adults will also change and therefore increase long-term economic stability.

 

The Gang Behind Your Guac: How the Bloody Avocado Trade Impacts Prices in America

avocado-wars_poster2149928913Paying a little extra for avocados is an affordable luxury for most Americans. Many are willing to pay an extra dollar to incorporate avocados in their favorite tacos, soups, salads, wraps, and burrito bowls. Following the avocado’s newfound status as a staple food, increased consumption and difficulty harvesting in the United States has led avocado trade to become a lucrative crop for Mexico. Most Americans currently enjoy the nutty fruit blind to how the avocado’s gang-stricken trade impacts could continue to raise prices.

Image Source: https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

Image Source: https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

In the United States, avocados are obtained from three main sources: Mexico, California, and Florida (The Plate). High worker wages, lack of rainfall, and an avocado-tree pathogen have greatly impacted production and profitability of avocado trees in the United States. Thus, the United States has increasingly relied on Mexico to satisfy its avocado needs, importing over 40 percent of its avocados from its neighbor (The Plate).

Avocado imports from Mexico began in 1997, after Congress lifted an eighty year ban on trading the fruit (NPR). The ban was lifted shortly after the introduction of the North American Free Trade Agreement (NAFTA), which ended most tariffs between Canada, Mexico, and the United States. American avocado producers were initially fearful of the risk of oversupply and exposure to pathogens that the influx of Mexican avocados could supply. Since 1997, a large number of American avocado producers have turned to facilitating avocado trade between the United States and Mexico as a profitable source of income.  In 2014 alone, Avocados from Mexico, a not-for-profit marketing association, reported that the United States imported over 1,763,593,888 pounds of avocados (Avocados from Mexico).

Today, Mexico is the leading global producer of avocados, producing three times the number of avocados as California and Florida combined. State Michoacan is Mexico’s avocado hub, accounting for 92 percent of the country’s production of the crop. More than 80 percent of Michoan avocados are exported to the United States (Daily Kos). With Mexican grown avocados generating $1 trillion in revenue for the country in 2014 alone, It’s no wonder that in Mexico, avocados have been dubbed the “green gold” (Vanguardia). Avocados produce more profit in Mexico than any other crop, including marijuana, making it a target for Mexican gangs who view it as a source of political and financial influence over areas like Michoacan.

The Caballeros Templarios (Knights Templar) are an example of a Mexican gang targeting the avocado industry. The Knights Templar are primarily known as a drug cartel trafficking cocaine and meth throughout the country. The knights view themselves as protectors of the Michoacan area, using a Robin Hood complex to take money from the rich to help sustain the poor. Now, the gang controls a significant portion of the Mexican avocado industry, from production to distribution (Daily Kos).

avocados-600x405

Image Source: http://mexiconewsdaily.com/news/a-thriving-industry-is-still-wary-of-cartels/

According to one Avocado trader, who changed his name to Jesus to maintain privacy from gang members, the cartel is already taking over land and avocado plants. The gang affects farmers, packers, and shopkeepers, taking a huge portion of profits under taxes and fees that they forcibly inflict. Workers are required to report the number of pounds produced per acre of land. The gang receives most of its revenue through administering taxes ranging from ten cents per pound produced to $100 per hectacre of land (Daily Kos). Lying or failing to abide by the gang’s policies often results in violent punishments, including rape, death, and destruction of homes of farmers or their loved ones.  Three weeks ago, one notary in Uruapán who refused to sign the deeds to his plantations over to the cartel was severely punished: his son was kidnapped and killed a few days later.

The result of increased crime has led to instability and fears for those in the avocado industry. It has impacted the numbers of those involved in the industry, thereby decreasing supply and raising prices. Though American avocado traders have not revealed the specific financial impact the gangs have had on the prices of avocados, Jesus says that the gang inevitably racks up prices for those in the avocado business trying to stay afloat amidst their high taxes. Ultimately, these price increases make their way all the way up past the Mexican-American border and into grocery shelves across America.

Prices of avocados in the United States have been on the rise for years, but began taking a sharper turn starting in 2013. In 2014, the average price of a Hass avocado was $1.29. In 2015, it went up to $1.38 (Hass Avocado Board). However, avocado demand has remained high as ever. Avocados are continue to fly off the shelf, even if rising prices leaves Americans saying, “holy guacamole!”

 

Sources:

http://www.vanguardia.com.mx/lostemplariostomancontroldelnegociodelaguacate-1888691.html

http://www.12news.com/news/nation-now/holy-guacamole-avocado-shortage-causing-prices-to-soar/346400878

http://www.producenews.com/the-produce-news-today-s-headlines/19948-avocado-picking-resumes-volume-to-ramp-up-quickly

http://www.theatlantic.com/health/archive/2015/01/the-selling-of-the-avocado/385047/

https://www.washingtonpost.com/news/wonk/wp/2015/01/22/the-sudden-rise-of-the-avocado-americas-new-favorite-fruit/

http://theplate.nationalgeographic.com/2015/05/05/thanks-to-america-weve-reached-peak-avocado/

https://thinkprogress.org/chipotle-warns-it-might-stop-serving-guacamole-if-climate-change-gets-worse-d797f64a932c#.9pird9xu1

http://www.dailykos.com/story/2016/7/12/1546610/-Avocados-and-the-Mexican-Drug-Cartels

http://www.hassavocadoboard.com/retail/volume-and-price-data

http://www.npr.org/sections/thesalt/2015/02/13/385754265/how-nafta-changed-american-and-mexican-food-forever

About AFM

Arbitrage in trade: small fortunes made by savvy Entreprenuers

When most people hear the terms, “China” and “trade,” they think of the billions of dollars in merchandise moving back and forth between multi national conglomerates, or more recently some may think of Donald Trump. While China and trade are intimately connected to both of these notions, there is another fascinating arena in which China and trade are opening up incredible opportunities for savvy entrepreneurs at a micro-level. Due to tariffs, pricing laws, and other multi national rules, certain items in China cost significantly more than they do in America and other countries. While many think of luxury goods like Louis Vuitton and Apple, the wide schism in pricing creates arbitrage opportunities in healthcare, mid level clothing apparel, and custom goods.

In the early 2000’s, this trend was diametrically opposed. Smart Americans with the use of the internet could navigate early iterations of websites like Dhgate and Alibaba, two major Chinese online retailers, and buy items in bulk. They would then resell these items, like headphones, batteries, knockoff jerseys and toys, on American websites and capture profit in the difference in pricing. While these opportunities are still there, the more profitable move is now for individuals, usually Chinese nationals, to buy items in America and sell them back to China.

One of the reasons that there is a market for smaller entrepreneurs is that many of these items that are sent are considered gray market or even black market, meaning there is a legal risk to partaking in a venture. Since larger, more established companies don’t want to assume this risk and potentially clash with the Chinese government, brave and risk-seeking businessmen seek to exploit this opportunity. The market dynamics are such that no one can truly scale, as size would be a deterrent to profit. Eventually, if a person or company gets too large they will attract the scrutiny of retailers or the Chinese government.

One of the most notorious areas where this exists is the luxury car market. Cars like the “Jaguar F-type S convertible parked in front of a Pasadena, California, dealership sells for $89,000—but it can go for quadruple the price in China thanks to high demand for everything luxury, especially cars,” according to the Daily Beast. In order to  derive a profit, individuals in America and abroad will recruit straw men and women to go into dealerships and buy cars, or lease them and immediately sell the lease to a third party. After this, they will collect a commission for purchasing the car ranging from low four figures to low five figures, and put it onto a shipping container. There, the true business mastermind figures out a way to navigate the murky shipping laws and somehow get the car into China. This will either be sold to a dealer or an individual at an incredible markup, but still well below the market price that the same Jaguar or Range Rover would sell for in China.

Luxury Cars in China

This practice was especially popular in the early 2010’s, but as of late car dealers have caught on to this and put safeguards in place to prevent such actions. Now, depending on the dealer, especially those in states with no sales tax, some individuals who purchase cars will have to sign agreements not to ship their cars overseas. This is just one area where business people have figured out a way to derive profit from mismatches in pricing.

Since cars represent such a large dollar amount in one transaction they were a favored product to bring over as the payout on the effort per individual item sold was so high. Other cottage industries like vitamins, powdered milk, and athletic gear have all given rise to individuals setting up as middlemen between America and China. The problem with this strategy’s viability as a long term business is that the inefficiencies are either solved by better government relations or China cracks down on such sales by regulating transactions more intensely.

Currently, another booming trade area between individuals in America and end users in China is personal shopping for luxury goods. This is also taking place in England, due to the fall of the pound, but China is predominantly trying to crack down in the United States first. These shoppers are called, “haiwai daigou,” which can be translated to personal shopper. Since there is a major price discrepancy between America and China in terms of luxury brands, the members of the wealthy Chinese class will pay Chinese Americans to purchase items and ship them back.

This is another area that the Chinese government is trying to slow down as it hurts native sales within the country. According to CNN,  China’s “General Administration of Customs has stipulated that all individuals engaged in ‘cross-border e-commerce’ must provide a list of imported and exported items to customs.”

Enjoying Luxury Goods

As the government and brands figure out new ways to stop the import, savvy entrepreneurs will continue to find new areas to exploit on a micro level of trade. The question is how long will this game of cat and mouse last, and whether or not any one individual will figure out a way to consolidate market share.

Faraday Future’s Billion-dollar Electric Vehicle Plan Postponed

The financial tension of the Chinese tech company LeEco has escalated and sprawled overseas. Faraday Future, a California electric vehicle (EV) builder mainly funded by LeEco, is under a cloud of suspicion about the company’s cash flow and the production capability.

Faraday Future’s Teaser Video

On Nov. 17, Nevada State Treasurer Dan Schwartz questioned the financial condition of Faraday Future, which was expected to invest in a $1-billion electric vehicle factory in Nevada but missed three months of payments. But Faraday’s China team responded in a statement that the Nevada factory has never been halted and will start the second phase of construction next spring.

The Nevada state treasurer doubted the business model of LeEco. “This is a Ponzi scheme,” Schwartz told Sina Tech Media. “You have a new company that has never built a car, building a new plant in the middle of the desert, financed by a mysterious Chinese billionaire. At some point, as with Bernie Madoff, the game ends.”

Faraday Future signed a contract with the Nevada government to invest in the factory, with the state providing more than $200 million in incentives. But Faraday didn’t pay $21 million due in September according to Aecom, the prime contractor for Faraday’s car factory. “The state has not suffer fiscal loss yet, but it is time consuming and reputation influence,” said Schwartz in another interview with Caixin Media on Wednesday.

faraday-future-factory-overview

Faraday Future Factory Overview

Faraday claimed the company had enough capital for the Nevada factory. According to the Chinese media Sina, Yueting Jia, the CEO of LeEco, attracted 10 investors from his classmates in Cheung Kong Graduate School of Business and raised $600 million from those entrepreneurs. The purpose of the funds is not clear.

In October, Jia allegedly sent an alarming letter to all his employees and admitted the cash crunch caused by overstretched business. After Jia’s letter went public, LeEco’s stock market flopped. “We have frozen all the original employment,” said Kevin Zheng from the supply chain department of Faraday Future.

There have long been worries about LeEco’s expansion into almost everything, consisting of interconnected LeEco hard- and software. The ecosystem includes streaming-content services, smart bicycles, smart TVs, cloud-computing, smartphones, smart-apartments, and automobiles.

The letter came three weeks after a massive press event in San Francisco’s Palace of Fine Arts. LeEco claimed to tackle the U.S. market by a variety of products such as smartphones and TVs. Faraday Future’s EVs are also in the portfolio of products LeEco wants to introduce to the global market.

The original plan was for Jia to drive Faraday Future’s concept car across the red carpet onto the stage. But it turned out he ran out himself. “The car was broken during the sloppy transportation from our office to San Francisco,” Zheng recounted. Another car from the filming scene in London was transported instead and only displayed after the event.

20160318101706477

LeEco EV Strategic Map

Faraday Future, with its headquarters located in an automobile industrial area in Gardena, CA, served as a significant part of LeEco’s EV strategy. Faraday Future now has up to 1,000 employees. Its design and engineering team will also help LeEco’s Chinese EV brand LeSee, which is based in Beijing with its plant in Zhejiang province.

The two companies will target consumers from different levels. Faraday Future aims at the high-end market and the EVs produced by LeSee in China will be more affordable. Zheng said that Faraday Future wants to target “high-tech fans and wealthy people’s second cars.” The first production car will be priced around $80,000 to $100,000, equivalent to Tesla’s Model S. Faraday Future also signed a cooperation deal to build electric vehicles with Aston Martin in the future.

Beyond sharing market risks by different level products, the U.S. market “will help us establish a global brand,” Zheng said. The connection between Faraday Future and LeEco has remained ambiguous till now because the “made (and designed) in America” marketing package made Jia’s EV plan convincing. Zheng said Chinese investors tend to trust the technology and management team from the mature automobile market in the U.S.

The “Our Team” section of Faraday Future’s webpage only shows a few VPs, who worked previously in other automakers including Tesla, BMW, Audi, and Ferrari. “Faraday Future has been hiding in plain sight,” the Clean Technica reported. But the incorporation papers filed with the California secretary of state’s office revealed its CEO was Chaoying Deng, a corporate director at LeEco’s subsidiary LeVision Pictures. Ding Lei, CEO of LeSee, participated as the main role of Faraday Future.

As the main funder, LeEco faces challenges if it wants to continue supporting Faraday Future. The current EV market faces a “chicken and egg” problem. The profit returns are expected to be slow and even Tesla has not made money yet except for a few quarters. The market requires pre-investment in charging facilities and the incentives to the consumers. This is why governments in many countries provide rebate policies to the EV makers. But as the Chinese government plans to phase out of the subsidies before 2020, both LeSee and Faraday Future will benefit less than what they could obtain from the confident investors. Jia expects to raise money by loans, which will be released by three phrases – Series A, Series B, and Pre-IPO placement. LeEco is estimated to raise a total investment of $7.9 billion before 2022. Except Jia’s classmates in Cheung Kong Graduate School of Business, Faraday Future needs more investors to buy the company’s story and trust its production capability.

After all, Faraday Future faces fierce competition. In California’s EV market, there are mature auto companies with massive dealership networks and existing customers such as Tesla and Audi. Other start-up makers are leaping into this competition, such as NextEV, launched by Tencent, another Chinese internet behemoth.

Faraday Future believes in its unique strategy to win this game. Selling services will be a big part of the company’s business model. “We envision this like a smartphone. The revenue starts once you get the device in the owners’ hands. We’re looking at subscriptions and apps and other opportunities,” said Nick Sampson, Faraday’s vice president of research and development.

Rather than hearing about Faraday’s future business strategy, the Nevada state treasurer is more eager to see the first production car manufactured by the plant.

However, Faraday Future has comforted the plant’s prime contractor Aecom. “We remain fully committed to our client and our employees working on this project, and we look forward to the facility’s successful delivery,” said Brendan Ranson-Walsh, the vice president in the global external communications department of Aecom. According to an official statement, Faraday Future is temporarily adjusting its construction schedule with plans to resume in early 2017.

 

The fall of Hanjin and Soon-sil Gate

k2016110300112

On August 31st, South Korea’s largest container carrier declared bankruptcy.  LA Times reported on September that Hanjin’s unfortunate bankruptcy has to do with over supply of ships, low demand for capacity, and slow trade growth. The revenue from trade has been decreasing over the years but the demand for mega-ships has made it difficult for Hanjin to maintain its business as shipping company.hanjin-bankruptcy-is-the-tip-of-the-iceberg-for-flailing-shippers-la-times Using Bloomberg’s words on September 16, Hanjin “and its customers are being asked to pay more than usual to bring freight into U.S. ports, creating backlog that could keep goods off shelves during the holiday shopping season.”

How did this happen? Since the financial crisis of 2008-2009, the shipping industry lost a great amount of money. For Hanjin’s case, it lost $1.1 billion in 2009. In 2010, China’s GDP growth slowed down and it affected the globe.  China’s slowed economy definitely dampened growth of Hanjin as well because China has been one of the major trading partner with Korea; South Korea makes $142 billion from export to China.  Ever since then, Hanjin has been going through a rough phase in its business. According to Journal of Commerce, Hanjin’s profit has been decreasing to the point where it had more than $5 billion in debt, and spot rates decreased significantly for Asia-Europe and Trans-Pacific.

On this year’s Spring, Hanjin attempted to get financial support from Korea Development Bank but the deal was pulled off in the middle. On April, Hanjin lost its control of operations to KDB and the company filed for court receivership in Seoul 3 days ago. Though it has been very gloomy for South Korea for having its major shipper declaring bankruptcy, there are some rumors rising recently that makes the country even more depressing. Recently, there has been a scandal involving South Korea’s president, Geun-Hye Park. Although the investigation is still on going, Korea Times published an article that there may have been connection between Geun-Hye Park’s scandal and KDB’s rejection to bail out Hanjin in Spring.

7301842751474883086The entire story of this newly found scandal is very complex because it dates back all the way from 1970s. To summarize the scandal, the recent , investigation conducted by South Korean intelligence agency found out that president Geun-Hye Park has been controlled by her mentor Soon-Sil Choi. According to LA Times, Choi has been using president to “pressure corporations to cough up millions in donations to dubious foundations [. . .to use] like a personal ATM.” Further, a vast number of government’s classified documents were found in Choi’s personal computer with no encryption.

In other words, South Korean president has been a puppet to a wealthy civilian. Back to the Hanjin’s bankruptcy, Korea Times suspects if the fund that was planned to be used for bailing out Hanjin was used for Choi’s personal use instead. According to Korea Times article, there has been statements that the decision-makers in Korean government was positive about cash injection to Hanjin through KDB until March. The article quoted from Joongang Ilbo daily (Korean Newspaper) that there was “invisible hand” cut in and suddenly stopped the process of attempt to save Hanjin from bankruptcy. Joongang Ilbo suspects that Choi disrupted the bail out because Hanjin’s support on Mir and K-Sports (the dubious foundations Choi has been using as her personal ATMs) was not satisfying to her. Whereas LS Group, CJ group, and Doosan Group made donations more than a billion won each, Hanjin was only able to donate a lot less than each of those organizations.

Though the government strongly denies this allegation, the Korean people are losing their confidence in Korea’s economy and politics. On November 1st, Choi was detained in Korea and the scandal is going under further investigations. It is very unknown if the allegation on Choi-gate resulted a failure of saving Hanjin from bankruptcy; however, one thing is clear. With Hanjin fallen and Choi-gate on going, Korea is facing a gloomy era.