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.

__________________________

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

 

Revised-Observation on Wechat Marketing: The Next Monopoly of the Chinese Advertising Market

Observation on Wechat Marketing:

The Next Monopoly of the Chinese Advertising Market

 

Yutai Han

Midterm Project for JOUR469

Professor Kahn

Oct/08/2017

 

It’s amazing how much information an app can tell us about Chinese culture. Wechat, a social networking app developed by Tencent and first unveiled in 2011, is arguably, one of the most well known social media products in China. A TV commercial articulates the idea of Wechat as the only app you’ll need over the course of a typical day in your life: wake up and check up on the social feed, use Wechat Pay to buy breakfast, read articles published on Wechat channels (where ads will show up in the form of video commercials, banners, and integrated promotions), work on Wechat while texting friends simultaneously, shop and pay with Wechat, play games with friends on Wechat, etc.

This is the modern Chinese life—a life fully realized online, and integrated seamlessly with the virtual structure of mobile social networking. In this dimension created by Wechat, the user’s attention is attracted by new ways of integrated social advertising. Ads are placed using precise algorithms of user metadata so that the ad fits the needs of the user. Would it be the case that, because WeChat and Facebook are inherently social networking platforms that generate profit from their user data, and Facebook makes as much as six times profit from advertising than Tencent does through WeChat, does Wechat have the potential to outrun Baidu and Alibaba, and become the most powerful unicorn in the Chinese ad market?

One argument for that speculation is that Wechat has an enormous user base. With close to a billion monthly active users spending an average of 66 minutes everyday on the mobile App, Wechat has taken over both the work and social scene, replacing traditional communication methods such as email and messaging service in China. Tencent, its parent company, along with Baidu and Alibaba, together occupy over 60 percent of the total domestic advertising market in China, and are forecast to attract 15.5 percent of the global market in 2017, becoming the world’s second largest market of its kind. Looking at Tencent specifically, its online advertising revenue increased 55 percent to roughly 10 billion yuan for the second quarter of 2017, while social advertising, which derives mainly from WeChat, grew by 61 percent to about 6 billion Yuan. Online advertising accounts for 18 percent of Tencent’s total revenue. In comparison, Facebook has two billion monthly active users, and a profit of $9 billion. About 98 percent of Facebook’s total revenue comes from advertising, according to Facebook’s earnings report in the same quarter. It’s fair to say, then, that Tencent still has potential for market growth in social advertising. Tencent’s main source of revenue now comes from add-on services from video and mobile games, making 65 percent of its total revenue, which is not a surprising fact because one will see that a mobile game in the style of League of Legends, has gained popularity among the youth like a tropical storm. It was so popular that the official newspaper, People’s Daily, criticized it for bewitching the youth and called for formal regulation.

 

 

One can think of Tencent as a behemoth of products: Tencent videos is Netflix; WeChat is Facebook plus a prevalent and advanced mobile payment system, and there’s Tencent games; VR/AR firm acquisitions, etc. However, despite numerous branches of organizations, WeChat is arguably the most important for Tencent. According to a behavioral study conducted by a Tencent think tank, 92 percent of the interviewees choose to pay with their phone. Convenience stores, e-commerce websites and restaurants are the primary scenes for mobile payments. Artificial Intelligence comes in to play to dig out the valuable data for more precise targeting. On the other hand, because Wechat is a behemoth of products, user tend to rely heavily on them for their daily activities. The users expect a reliable experience when they are using Wechat, to the extent that even a minor bug of the social feed could cause everyone to panic. To add to that panic is when there are too many ads appearing on the user’s screen. This is perhaps why people think that WeChat has been unusually prudent in its advertising placement: too many ads appearing on a user’s social media feed could degrade a user’s experience. Wechat is only allowing one advertisement per day to appear on a user’s social feed. Facebook’s Instagram, has so many ads that I would lost count on the amount I see when scrolling down the screen. In addition, Instagram is rolling out methods that would me harder to discern whether the post is an advertisement recently. The ads on Instagram appear to be less professionally produced, and resembles the form of a totally innocent product you would see on your friend’s feed. However, on Wechat, one can easily spot the difference between the ad and other posts. But sometimes because it’s professionally tailored to attract attention, the audience might just click on it to see what happens. A friend could comment under the ad, or even talk to the company. This is part of an effort to establish the image of the brand.

(image source: https://blog.tacticrealtime.com/how-to-advertise-to-chinese-tourists)

The next reason is Wechat’s self-claimed efficiency of targeting consumers through use of data generated from Tencent’s other popular lines of internet products, such as Wechat Pay. One illuminative case happened recently when Wechat targets Chinese tourists traveling to foreign countries. According to the U.S. Travel Agency, Chinese residents took three million trips to the U.S. and spend $7,200 per trip, more than those of any other country. Travel exports to China were values at $35 billion, or 1.8 percent of U.S. GDP. $11 billion is related to education spending.

According to the South China Morning Post, Grace Yin, director of WeChat Pay’s international operations, told the Rise technology conference, “We will first make WeChat Pay available for Chinese customers when they travel outside [China],” Yin said. “We want Chinese customers to enjoy the same services when they go abroad, so the surge in outbound travelers will be the first market WeChat Pay targets.”

The National Holiday in China has just ended. According to an official report, the U.S. ranked number sixth in countries that have the most transaction using WeChat Pay. The marketing plan for WeChat looks like something like this: before a tourist even board the plane, WeChat can employ data to recognize that the user has searched for plane tickets inside WeChat and place ads by American brands to develop potential customer relationship. Partnering with Citcon, WeChat has also been promoting and installing mobile payment methods in the U.S. and starting in December, two of the Luxe Hotels in Los Angeles will be accepting payments via WeChat and Alipay, according to the LA Times.

“For the first time, we are making it possible for US brands to directly reach this audience through sophisticated targeting,” Poshu Yeung, the company’s vice-president of international business, said in a statement.

(image source: ChinaTechInsights.com)

What does he mean by “sophisticated targeting”? During its panel Advertising Week 2017, Steven Chang, Vice President of Tencent, introduced the “ONE Tencent” marketing philosophy, in which the key marketing insight is Tencent’s integration of its services through bid data computation, AI, and cashless payment to help clients develop their brand.

“Collectively, Tencent’s products form a ‘connector’ which is not just changing the way people live and think, but redefining the way brand communicates with consumers, ” said Chang.

Here, WeChat functions as the bridge between the virtual experience at the core of advertising and the specific advertising appearing in a user’s social media feed. WeChat is able to target different subgroups of users, using complicated algorithms that take into account a user’s marital status, age group, and even the cellphone model that the user owns. Furthermore, the algorithm computes the influence factor between a possible consumer and their friends on WeChat and places the ad based on the possibility of clicking an ad, which in turn maximizes ROI (Return On Investment, a measurement of the efficiency of advertising budget).

This is very similar to Facebook’s method of mining user data from “likes” on brand pages and posts. However, the fundamental difference is that WeChat was conceived for a consistently user-friendly mobile experience, and therefore has less ad space compared with that of Facebook. The advantage of this mobile-first design is that Tencent can successfully gain tons of users’ data generated by their Wechat payment records. And because Wechat Pay is actually convenient and anyone with a smartphone could learn it in matter of a few seconds, it grows loyal customers that uses Wechat Pay on a daily basis. The data will then be used for ad targeting purposes, of course, which some may consider to be ethically problematic. But what if targeting methods can serve a good purpose to society? Isn’t it the case that technology companies start with the intention to serve to some kind of common need? Then, what might the purpose be?

Adam Smith provides an important vision. “The great secret of education is to direct vanity to proper objects,” wrote Adam Smith in The Theory of Moral Sentiments. In this sense, if used properly, sophisticated marketing methods could direct human vanity toward higher ideals in a consumerist culture. One possible way that would make big companies such as Tencent and Facebook look less evil is the understanding that it’s the appetite of the consumer that they’re merely serving. Advertising producers would often borrow elements from popular culture for inspiration, because popular culture is an indication of what most people would turn to after a day’s work. Thus, the cycle of appetite and advertising is reflexive. Advertising is based on appetite, but the appetite is constructed by advertising in the first place and reinforced by unobtrusive and tailored advertisement.

We are seeing clever marketing examples on WeChat, such as Jo Malone London, which resulted in a 35 percent higher click rate and more than five times Return over Investment (ROI). The idea of the influencer is that people want to follow the hip. The fashion trend will be crafted by some carefully crafted identity, perfect in every way on social media. Instagram adopts more or less the same method to promote consumption. Now, through the use of data and influencers, the Jo Malone Valentine campaign did two things. First, it’s able to target loyal customers to buy a more expensive fragrance box sets because it’s Valentine’s Day. Second, people who are likely interested will be directed to a basic unit of fragrance when they click on the link. The ad itself feels romantic and good to look at, especially if one has a date. Thus, the customer will first be lured to click on the link, and then they will check out the product, and read reviews. If an influencer endorses the product and gives it a good review, the customer will more likely to buy the product.

(source: https://ad.weixin.qq.com/case)

To sum up, WeChat has a strong potential to become the next monopoly of digital advertising in China, and further drawing the global advertising spending into China, as more tourists and the Westernized youngsters prove themselves to be the bread and butter of luxury consumption. What’s more, as China’s economy gradually shifts from industrial production and cheap labor, it will need another backbone to rely on, and that backbone will be the domestic consumers. As a result of this shift in national economic direction, more research money will be funded in search of better advertising returns and marketing methods. As a behemoth of products all serving the purpose of social networking, Tencent already has a foot forward in data-gathering and a golden weapon to use.

Many people lost their manufacturing jobs to robots, but will the same thing happen with trucks? (Revised)

Big tech money is chasing the development of self-driving trucks. Google, Uber and Tesla are investing heavily in this technology and a new autonomous truck startup called Embark has already pulled in $17 million of series A funding.

Though Silicon Valley is pouring money into self-driving trucks, it’s hard to tell when this technology will become widespread and cause an economic dislocation for a significant part of the American workforce.

Accurately pinpointing a time frame for when this disruption will occur is important for trucking, its related industries and consumers. But there are many variables that still need to be accounted for when estimating how many years it will realistically take for these trucks to become widespread.

Because of the inherent uncertainty in self-driving trucking projections, it is unclear how immediate the labor problem is. According to an Obama-era White House report, two million trucking jobs out of 3.27 million are already threatened. Automation is going to happen, but when it does and the extent to which it will affect jobs is up in the air, said University of Pennsylvania professor of economic sociology, Steve Viscelli.

“There’s a dichotomy of it’s [automated trucks] either never going to happen,” Viscelli said, or automation could happen in the near term and create a trucking jobs crisis.

As of now, most truckers are still employed. But within three to ten years though, Viscelli says Google, Uber and Embark, along with other companies could surmount the difficulties that self-driving trucks are currently facing.

But Jerry Lake, who runs a trucking business with his son and wife out of small-town Montrose, Colorado, says the variables that he faces daily on the road are hard for a machine to predict and he thinks it’s a bad idea. He doesn’t see the complete switch to self-driving trucks happening as soon as Viscelli predicts or even happening at all.

“I don’t even know what the advantage is or what they are trying to accomplish other than the fact that they can do it,” Lake said. “Then you’re taking jobs away from people in America.”

For Lake’s local business, it doesn’t make any sense for him to switch to automation at all for his small fleet of two trucks.

First, retrofitting trucks for full automation is expensive. It costs about $23,400, according to the American Transportation Research Institute, and would not be cost effective for Lake’s business. Second, the specialized, localized trucking that Lake does requires extra knowledge of county and city roads, as most of the driving he does — 65 miles one way between Montrose and Grand Junction — aren’t on interstates.

Lake has trouble believing self-driving trucks can keep up with the monotony of long-haul trucking. “I have a problem with all the variables you run into — accidents and weather — that the truck can react in time and the drivers can’t always do that either,” he said.

Mapping roads in a way that is compatible with these trucks is another difficult variable to overcome. Google claims that they have mapped 99 percent of public roads in the United States, as of 2014; but that still leaves around 40 thousand miles of unmapped roads, or 8 round trips from L.A. to Miami.

Viscelli said basic sensor limitations hold back trucking as well. Most light detection and ranging (LIDAR) systems in use on these prototype trucks can only see three to four hundred feet in front of them. But driving at 55 miles per hour, it will take over 400 feet to stop a truck with an air brake system, according to the Department of Motor Vehicles. The automated system leaves no room for error and can pose a safety risk.

In an economic sense, the cost-benefit analysis doesn’t make sense yet. It will cost more to total a truck and possibly kill people on the road due to faulty automation programming or equipment than to deliver freight or a package without paying a driver.

At the same time, self-driving technology is making major strides in its development. Uber’s truck Otto transported 51,744 Budweiser cans for 120 miles between Fort Collins to Colorado Springs. The delivery had a police escort and a driver observed from inside the truck. Still, the proof of concept is rock solid.

The TraPac terminal in the Port of Los Angeles is completely automated; from the cranes to the four-legged trucks that load crates onto still human-operated tractor-trailers. And Long Beach isn’t too far behind. Amazon warehouses use robots instead of fork lifts and they are already working on using drones for deliveries.

The manufacturing sector has lost around 8 million jobs because of automation (which was started by General Motors in 1961), globalization and the Great Recession from 2008 to 2010. Trucking could also displace a large majority of America’s workforce with the allure of a more technologically-oriented supply chain.

Not having to pay for driver’s wages and benefits will translate to lower prices in the store for consumers, but at the expense of a large portion of the population being unemployed and failing to reach their productive capacity.

The trucking industry is dominated by white males with an average age of 45. Around 95 percent of people who work in the industry are male and 75 percent are white. That matches up surprisingly well with the rest of the U.S., which is 77 percent white. So if trucking were to ever be completely automated in any way at least 10 percent of America’s workforce will go away.

Race distribution in trucking.

Truckers have won a small battle in U.S. Congress to ban legislation on self-driving trucks and cars that are under 10,000 pounds, but as more pressure from tech companies mount, it’s unlikely to hold forever.

When self-driving trucks eventually become commonplace, the driver demographic will have trouble finding other work that requires higher level education. Most truckers don’t have college degrees, according to the Bureau of Labor Statistics. And middle-aged drivers will find that university education has skyrocketed at a rate faster than inflation. In a Bloomberg report, college tuition and fees have increased 1,120 percent since 1978.

Plenty of other professions are at risk too. An Oxford survey predicted that 47 percent of jobs around the world will be taken by robots in the coming decades. And it’s probably going to hit truckers first.

 

 

 

 

 

 

 

 

 

 

 

 

[Final]Can Natural Disaster Ever be Good to Economy?

Hurricanes, earthquakes, and wildfires … America and the world have been entangled by natural disasters recently. The natural disasters never could be considered as a positive force because of the destruction and death the bring. However, disasters also tend to make reconstruction the primary task for the government, making it easier for public money to flow into hard-hit regions. Economically, in what case would natural disasters be a boost to the regional economics? It depends the previous economic status of the affected region and the immediate assistance efficiency from the government.

In Sichuan, China, where a magnitude 8 earthquake took place in 2008, is an example how the local economy can recover and even expand during the post-disaster reconstruction. Poor infrastructure exacerbated the damage, leading to an official death toll of 87,150 and 4.8 million people homeless, according to the BBC News. The economic loss was estimated at $191 billion, the second highest in absolute number in history, according to 2013 CATDAT Damaging Earthquake Database. The noteworthy part was that the central counties in 2008 Sichuan earthquake, WenChuan and Ya’an, were neither a raw material production base nor manufacturing zone. Actually, these counties were poor. Thus, the earthquake did not hurt the Chinese exports or GDP to any great degree.

The rebuilding efforts cost the Chinese government almost $150 billion, equivalent to a fifth of its entire tax revenues for a single year, according to the state media of China in 2008. Quickly after the earthquake happened, the National Development and Reform Commission of China announced a reconstruction plan that “envisages buildings 169 hospitals and 4,432 primary and middle schools to replace collapsed structures. Another 2,600 schools that remained standing will be strengthened. More than 3 million homeless rural families will get new houses and 860,000 apartments in the city will be built.”

Relying on such tremendous capital investment, the regional economy of Sichuan was able to recover in an amazing speed. Here is the chart associated with the Gross Regional Product(GRP) of Sichuan from 1998 to 2010.The blue, yellow, and green line respectively indicate the GRP of Sichuan, of the hardest hit region of Sichuan in 2008 earthquake, of else of Sichuan, in the form of percent of Chinese GDP. The pinkish line represents the GRP per capital as ratio to Chinese GDP.

The graph tells that before the earthquake happened, the hardest hit region in Sichuan earthquake, which is composed of the ten serious-damaged counties, generated about 0.25% of Chinese GDP. Meanwhile, the Sichuan generated about 4.1% of Chinese total GDP.

By 2010, 2 years after the earthquake, the GRP of Sichuan and the GRP of non-central damage area of Sichuan both not only recovered but even had growth.

“The GRP level of the worst-hit area of Sichuan decreased by 35.4% in 2008 compared to the 2007 level. After three years of reconstruction, the region had still not returned to its pre-earthquake GRP level, but the GRP level of the rest of Sichuan experienced a boom in those three years because of the reconstruction demand stimulus,” according to a studies conducted by MOE Key Laboratory of Environmental Change and Natural Disaster of the Beijing Normal University.

The GRP per capital in Sichuan had a huge growth; however, it is meaningless considering the tragic death tolls.

In a article published by China Daily , by 2012 when reconstruction basically completed, the Deputy-Governor of Sichuan Gan Lin said, Sichuan was the fastest growing of the major economic provinces in China. China Daily asserts “the quake zone has seen unprecedented changes.” Governor Gan said, during the past four years, Sichuan’s GDP doubled more than 2 trillion yuan ($317 billion), enabling its per capita GDP to surpass $4,000.

*A noteworthy point for the above statement is the “go west” strategy to increase inland development formulated by the State Council in 2000 also plays an significant factor to Sichuan’s growth.

“When something is destroyed you don’t necessarily rebuild the same thing that you had,” said Mark Skidmore, an economics professor at Michigan State University. “You might use updated technology, you might do things more efficiently.” With massive amount of national resources, “the disasters allow new and more efficient infrastructure to be built, forcing the transition to a sleeker, more productive economy in the long term, a New York Times article commented on the Sichuan Earthquake in July, 2008.

More practical and explicit reflection of the benefits from 2008 earthquake to Sichuan region comes from the 7.0 magnitude Sichuan earthquake in Ya’an. According to the BBC report, “none of the buildings built since the Sichuan earthquakes collapsed.” The quality of housing for sure has improved.

However, the previous economic condition of the hardest hit region in Sichuan earthquake facilitated the recovery session. A New York Times article wrote about one month after the earthquake, “only 1 percent of China’s population lives in the hardest hit quake-affected area, in northern Sichuan Province. Those residents account for an even smaller share of China’s economic output, because many of them are impoverished farmers.” In other words, these areas might not receive this much of national investment or resources within short period of time.

The economic affects brought by Northridge earthquake in 1994 was a different story. That 6.7 magnitude quake struck an area of 2,192 square miles in the San Fernando Valley, causing 57 people killed and 11,800 injuries. It is still ranked by CNN Money as the most expensive earthquake in American history, costing $44 billion.

In the research “The Northridge Earthquake, USA and its Economic and Social Impacts” conducted by Professor William J Petak from University of Southern California and Research Fellow Shirin Elahi from University of Surrey explains the difficulty of reconstruction for Northridge area, “Northridge earthquake was a direct hit on an urban area and the scale of losses caused by the earthquake far exceeded expectations.”

Unlike regions in Sichuan, US has a large concentration of localised industries, such as the entertainment and aerospace industries in southern California, which was severely undermined by the earthquake, the research argues. Moreover, unlike most people lived in Sichuan’s affected regions were rural farmers, San Fernando Valley supports half of the city of Los Angeles’ population. “Approximately 48% of the population were homeowners – middle class and therefore not obviously insecure- yet many proved to be vulnerable to the hazard,” the Northridge Earthquake research claims.

Another important factor that determines the success of reconstruction after catastrophe is how effective and efficient the state or the federal government respond to the recovery assistance. The highly-centralized government system allowed the Chinese government to respond Sichuan Earthquake immediately, ordering national assistance and resources investment. Kevin L. Kliesen, Economist from Federal Reserve Bank of St. Louis wrote in his article “The Economics of Natural Disaster,” explains the difference in American government, “although emergency funds for food and shelter are usually disbursed immediately by Presidential directive, monies for longer-term rebuilding efforts are often appropriated by Congress with a substantial lag.” The research “The Northridge Earthquake, USA and its Economic and Social Impacts” criticizes the reaction from the government during the Northridge Earthquake. The research attacks the lack of “a desire for a recovery to reproduce a return to normalcy, and achieve the status quo of the socio-economic and built environment prior to the earthquake.” Many federal, state and local officials were not willing to sacrifice their own political, economic, social or environmental agenda to cooperate to help the affected regions, the research asserts. They were at best willing to make adjustment.

An extreme case is the Haiti’s response to earthquake. The Bernard L. Schwartz Chair in Economic Policy Development Martin Neil Baily wrote in an article for Brookings that Haiti, which is too poor to manage the immediate recover after hurricane, has to wait international aid to get basic rebuilding, leaving alone economic growth. It is so difficult for Haiti to recover.

The study of economy in disasters is not new. In 1969, Douglas Dacy and Howard Kunreuther, two young analysts at the Institute for Defense Analyses, published a book called “The Economics of Natural Disasters.”  It was probably one of the first attempts to measure the economic influence of catastrophe. The book argues that the dreadful Alaska earthquake of 1964 helped the Alaska economy by garnering government loans and grants for rebuilding.

“We got a lot of hate mail for that finding,” said Kunreuther, now a professor of business and public policy at the Wharton School of the University of Pennsylvania.

The theory of economic boom from disasters also received criticism.“Over any reasonably relevant period of time, society is not made wealthier by destroying resources,” Donald Boudreaux, an economics professor at George Mason University, said. If it were, “Beirut should be one of the wealthiest places in the world.” Economist Frédéric Bastiat labeled the disastrous economy theory as “the broken window fallacy” in his article “What is Seen and What is not Seen.” Bastiat compares the disaster reconstruction to fix a broken window. It costs $100 dollar to fix a window. The repairman and window shops got money because the window owner pays it. In the reconstruction case, the money comes from tax payers or just money printers. The natural disaster could be an economic boost to a region, but it always is an economic downturn for the whole nation.

In conclusion, the theory model of disastrous benefits for economy should be viewed as that the areas that would not receive national resources or investment during the normal time becomes privileged after suffering catastrophe. It also gives these areas more opportunity and capital to develop during the reconstruction period. The previous economic condition of the affected region and the efficiency of government assistance determine the success of the recovery. Despite to the regional growth, we should never be positive toward disasters because it never generates economy but merely redirects capital and resources to recover a definite loss of wealth.

Is The U.S. Avocado Industry In The Pits?

The newest administration has drawn significant attention to cons of Mexican-American trade, claiming that Mexico is overall hurting rather than helping America’s economy. One drastic impact that our southern neighbor definitely has is on the U.S.’s avocado industry.

The fruit itself has its roots in Mexico, so it comes as no surprise that this country has always been the world’s top producer. Although avocados are endemic to Mexico, the Fuerte variety found new popularity in America in the late 1800s. After the Hass variety, developed by Rudolph Hass at his farm in La Habra, CA in the 1920s, eventually became more favored for its taste and texture, subsequently gaining more notoriety after a marketing push in the 1950s. This was the beginning of the business’s widespread success and marked the start of its major growth.

As this new industry began to grow in the U.S., growers were protected from competition due to a quarantine set in place by the USDA in 1914 to prevent the introduction of seed weevils, stem borers, and other malicious pests that threaten the health of this crop. However, in 1997, this was amended to allow for 19 states to accept Mexican avocado imports from pest-free zones in order to comply with new trade regulations enacted by the North American Free Trade Agreement. Furthermore, in 2001, the Mexican Government won its plea to expand this number to 31 states as well as lengthen the shipping season, and in 2007, all states were allowed to import this produce.

These events significantly increased the amount of direct competition the American avocado industry faces. Though the growing seasons align, Mexico has the advantage of cheaper labor and water costs and is therefore able to offer a better price to consumers. As such, these imported fruits have dominated the American market; currently, 93% of Hass avocados in the U.S. come from Mexico, according to the Hass Avocado Board.

However, the past few years have provided hope for U.S. growers. First, the demand for avocados has risen exponentially. In 1985, Americans only consumed an average of 4 million pounds of avocados per week, but as of 2014, that number rose to a record-breaking 37+ million. The Fresh Fruit Portal projects this to rise to over 50 million by 2019.

Moreover, trade sanctions proposed by President Trump severely threaten the Mexican produce industry at large, as these tariffs, allegedly 20% or higher, will make it nearly impossible for trade to keep up in this $1.62 billion industry.

Sad news for avo toast and guacamole lovers, though: prices of the fruit will likely skyrocket if this trade restriction goes into effect. The high tax combined with the current and projected demand for avocados ultimately means a loss for consumers.

Other sources: California Grown; University of California Cooperative Extension Subtropical Fruit Crops Research & Education; Civil Eats; Statista