“There is no money”

“I’m afraid there is no money.”

Probably not among the first things you want to hear less than 24 hours after being appointed by the Prime Minister himself to Her Majesty’s Treasury, is it?

But, this was what British Liberal Democrat politician David Laws was faced with on the morning of 13 May, 2010, his second day as Chief Secretary to the Treasury. In the letter Laws’ predecessor, Labour politician Liam Byrne, left for the new Chief Secretary, he wrote: “Dear Chief Secretary, I’m afraid there is no money. Kind regards – and good luck! Liam.” Although meant as nothing more than a jest, the letter ended up having a real impact on British politics. The Conservative-Liberal Democrat coalition government, well, mostly the Conservatives, used it as a proof of Labour’s previous economic failure under Gordon Brown throughout their time in government, and during the 2015 election. Just how bad was the economic mess that the coalition government had to deal with, and how did it impact British politics as a whole? Let me try to explain.

David Cameron showing a photocopy of the infamous letter during the 2015 General Election campaign.

Since his premiership was, unfortunately, met with the global recession in 2008, when the then Prime Minister, Gordon Brown, called the general election in April 2010, the most scrutinized part of his legacy was a peacetime record-high deficit of £157 billion. As shown in the graph below, the United Kingdom borrowing in proportion to GDP shot up over 300% between the years 2008 and 2010. Admittedly, the global recession, like the name suggests, hit more than just the United Kingdom, and the Gordon Brown-led Labour party was hardly the main cause of it. Still, in the 18 months after the recession, the Brown ministry had no effective solution to it aside from more borrowing, and, as a result, the economy showed no signs of recovery. The failing economy was most likely what prompted Byrne’s joke. Unsurprisingly, Brown, the Prime Minister, lost him his credibility as an economic mastermind that he had built up over the past decade by producing and maintaining a strong and stable economy as the Chancellor.

In retrospect, the “no money” problem had been more than just an economic mishap for the United Kingdom. The aforementioned political, as well as economic impact, is turning out to be more profound than people had foreseen. In spite of Labour’s poor performance in the 2010 General Election, the Conservative party, though the biggest party, failed to win a majority in the parliament. Partly thanks to the extremely rocky economic state of the United Kingdom, Nick Clegg, leader of the third biggest party, the Liberal Democrats, put the interest of the United Kingdom above his party interests, and went into a full coalition with the Conservatives, so that the U.K. would not be stuck with either no government, or an unstable minority government. As most junior parties in the history of coalition governments worldwide, his party was diminished in the next general election, losing 49 of its 57 members for parliament. As they did with the letter, the Conservatives took advantage, and formed a majority government in 2015. Having promised a referendum on the EU, the Conservatives delivered it the next year, and led to the Brexit fiasco that we know of today.

As we can tell from the graph above, after the coalition government took over, slowly but surely, Britain’s debt problem healed. What is a lot harder to figure out is Brexit, which one could argue was, on some level, a byproduct of the economic mess that Labour had left. In an alternate universe, where Labour had proven slightly more competent in solving the recession, the Conservatives would have been less successful in the General Election, and probably would not have been able to deliver the EU referendum. Who would have guessed? Having “no money” could eventually be more harmful to a nation than just having no money.

The Wheelbarrow Problem: Lessons in Hyperinflation from Weimar Germany and Venezuela

Dresses made of paper money. Children playing games with blocks of cash in the street. Hundreds of bank notes for one roll of toilet paper. These are signs of hyperinflation or when the rate of inflation accelerates at such an extradorinaiy rate it renders currency useless and creating intense Economic Disaster.

In August, according to the New York Times, Venezuelan inflation was at 32, 714 percent and rising. Prices were doubling every 26 days on average, according to BBC World News. Coffee prices had soared to 2.5 million Bolivars as Venezuelans resorted to electronic transfers via credit cards to avoid lugging around large amounts of cash.

In an attempt to slow climbing prices, the government issued new banknotes and announced that they would lop off 5 zeros off the currency. The Venezuelan government hopes this change will help deter what economists have grown to call the “wheelbarrow” problem, when prices increase to a point where wheelbarrows of paper money have to be wheeled in to afford the simplest of items.

Examples of hyperinflation in Weimar Germany and current-day Venezuela.

Weimar Germany had a huge ‘wheelbarrow problem’. “A few million marks meant, nothing really. It was just that it meant more lugging,” described artist George Grosz in an interview about his experiences. “The packages of money need to buy the smallest item had long since become too heavy for trouser pockets.”

By November of 1923, it took a trillion marks to make one US dollar, according to PBS.The German mark was rendered essentially, useless. The German people used marks as wallpaper, toys, and fuel for household hearth and returned to bartering with loaves of bread and potatoes.  In order to combat further disaster, the Weimar government lopped off zeros of currency and issued a new currency- the Rentenmark.

However, when it comes to inflation and the economic medicine prescribed as a remedy to that inflation, one variable is important to remember: belief. During the days of hyperinflation, the German people did not trust that inflation would slow down, and spent fast and recklessly. “One had to buy quickly because a rabbit, for example, might cost two million marks more by the time it took to walk into the store,” said Grosz in an account.

Did the German people believe in the new Rentenmark? “I remember,” recounted one German woman, “the feeling of having just one Retenmark to spend….Just to buy something that had a price tag for one Mark was so exciting.” The Retenmark eventually returned German currency to pre World War I exchange rates at 4.2 Rentenmark per US dollar.

Will the Venezuelan people believe in the new currency? The story is more complex than it appears. According to the United Nations, 2.3 million Venezuelans have fled to neighboring countries. Venezuela’s inflation has helped contribute to other problems as well: water shortages, power cuts, and supply shortage caused by lack of foreign investment in Venezuela’s infrastructure, according to the BBC. While the German government of the late 1920’s was able to stabilize both it’s country and it’s economy, Venezuela will have to solve these issues in addition to it’s wheelbarrow problem.

 

Sources:

https://www.bbc.com/news/world-latin-america-36319877

https://search-proquest-com.libproxy2.usc.edu/hnplatimes/docview/161560392/fulltextPDF/3D5CFD9C41B047ABPQ/1?accountid=14749

https://www.facinghistory.org/weimar-republic-fragility-democracy/economics/personal-accounts-inflation-years-economics-1919-1924-inflation

#Trending: What can fashion and style trends tell us about the economy?

You can find economic indicators everywhere. From plastic surgery to the number of unclaimed bodies at your local morgue, to even the ‘intensity’ of marine corps advertisements, economists have found countless ways to chart the economic growth of the United States in recent years. However, for the last century of so, researchers and experts have found an area that can tell us quite a lot about the economy: fashion.

For example, let’s start with shoes. According to IBM, The “High Heel Index” works like this: the better the economy is going, the lower the heel. The 20th century echoed this theory quite nicely- in the 1970s, large platform heels and boots were in style, replacing the short, kitten-heeled sandals of the 60s. By the time of the “dot-com bust” at the end of the century, the low, block heels of the 1990s were replaced by high, stilettos popularized in shows like Sex and the City.

Social media analysis by IBM found that heel height peaked at 7 inches around the end of 2009- which according to the World Bank, the US GDP was at its lowest point. By 2011, when US GDP ceased it’s steady incline, heel height had fallen to around 2-3 inches.

The relationship between the strength of the United States economy and fashion extends to male style trends as well. According to Vox, beards can signify the triumph of American capitalism and innovation as they were popular with both Gilded-Age titans of industry and “characteristically disheveled figures” of the tech look like Steve Jobs.

However, it’s important to remember the significance of historical and cultural context when tracing the relationship between fashion and economic trends. For example, in the 1920s and 1930s hemlines were a much better tell at economic health. According to ABC News, economist George Taylor took note of how in the 1920s or the “The Age of the Flapper”, women took to higher hemlines to show off their stockings. By the time of the Great Depression, those stockings had gotten pricier, and women lowered their skirts to hide bare legs.

However, some fashion experts say the Hemline theory doesn’t quite add up. Valerie Steele, acting director and chief curator of The Museum at the Fashion Institute of Technology in New York, told ABC News: “Hemlines were starting to come down in ’27 and that was two years before the market crash.”

So is it possible to use fashion as a way to interpret the economy? Fashion, like any other industry, is certainly part of it. As for heel heights, hemlines, and beards- we’ll have to leave it to economists and historians from the future to decide.

Sources:

https://tradingeconomics.com/united-states/gdp

https://www.vox.com/videos/2017/3/17/14939608/beard-popularity-economics

https://www-03.ibm.com/press/us/en/pressrelease/35985.wss

The 40 most unusual economic indicators

https://abcnews.go.com/Business/story?id=86787&page=1

China Has No Magic — Recycling Reality in the Global Market

Think of the Coca Cola bottle you saw on the beach in Santa Monica: after your encounter with each other, it was collected by an old man, then sent to some Southern California recycling center. Next, it went through several rounds of examination before it was put into a container, together with a Pepsi-Cola bottle and other less famous ones, to be shipped away. Two weeks later, it arrived in a coastal village in southern China.

In 2017, the United States exported 11 million tons of scrap materials with a value of 5,613 million dollars to China. (source: U.S. Department of Commerce/U.S. International Trade Commission) That is one third of the country’s total export of scrap materials.

Starting from this year, China banned the imports of most categories of recyclable plastics. The waste, parings and scrap of plastics exported to China have dropped 92% over the first eight months of 2018. The policy shift has impacted the United States on multiple levels.

California has banned plastic straws statewide. Sacramento cut back on which plastics it will pick up for recycling, and will send items like egg cartoons, medicine bottles and some yogurt containers to landfills instead. Brett Johns is the Director of Sales, Marketing, and Procurement of City Fibers, a recycling company in Los Angeles. He said they are feeling the effect of the ban: “We are shipping a lot less to China, and what we are shipping to China has to meet new requirements and specifications. Price has been drastically reduced. We’ve been shipping to a lot of other countries to offset the loss.”

The Institute of Scrap Recycling Industry (ISRI) estimated that recycling industry creates 51,139 jobs in California. In 2017, 4,275 jobs are supported by export activities. China’s restriction on the import of plastic waste put huge pressure on employers in the local businesses. Mr. Johns said his company would have to the eliminate probably ten to twenty percent of human jobs positions and replace them with atomized machineries.

All of a sudden, the once invisible garbage became an eyesore. Recycling centers are now seeing stocks of trash packages. Containers filled with “trash” need to be either taken by another country or buried and burnt. Vietnam, India and Korea has become new destinations for the giant ships. After China’s ban, these regions and countries would only take in the recycling materials with lower price. “China is the biggest buyer before. When the biggest buyer put on the brake, the price is bound to be affected.” Said Mr. Johns.

source: U.S. Department of Commerce/U.S. International Trade Commission (created with Infogram)

Situation here is distressing enough. What makes it worse is the fact that no countries really have the capacity to digest the scrap and waste we have produced. The piles of wastes never disappeared no matter how much money people pay, or where they were shipped to. The reality of recycling industry is much less pleasant than it sounds. China had no magic to resolve the issue.

Back to the Coca Cola bottle again – what it saw in that Chinese village were smelly, dirty trash mountains populated by files. Villagers run household-recycling workshops there, right in the piles of plastic and alloy. This is recorded in the documentary Plastic China. There is a sharp contrast between these recycling centers and the ones in the U.S., which are populated by organized assembly line, tall machines and workers with masks and uniforms. Jiuliang Wang, director of the documentary Plastic China, describe the place as “a city of global wastes”.

“I was shocked the first time I was there” said Wang. “You could literally find all kinds of daily garbage from any developed countries in a corner of the village.” In the piles of plastics and mixed papers, there are Starbucks, Lay’s and any number of brands seen in on a supermarket shelf in the United States.

Wang intends to raise awareness among the domestic audience in China, particularly policymakers too: “Here what boosted the economy are industries with low added-value and high environmental as well as societal cost.” The award-winning film was banned for its criticism of local government’s chase for a good-looking balance sheet at the cost of people’s quality of life.

In 2017, China passed the National Sword policy banning plastic waste from being imported. Officials stated that this was for the protection of the environment and people’s health. Adam Minter, the author of Junkyard Planet, argued that China implemented this policy primarily to crack down on competitors against the virgin materials industry — the virgin materials industry and the big mining and steel companies are state-owned entities, and the recycling industry is largely private. This means the villages that once relied heavily on recycling business will be hit by this policy as well. It can get worse when the polluted village could not support other businesses such as tourism and farming activities.

The world is all in this together, and the issues do not go away by changing time and location. It remains to be seen how the new importers are processing recycling scrap. Environmental and societal costs of engaging in the business is not yet tracked. “This movie is really made for audience outside China.” Wang said: “People hardly realized that their daily wastes were transferred to the other side of the sea and that they were processed by another group of people in such an unexpected way.”

The Plastic Straw Effect

The city of Seattle reports that while people who need straws for medical use are allowed, businesses in Seattle must adhere to the new law, or else face a $250 fine. As Seattle becomes the first major city in America to ban plastic straws and utensils, there has been a momentous movement catching up with the American public. Companies such as Bon Appetit who bought 16.8 million straws in a year, but have also joined in on banning plastic straws. Since then, Starbucks announced that they intended to go “strawless.” McDonalds, Dunkin’ Donuts, Alaska Airlines, and American Airlines are just a few of the long list of companies that jumped on the bandwagon. From there, California became the first state to regulate the distribution of straws in bars and restaurants as a “straws-upon-request” policy.  

Image Courtesy of Starbucks Newsroom

In the past, the widespread use of plastic, one-time use straws was actually to ensure public health was regulated. Straws were implemented for its use as good hygiene and public health and combat the “common cup,” a cup many people drank from and people dying from uncleanliness. In fact, cities began issuing ordinances that wrapped drinking straws were essential in public eating places. The straw was a symbol of good hygiene and a good thing.

 

So how did this movement suddenly pick up momentum?

 

Many believe the catalyst to the awareness of plastic straws is this viral video of a Texas A&M PhD student extracting a plastic straw from a sea turtle. In a painfully long 8 minute long video, what was believed to be a parasite is pulled from the nostril. With blood dripping down and sorrowful moans from the sea turtle, the researchers angrily exclaim “don’t tell me it’s a freaking straw.” This impactful video started a change in attitude, ultimately pointing towards a change in consumer perception of straws. It started a trend that everyone is now following.

 

As the demand of straws starts to dwindle for environmental concern, it becomes clearer to economists and behavioral psychologists on how to track the rationale on how consumers are making decisions and what motivates them.  For example, customers have personally started campaigns of signatures to call companies to change their plastic straw policies: McDonalds had over 50,000 signatures, Disney had over 35,000 signatures, and Subway had 100,000 signatures.

 

To parallel the sudden change in consumer demand for plastic straws, CNN Money reports that instead, the demand for paper straws (Aardvark, maker of premium disposable tableware) sales increased by 5000% from last year. The company is struggling to keep up, sometimes delaying shipments of straws for up to 12 weeks to some customers.

 

This plastic straw phenomena exhibits economic consumer behavior. In the sense of economics, a consumer is simply someone who makes demands in the market. A producer is try to tailor its production to ensure it sells, and thus creates supply to respond to the consumer’s wants (or demand). Because consumption is based on satisfying the human wants, when the consumer wants something different— in this case, a different material straw for personal and environmental ethical reasons— then the consumption and demand reflects what the “human want” is. Additionally, Claire Sprouse, a consultant for the beverage industry in conservation education, states that “If you think about the greater picture of carbon footprint, straws are a kind of a small component, not like the most engaging way for us to be engaging with the environmental issues as a community. But I think it does have a benefit.” Consumers are active participants in this strawless movement due to personal perception and want, suggesting that their behavior is not always the most logical.

A Guide to Investing in Water

water crisis

The paradox of value, also known as the diamond-water paradox, highlights the contradictory price disparity between life essentials and luxury goods. Despite being crucial to life, the price of water is way lower than diamond, which has no bearing on human survival.

Economists base this observation on the law of demand and supply. The abundant supply of water pushes its price down, while the scarcity of diamond makes it relatively expensive in the market.

However, can human beings continue to take the access to drinkable water for granted in the next few decades? In the face of the ever-growing population, the problem of water shortage has become a front-and-center issue across the globe. According to the United Nations, 1.8 billion people are expected to suffer from absolute water scarcity by 2025, while two-thirds of the world population will be exposed to water stress conditions. Different cities are currently wrestling with water crisis: Cape Town is counting down to Day Zero in 2019, where the city will be completely running out of water, California is under massive wildfire threats brought by long and severe drought, and 40% of water in Beijing was too contaminated for agricultural or industrial use in 2015.

While demand for drinkable water is expected to escalate in the near future, asset managers are seeing opportunities in water investment. Unlike other commodities such as oil and gold, water investing does not take into account the price of water. Instead, it focuses on companies that develop new infrastructures to conserve and purify water, or invest in cutting-edge technologies to achieve sustainable water solutions.

performance graph

Source: Allianz Global Investors

If an investor allocated USD 1,000 in the S&P Global Water Index, MSCI All Country World Index and S&P 500 respectively on November 16, 2001, the return he or she received on June 30, 2018 would have significantly outperformed the other two indices. The performance demonstrates that the growth potential of water businesses should not be overlooked.

Investors can get started by looking into different exchange-traded funds (ETFs) that track the companies involving water-related businesses. For example, the S&P Global Water Index ETF consists of 50 companies with the focus on water utilities and water equipment, and the PowerShares Global Water Portfolio provides international exposure to water-management-related corporations.

Seeing the demand for water as an ongoing societal need, water investing is being used as a long-term and defensive investment strategy to shield portfolios from market turbulence. With less dependence on political happenings and economic cycles, it also plays a less-volatile role in investment portfolios.

Sources:
http://unesdoc.unesco.org/images/0021/002156/215644e.pdf
https://www.bbc.com/news/world-42982959
https://www.forbes.com/sites/toddmillay/2016/11/28/investing-in-water/#6996aeaa5948
https://money.usnews.com/investing/articles/2016-06-22/how-to-invest-in-water-etfs
https://us.allianzgi.com/en-us/insights/investment-themes/water-an-essential-and-investable-asset
https://us.allianzgi.com/en-us/insights/investment-themes/jump-into-clean-water-investing
https://commodityhq.com/commodity/agriculture/water/#etfs

The value of views: How internet influencers have changed the economy of entertainment

$16.5 million that’s how much Daniel Middleton, the highest paid YouTuber of 2017, made last year, according to Forbes. Since its founding in 2012, Middleton’s channel “DanTDM” has amassed over 20 million subscribers, 13 billion total video views and an active audience that keeps coming back for more gameplay videos.

Middleton’s position isn’t an idiosyncrasy. Falling only a few places behind him are the household names Logan Paul (18.5+ million subscribers) and Jake Paul (17+ million subscribers), who made $12.5 million and $11.5 million in 2017, respectfully. That same year, the highest paid female YouTuber was Lilly Singh “||Superwoman||” (14+ million subscribers), who made $10.5 million.

“Influencers are social media ‘stars’ who have monetised their subscriber base on Instagram by posting pictures and endorsing brands,” defines Yasmin Jones Henry of the Financial Times. The modern world of internet influencers/content creators, however, has only sprung up in the past decade, so how did these individuals go from making videos in their bedrooms to raking in millions of dollars? The answer is simple: advertisements.

In the past, advertisers have paired with traditional media, like television and radio, to focus on larger interests in hopes of having their product be a contender for the general audiences. Influencer marketing, however, has come along with more niche, new-form media, which has allowed advertisers to hyper-target consumers for more successful sales.

“One result of social media has been the democratization of influence and creativity. We no longer need the approval of large corporations to determine what content is truly worthy of views,” writes Matthew Biggins in an article on influencer economics for Medium. Biggins is right — we, the viewers, have taken the power out of the hands of big corporations and have redirected that decision-making authority to ourselves. We decide what we like and what content to ingest, which produces a positive feedback loop of receiving content that repeatedly satisfies us. This is where influencers come in. As viewers constantly returned to the same creators for reliable quality content, the influencer economy continued to expand, leader influencers naturally to become the next tool for advertisers to use.

“Sixty percent of Gen Z are more likely to believe what a YouTube star says over what a movie star says,” said Deborah Weinswig, the Managing Director of Fung Global Retail & Technology,

Images from Visual Capitalist.

In late 2017, roughly 70 percent of brands were using influencers. On just Instagram, which is a platform often used to establish or expand a creator’s social media presence, influencer marketing is a $1 billion industry, according to Retail Dive. Overall, companies primarily have been redirecting their advertising funds to online video and sponsoring Instagram posts, which can cost companies tens of thousands or hundreds of thousands of dollars per post.

Though influencer marketing is clearly the future of business and retail (and the large sums of money involved seem to indicate success), the newness of influencers still has kinks to be worked out when compared to traditional media advertising. While the number of traditional media viewers tends to be concretely-based, many pages with thousands of followers may consist of purchased, fraudulent fans, leaving companies to make investments they can’t be sure will yield the results advertised.

Nonetheless, the way consumers discover and purchase goods in our larger economy is changing for good. No longer can the intertwined economics of entertainment and retail sales rely on relating to the general public in hopes that something will stick.

“Beyond creating content for brands, another driving force of the influencer economy is the consumer’s hunger for representation,” writes Bof Team for Business of Fashion.

So, yes, individually liking something on Instagram is an economic transaction after all. Welcome to the influencer economy.

Why is Free Trade Good?

        Image Source: The Wall Street Journal

On Sep. 24, the United States will begin imposing tariffs of 10 percent on another $200 billion worth of Chinese goods. That tariff rate will rise to 25 percent beginning Jan.1. Subsequently, China retaliated as promised on Tuesday that it would enact tariffs on $60 billion in U.S. goods from aircraft to liquified natural gas.

From July this year, the trade battle between the United States and China started that the U.S. imposed 25 percent tariffs on $34 billion worth of Chinese goods as part of President Trump’s tariffs policy. As the trade war escalates over time, an unavoidable question occurs to me: what’s the meaning of the continuously escalating trade war with retaliation?

When searching “trade war” on the internet, the headlines like “Will tariffs hit American more than China?”, “What’s at stake for the U.S.?”, or “China once looked tough on trade. Now its options are dwindling.” popped up on the screen. Now that the negative effects of the trade war with retaliated tariffs can be realized by both sides, why not negotiate a peace treaty? A free trade is better than retaliated tariffs.

Early in 18th century, an economist Adam Smith wrote in his book The Wealth of Nations: “It is the maxim of every prudent master of a family, never to attempt to make at home what it will cost him more to make than to buy.” This is the core of free trade: businesses concentrate on services or goods where they have a distinct competitive advantage so that they could swap something with lower cost and all profit by doing so. However, a free market is being devalued and tariff is becoming a weapon for the state’s rivalry.

Generally, tariffs opposing free trade can be used for five reasons: protecting domestic employment, protecting consumers, protecting infant industries, national security, and retaliation. As President Trump claimed that US jobs got “stolen” by China and increased tariff on imported goods can boost American business interests, he enacted tariffs for protecting domestic employment, businesses, and consumers.

In terms of employment and businesses, it is true that jobs have been lost in America due to cheaper foreign imports under free trade. However, protectionism will destroy more jobs than it can create. The economist Milton Friedman famous for his support for free market wrote in his book Free to Choose: A Personal Statement (1980, p41): “our real objective is not just jobs but productive jobs—jobs that mean more goods and services to consume.” Increased tariffs do retrieve some labor-intensive manufacturing industries, but jobs provided by them will lead to increased producer costs, increased producer costs will lead to increased products costs, increased products costs will lead to fewer sales and fewer tax recipients, fewer sales will result in fewer jobs and fewer profits.

As for consumers, increased imported tariffs will limit consumers’ freedom to choose products and force consumers to pay more for products while free trade can increase the number of goods that domestic consumers can choose from and decrease the cost of those goods through increased competition. In the long run, the living standard and quality of consumers will be negatively affected by trade barriers. Also, the government has to spend more subsidies on an increased demand for public services because of increased living costs.

In addition to the US, China will also be negatively affected by the trade war in the same way although Chinese policymakers think they have a prudent financial and monetary policy to face the pressure from Washington. China’s economy is always much more vulnerable to exports than America’s economy and China is still trying to shift its growth model to one relying more on consumption and less on investment and exports. Thus, it could take a bigger hit from the escalating trade war.

The free market with free trade is not perfect but it can correct itself better than state, because sometimes government regulations will be used for political rivalry regardless of long-run losses, for example, the current trade war.

How the World’s Most Secluded Country Survives

There are not many countries that want to be associated with violent tyranny, the absence of freedom, and a disgusting lack human rights. This makes finding a trade partner very difficult for the North Korean government. It doesn’t look very good when you supply your main export, coal, through child labor and what is essentially slavery. On top of that, international organizations like the United Nations and NATO often require members to impose strict sanctions in response to the way North Korea treats its citizens. So how does a country that is so universally hated survive?

North Korea’s economy is still up and running for one reason: China. 83% of North Korea’s exports are to China. Though countries like India, Russia, Pakistan, and Burkina Faso are also trade partners, China’s relationship with North Korea is immense in comparison.

Though one may think that China simply wants to expand its economy and trade with whoever it can, there is another glaring reason for its support of the authoritarian regime. China is not only North Korea’s trading partner, but also its neighbor. If Kim Jong Un’s iron fist lost its grip, millions of refugees may seek shelter across the border, giving China big problems.

Information about the Chinese-North Korean relationship is pretty available, but there is another major country accused of trading behind the scenes: Russia. In Spring, eight U.S senators wrote a letter to Trump urging him to take immediate action against Putin. Lawmakers, along with many analysts, strongly believe that Russia is employing North Korean prisoners in Siberia, trading oil, and exporting supplies related to chemical weapons to Syria. If these allegations are even remotely true, then Russia would be outright defying several international organization agreements, such as U.N-wide sanctions.

Looking forward, North Korea may be thinking about expanding its economy beyond its current limits. Some experts believe that Kim Jong Un is looking for ways to improve trade. U.S President Donald Trump thinks so too.

Back in June, Donald Trump and Kim Jong Un met in Singapore for a historic summit. After the meeting, Trump said that Un had agreed to begin denuclearization, and that once that happens, trade with the notoriously isolated country might just be an option for the United States.

“They (North Korea) have great beaches. You see that whenever they’re exploding their cannons into the ocean. I said, ‘Boy look at that view. Wouldn’t that make a great condo?’” Trump told reporters after the summit.

If North Korea were to suddenly abandon its nuclear weapons and give its citizens basic rights, its economy could skyrocket. However, signs of that actually happening are still slim.

The Response to Retail Activism

A turbulent few years of American politics has created new groups of activists across the nation standing up for themselves, what they believe in and what they feel is right. The #MeToo movement disrupted Hollywood and has spread to Silicon Valley and to Washington. Black Lives Matter rallies have filled the streets of the United States. Celebrities and professional athletes have made statements of support on national TV. As we are living in a time of activism, people are encouraged to participate.

It is no longer acceptable to just stand by – for individuals, or for companies. This age of activism is translating to the way consumers behave. Support – or disapproval – of a company’s values is shown in purchase behavior. It may seem like a risky PR move for a company to stake a political or social stance, but recent events have demonstrated the possible pay-off.

On September 4th of this year, Nike released the following ad starring Colin Kaepernick:

Kaepernick was the part of a highly controversial protest starting in 2016. He and other NFL players began kneeling during the national anthem to protest racism, police brutality and social injustice. President Trump politicized the protests and many viewed it as disrespectful to those who have served our country. Nike took a huge risk with this ad, that would potentially alienate many of their previous customers.

Backlash seemed immediate after the ad was released. Social media sites flooded with videos of people burning their Nike products and criticizing the language of “sacrificing everything.” President Trump even partook in the conversation:

Although many – including fellow athletes LeBron James and Serena Williams – supported Nike’s decision to run this ad, the media primarily emphasized the negative reactions. This made Wall Street and Nike investors nervous. On the day the ad was released, there was a larger than normal sell-off of Nike stock.

However, as seen in the graph above, it was very insignificant in the scheme of things. In fact, since the ad was released Nike’s stock has seen reached an all-time high.

Instead of the #NikeBoycott approach, many people actually showed their support for the brand by going out and buying their products. According to the research firm Edison Trends, online sales jumped – sales rose 31% from Sunday (September 2nd)  through Tuesday (September 4th). While that spike didn’t last long, it demonstrated the way consumers felt towards Nike and the divisive stance they took.

The support shown on social media, in sales and in pieces of journalism like, This Life: If Nike can stand with Kaepernick, I can shell out extra for sneakers, speak to the way retail activism works in this political climate. While the long-term stock and sale performances will likely not be heavily effected, the immediate reactions of consumers are telling. People will remember what Nike stands for when they go to buy their next pair of running shoes, and an individual’s own beliefs will impact whether they buy Nike or a competing brand.