Tesla – Redefining the auto industry

Tesla continues to be a topic of conversation. “What is Elon’s next move?” “Is Tesla even making any money?” “Why are they so slow to produce?” A multitude of questions continue to soar in from consumers and business professionals when wondering if they should make a purchase or investment in the infamous sustainable luxury vehicle.

After Tesla’s start in 2003, it’s been slow to hit the ground running and make money. Tesla’s stock continues to have highs and lows — starting at $19 a share and going up and down between $100-$300 dollars. According to Wired, “2017, however, is the formative year to see whether Tesla becomes the unbeatable car company, or just another company that tried to beat the competition but failed.” With excitement surrounding the release of Tesla’s truck in 2019, it could turn out to be a make year rather than a break year after all. Tesla’s stock went up following the announcement of the truck and is up nearly 50% so far this year.

Current price of Tesla Stock via Google

On top of that, Musk is already seeing pre orders roll in from WalMart, Meijer, and J.B. Hunt to name a few. The first issue that comes to mind, though, is how are these trucks going to be of much use beyond small routes? As an electric car, especially a self driving car, it will run out of energy after a couple hundred miles. That means that on long truck hauls a lot of time ends up being added to the commute. Essentially, the truck will only be able to add  value to routes that are local. While this does still reduce emissions, it still doesn’t fix the issue of long commuter hauls unless Musk has a new idea on charging station efficiency and productivity — this could take even more money and more time. Considering the lack of charging stations on these commutes and the slow history of Tesla production, will Elon Musk even be able to roll out this truck by 2019? In the past, Musk has fallen short on lots of promises and production has been late up to two years past the publicly announced date of release. There is a lot of pressure on Tesla Motors and especially Elon to perform. So many people are rooting for Tesla, especially the sustainability behind it, but at the end of the day its hard to know if the sustainability model behind Tesla is worth fighting for, or profitable. The headlines are saying one thing, yet the sales of Tesla are saying another. They are reaching record high’s with profit margins equivalent to that of Apple (25% margins) — this is huge for the auto industry when it usually sees a break even number or a loss in profit.

So, what’s the big idea behind this truck? In order to understand and predict the future of yet another Tesla hyped release, one must know what makes this truck so amazing. Tech Crunch says that the Tesla Semi, “will go 0 to 60 mph in just 5 seconds, which is incredibly fast compared to a diesel truck. It can go 0 to 60 mph towing 80,000 lbs, its max tow load, in just 20 seconds. It can go 65 mph up a 5 percent grade, which is way better than the 45 mph max that a diesel competitor can do. And for range, it can go 500 miles at highway speed, and less than 80 percent trips are at 250 miles. It also has a better drag coefficient than a super car thanks to its extremely aerodynamic design.” Now, I am sure that all of that sounded like a bunch of numbers and words that made no sense, to me too. The most important thing to note, however, behind all these facts is that it truly is bigger, better, faster, stronger. The Tesla Semi will get the job done, according to Musk, because of it’s aerodynamic design. The features of the truck are like nothing we have seen before and its deemed safer than any other normal diesel truck we see on the highway. It’s capabilities are endless and all outlined in the TechCrunch article here.

The new Tesla truck via Google

While consumers and investors continue to feel good and bad about Tesla, it is still being talked about and stirring up controversy and at the end of the day, that means you’re doing something right. The innovation and ability behind Elon Musk is unprecedented and has the ability to truly change the world. If accomplished right, we could be looking at a game changer for our economy and the longevity of our planet. It’s time to continue to sit back, relax, and see what these automatic driving cars can achieve.

https://www.wired.com/2016/12/2017-will-year-tesla-reigns-supreme-finally-flops/

http://money.cnn.com/2017/11/17/investing/tesla-semi-orders/index.html

This is Tesla’s big new all-electric truck – the Tesla Semi

http://www.businessinsider.com/what-tesla-is-doing-right-2017-11

 

How millennials are changing the economy

As baby boomers reach retirement, millennials are now reaching their prime working and spending years. Over the next five years, the purchasing power of millennials is projected to increase 133% from $600 billion to $1.4 trillion. With the millennial generation being the largest of the generations in U.S. history, their impact on the economy will be significant.

Millennials grew up during a time of major technological advances, globalization and economic disruption. Because of this, they have a very different set of behaviors and experiences.

Millennials came of age in the midst of a lagging economy, and many carry large debt loads, largely from college tuition. Consequently, this is why millennials tend to focus on fulfillment and meaning in their lives. The also prefer to sacrifice money for convenience, too.

The effects the 2008 subprime crisis had on the economy delayed millennials’ ability to “grow up”—many have delayed buying houses, having children and making large purchases, such as a car. For the first wave of millennials (those born before 1990) who could find jobs, those jobs were less than well-paid. Due to the lack of financial autonomy, for the first time since 1960, 31.6 percent of people aged 18 to 34 are still living with their parents.

Millennials, also known as Gen Y, are moving to cities straight after college. For the first time since the 1920s, U.S. cities are growing faster than everywhere else on the country combined. This migration is driving the success of the economy.

The trend is impacting transportation, housing, and home ownership. Millennials are using public transit 40 percent more and cars 23 percent less. They are twice as likely to participate in the “sharing economy”, like ride-sharing and apartment rentals.

When it comes to consumerism, millennials are skeptical of advertising, and don’t rely on traditional marketing. Trust is vital to earning their business. Many conduct research through the internet and social media to learn about a product.

By 2020, 30 percent all retail sales will be to millennials, said CEO of “The Robin Report” and co-author of “The New Rules of Retail”, Robin Lewis.

With changing spending behaviors and habit, retailers have been forced to approach the millennial market differently to baby boomers. Convenience and flexibility are important to millennials. In response, many retailers are implementing news ways of payment and providing unique experiences to cater for Gen Y. Examples of this are self-checkout kiosks and paying with their mobile device instead of having to take out their wallets.

Another aspect that millennials want from retailers is a personalized experience. To cater for millennials shoppers, retailers have had to get creative. Some well-known examples include Coca-Cola replacing their logo with the most common names, and Nordstrom opening a store with no merchandise. Instead, stylists pull stock from other mall-anchored stores and its website.

If one thing is clear from analyzing millennials’ spending habits, it’s that their love for technology, convenience and experiences will help grow the economy. These factors will be drive competition within many sectors and industries, and if companies don’t keep up, they risk going out of business. This is the new reality for producers of goods and services.

References
http://www.businessinsider.com/top-brands-are-marketing-to-millennials-2013-8?op=1
http://fortune.com/2015/05/27/7-facts-every-business-should-know-about-millennials/
https://investors-corner.bnpparibas-am.com/investment-themes/please-mind-generation-gap/

Buenos Aires’ Port is Getting a Makeover

Ports are obviously a very important aspect of trade. Having large ports in big trade cities makes the process of importing and exporting a whole lot easier. Since ports are a big factor in economic value, they have become increasingly important. So important, in fact, that the main port in Buenos Aires, Argentina just got cleared for a revamping project of $200 million dollars to help improve the conditions, size, and value of the port.

Source: Los Angeles Times

Because the port of Buenos Aires is in a heavily populated area, they continue to receive more and more trade imports to keep up with their economy. This revamping project will not only allow Argentina’s ships to get access to more trade countries, but also increase capital during cruise season. A win win situation. That being said, they are using a lot of their revamping money to turn their port into an experience for consumers. They are now offering a variety of services including but not limited to transportation services and restaurants (there are no further details on what these services will do besides cater to cruise ship goers). Argentina is utilizing their port in a really strategic and effective way so that they can garner more trade access as well as appeal to tourists coming in and out during cruise season.

Soure: http://www.cruisemapper.com/ports/buenos-aires-port-103

A big part of the improvement plan, according to Gonzalo Mórtola, the head of the General Ports Administration (AGP), “is to make ports self-financing so that the state no longer has to provide any money for them” (portstrategy.com) The way he will do that, however, is still not announced to the public.

Before the improvement plan was announced, Argentina was already known for having a very strong port system. It is one of the strongest port contenders in Latin America and the Caribbean. In fact, in 2013 it joined the Green Awards ports program: “The Green Award is well-known in the maritime world for its reputable certification of ships that apply the best practices and exceed the industry statutory regulations in terms of safety, quality and environmental stewardship.” Argentina earned the first Green Award port in South America, and continues to ensure that they effectively maintain their Green Award efforts. Because they are a part of this, they receive a 10% discount on vessel dues for their Green Award ships. For Argentina, and Buenos Aires especially, this a big feat considering that where the port is located is a very metropolitan area. The port is putting forth its best efforts to maintain the greater good of the population within that area, and the country as a whole, and ensuring a clever and strong revamp in order to gain more global capital.

With the improvement plan set in place it will be interesting to see what this does for Argentina’s economy. In fact, seeing as European trade and Latin American trade don’t even compete, they should consider banning together and coming up with ways to innovate and ensure the utmost efficient level of import and export trade. After all, with the approval of a plan such as this, Argentina should get all the advice it can get to ensure it makes the right moves and builds out the right strategies.

http://www.latimes.com/travel/cruises/la-tr-cruises-argentina-port-improvements-20171029-story.html

http://www.portstrategy.com/news101/world/south-america/all-change-for-buenos-aires

http://www.greenaward.org/greenaward/703-buenos-aires-is-the-first-green-award-port-in-south-america.html

What would be the potential impacts as China is banning American trash imports?

On July 18, China claimed that it would stop taking foreign shipments of waste goods, such as plastic and paper, from foreign countries.According to a Reuters report, China wrote in a statement to WTO that “to protect China’s environmental interests and people’s health, we urgently adjust the imported solid wastes list, and forbid the import of solid wastes that are highly polluted.”

An BloombergView article said China has practiced imports of trash for more than 30 years, and it is a significant contributor to the rise of the Chinese economy. The Chinese environmental authorities estimate that more than 5,000 tons of garbage imported every year. The CNN Money calls it “a $5 billion annual business that is now in danger of sinking.” However, this is not a new trend. In 2013, the Chinese government launched “Operation Green Fence” Program to block imports of illegal and low-quality waste through improved inspections of container ships. In February 2017, Chinese customs officials initiated “National Sword” program to reduce illegal shipments of industrial and electronic waste. According to Resource Recycling Inc, in 2013, it costs about $2,100 per container that was rejected by China and shipped back to Los Angeles/Long Beach port.

The idea of shipping trash to China originates the balance of trading and maybe also the thought that the United States should not let empty ships going back China. Thus, America fills the return-trip containers with recycled cardboard boxes, waste paper and other trashes. The Economist said it is a double-win solution. It said America can earn a return from their waste, while China can have a constant supply of cheap recycled materials.

However, the issue is the quality of trash.

“We found that large amounts of dirty wastes or even hazardous wastes are mixed in the solid waste that can be used as raw materials. This polluted China’s environment seriously,” China’s WTO filing said. The Chinese government criticized Americans for not separating trashes ahead , and the Chinese government said failing to handle trash separation in the United States increases pollution in China.

On the other side, the critics said most of the waste consumed by China’s recycling industry comes from domestic sources, not imports. Adam Minter, the author of “Junkyard Planet”, wrote in an article on BloombergView this July to argue that China’s government has long played up stories about foreign waste, partly to deflect attention from unmanageable garbage problems at home.

Who will be the loser in this trash ban? The answer is everyone, including China, America, the environment, and global economy.

It is for sure not a good news for Americans. Jeff Harwood, an Olympia-area recycling center manager in Washington,  tells Washington state’s KIRO-TV in 2013 that the problem is American does not have market for recycling goods. It is still true today. Minter claims that “on average roughly one-third of the stuff that’s tossed into U.S. recycling bins can’t be made into new products domestically.” Moreover, Winter wrote in his book that in Foshan, China, the salary of a recycling worker is 100 dollar per month plus rooms and boards. The cost of recycling process would be much more expensive in America. He also claimed that it is cheaper to ship trashes from America to China than to transport them from Los Angeles to Chicago through railway.

It also has potential to hurt Chinese economy. For China, The trade of trash imports is a more than half of the $1 billion a year business to recycling industry. Although China today is not as eager to recycling materials as it was decades ago, the ban still will drastically decreases the demand. Minter wrote in July that imported recyclables are cleaner than their Chinese counterparts, and banning them will force many Chinese recyclers to shut down and thousands of workers losing jobs. Moreover, recycling materials imported from America is also much cheaper than the ones in China. As the Chinese economy still heavily rely on manufacture, the ban might also causes the rise of goods.

The ban might could not even protect the environment or improve the public health. As China bans its trash imports, its 29 million tons of paper and 7 million tons plastic scrap still need to find place to go. They might end with landfill that does not have effective recycling ability as China has.

At the last, the ban will also affects the price of paper and plastic globally. It would be “chaotic for the global recycling industry,” said Bill Moore of Moore & Associates, an Atlanta-based paper recycling consultant.

“Mixed paper prices would plummet in the U.S., North America and in Western Europe because all the mixed paper we’re pumping out in residential [programs] would have no home,” Moore explained. “So that would be chaotic at the local government level, at the MRF level, at the collector level. It would be complete disruption.”

 

It’s Complicated: on U.S.-China Film Industry Relationship

It’s Complicated: on U.S.-China Film Industry Relationship

Yutai Han

(Image: ChinaFilmInsider.com)

With dazzling lights and glamour, the annual U.S.-China Film Summit kicked off yesterday in Los Angeles. Among the attendees are several leaders of the industry and Chinese directors, all working to achieve the same end: how to tap into the Chinese film market.

Admittedly, film is of the highest prestige of our society at large. It is the equivalent of Shakespeare in Victorian England, except that now the movie business is globalized and glamourized, serving human vanity and desires, and in turn the quality of films varies significantly. But generally speaking, the best films of the industry, produced by the highest caliber of crews and casts, and distributed by the savviest companies, attract audiences and money in a highly profitable way. A lot of them originates from Hollywood, a heavily industrialized dreamland of capital and talent from the very start, exporting formalized stories of dreams to the whole world. As a major trade surplus, cultural exports made up for 4 percent of the U.S. GDP.

Similar to every economic story, the cards reshuffle when China becomes a player.

It was 1994 when mainland China opened its market to Hollywood with a quota of 10 films annually, which in effect led to a mass of people going to Hollywood blockbuster productions and a domestic revitalization. By 2020, the Chinese film market might surpass North America to be the world’s largest. It’s fair to say that now, the two biggest players in the film industry are the U.S. and China. Under the current deal set in 2012, China exhibits 34 overseas films per year. Some successful candidates are: Warcraft, a $47 million domestic box office and $213 million in China; A Dog’s Purpose, a $64 million domestic box office and $88 million in China. Note that these two productions had Chinese partners, and guess who—it’s Tencent and Alibaba! The promotion of Warcraft was wild. With the attention-grabbing subway poster and targeted mobile advertisement, and paid promotions among review channels, one literally cannot escape. This age of wide-spread and shameless marketing lays ground for propaganda films, such as the $848 million grossing Wolf Warrior 2, the biggest mega-blockbuster yet with a murky net of more than 20 producers and distributors that doesn’t fall short from CDOs.

The more alarming phenomenon is the nationalist and propagandist element of the film was able to fully manifest through the film medium and utilized by the film’s promotion people. The film was not necessarily propaganda but it was a chant of populist heroism, which could be utilized as propaganda. One outspoken critic received death threats. Films, as Slovenian Marxist philosopher Slavoj Zizek puts it, are “ideology at its purest”. It seems to me that it’s unlikely that Hollywood can march further into the Chinese film market, because under the obvious clash of interests, there exists an ideological tension. Even domestically produced Film or TV shows can be called off at the last minute, as one film, Feng Xiaogang’s Youth, was unfortunately delayed due to sensitive topics of Vietnam veterans being depicted as homeless. Other than that, the film is a personal project for the director to recount his most glamorous days as a young artist embedded within the military. Inside sources say that the market is not regulated by the Administration alone, but by some senior members who have the power to shut down speech. From now on, the future is downward. After Wolf Warrier 2, Chinese production companies convinced themselves that the most profitable way to make films is to make such films that “coincidentally” go along with the party’s authoritarian control. The stagnating Chinese film market can be partly attributed to this mentality. But on the other hand, films can also not be about promoting any ideology, but about love, loneliness, memories, the future and the universal human condition. Think Hong Kong cinema master of romance, Wong Kar-wai. His films sold good enough and especially among the Pan-Asian market to receive a Cannes. It is therefore not fair to regard the Chinese film market as impenetrable, and Chinese companies as corporate minions. If Hollywood and the liberal politicians try hard enough to look at China’s issues, that is. We need to restore cinema as “art manifest”. The road is long and bumpy, but we shall soldier on.

TPP? Trump? NAFTA? What?

President Trump withdrew the U.S. from TPP after taking office, which was one of the promises he made during his campaign trail.

But if like me, you still don’t really understand what TPP is or know what it even stands for, here’s a little breakdown.

TPP, the Trans-Pacific Partnership, involves twelve countries bordering the Pacific Ocean. It was “aimed to deepen economic ties between [those] nations,” and “designed so that it could eventually create a new single market, something like that of the EU,” said BCC. It was supposed to “[level] the playing field for American workers and businesses, supporting more Made-in-America exports and higher-paying American jobs,” according to the government’s statement.

Basically, it had potential to exponentially grow the American economy, allowing trade without tariffs or restrictions between some of the most powerful nations. The Peterson Institute for International Economics estimated that the U.S. national income would increase by $131 billion a year by 2030 under TTP.

So how did people take Trump’s withdrawal of TTP?

On one side, “[big] businesses are howling that Trump is undercutting their ability to sell to the vast majority of the world’s consumers” (CNN), while on the other hand, there is praise in that Americans are being put first. In other words, critics believe that TTP would destroy American jobs.

The New Yorker argued that the trade agreement “wouldn’t have had much direct impact on blue-collar workers” due to the fact that “global shift away from tariffs and other trade barriers began in 1964 and was, largely, complete by the mid-two-thousands.” A job couldn’t determine the number of jobs available, only economic activity can.

Trump is currently renegotiating NAFTA, the North American Free Trade Agreement, which is a trade deal between the U.S., Canada and Mexico. He wants to reduce deficits between the U.S. and Mexico, because, for example, “[in] 2016, Americans bought $55.6 billion more imports from Mexico than vice versa” (qtd. in The Balance).

There is also talk that President Trump could end up eliminating NAFTA on top of TPP. A decision has yet to be made.

The Future of Container Shipping: What’s Next?

The world is constantly changing and evolving, as new technological advancements continue to materialize. With new findings in technology comes improvements and upgrades in different industries. But what could this mean for a traditional industry like container shipping?

From the looks of it, most people would think that the container shipping industry has not experienced much change in their operations for the past several years. However, that is not true.

During the late 1950’s, cargo was loaded into shipping vessels manually by workers at the dock, and then again unloaded by workers once ships arrived. Eventually, the use of containers transformed the industry, allowing more goods to be stacked and be shipped easier. As a result, ports were forced to rebuild themselves to be able to store the containers, implement huge cranes for their operations, and include highway and rail terminals to send ships directly to the ports. This advancement revolutionized trade and sparked a global economic boom.

But what is the only other way to allow even more goods to be transported? Larger ships! Over the years, ships have gotten so massive that it gets you wondering how they still stay afloat. Companies quickly realized that regardless of the ship’s size, approximately the same number of sailors were needed to operate the ship and less fuel per container was needed to move larger ships. This is a trend we will continue to see, which is largely a reaction to containerization and automation which allows faster loading and discharging of vessels.

Larger container ships are not the only trend the shipping industry is experiencing. Shipping companies are reinvesting into specialized ship types. This is mainly seen in areas of heavy lifting or transportation of certain chemicals. There are extremely specialized ships that are being constructed, with capabilities to only transport specific items, such as parts of offshore windmills. This has developed employees that specialize in ships and trade in niche industries.

Along with the worldwide trend of going green, shipping is also focusing on developing a green image. Innovation has allowed a reduction in the negative environmental impact caused by shipping. There is now an increasing amount of engine improvements, propeller performance, and friction-reducing air cushions. However, this is only just the beginning. As more ships and methods of operating are becoming specialized, the maritime industry is moving more towards an environmentally friendly era.

www.morethanshipping.com/evolution-of-container-ships

www.vox.com/2015/1/8/7513317/container-ship-msc-oscar

https://www.marineinsight.com/future-shipping/10-future-ships-that-would-change-the-face-of-the-shipping-industry/

https://www.ajot.com/blogs/full/the-future-of-container-shipping-may-be-smaller-than-we-think

The Dream of Being a Longshoreman

The Port of Los Angeles is the largest port in the United States. In 2016, 2,050 ships brought $272 billion worth of cargo to Los Angeles. The Port of LA is a crucial piece of importing manufactured goods from China.

A critical piece of this massive operation is the longshoremen, the workers who handle the loading and unloading of the ships in the port. The longshoremen and their union are so critical to port and its trade that they have the power to disrupt an entire supply chain. In 2002, during contract negotiations, the union essentially shut down the west coast ports as a leverage in their negotiation. This caused disruptions not only on the west coast but across the country where goods couldn’t be delivered and across the Pacific where the goods are made. This relatively small union has immense power over the import of goods in the United States.

Longshoreman jobs are coveted. Longshoreman can make more than $100,000 a year and receive free health care, but it is not easy to become a longshoreman. In order to get this dream of a blue collar job paying over $100k, you have to get into the dockworkers union, the Pacific Maritime Association (PMA).

The first step to becoming a fully-fledged member of the union is winning the lottery. In order to get in the union, you have to become a “casual” worker. Casual workers do the same work as union longshoremen for less pay and benefits. To become a casual part-time worker you have to win a literal lottery. The longshoreman union held the first lottery, since 2004, for casual worker spots. This year 80,000 people entered the drawing and only 2,300 will be eligible for part dock work. They all entered with the dream of having the modern day unicorn, a high paying blue collar job. Just because they won the lottery, they aren’t guaranteed elevation to be a full union member.

TraPac Automated Terminal

As the Port of LA and other west coast ports become more automated, the number of dockworker jobs available will not go up. But they also will not go away entirely. Even in the automated terminals at the Port of LA, PAC, humans still have the operate the massive cranes that lift the containers off the ships. The need for the dockworkers will not go away, the demand will just decrease.

The longshoremen in Los Angeles are at the front of the globalized economy acting as gatekeepers of trade. They also have a what can feel like is missing in this globalized world, a well paying middle-class job.

 

Sources: 

http://www.latimes.com/business/la-fi-dockworker-pay-20150301-story.html

http://www.latimes.com/business/la-fi-port-lottery-20170127-htmlstory.html

http://www.dailybreeze.com/2017/06/02/longshoreman-lottery-results-announced-for-long-beach-la-ports-find-out-if-youre-on-the-list/

http://www.scpr.org/news/2017/06/05/72573/why-80k-people-applied-for-2-400-positions-at-la-s/

Would the Increase in Automation at Ports Help or Hurt?

As time goes on, technological advancements are to be expected. For many industries, the growth of technology is a great thing, as it helps innovate new products in electronics, medicine, and more. But for workers at ports across the world, increases in automation, technology and robotics threaten local workers’ jobs.

This debate hits especially close to home, as the ports in California alone handle 40 percent of U.S. container traffic. With the ports of Los Angeles and Long Beach being the two biggest ports in America, they are also one of the main employers of the region. Between port operations and commerce, the Port of Los Angeles supplies over 133,000 jobs in the LA area. The Port of Long Beach accounts for over 30,000 jobs in Long Beach alone through its 20 divisions.

If the ports went completely automated, would all these people be out of work?

Of course, the answer is more complicated than a simple yes or no. While not every single employee at each respective port would be out of a job, certain jobs like terminal operators may be at the most risk.

The most recent automation update at ports is in the yard cranes. According to Port Technology, several ports around the world like Singapore, Germany and Holland have already adopted automatic crane use, and local ports have installed a few as well. The technology installed in these cranes allows for precise automatic pick-up of containers, drop-off, and perfect stacking.

Naturally, there are both advantages and disadvantages to adopting automation in the ports. One advantage is the efficiency and accuracy by which robots are able to do work. Automation would allow for a greater amount of goods and containers to get through ports and it would make the transaction turnarounds even quicker.

One terminal in the Los Angeles port that has already adopted automation has seen time spent loading and unloading the ship be cut in half since the switch. This not only creates higher profits for the terminal operators, but it gets trucks and drivers back on the road faster. Additionally, the electric- and hybrid-powered automated machines significantly cut down on carbon emissions, which is better for the environment.

However, with the adoption of automation could also come a huge loss of jobs across the country. As history has shown, when the standardized shipping container was first introduced, over 90 percent of dock workers lost their jobs within 15 years. Of course, current port workers are concerned that history will repeat itself and automation will completely eliminate their current jobs.

While the Port of Los Angeles, in particular, has partially adopted automation, their solution seems to be to keep it that way for now in the hopes that no jobs will be lost. Full automation at a port would take a lot of time and money, but it seems to be where the future is headed. Perhaps in 10 or 20 years, ports across the world will all be fully automated.

America’s Trade Deficit with China, Explained

As of August 2017, the U.S.’s trade deficit with China was just over $239 million[1]. America exported approximately $80.2 million[2] to China while China imported over $319 million[3] to the U.S. There are numerous reasons for this imbalance, but being in deficit may hurt the U.S. economy in the long run.

The reason why the U.S. receives goods from China (mainly consumer electronics and clothing) is because China can produce goods at lower costs than the U.S. can. The benefits are felt in the pockets of Americans every day. China’s competitive pricing is the result of two factors:

  1. China has a lower standard of living. Therefore, companies pay lower wages to their employees.
  2. The Chinese yuan is partially fixed to the U.S. dollar. Also known as ‘pegging’, it is the act of a country or government’s exchange-rate policy attaching the central bank’s rate of exchange to another country’s currency[4]. It stabilizes the exchange rate between China and the U.S., which is advantageous for large importers like China.

However, in 2016, China began relaxing its “pegging” in an attempt to gain traction from market forces to increase the value of the yuan. As a result of this action, the dollar to yuan conversion has been volatile and China’s influence on the dollar remains high.

How exactly does China hold power over the U.S. dollar? Chinese companies receive dollars as payments for exports to the U.S. These companies deposit the dollars into the banks in exchange for yuan to pay employees. The banks then send the dollars to China’s central bank. It stockpiles them in its reserves. This reduces the supply of dollars available for trade. Therefore, it puts upward pressure on the dollar’s value, thus, lowering the yuan’s value. This cycle could potentially give China leverage over U.S. fiscal policy.

Another major reason why an ongoing trade deficit with China could be detrimental to the U.S. economy is because its financed with debt. What if China decided to call in its loans?

China also helps keep U.S. interest rates low by buying Treasurys. If China stopped buying Treasurys, interests would rise and potentially throw the U.S. and the world into recession.

The deficit puts a heavy burden on the manufacturing industry, as well. For U.S. companies to compete with China, they must either lower their costs (this could potentially put them out of business) or outsource jobs to China, but this option hinders U.S. job creation.

 

 

 

 

 

 

 

 

 

 

President Trump has promised to lower the trade deficit with China by imposing duties on Chinese imports. However, many Chinese imports are made up of raw materials sent from the U.S. Trump’s tariffs would reduce profits for these American companies who ship material to China, resulting in price raises of the products shipped back to the U.S. China might retaliate and raise its tariffs on imports from U.S. companies. If this is the case, Trump might be the biggest factor to hurt the economy.

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References

[1] https://www.census.gov/foreign-trade/balance/c5700.html

[2] https://www.census.gov/foreign-trade/balance/c5700.html

[3] https://www.census.gov/foreign-trade/balance/c5700.html

[4] http://www.investopedia.com/terms/c/currency-peg.asp