The Future of Music Streaming

November 2, 2016 by daly Leave a Comment

Suddenly, music is everywhere. We hear in while on our daily commutes, in stores and restaurants, and all throughout our everyday lives. In today’s climate, music is very easy to access and to consume. We are able to access any type of music through the phones and are able to pick and choose each song we want to listen to. In the past few years, companies like Pandora and Spotify have made it so easy for us to access music on-demand from the devices we hold in our hands. These firms have disrupted the previous revenue models of selling individual tracks for both the traditional music industry and the artists themselves, all while simplifying the user listening experience for consumers.

Many music industry experts believe that this will be the year that the market will correct and stabilize and will determine which firms will be able to survive the consolidation of the music consumption streaming market.

With the introduction of all of these new companies like Spotify and Pandora, iTunes no longer has a monopoly in the music consumption market. Streaming services now offer more music at a lower price, essentially making it impossible to justify purchasing one song for a dollar.

There are currently many streaming services in the market, all hoping to win the majority stake in the industry. Currently, Spotify is the largest in the United States, followed closely by Pandora and Apple Music.

spotify-apple-music-statista Although there are many various streaming companies currently in the market, they all offer slightly different benefits for the consumer and attract different sectors of the population.

One of the obvious current leaders is Spotify. Founded in 2006, Spotify is the largest streaming service in the United States today, with over 40 million paid subscribers. Competitor, Apple Music, which has only been released for about a year, has 17 million paid subscribers for comparison.

Over the past few years, the consumption of music has changed dramatically, from physical record sales to individual song purchases made on iTunes to now the unlimited consumption on streaming services.

According to recent numbers published by Billboard, the industry is looking to have the highest numbers of growth and sales since 2009. Currently, over 411 million units, measured in “total album consumption units,” have been sold in the first three quarters of 2016. These numbers are set surpass the 2009 sales number set at over 489.8 million albums.

The Recording Industry Association of America (RIAA) midyear report found that the overall industry, not just record sales, was up over 8.15% since 2015 as well.

Many attribute this growth and success to streaming services, as they have created alternative revenue sources for the artists and music industry. A few years ago, many downloaded their music illegally. Today, streaming services pay out the artists who have songs on their platforms.

However, one of the biggest criticisms of the music industry today is that the revenue from streaming is nowhere near the physical streaming sales numbers. Although neither Spotify nor Apple Music releases the actual payout numbers to artists, leaked reports reveal payments of $0.006 per stream by Apple Music. Additionally, according to Spotify, instead of a per stream payout, they pay out 70% of revenue to rights holders. This typically averages out to $0.006 and $0.0084 per stream.

These numbers per stream are tiny; it is estimated that the payout for each stream is between $0.004 and $0.008 depending on each service. For the larger artists who receive radio play and are on major labels, this can be a h bf46252e5beee76e50e7cb08e8ab5f68 uge revenue stream, with annual payouts ranging from $100,000 to $500,000 per year. However, for the small artists who might only have a few thousand fans on Spotify or Apple Music, this can threaten their survival in the business.
Many smaller artists and industry experts have criticized streaming services for their lack of payout, and believe that the streaming services should change their compensation models. However, it is not just small, indie artists who believe this should change.

In June 2015, Taylor Swift posted a Tweet criticizing the Apple Music launch. She believed that the service should pay out artists during the three-month trial period, which at the time, they were not planning to do. In a letter entitled, “To Apple, Love Taylor,” she wrote, “I’m sure you are aware that Apple Music will be offering a free 3-month trial to anyone who signs up for the service. I’m not sure you know that Apple Music will not be paying writers, producers, or artists for those three months. I find it to be shocking, disappointing, and completely unlike this historically progressive and generous company.”

Apple VP Eddy Cue responded, on Father’s Day, that Apple would be compensating the artists during the trial period, reversing his initial decision to withhold compensation during the trial period without revenue for the firm. With this single tweet, Swift was able to alter the business model of a huge media and tech conglomerate like Apple and was able to stand up for all of the smaller artists who do not have a voice as powerful and as large as Swift, creating a larger change in the streaming industry.

Swift’s label head and president of Big Machine Records, Scott Borchetta, has been very outspoken regarding his views on streaming and has called out Spotify by name. “Ninety percent of those outlets that we visited in that first year are out of business, so 10 years from now, I guarantee you at least half of those streaming services that exist today will not exist, at least not freestanding.”

While there are many like Borchetta and Swift who are outspoken against streaming, for many artists, platforms like Spotify have helped to launch their careers and gain exposure that they could only previously dream of.

For example, Hozier was an unknown artist until 2013, when he was introduced into a Spotify artist discovery program and added to a playlist, and eventually was added to more, increasing his daily streams from an initial 15,000 streams worldwide per day to over 2 million a day (Billboard). With the support and push of Spotify, Hozier was introduced to over 11 million new fans over the course of two years.

Streaming services can provide success to the lesser-known artists, but many people are weary of the services, as there is an influx of firms in the market that has is constantly changing and evolving.

At today’s point, the streaming services in the market are still in the development stage. Many, including Spotify, are not yet profitable. Even companies like Pandora, which has been in business since 2000, has reported losses of millions in the past few quarters.

So, if the companies aren’t making money but have millions and millions of customers, how will they ever be profitable?

The solution, many industry executives and trend predictors believe, is to move away from a “freemium model” and transition to one that is only paid. In the current economic climate, “freemium” means that companies like Spotify and Pandora offer a free, ad-supported version as well as a paid version for their customers. Many believe this will begin to vanish, as Apple Music only offers a paid version and revenue would increase if everyone were forced to pay.

With these changes, some services like Pandora and Spotify will pivot, encouraging consumers to pay for access to a streaming service. However, will new players in the market choose to create a free model to play with these tech giants?

According to the Financial Times, SoundCloud, a popular site for
soundcloudvspotify remixes and unofficial music, is the next purchase for Spotify. This could be beneficial, as SoundCloud needs help financially and the purchase would diversify Spotify’s catalogue, as it would include more original content and more indie label releases.

The Spotify/SoundCloud acquisition could be one of many that will occur in the next few years, as the industry condenses and corrects from the current oversaturation. There are so many players in the market currently and it will be important for the consumers to express their wants and needs in the streaming market so that the companies best suited for the consumer and industry survive. In a few years,

Three years ago, Spotify and streaming were words that were uncommon in our everyday vernacular.

Sources

http://www.billboard.com/biz/articles/news/record-labels/7534386/heres-why-2016-is-set-to-be-music-industrys-best-year-since?utm_source=twitter

http://www.billboard.com/articles/business/6656722/spotify-spotlight-support-major-lazer-hozier

http://fortune.com/2016/09/29/spotify-soundcloud-acquisition/

http://www.digitaltrends.com/music/apple-music-vs-spotify/

http://www.digitalmusicnews.com/2016/05/24/apple-music-pays-every-country-worldwide/

http://time.com/3940500/apple-music-taylor-swift-release/

http://www.musicbusinessworldwide.com/scott-borchetta-50-of-todays-streaming-services-will-be-dead-in-a-decade/

http://www.forbes.com/sites/hughmcintyre/2016/09/28/report-spotify-is-in-talks-to-buy-soundcloud/#798f59366a49

Mongolia to Minegolia: A nation’s struggle to develop amidst sudden economic expansion

November 2, 2016 by myers Leave a Comment

A nomadic herder rides past a traditional ger in Northern Mongolia.

Traveling outside of Mongolia’s only major city, Ulaanbaatar, can seem like traveling back in time 800 years. Among the hundreds of miles of rolling hills, I was hard-pressed to find any permanent, man-made structure. It was a natural landscape so untouched by modern man that I half expected to see Genghis Khan’s enormous army thunder down a hill aboard hardy little ponies.

Nomadic herding culture has been a part of Mongolia for thousands of years and it remains a major part of Mongolian life. However, Mongolia’s economy is undergoing massive transformation that could change both the cultural and natural landscape forever.

From 2009 to 2013, the Mongolian GDP nearly tripled in size from a scant $4.584 billion (US) to $12.582 billion, according to the World Bank.

mongolia-gdp-per-capita

Mongolia’s explosive rise in the Asian sphere began in the late 1990s when Mongolia found itself to be, quite literally, sitting on top of a gold mine. More important than the gold mine, however, was a copper mine, one of the largest in the world, that was buried underground, just north of the Gobi Desert.

Combining lush national resources and its location just north of resource-hungry China, Mongolia was set to launch itself from rural nomadic countryside to industrialized nation within a span of a few years.

Throughout its expedited transition from a largely agricultural economy to an economy in which one fifth of GDP relies on the mining sector, Mongolia has struggled to strike a balance between rapid growth and growth that is sustainable, fair, and environmentally responsible.

Today, the mining industry makes up 20 percent of Monglia’s GDP. This makes the Mongolian economy somewhat reliant on fluctuating commodity pricing as it sells its copper, gold, and other earth minerals to China. It is possible, however, that mining’s share of the GDP is much higher but the Mongolian government is presenting its nation as a well diversified and therefore more stable economy for investment.

Even at 20 percent of the economy, if metal and earth mineral prices plummet, as they did in the second quarter of 2012, GDP growth can halt or even contract without other industries to offset decreased revenue.

Since the beginning of development at the Oyu Tolgoi mine, a major contributor to GDP growth, GDP per capita has grown over 800 percent. However, the Gini Coefficient, a measure of income distributions in which a value of 0 represents perfect equality and 100 represents absolute inequality, Mongolia is rated a 36.5.

This rating ranks Mongolia 70^th in terms of equality among nations worldwide. To put this in perspective, the most equal country is Ukraine with a score of 24.8 and the second most unequal country is South Africa, a nation that is still suffering great disparity along racial lines as an aftereffect of apartheid, with a score of 65.

While not nearly as bas as South Africa, nowhere is the disparity of development in Mongolia better illustrated than in Ulanbataar. In the center of downtown lies the massive Chinggis Square, named after the nation’s hero, Genghis Khan. On one end of the square sits the Blue Sky Building. This $200 million project is a glass and steel office building and hotel reaching 344 ft. high which would not look out of place in London, New York, or Shanghai. From this vantage point, the city skyline is dominated with towering cranes building offices, apartments, and shopping centers.

Construction on the Blue Sky Building in Ulaanbataar before the hotel and office building opened in 2009.

A mere 15-minute drive away from the downtown area is a very different sight. On the outskirts of the city an estimated 800,000 former nomads have settled in their gers, traditional felt tents that have been used by nomads for centuries. Here, there is no plumbing, running water, or civil services like trash collection. Some estimates place unemployment in these ger districts as high as 60% and without their herds to support them, many are likely living in poverty.

The story of Mongolia’s rise from uniform underdevelopment to the state of Ulanbataar today began in 1997, when the democratic government, established after the fall of the Soviet Union, which maintained Mongolia as a buffer against China, passed the Minerals Law of Mongolia. This law established the state’s ownership of all mineral resources within its borders and reserved the right to sell mining and exploration licenses.

The goal of this law was to grow Mongolia’s economy after a dip that left their GDP below the billion-dollar mark from 1993 to 1994. If the government could sell its mining and mineral exploration rights to international mining corporations, it could, in theory, increase levels of foreign direct investment, lower unemployment, and raise GDP.

Investors found abundant Mongolian reserves of copper, gold, fluorspar, and uranium highly attractive. In addition to owning natural resources, Mongolia shares a border with China, the world’s largest importer of raw materials. This presents a lucrative opportunity to sell materials to China at a lower price by minimizing transportation costs that make metals and minerals from South America more expensive.

Combining natural resources with its proximity to China, a country that imported $25.1 billion in refined copper and $63.9 billion in gold in 2014, Mongolia looked like the world’s premier destination for mining operations.

Turquoise Hill Resources Ltd., a subsidiary of the Canadian Ivanhoe Mines, found a massive copper reserve in southern Mongolia. It announced a $4.4 billion investment in underground development at its mining sight Oyu Tolgoi on December 14, 2015. Estimated to be the world’s third largest reserve of copper, Turquoise Hill originally invested $6.2 billion in 2013, after years of exploration and analysis, to begin production.

Turquoise Hill Resources has invested over $10 billion so far in the Oyu Tolgoi mine and surrounding infrastructure.

These investments were massive in communities where wealth was generally measured by herd population rather than hard currency. The influx of capital and demand for labor encouraged many nomads to abandon traditional herding practices in order to work for mining companies or construction companies which were needed to build infrastructure like roads and bridges virtually from the ground up.

In order to include Mongolian interests in mining decision-making, the Mongolian government and Turquoise Hill spent five years negotiating the Oyu Tolgoi Investment Agreement. The agreement states that the Mongolian nation has a 34 percent equity stake in the mine with the ability to renegotiate their ownership to 50 percent as soon as initial investments have been recuperated. This clause is very favorable for mining companies which are essentially guaranteed the recuperation of their investments.

Additionally, the agreement holds the investor accountable for regional economic development, adhering to national and international environmental standards, contributing to national infrastructure, maintaining a workforce that employs mostly Mongolians, and investment in the education of the Mongolian people.

While these terms are written into the official contracts, there is little evidence to support the clauses did anything more than pay lip service to ideas of sustainable development.

With the volatility of commodity pricing, those who have sold all of their herds and bet on Mongolia’s industrialized future by settling in cities are facing just as much if not more uncertainty than their countrymen and women who remain herders. Over the past five years, copper prices have fallen over 50 percent affecting both wages and unemployment.

After a severe dip in prices following the global economic crash in 2008, copper prices rose. Since 2012, prices have been decreasing.

Dwindling copper prices have slowed economic growth to a crawl, the World Bank predicts 0.8 percent growth rate in 2016, and the Mongolian currency, the togrog, has plummeted in value.

Many economists blame Mongolia’s economic downturn on changes in the slowing Chinese economy. China, which is the destination of 80 percent of Mongolia’s exports, has decreased its demand for commodities like copper and coal, which has driven down international commodity prices significantly. This serves as a double blow to the Mongolian economy because China is not buying as much and prices are falling in the international marketplace.

Despite contractions in copper prices and resulting economic uncertainty, many nomads continue to settle in cities either to seek economic opportunity or escape the uncertainty of harsh winters that can wipe out an entire family’s herd, a Mongolian’s source of wealth and survival. The increasing frequency of these unusually cold winters are intensifying movement to urban areas, as herds die off on the ice covered steppes. These extreme weather conditions have been attributed to pollution and its affects on climate change.

Just like in Ulanbataar, families who renounce their nomadic lifestyles settle in gers on the outskirts of mining towns. During the winter months, when low temperatures average around -28 degrees Fahrenheit, former nomads burn massive amounts coal to keep warm and cook. Air pollution is so bad in the colder months that it exceeds the World Health Organization’s most lenient standards by 600 to 700 percent.

This creates a spiral of urbanization. As more nomadic families leave the countryside and gather in mining towns and cities, pollution increases thereby worsening and increasing the frequency of hard winters, forcing more families to trade their herds for mining or manufacturing jobs.

Former nomads settle in their gers near mines to find work.

What were once seen as beacons of opportunity are now more like poverty traps. Those who work in the mines are either susceptible to injury or the arduous labor prevents many miners from being hired past age 40. Even people who have moved to cities to support the growth of mining towns by opening shops and restaurants are feeling the strain of dwindling copper prices as miners become unemployed and have less to spend. And without the herds of sheep, goats, yaks, and horses that used to sustain Mongolians through the harsh winters, those who can no longer find work will find an economic landscape almost as barren as the Gobi Desert.

When Trade Goes Wrong: The Economics of Cargo Theft

November 1, 2016 by Richard Podkowski Leave a Comment

In 2015, 8.2 million TEUs (twenty-foot equivalent units, a standardized maritime industry measurement for counting cargo containers) passed through the Port of Los Angeles (Port of Los Angeles). Few people consider the economic impact when a trade supply chain this large is disrupted. However, cargo theft is a growing problem that can have major effects on local, national and even global economies.

The FBI defines cargo theft as, “the criminal taking of any cargo including, but not limited to, goods, chattels, money, or baggage that constitutes, in whole or in part, a commercial shipment of freight moving in commerce.” (FBI) Cargo theft can happen at any point on a supply chain from origin to final destination. This can manifest itself in a variety of ways such as stealing containers from a warehouse, hijacking a truck or even attacking a container ship at sea as Somalian pirates have done.

Cargo theft has both direct and indirect economic effects. In 2014, 29 U.S. states reported 547 incidents of cargo theft to law enforcement with losses from the stolen goods totaling $32.5 million. (FBI) However, losses go far deeper than the goods stolen. Manufacturers who have goods stolen lose customers to competitors as they cannot keep up with demand, potentially long-term due to lack of trust. Owners of the affected part of the supply chain also risk losing business. Insurance premiums also rise after cargo theft incidents, forcing companies to either spend more on security or run the risk of paying high insurance.

Brazil’s recession has led to an increase in cargo theft, as organized criminals capitalize on a weakened police force and residents who cannot afford mainstream goods in the face of 11% unemployment and 8% inflation (Bloomberg). Brazil’s mountainous regions, such as Rio de Janerio, are being hit particularly hard as trucks are more susceptible to theft in such unprotected areas. In June 2016, a truck 25 miles outside of Rio carrying $440,000 in goods was swarmed by a rifle-toting gang and forced to drive to a local favela (Bloomberg). The goods were unloaded onto another truck and sold to locals at much lower costs than conventional retailers. According to Brazilian police, the state of Rio alone is on track for more than 8000 cargo thefts this year that could total anywhere from $100 million to $1 billion, depending on estimates (Bloomberg). These are significant losses, especially in a struggling economy.

Cargo theft is a difficult issue to deal with because goods can pass through many different countries with different regulations and law enforcement capabilities. For example, a container originating in the United States can be stolen with less effort in Brazil. This could potentially deter manufacturers from selling their goods in Brazil. Companies and supply chain managers should take initiative and invest in security measures. This takes away responsibility from federal governments, who may not have the resources or willingness to fight cargo theft.

Sources:

https://www.portoflosangeles.org/maritime/stats.asp

https://ucr.fbi.gov/cargo-theft-user-manual

http://www.bloomberg.com/news/articles/2016-10-28/rio-s-drug-gangs-squeezed-by-recession-go-on-hijacking-spree

https://www.fbi.gov/news/stories/statistics-on-2014-cargo-thefts-released

Burberry, Brexit & Trade

November 1, 2016 by ashley Leave a Comment

With the click of a button, a classic Burberry trench coat can be delivered to your doorstep within days. As an iconic British brand, Burberry has over 498 locations around the world and countless products traveling between national borders every day. Consumer demand and international markets that make the item seasonless while it remains a symbol of British fashion and production around the world. As winter creeps closer, you get your hands on a classic Burberry trench coat and discover the larger story of how it got to you through the process of international trade.

Statista

Burberry was founded over 160 years ago in 1856 in Basingstoke, England as a high-fashion brand. Unlike other luxury brands, Burberry has prided itself on producing its clothing in England. When the brand announced that they would open a manufacturing in China in 2012, they were met with staunch negativity. Because the trench coat is a symbol of British manufacturing and England in general, Chief Executive Officer Christopher Bailey thought that the brand should stay loyal to the heritage of the textile industry that would provide the timeless quality of the coat and opened a factory in Leeds in 2015. Although China’s production would have a comparative advantage and possibly make more money for the brand, the products would lose their history and sentiment. Using the original method that includes over 100 processes, it takes three weeks to complete a single Burberry coat. The site in Castleford manufactures 5,000 trench coats a week and has a capacity of 240,000 a year. With an average price point of $1,500, that’s $360 million a year in trench coats produced at this site. When Brexit occurred, people and brands were on edge of how trade barriers would change and impact British brands and products throughout Europe and if trade agreements would also change with the United States.

The Telegraph

With consumer prices on the rise in the U.K., the pound has fallen by a fifth to the U.S. dollar since the U.K.’s vote to leave the European Union. This is caused the price raw materials to increase, causing the price of consumer products to climb as well, which means the cost of that trench coat would rise as well. Since the U.K. will be leaving the EU, borders that were once open and had few restrictions will all change. The uncertainty of the U.K.’s trade could make labor market conditions tighter and cause even higher inflation. This type of monetary affect would curtail consumer spending, which is a main driver of the British economy. In addition, it may be harder for other Europeans to get their trench coat delivered from digital, which outperformed in this half according to Burberry’s “First Half Trading Update.” In fact, digital saw growth on a global scale in Asia, EMEIA (Europe, Middle East, India and Africa) and the Americas since the redesign and launch of burberry.com this past September. Knowing this, the delivery methods of European market segment may change in the future based on trade rules, barriers and even tariffs. The price of a coat could rise based on these factors and it is uncertain if shipping will be a different

For America, Brexit gave the United States a chance to get closer as trade partners. Obama previously said that Brexit would put the U.K., “at the back of the queue” when it came to free trade deals. The United States is the U.K.’s second largest trading partner while the U.K. falls behind as the U.S.’s seventh largest trading partner. Exporting goods is a huge boost to the British economy, in fact 10% of British exports came to the United States last year, which I can only assume included numerous Burberry coats. If the U.S. and the U.K. were able to form the Trans-Atlantic Trade and Investment Partnership (TTIP), it would cover 800 million people and facilitate closer trade with two of the largest economies in the world. However, like almost every trade deal, it has been disputed by Brits because of worries that large corporations that could take over the market, movement of jobs and softening on food safety and regulation.

You may not have realized it, but before your coat arrives to you via digital or if you pick it up in-store, all these factors have impacted that single coat. Raw materials makes your trench more expensive, the fall of the British pound has created inflation in women’s clothing. The landscape of the economy for England is in a transitional period and how it will change within Europe and America is yet to be seen at its full capacity. Your trench coat’s price is always changed based on these factors and more and how it will be delivered to customers may change and further impact this price. Perhaps it is in your best interest to go to England and purchase it straight from the source because it will be at the cheapest cost. However, next time you buy a Burberry coat, pay attention to what’s happening in the world of trade and Brexit, because the story of that coat might have changed.

HighCharts

Hanjin: A Wake Up Call for South Korea

November 1, 2016 by aaron Leave a Comment

Trade: the transfer of ownership of goods and/or services from one entity to another.

A slow-down in trade seems improbable at a time when the United States seems to rely more and more each year on cheaper Asian and European manufacturing processes; however, this is no longer the case.

What happened?

Back in late-August/early-September, the Hanjin Shipping Company filed for bankruptcy in South Korea, forcing many of their ships to be stuck at sea. To show how much damage this filing can make, Hanjin Shipping Company is one of the world’s top ten largest shipping container carriers in respect to capacity. The company transports over 100 million tons of cargo every year across the globe. hanjin_container_ship

In order to show the extent to which Hanjin’s influence on world trade exists, the total value of the United States’ imports and exports fell by more than $200 billion last year. According to Binyamin Appelbaum’s article in The New York Times, this marks “the first time since World War II that trade with other nations had declined during a period of economic growth.”

Interestingly enough, Hanjin filed for bankruptcy in the U.S.’s bankruptcy court in Newark, New Jersey. By doing so, Hanjin would be allowed to dock its boats, without any cargo and equipment being taken as collateral by creditors.

Other Impacts on World Trade

The downfall of China in the ranks of world trade has created an incredible loss in supply of goods coming overseas. As opposed to the 1990s when seemingly everything that was bought said, “Made in China”, today there is a decrease of 25% of these goods. China has begun to produce more of what its people consume, and they are consuming more of what they make. This has forced a shrinkage in the number of exports they are shelling out and the number of imports they are bringing in. With smaller trade volume in and out of China, the entire world will feel the lingering effects.

What Hanjin Means to South Korea

Most recently, as reflected by Hanjin Shipping Company’s stock price, South Korea’s government has created an industry rescue plan. As a result, the stock closed up 24.8% from the end of the weekend. This is all speculation and reports that ever since the company’s financial collapse in late August, Seoul, the nation’s capital, has tried to get the shipping company back on track at an earlier time than expected. Also on October 31, 2016, Hanjin received five bids for its United States-Asia business. The shipping industry is so important to South Korea that the government’s goal is to create a state-backed ship financing company, that will help to improve the health of the current situation. There is a need for shipping in and out of Asia, and South Korea sees a promising future as long as there are new vessels, upgraded machinery, and intelligent executives at the helm of these firms.

The Shipping Industry and the Market

As of December 30, 2015, Hanjin has
amassed a 73.95% loss in its shares, compared to the industry’s loss of 19.23% year-to-date (YTD). Hanjin was responsible for seven percent market share on the Asia-U.S. trade in the first six months of 2016. Although a 7% market share may not seem like a lot, trade between the United States and Asian continent has exported $286 Billion and imported $641.4 Billion.

With hopes to turn things around, we should see a buyout of some of Hanjin’s shipping duties and equipment within the next couple of months.

Sources:

http://www.nytimes.com/2016/10/31/upshot/a-little-noticed-fact-about-trade-its-no-longer-rising.html

https://www.census.gov/foreign-trade/balance/c0016.htm

http://asia.nikkei.com/Business/Companies/Hanjin-Shipping-stock-soars-on-Seoul-s-industry-rescue-plan

http://www.reuters.com/article/us-hanjin-shipping-debt-idUSKBN12U0Z9?il=0

Trump and Clinton Actually Agree On Something! Trade!

October 31, 2016 by evans Leave a Comment

This year’s presidential election has been classified as everything but gratifying. Hillary Clinton and Donald Trump have haphazardly disagreed on almost every national issue that has come up in debate. However, one issue they both agree on is to not implement the Trans-Pacific Partnership.

This trade agreement, referred to as the TPP, aims to promote economic growth, creation of jobs, enhance innovation and productivity, raise living standards, reduce poverty, and promote transparency, good governance, and enhanced labor across the 12 Pacific Rim countries, not including China (USTR). The creators of the TPP believe that they will achieve these goals by creating measures that lower non-tariff and tariff barriers to trade.

This trade agreement was proposed as an expansion of the Trans-Pacific Strategic Economic Partnership Agreement in 2005 (USTR). The U.S. signed in agreement with the trade proposal in 2008 and was one of the 12 countries included in the finalized agreement that was completed in February of this year. Implementing the TPP has been one of the trade agenda goals of the Obama administration (USTR). However, now that a new president is coming into power, the smooth implementation of this trade agreement will be affected, which could have detrimental effects on the U.S. economy.

The U.S. International Trade Commission estimates that the TTP will create 128,000 new jobs, increase annual U.S. income by 0.23% and raise our real GDP by 0.15% (USTR). Obama believes it will do this by opening up foreign markets for exporting goods and bettering standards for working conditions in 11 other nations. However, Clinton and Trump are not convinced.

The 2016 presidential candidates believe that the deal will actually hurt American workers (BallotPedia 2016). Trump declared, “I am going to withdraw the United States from the Trans-Pacific Partnership, which has not yet been ratified” (BallotPedia, 2016).

He also claimed, “we will move manufacturing jobs back to the U.S. and we will Make America Great Again” job-losses (BallotPedia, 2016). Hillary, on the other hand, was suspected of being in support of the TPP agreement when working under the Obama Administration. However, in May of 2016, she said, “I oppose the TPP agreement – and that means before and after the election.” She made another comment about the issue in March, when she claimed that one of the reasons she opposed the TPP is because the final proposal has too many loopholes, which will allow countries and citizens to be taken advantage of (BallotPedia, 2016).

Providing jobs to American citizens is one of the most essential aspects of a country’s economic success. The TTP encourages free trade, which supports the idea of importing goods from other countries on a large scale. As a result, this trade agreement will actually decrease the amount of jobs in America by encouraging cheap production and manufacturing overseas. If the country’s new president decides to remove the U.S. from the TPP agreement, it would wipe out years of Obama’s hard work in promoting economic growth through trade. However, it might be necessary, if America wants to promote production and innovation within our country’s borders.

Works Cited:

https://ballotpedia.org/2016_presidential_candidates_on_the_Trans-Pacific_Partnership_trade_deal

https://ustr.gov/tpp/

Barreled & Tapped: The History & Impact of San Diego’s Craft Beer Scene

October 27, 2016 by ashley Leave a Comment

San Diego is known for its robust craft beer scene, but it’s the history and economics behind this industry that makes this city shine in a nation filled with craft beer cities. According to the Brewer’s Association, in 2014, small and craft breweries contributed $55.7 billion to the U.S. economy and supported over 424,000 jobs with 115,000 directly at breweries or brewpubs. In San Diego, for every brewery job that is added within county, 5.7 jobs in supporting industries are created. The rich history, educational practices and connectivity between brewers and has allowed more breweries to open led to success of San Diego craft beer.

Craft beer may reign in San Diego, but it didn’t start there. The story of beer actually started in Mesopotamia in 5 BC with the Sumerians who participated in the brewing and drinking of beer that was passed down from generations through a poem. Oxford scholars found this poem from1800 BC that involves Ninkasi, the goddess of brewing, and the production of beer from barley. Thousands of years later in North America, Spanish missionaries came to spread Catholicism and brought fermentation practices that produced sacramental wine, which would eventually be used in the beer making process. When the Mexican government gained independence from Spain and in 1848, the United States took the region of San Diego from Mexico.

Beer making in San Diego can be traced back to 1868 when Conrad Doblier began brewing European-style beer as an emigrant from Austria as a brewer. In 1868, two breweries were created in San Diego named the San Diego Brewing Company and Mission Brewery. During Prohibition from 1920-1933, many San Diegans moved south to Tijuana, Mexico in order to produce and drink beer legally. While there, they opened Aztec Brewing Company and Mexicali Brewery, which soared in popularity due to the low supply and high demand of alcohol in the U.S. At the end of Prohibition in 1933, the San Diego Brewing Company and Aztec Brewery were responsible for 25 percent of California’s beer production. Once beer powerhouses like Anheuser-Busch, Coors Brewing and Miller Brewing started their production of beer in the 50s, they caused commercial beer production halt in San Diego breweries until 1987.

San Diego’s craft brewery scene started again in the 80s when California legislation was passed that legalized the brewpub throughout California. It also made commercial production ands sale of beer in restaurants and home brewing legal, giving beer enthusiasts the chance to capitalize on their hobby. Home brewers started swapping recipes, experimenting and eventually, built the connection between brewers in San Diego that exists today. However, during the 80s, one brewery stood out as the founder of this new era of beer. It is the story of two best friends who formed the Karl Strauss Brewing Company. Chris Cramer and Matt Rattner opened The Karl Strauss Brewing Company in Downtown San Diego and kick-started the craft brew revolution on February 2, 1989. It was the first brewery in operation since the 50s and the first-ever brewpub in San Diego. The 1980s marked a period of brewing pioneers innovators and craft brewers in the U.S. had gone from eight in 1980 to 537 by 1994, with Karl Strauss as one of them. Today, there are 518 craft breweries opened in California alone, the most out of any state, with over 120 located in San Diego.

www.beercoasters.eu

Karl Strauss started their business by only brewing a golden ale, an amber lager and a dark brown ale. Because of their innovative flavors that challenged the typical light beers that were on the market, there was a high demand for Karl Strauss beer and in 1991, Karl Strauss opened a distribution center in order to ramp up their production. Today, Karl Strauss has eight brew pub locations and has plans to open a second distribution center because of the demand for their beer. Even though they only distribute their beer in California, Karl Strauss is ranked the 45^th– for the largest volume of craft beer distribution in America out of 3,000 breweries. According Karl Strauss, “craft beer is not just a job, it’s who [they] are.” This can be seen through their extensive network they created with employees that were mentored at their brewery and branched out on their own.

Karl Strauss started the careers on many brewers in San Diego who added the to culture of education and family. According to the founder of Karl Strauss, Chris Kramer, “One of the reasons why San Diego has become such a mecca for craft beer is we started off with a group of individuals who were friends and collaborative rivals.” This is still true today and is the reason why San Diego’s craft brewery scene is so interconnected. Many employees who had their start at Karl Strauss opened their own breweries, adding to the ever-growing family of craft brewers in San Diego. Karl Strauss’ original bartender, Scott Stamp, opened the San Diego Brewing Company and their first-ever waitress; Gina Marsaglia opened the ever-popular Pizza Port in 1992 with her brother Vince. In addition, Karl Strauss’ original tour guide, Jack White, opened the renowned brewery Ballast Point in San Diego in 1996, which is now the 11^th brewery in America for its wide distribution, innovative flavors and unique offerings. The small craft brew circle that started at Karl Strauss has promoted the art of beer making is one of the reasons why San Diego craft brewing is successful today.

sandiegohistory.org

The interconnected nature of the San Diego craft industry started with Cramer and Rattner in 1989, but the San Diego Brewer’s Guild allowed the craft brew industry to continue to grow in San Diego. Founded in 1997, the guild was created with two goals: to promote San Diego’s brews and to create an open line of communication between brewers. This type of communication has allowed San Diego to continue to grow the industry while also keeping the competitive market friendly with the sole goal of promoting the craft as whole rather than individual businesses. The guild advances their mission to, “promote… locally brewed beer through education and participation in community events.” Craft powerhouses like AleSmith Pizza Port, Stone Brewery, Green Flash and Karl Strauss are all members of this coalition, making it easier for brewers to unite within San Diego. Although there are guilds throughout the U.S. that promotes craft beer, the SDBG is different because their breweries continue to innovate together within San Diego. As a team in 2014, San Diego breweries dominated the World Beer Cup where they won 11 of the 14 medals awarded. During the World Beer Cup in 2016, the SDBG won more medals than the entire United Kingdom and even beat-out Germany in the category for Kölsch, which is a German style beer. Just this October, the SDBG took home another 18 medals at the Great American Beer Festival in Denver, Colorado, cementing San Diego as a destination for craft beer innovation. Denver is often thought of as a craft-brewing center as the home of the Great American Beer Festival, but only won eight medals.

Great American Beer Festival

The strong dynamic to promote the craft within the industry and become a world competitor as a city has been promoted by the San Diego Brewer’s Guild but has remained a part of the craft culture with San Diego as well. . Because most brewers had their start at other breweries, they formed a sense of respect and trust for the craft culture in San Diego. When Vinnie Cilurzo created the Double India Pale Ale in 1994 in San Diego County, nearly every brewer has embraced this style of beer in San Diego. In fact, San Diego is now internationally known for their Double IPAs, which is often referred as the San Diego Pale Ale. Stone Brewery, Karl Strauss and AleSmith, all a part of the SDBG, are famous breweries that carry the torch of the Double IPA today. The creativity and education that solidified the bonds between brewers allowed many brewers to leave the breweries they worked at to form their own and create a craft beer boom in San Diego.

voiceofsandiego.org

Between 2009 and 2011, nearly 40 breweries opened in San Diego causing a surge in the craft beer market. In 2011 alone, the county’s brew pubs generated $300 million to the county, generated over $600 million in sales and created more than 2,800 jobs in San Diego. The expansion of breweries in San Diego translates to a boom of jobs and contributions to the local economy through these jobs, revenue and taxes to the City of San Diego. During this time, more brewers came to San Diego than competing cities because of the respect the city has garnered for itself and wages provided. In 2012, San Diego had the highest average wage for brewery workers in the U.S. compared to Portland and Denver, which are often regarded in the same category. Today, the wage gap has closed where the average salary is around $36,000 a year. Although wages slowed in 2014, the craft brew sector grew overall and had a direct economic value of $600 million, which is twice the amount three years prior. This figure is generated based on San Diego’s 120 local breweries and their revenue, profits, wages and jobs the industry produces. Wages may have helped grow the craft industry, but it is education portion that diversifies San Diego from other brewing regions.

NUSIN Institute

According to the NUSIN Institute, San Diego provides more education programs for industry professionals entering the craft beer market than their competitors. These types of programs further the industry and allow brew masters to pass on their knowledge within the industry. There are two major education programs in San Diego: the San Diego State University College of Extended Studies Business of Craft Beer Professional Certificate and the University of California– San Diego Extension Brewing Certificate. Both were founded in 2013 and follow the mission of the SDBG to promote local beer through education. In addition, many brewers encourage their employees to participate in the Cicerone Certificate Program, which was created in 2008 to educate people and create craft beer leaders. Similar to sommelier training in the wine industry, the Cicerone program trains professionals in the knowledge of beer in sales and services. In the NUSIN Institute study, 57 percent of craft breweries indicated that their employees participated in the Cicerone Certificate Program. Karl Strauss is one brew company that prides themselves on having multiple employees that are certified Cicerones and beer servers because, “everything from beer and food pairings to style education is part of the Karl Strauss experience that goes above and beyond what you’ll find anywhere else.” It is experiences like this that adds an extra layer of knowledge to employees and education to customers on their journey of beer in San Diego further expanding art of beer making into other industries in San Diego.

Jobs are being created within the craft brew industry and in supporting fields. Throughout the county, NUSIN has identified that one third of local industry jobs are directly relate to brewing while two thirds focus on brewpub operations. Brewpubs are dependent on food service and hospitality sectors that are composed or hosts, servers and cooks. Because of this specialized nature of brewing, supporting fields have popped up within San Diego such as: brewing equipment design and manufacturing, packaging, sales and marketing, brewing labs, home brewing supply stores and hops and farming. All of these industries that have an impact on the brewing process generates an average $56.6 million in sales annually.

NUSIN Institute

San Diego is a hub for the innovative beer market because of the rich history of beer making and the connections between brewers that has allowed the city to work together to educate people and produce beer as one unit. These factors are the reason that San Diego has its own IPA category of beer and produces more than 2,000 unique beers annually. If Karl Strauss had not started the craft sector in the 80s, the industry would not be the same. It is the need for creative flavors, friendly and collaborative rivals and the growth of an industry that Karl Strauss created that keeps the San Diego craft beer industry alive today. It is also the reason why they won mid-size brewing company and brewer of the year at the 2016 Great American Beer Festival. If the San Diego craft beer industry stays true to their message that craft beer is a family network that succeeds based on innovation, education and interconnectivity, there is a chance that the beer bubble won’t bust for a while longer and small batch brewers will continue to succeed.

Chinese Billionaires Are Taking Over L.A.

October 25, 2016 by evans Leave a Comment

Since the beginning of this century, China’s economy has grown at a notable rate, reporting double-digit GDP growth each year. As a result, there have been massive levels of wealth and a new population of Chinese billionaires. However, in the last five years, the Chinese immigrant population in the United States has increased by about 400,000 people, with about 25,000 of them being millionaires (China File, 2015). This causes economists to examine why so many wealthy Chinese are moving to the United States and how their movement is affecting the U.S. economy.

Although China has one of the world’s largest economies by measure of GDP, with consumption making up 71% and a debt exceeding 250% of their GDP, China’s economy proves to be anything but stable (The Hindu, 2016). Much of this instability is backed by the fact that the Chinese government has been inflating their GDP data through massive rates of increased spending. It also has to do with the fact that there is decreasing momentum in the service sector and a steep decline in the manufacturing sector. Since these sectors make up the largest part of China’s economy, it has made millionaires desperate to get their money overseas because they are unsure of the value that their fortunes will hold in years to come.

Another reason why Chinese millionaires are wary is because of the massive crackdown on corruption that was started in 2013, when President Xi Jinping came into power. This decision was intended to boost citizen morale by reducing the harsh divide between ordinary Chinese and party officials (Williams-Grut, 2016). However, since this crackdown, about 300,000 government officials have been punished for “allegations of bribery, abuse of power or other corrupt practices,” causing many of them to worry about the fate of their fortunes (BBC, 2016). Therefore, in order to protect themselves, many officials are trying to hide the money they earned illegally by investing it abroad.

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Karen Weise, a reporter from Bloomberg, found that Chinese nationals hold around $660 billion in personal wealth offshore, with $22 billion of that being spent on homes. This movement of Chinese money, especially in the housing market, is present all over the United States and shows no signs of slowing down. These Chinese invest in American real estate because it is a safe market and many cities offer benefits like great neighborhoods and schooling. Therefore, in response, real estate has had to cater to the incoming Chinese millionaires by changing city landscapes, which, in turn, has affected many cities existing demographics.

As of 2015, it was reported that 64% of China’s 1.3 million millionaires have emigrated or have plans to move to the United States in the next five years (China File, 2015). These immigrants are moving all over the country; however, one of the most concentrated examples of a city adapting to wealthy Chinese immigration can be seen in Arcadia, CA.

Arcadia is a city 20 miles northeast of Downtown Los Angeles that has become a haven for wealthy Chinese residents. In 2016, it was reported that 59% of Arcadia’s 56,000 residents were Asian. This compares to 2000, when Asian’s only made up 45% of the population, 34% of that percentage being Chinese (U.S. Consensus). Over the last 16 years, Arcadia has attracted tens-of-thousands of Chinese millionaires by offering a first-class schooling system, large homes to live in, a nice neighborhood to raise children, and a pre-existing Asian population. These services have not only transformed the city’s landscape, but have also created great changes in Arcadia’s real estate sector.

As Chinese immigrants started to immigrate to California, realtors saw this as the perfect opportunity for financial gain. Therefore, to attract this specific Chinese market, architects and developers changed Arcadia’s landscape by building similar styled mansions ranging anywhere from $2 million to $7 million all over the city. Most of the homes reflect the Chinese philosophy of feng shui and face the south, which are two important aspects of Chinese culture (Hawthorne, 2014). Chinese culture is deeply rooted in tradition; therefore, Chinese immigrants are often more attracted to the mansions that honor their culture. Real estate developers also try to attract Chinese millionaires by creating mansions that include wine cellars, theaters, double-height entry halls, elevators, many master bedrooms, and a separate wok kitchen (Hawthorne, 2014). Architects and developers make a conscious effort to build these Arcadia mansions to appeal to wealthy Chinese immigrants in the hopes of earning a large profit.

Just in 2013, one Arcadia realtor, Peggy Fong Chen, sold over $71 million worth of homes in Arcadia (The Chinese Beverly Hills, 2014). According to Jue Wang, Chinese millionaires have been moving to America because they feel uneasy about their real estate investments in China’s unstable real estate market. Also, because of the income and wealth disparities in China, rich people have come to feel unsafe, causing homes in America to look even more attractive. However, for the most part, she said that these large Mc-mansions are in high demand because it gives millionaires a place to store their money.

While many of the mansions in Arcadia have semi-circular driveways lined with Range Rover’s and Porches, when getting a closer look, many of the homes actually appear to be unoccupied. A member of The Arcadia Homeowner’s Association estimated that 20% of these new mansions sit empty (Weise, 2014). This confirms that many Chinese are using these homes as a place to store their money. Realtor, Peggy Fong Chen, said that many of the million dollar homes she sells are paid for in cash. By paying in cash, Chinese millionaires are making it almost impossible for the Chinese government to trace the money that is being invested overseas.

Although this is an issue for the Chinese government and their economy, the U.S. has truly benefitted from the billions of dollars that Chinese foreigners have spent on American soil. For example, in 2014, Arcadia brought in a record revenue of $7.9 million just from fees for building permits and developments, which is a 72% increase from the previous year (Weise, 2014). Wealthy Chinese immigrants also helped the U.S. economy during the recession of 2009. During this time, China’s elites were affected but held on to the bulk of their wealth. Therefore, as America was facing a time of dramatic economic downturn, Chinese millionaires continued to move to the U.S., bringing millions of dollars with them. This money was then used to hire workers, pay for goods and services, and to help keep businesses afloat.

The United States government understands the influence that wealthy Chinese immigrants can have on the American economy. Therefore, in the hopes of sparking American investment, the U.S. government created a program to attract wealthy foreigners in 1990. The program states that if wealthy foreigners invest at least $500,000 in an American business and employ at least 10 American workers, they are eligible to apply for a green card known as the EB-5 Visa. As of 2014, Chinese nationals received 85% of the 10,000 American visas offered. Therefore, through this plan, the U.S. was able to generate at least $4,250,000,000 in investments, not including the money Chinese immigrants spent once they were in the U.S.

As much as this influx of wealthy Chinese immigrants can be beneficial to a city, it can also create problems throughout society. One problem is with long-term residents who feel like their cities are being commercialized solely for the purpose of financial gain. For example, people who have grown up in Arcadia have watched their hometown turn into a “Chinese Beverly Hills” lined with mansions that are not even occupied. As stated before, since 2000, Arcadia has experienced a 14% increase in their Asian population. This means that 14% of the former, mostly white, residents have moved out of Arcadia, many of them moving because developers have offered high prices to flip their average homes into Mc-mansions. In this case, it is clear that the wealthy Chinese immigrant population contributes to the gentrification of Arcadia by replacing the homes of it’s former citizens with giant mansions that better meet the needs of the new Asian millionaires. This not only promotes sentiments of elitism, but it also angers residents who feel like their city is being commercialized for the sole purpose of financial gain.

Another potential problem to be considered is that Arcadia is experiencing growth at an extremely fast rate that does not seem to be sustainable. Developers must be conscious because the amount of money that is being poured into these projects could be contributing to a real estate bubble. For example, on Zillow, there was a one-story home that was purchased in 2012 for $980,000. Then in 2013, a 5-bed room, 6-bath home popped up at the same address for $3,438,000, showing that developers are buying cheap homes and then replacing them with multi-million dollar to please the incoming Asian population.

Another example is just a few blocks away at a 3 bedroom, 2-bath house that was sold for $428,000 in 2012. Just this month, the same house was listed for about $2 million. This shows that because of multi-million dollar mansions that popping up throughout the city, the prices of the smaller homes are starting to rise as well. If developers continue building mansions we will eventually end up running out of resources or buyers. Therefore, developers must make a cautious effort to only create supply when there is demand, to avoid a real estate bubble.

Works Cited:

“Arcadia Population and Demographics (Arcadia, CA).” Arcadia Population and Demographics

(Arcadia, CA). Web. 22 Oct. 2016.

Bertrand, Natasha. “This California Suburb Has Become a Haven for Wealthy Chinese

Residents.” Business Insider. Business Insider, Inc, 02 Feb. 2015. Web. 6 Oct. 2016.

Hawthorne, Christopher. “How Arcadia Is Remarking Itself As A Magnet for Chinese Money.”

Los Angeles Times. Los Angeles Times, 3 Dec. 2014. Web. 9 Oct. 2016.

Hooper, Kate, and Jeanne Batalova. “Chinese Immigrants in the United States.”

Migrationpolicy.org. 05 Feb. 2015. Web. 18 Oct. 2016.

Scutt, David. “China’s Economy Is ‘still Weak and Unstable'” Business Insider. Business Insider,

Inc, 02 Mar. 2016. Web. 12 Oct. 2016.

VocativVideo. “The California Town Where Chinese Millionaires House Their Kids-and

Mistresses.” YouTube. YouTube, 05 Dec. 2014. Web. 2 Oct. 2016.

Wang, Jue. “Chinese Homebuyers Heat up LA’s Real Estate Market.” US-China Today. 4 Apr.

Web. 10 Oct. 2016.

“Wealthy Chinese Are Fleeing the Country Like Mad.” ChinaFile. 3 Feb. 2015. Web. 10 Oct.

2016.

Wei, Lingling. “China Challenged to Keep Yuan Stable as Dollar Rises.” WSJ. Wsj.com, 16 May

Web. 10 Oct. 2016.

Weise, Karen. “Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?”

Bloomberg.com. Bloomberg, 14 Oct. 2015. Web. 11 Oct. 2016.

Williams-Grut, Oscar. “China’s Corruption Crackdown Is so Strict That Even 2,400 Anti-bribery

Officials Were Probed.” Business Insider. Business Insider, Inc, 25 Jan. 2016. Web. 16 Oct. 2016.

Should Americans Kick Shoe Tariffs?

October 17, 2016 by joyce Leave a Comment

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

In status-driven industries like fashion, there tends to be a high demand for stylish, high-quality products at a fraction of the cost. With a globalized economy and companies increasingly outsourcing plants to take advantage of cheaper labor, locally produced brands have found difficulty competing with low prices. In order to counter the low costs of the textiles and apparel imports, the United States government has imposed incredibly high tariffs of up to 67.5 percent compared to an average 1.4 percent on most other goods to protect the United States’ dwindling domestic manufacturing supply chain (The Hill).

The shoe tariff was created in 1930, when the United States boasted a large domestic footwear manufacturing base (The Hill) that needed protection from foreign companies. Back then, footwear manufacturing was even more labor intensive than it is now, with each stitch handmade and leather tediously done. Numerous European craftsmen brought with them knowledge and credibility in the art of shoemaking, which helped the United States manufacturing base flourish. Since the rapid globalization of the shoe industry, cheaper labor across seas made manufacturing in the United States less practical. Today, European shoemakers are no competing with the United States for shoe manufacturing, but counterfeits and cheaper goods from countries like Vietnam and China.

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

An example of a company benefitting from the high tariffs is New Balance, an American sneaker company, and one of the last to continue manufacturing in the United States. Even New Balance, however, says that it is struggling to keep manufacturing in the United States. Though Mr. DeMartini, CEO of New Balance, insists on keeping manufacturing in the United States, stating that New Balance’s U.S. plants are “twice as effective” as Asian plants, and that “we learned a lot because we had to in order to survive” (Wall Street Journal), the company is still facing difficulties to keep work in the States. New Balance still manufactures two-thirds of its shoes across waters, and relies heavily on machinery in order to keep costs profitable. This begs the question: Are the high tariffs imposed on shoe companies simply supporting jobs that we can no longer afford to keep in the United States? And, if this is the case, are American consumers the ones suffering the burden through unnecessarily high costs of shoes in order to protect that small one percent of shoes manufactured here at home?

Nike is one company protesting the high tariffs. Nike claims that current money going towards tariffs and taxes could go towards research and development advancing sustainability and innovation. The company argues that lowering tariffs can actually increase manufacturing jobs in the United States by allowing the company to develop advanced manufacturing methods that would make keeping jobs in the U.S. more practical. Last year, Nike had upwards of $28 billion in sales, $2.7 billion of which went towards taxes and tariffs (Nike declined to state what percentage of tariffs went towards shoe sales specifically) (NPR).

The remaining 99 percent of shoes manufactured abroad pay a significant portion of their budget towards shoe taxes, which in turn ups the prices of shoes for unsuspecting Americans. Whilst shoes are considered a necessary household expense, the highest shoe tariffs seem to be on shoes that are supposed to be cheapest– children’s shoes and low-cost-to-produce sneakers. According to Economist Bryan Riley, shoe tariffs increase costs of the cheapest shoes by about one-third. This in turn impacts how families living paycheck-to-paycheck end up spending money in other household necessities, like groceries. Purchasing goods and services to support their children and their family’s health are affected unnecessarily.

Americans should take a second look at how the tariff can be impacting their everyday purchases. Though the 1930s Tariffs once held a significant purpose in the United States economy, it has since lost its importance as American manufacturing work has traveled overseas. Though some may consider sparing a few dollars to keep the few American manufacturing jobs that select shoe companies have maintained, those most negatively impacted by the tariff are those who can’t afford to.

Sources:

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

The Economy and a Pair of Shoes

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

Footwear needs tariff relief

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

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

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

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

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

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

Misused Policy: China’s Electric Vehicle Subsidy Fraud

October 12, 2016 by Faye Chen Leave a Comment

The Chinese government has poured 33.4 billion yuan in subsidies since 2009. The government decided to establish a world-leading industry and increase jobs and exports, and to reduce oil dependence and the urban pollution. The incentive policy offers subsidies to encourage the companies that build electric cars, plug-in hybrids and fuel-cell vehicles to produce and sell electric vehicles (EVs). But a report from the Ministry of Finance of China exposed that at least five automakers defrauded the government for a total of 1 billion yuan ($150 million) in subsidies aimed at promoting EVs in September 2016.

Since some incentive regulations were vague and under weak supervision, speculators learned how to reap the benefit from a poorly crafted subsidy system the government had launched. For example, a big portion of the subsidies flowed into unqualified or non-existing cars made by dishonest companies. One of the bus manufacturers involved in the scandal was the Higer Bus in Suzhou, which received about a half billion yuan in subsidies through sales inflation. The five companies defrauded an average of 25,000 yuan per car, according to the government report.

In some cases, the manufacturers sold unqualified or faulty cars to related parties (for example, the companies’ own leasing subsidiaries). After the companies received the subsidies from the government, the buyers returned the cars. In other cases, the makers installed dysfunctional batteries or even one battery in different vehicles.

The high profit under the government support cultivated another deal model between the sellers and the buyers. An electric bus worth one million yuan would be priced at two million yuan. The buyers only needed to pay one million yuan, but the sellers forged a two million yuan receipt to apply for the government subsidy.

China saw a big boom of EVs in 2015

The government planned to phase out the subsidies on the EV industry from 2016 to 2020. The manufacturers stepped up the production by adding incomplete or unlicensed vehicles, especially in the end of 2015. The total number of EVs sold in the fourth quarter increased by 92,000 dramatically. The monthly production in December 2015 quadrupled compared to the number in December 2014. Higer Bus sold 2,000 EVs with 83.9 percent incomplete in December 2015, which amounted to one-fifth of the company’s yearly sales.

China’s EV Subsidy Criteria during 2013-2015

The policy designed to support the EV industry hurt the market instead. The vague criteria in the incentive policy lowered the threshold for receiving subsidies. Under the standard from 2013 to 2015, the amount of subsidies an EV could receive was mainly based on its range (mileage) or length. There were no rigorous standards for the vehicles’ technology and actual quality.

The subsidies have been blamed for attracting the ‘wrong crowd’ according to Zhang Zhiyong, a Chinese market commentator and auto-analyst based in Beijing. Many new players in the market decided to make EVs just to get the subsidies. They came not with previous manufacturing experience or R&D input, but with a gold-rush mentality.

China registered the largest amount of plug-in electric vehicles (PEVs) in the first quarter of 2016, yet ranks lowest on the Plug-In Electric Vehicle Index, which is a quarterly index tracking the production effectiveness and impact of the PEV market in different countries. “Despite having more than 200 manufacturers of new-energy passenger vehicles, buses and special-use vehicles, China still lags behind global leaders in terms of quality, reliability and key technology,” said Wang Cheng, an official at the China Automotive Technology and Research Center.

According to the subsidy policy from 2013 to 2015, a qualified minibus with a length of three to four meters can help its maker receive subsidies ranging from 300,00 to 600,000 yuan. To get the subsidy, the company didn’t even need to know how to manufacture the electric bus; the company only needed to buy a 20,000-yuan diesel-engine bus and install an electric battery.

Though unqualified EV companies have cheated on the subsidy system, it does not mean the government support is unnecessary. Government incentives for EV industy are common practice in several national and local governments around the world, such as France, Germany, Japan and the United States. EV programs in these countries also encourage the residents and local bus transit agencies, which target more relevant parties than just the car makers. For example, California established the Clean Vehicle Rebate Project, which allows residents to get up to $7,000 for the purchase or lease of an EV. The transit agencies can benefit from the program of Electric Vehicle Supply Equipment Loan and Rebate. “They are set up to encourage local agencies to purchase electric vehicles like those from BYD, which help the environment while growing jobs here in California,” said the PR spokesman Joshua Goodman from BYD USA, an EV bus manufacturer with its headquarter in Los Angeles, “the California Air Resource Board also offers several different incentives to us (the EV manufacturers).”

Foreign countries’ practice offers good examples that China can learn from. The leading industry does not contradict the support from the governments. But a germane policy is in need. The Chinese government is trying to improve its policy now . The regulators plan to impose tougher policies on incentives, such as stricter technology standards on manufacturers. The government also considers limiting the number of startup EV makers to a maximum of ten.

Works Cited:

Bloomberg News. China Swats ‘A Few Flies’ to Temper Electric-Car Maker Excesses. Web. 11 September. 2016.

An Limin, Bao Zhiming and Han Wei. China Hammers out Tougher Subsidy Plan for Electric Vehicles. Caixin News Online. Web. 30 September. 2016.

Sustainable Transport In China. New Policy on Electric Buses Published in China. Web.

Bloomberg News. 95% of China’s Electric Vehicle Startups Face Wipeout. Web. 28 August. 2016.

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Money Marks & Media - Spring 2014