Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Sam Lowe is a partner at Flint Global, where he advises clients on UK and EU trade policy. He is also a senior visiting fellow at Kings College London and runs Most Favoured Nation, a newsletter about trade.Question: What do fentanyl, fast fashion, tariff circumvention, and customs fraud have in common? Answer: they’re being used as an excuse to slap tariffs on low-value imported parcels.Most countries exempt such imports from tariffs. This clemency is often accompanied by a significant reduction in the administrative burden for importers.The so-called de minimis threshold varies by country: the UK’s is £135, the EU’s is €150, and the US’s is a rather high $800.This chart Copenhagen Economics provides a useful comparative overview:In practice, this means that if a Brit purchases a £20 dress from a well-known low-cost fashion website, and it is shipped from China, the dress will not be subject to the normal 20 per cent tariff.Why do countries do this?The ‘put-it-on-a-government-press-release’ policy justification is that high de minimis tariff thresholds make it easier for small businesses to trade internationally. De minimis thresholds are promoted, as such, by organisations such as the World Customs Organization and OECD.The actual reason is that collecting tariffs on low-value consignments, usually small parcels, is both expensive and administratively intensive. Once those costs are netted out, it is not obvious that applying the tariffs would raise any revenue. But times are a-changin’.The US’s de minimis tariff threshold — again, admittedly high — is coming under political attack from several directions. Last week, United States Trade Representative Katherine Tai was told by members of the House Ways & Means Committee that the US’s policy was helping Chinese firms undercut their American competitors.Some US politicians, such as Ohio’s Senator Sherrod Brown, claim that the de minimis threshold is facilitating tax dodging and the import of illegal drugs:Here’s how it works: these companies split shipments into many small packages in order to cheat their way out of the duties they owe, and drug traffickers send deadly drugs like fentanyl into our country without detection, because these smaller packages don’t have to go through screenings and inspections.Trump’s former trade chief, Robert Lighthizer is also not a fan: Nobody dreamt this would ever happen. Now we have packages coming in, 2 million packages a day, almost all from China. We have no idea what’s in them. We don’t really know what the value is.I’m instinctively sceptical about some of the arguments here. I’m sure some illicit products are making their way into the US, but my rule of thumb is that if a politician is asking for tariffs, it’s usually because a domestic constituent who has some influence over whether people vote for said politician is asking them to ask for tariffs.On the fentanyl problem specifically, there’s a bigger barrier in place. As argued by Deborah Elms, the head of trade policy at the Hinrich Foundation,  the US border force simply doesn’t have the capacity to properly check all the parcels entering the country. Removing or reducing the de minimis threshold wouldn’t address this.Anyhow, Congress is currently discussing a bill that would remove de minimis treatment from Chinese goods subject to Trump-era Section 301 tariffs. And while the US pontificates, the EU is well on its way to legislating.In May 2023, the European Commission proposed a swathe of changes to EU customs rules. Among them, acting on the recommendations of the so-called ‘Wise Persons Group’ (note: this is not particularly relevant, I just think it’s amusing that this group of wise people is continually referred to in the Commission’s impact assessment), is a proposal to scrap the EU’s €150 de minimis threshold. Such a change would be in line with its 2021 removal of a similar low-value import VAT exemption. Why?Well, the official reason is to protect against fraud. The Commission points to a slightly dated 2016 study note (which specifically focused on VAT evasion, not tariffs) which finds that 65 per cent of e-commerce consignments are undervalued.But the actual reason (imo) is that the Commission would like to raise some more money. For the uninitiated, customs duties are considered an EU “own resource”, which means the money belongs to the EU rather than member states. In practice, 75 per cent of customs revenues accrue to the EU, while member states get to keep 25 per cent to cover administrative costs. In 2022, €25bn in customs duties went to the EU; around 10 per cent of total revenue.And in a post-Covid, post-EU-centralised-borrowing world … every € counts. The Commission estimates that scrapping the €150 de minimis exemption would raise an additional €1 billion per year:But wait, isn’t there a general assumption (as per the opening of this piece) that tariffs on low-value consignments don’t necessarily raise very much money? Here there are two things to note:The cost of tariff revenue collection is borne by the member state, but the tariff revenue accrues to the EU (or at least 75 per cent of it does). This means that you could conceivably have a situation in which the cost of collection is greater than the tariff revenue collected, but it still makes the EU (as a central institution) money.As it has done with import VAT, the EU is planning to push the collection costs onto the large e-commerce internet platforms by making them take responsibility for collecting the tariff revenue from the sellers that use them:So yeah, unless the proposal changes quite a lot over the next year, online shopping in Europe (and maybe the US) looks set to become more expensive. Because ultimately — as this useful flowchart by Cato’s Erica York sets out — we all know who ends up paying for tariffs … More

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Before I speak to Joseph Stiglitz, one of his surprisingly ample team asks if I can give him notice of my questions. The Nobel laureate, it turns out, appreciates time to prepare. Stiglitz’s critics might laugh: hasn’t he been preparing for the past three decades? Surely his leftist critique of free markets now comes naturally?Stiglitz, chair of Bill Clinton’s council of economic advisers, then chief economist at the World Bank during the 1990s, found fame with his 2002 bestselling attack on the IMF, Globalisation and Its Discontents. Disdained by The Economist, for many left-wingers he nonetheless became the economist.Some things have changed. At 81, Stiglitz finally feels in the ascendancy. Scepticism of trade rules is now received wisdom among Democrats and Republicans. “Where I was in 2000 on globalisation is really where the world is today,” he says, jovially and apparently spontaneously. Even the IMF has taken on board his critique.US President Joe Biden has adopted some big state, pro-worker policies of which Stiglitz approves. Stiglitz is also claiming vindication from the fall in inflation. In November, he took a “victory lap” on behalf of those economists who, like him, argued rising prices were a “transitory” reaction to supply chain problems.“If you hadn’t done anything other than normalising interest rates to 3, 3.5, 4 per cent, inflation today would be little different from what it is.” US consumer inflation was slightly higher than expected in March. “There are inevitably going to be month-to-month variations . . . [But] inflation came down dramatically — as ‘team transitory’ had predicted — without the unemployment increasing in the way that the other team had said was necessary.”Yet the new global order also poses challenges for Stiglitz’s world view. He has called for a better deal both for the world’s poor and for deindustrialised regions in the west: the needs of the two often clash. The US wants to create green industrial jobs by producing electric cars and solar panels, but complains Chinese imports present unfair competition.Is China a constructive player in global trade? “In many ways, because of the opacity of their system, we don’t fully know.” The “irony” is that since 2019, the US has blocked the appointment of new judges to the WTO appellate body, the top appeals court for world trade, “so we have no formal legal way of saying have they violated the rules or not”.The underlying problem is that the US did not anticipate a rival such as China, says Stiglitz. Even without subsidies, China “could outcompete just because of the scale of their economy and the number of engineers they have. Our under-investment in engineering and their over-investment in engineering — that’s not a trade violation, it’s a strategic mistake. They put themselves in a comparative advantage, and we haven’t come to terms with that.”China’s success in electric vehicles is also evidence for Stiglitz that, in climate policy, regulations often work better than subsidies. More than a decade ago, “I was in a meeting with the premier [Wen Jiabao] where he told the car companies: you have to be electric within five years or you’re out of here. China has made it clear it will be an EV country; we haven’t.”So does Stiglitz support bringing industrial jobs back home? “The pandemic made it very clear that we don’t have a resilient economy and that borders do matter and, no matter what our agreements are, when push comes to shove, we’re going to put our citizens number one.” A fellow Nobel laureate, Angus Deaton, recently switched to arguing that the leaders of rich countries must prioritise their own citizens over the world’s poorest people. Stiglitz disagrees: if the west is seen to prioritise its own people, it will fail to encourage global co-operation, for example, on climate change. “We can implement industrial policies in which there is more sharing of green technologies.”Stiglitz likes the catchphrase “de-risking”: having high-end chip production concentrated “in one island, Taiwan, is madness”. Republicans’ brand of protectionism stems from seeing the world as “zero-sum”, whereas Democrats are concerned gains from trade have been mopped up by corporations, not workers. Moreover, “the Democrats still believe in a rules-based system, they just don’t think China’s obeying the rules, and they’re trying to figure out what kind of rules-based system can work in a world in which you have such heterogeneity”.***Stiglitz’s new book, The Road to Freedom, seeks to reclaim the idea of freedom from America’s right. The US, he points out, was born from the idea of no taxation without representation. Some citizens now seem to reject the concept of taxation even with representation. Freedom is not something that can be easily maximised, as libertarians would like. It involves trade-offs: a person’s freedom to carry a gun constrains many children’s freedom to go to school; a pharmaceutical company’s freedom to charge what it likes conflicts with disease sufferers’ freedom to live.The right’s failure to grasp such trade-offs is its “fundamental philosophical flaw”, writes Stiglitz. It has created an unequal, dishonest society, which is partly embodied by Donald Trump: Trump University, the for-profit school he started, was, like many US businesses, built on exploitation; Trump himself, like many US rich kids, believes he has the right to break society’s rules. Populism is stronger in countries such as Brazil, the US and Hungary, which have not addressed inequality, Stiglitz argues. Stalling living standards, and the resultant loss of hope, creates “a fertile field for [a] demagogue like Trump . . . He is what neoliberalism produces.”Stiglitz shared the 2001 Nobel Prize for work on how imperfect information affects markets, but he had not thought this applied to people deliberately creating misinformation. “We hadn’t fully contemplated how evil people could be! I might know something, I would keep it for myself, but there were laws against fraud and we had scientific principles, you couldn’t just lie.” Stiglitz’s solutions often suggest the US should be more like Europe: online regulation, sick pay and paid holiday. Why does the US continue to outperform Europe in growth and tech innovation? His response is two-fold. First, US growth figures are flattered by population trends. “Once you correct for some of the demography, we’re not doing that well.” Second, GDP isn’t enough. “We’re failing. Our life expectancy is down. The data about unhappiness — we’re way down.” Overall “if you were a typical citizen, would you rather wind up in Sweden or the US? The answer is unambiguous. It’s not going to be the US.”The potential of Silicon Valley is real, but an “awful lot”, he argues, is down to government support and not-for-profit universities such as Stanford and Berkeley. Anyway “this [tech] world is the antithesis of the Trump world. He wanted to cut research expenditure.”Yet the government is under strain: western debt-to-GDP ratios have increased. Is Stiglitz worried? Not about the US. “The growth rate over the last 100 years has been well in excess of the real interest rate, which really is the critical variable in the sustainability of debt. Investing in infrastructure with increased taxes would also boost growth,” he argues. The eurozone, where countries cannot print their own currency and have less room for tax increases, is different. “It’s hard not to worry about the Italian debt, for instance.”Stiglitz-onomics had a brief moment in Argentine politics. A Stiglitz protégé, Martín Guzmán, was appointed economy minister in 2019. He called for the restructuring of Argentina’s debt burden, but ended up resigning in 2022 unable to win support for spending cuts. What are the lessons? “You can’t separate economics from politics . . . But for the world as a whole, the absence of a [sovereign] bankruptcy procedure is really a crucial failure.” Stiglitz has also approvingly cited Chile’s leftist president Gabriel Boric, whose ideas have also run hard into reality. The Road to Freedom is striking in its moral disgust at neoliberal capitalism’s “selfishness”, “materialism” and “dishonesty”. Stiglitz complains about airlines that lose luggage, unreliable phone networks, call centres that keep you on hold for hours. It’s clearly personal. “We were just talking this weekend — how many people we all know, particularly the elderly, who are facing the problem of scamming . . . So much of our lives has to be spent in a defensive way that is actually very unpleasant.”He mocks his rival economists as suffering from “cognitive dissonance: you spend your life proving markets are efficient, and then you spend the rest of life dealing with the obvious inefficiencies of the market economy.”I wonder if the same cognitive dissonance applies to him. He argues that “for the most part there is no moral legitimacy to market incomes”. Does the same go for his own earnings? He takes the question in good humour. “The wages that all of us get can’t be justified in any moral sense. Some of the things I do might generate for somebody else billions of dollars. How much of that is attributable to what I’ve done? I don’t even know how to think about that.” He does know “that people who do work very hard, in very unpleasant jobs, are not getting pay that compensates them” relative to others. The US federal minimum wage is “the level it was 65 years ago, adjusted for inflation. It’s almost unbelievable.” Some things should change, even as Stiglitz himself remains reliably constant. More

BEIJING (Reuters) -Global automakers including Volkswagen (ETR:VOWG_p) and Toyota came to this year’s Beijing auto show looking to catch up to surging China EV makers that are dominating the world’s largest auto market.The show that started this week showcased a marked shift in attitude among some foreign automakers, industry executives said. After being impressed by the bold leaps made by BYD (SZ:002594) and other Chinese automakers at last year’s event in Shanghai, foreign automakers are now avidly searching for Chinese partners and announcing new tie-ups, the executives said.Among the most active were European and Japanese automakers, with announcements coming from Toyota Motor (NYSE:TM) that it would team up with Chinese gaming and social media giant Tencent on artificial intelligence and big data, and Volkswagen promoting its partnership with Chinese EV startup XPeng (NYSE:XPEV).An executive from Renault (EPA:RENA) said on Friday it had “pivotal conversations” with Chinese EV maker Li Auto (NASDAQ:LI) and Xiaomi (OTC:XIACF), the smartphone maker that just introduced its first car, to explore EV and smart-vehicle technologies. Nissan (OTC:NSANY), meanwhile, announced a tie-up with Chinese tech firm Baidu (NASDAQ:BIDU) to carry out research on AI and “smart cars.”Nissan CEO Makoto Uchida visited several booths including that of Chinese tech giant Huawei, which is becoming a major auto supplier.European automakers sent “much more senior management” to visit the booth of LIDAR remote sensing technology supplier Hesai Technology this year versus last year, said Bob in den Bosch, senior vice president of global sales at the Shanghai-headquartered firm.”They’re looking for a partner to close the gap,” he said. “They came here with a plan and a mission.”Foreign brands have dominated China’s auto business since the 1990s and have brought extensive know-how to the Asian country. But last year, foreign brands’ collective share of China’s passenger car market fell to 48%, down sharply from 57% just two years earlier, according to data from the China Association of Automobile Manufacturers. GOING LOCALGerman automakers including Volkswagen and Mercedes, in particular, emphasized their efforts to localize production and invest more in local partnerships, with Volkswagen saying repeatedly its goal was to remain the best-selling foreign automaker in China into 2030.Hildegard Mueller, president of Germany’s powerful car lobby VDA, told Reuters that the German automakers are, in addition, exploring new marketing strategies to attract Chinese consumers. This includes partnering with the country’s army of car influencers, who promote and discuss new vehicle models and trends with their large followings on social media.”It’s huge (online) traffic and huge potential,” she said.The market share in China of Toyota, the world’s top-selling automaker, declined last year, according to data from the China Passenger Car Association (CPCA). Toyota’s China joint ventures with GAC and FAW held a combined 7.9% of the Chinese auto market last year, compared with an 8.6% share in 2022, the CPCA said. Toyota has said it will include technology from Tencent in a China-made passenger vehicle the Japanese automaker will put on sale this year as part of a new tie-up.On Thursday, Toyota took care to emphasize the new tie-up, with its chief technology officer, Hiroki Nakajima, inviting a senior Tencent executive onstage to its auto show presentation. “We want to, with Toyota, build products and services that are closer to consumers, to jointly build mobility solutions of the future and we look forward to the fruits of our cooperation,” said Dowson Tong, CEO of Tencent Cloud and Smart Industries Group. PESSIMISMSome foreign auto executives were more pessimistic about their ability to fight back. Katsuhide Moriyama, president of GAC Honda (NYSE:HMC) Automobile, Honda’s joint venture with Guangzhou Automobile Group, cited how China’s leading EV makers have found ways to slash vehicle development time.”Manufacturers should shorten the lead time to compete with those competitors,” Moriyama said outside the automaker’s booth at the show. “But a two-year model cycle is too short for us.”The number of American car executives paled compared with visitors from other foreign markets, noted Hesai’s In den Bosch. The market share in China of major American brands including Ford (NYSE:F) and General Motors (NYSE:GM) has plummeted amid declining gasoline-car sales and the shift from foreign to Chinese brands. Ford’s chief financial officer, John Lawler, told reporters in the United States on Wednesday that the automaker wants to maintain its existing China presence but is not planning to invest more.”We’re not putting capital into China,” he said.  More

SINGAPORE (Reuters) – The U.S. dollar was a shade softer in early deals on Monday, thinned by a holiday in Japan, though the yen, euro and sterling stayed near the bottom of the ranges hit during Friday’s volatile session.Japan’s yen was at 158.05 per dollar, up nearly 0.2% in quiet trading with Tokyo markets closed for the first of the country’s Golden Week holidays. It had moved nearly 3.5 yen between 158.445 and 154.97 on Friday as traders vented their disappointment after the Bank of Japan kept policy settings unchanged and offered few clues on reducing its Japanese government bond (JGB) purchases – a move that might have put a floor under the yen.The Federal Reserve’s May 1 policy review is the prime focus for markets this week, with investors already anticipating a delay in its rate cuts after a batch of sticky U.S. inflation and as officials including Chair Jerome Powell emphasise even those plans are dependent on data.Vishnu Varathan, head of Asia economics and strategy at Mizuho Bank in Singapore, expects the dollar-yen pair will see more two-way action until the Federal Open Market Committee (FOMC) meeting, unlike in the past few weeks when hawkish Fed expectations had kept the dollar steadily rising against most other currencies.”The bar is pretty high for a sustained hawkish surprise, which would in turn lift yields,” he said, referring to the Fed.”So, from a yield-spread perspective between U.S. Treasuries and JGBs, for that to continue to fuel further yen depreciation, the bar is really high because the Fed may not be tilting as hawkish as markets expect either.””The BOJ disappointment might be transcribed onto the FOMC insofar that they may be more undecided than decidedly hawkish.” The Fed is seen holding its benchmark interest rate steady at 5.25%-to-5.5% at the April 30-May 1 meeting. Investors now see perhaps only a single cut this year, currently anticipated by November, according to the CME’s FedWatch tool. Markets are also on guard for any intervention by Japanese authorities to contain the yen’s nearly 11% fall this year. While the yen had its biggest drop in six months on Friday, it also briefly surged to 154.97 to the dollar, triggering speculation that Japanese authorities may have checked currency rates ahead of likely intervention. It was not immediately clear what caused the move. Sterling was at $1.2509, up 0.15%, but still some distance from Friday’s $1.2541 highs. More

(Reuters) – A look at the day ahead in Asian markets.Asian stocks should open on Monday buoyed by Friday’s tech-led surge on Wall Street, while investors will be scrambling to make sense of the latest twist in the Japanese yen’s extraordinary helter-skelter slide against the dollar and other currencies. The yen fell to a fresh 34-year low of 157.79 per dollar on Friday after the Bank of Japan left interest rates on hold, as expected, but failed to signal any meaningful concern about the exchange rate. With the Ministry of Finance still opting not to authorize yen-buying intervention by the BOJ, traders went in full steam. Levels that until recently had been unthinkable, like 160 per dollar or even 170, are no longer so fanciful.Most observers would probably have expected Tokyo to act by now. It last intervened in September and October 2022 when the dollar was around 146.00 and 152.00 yen, respectively. But it hasn’t, and there are good reasons for that: contrasting U.S. and Japanese inflation data, yawning U.S.-Japanese yield differentials, and the benefits of weak yen to Japan’s asset markets, corporate profits, tourism and all-round competitiveness. On the other hand, speculators are licking their lips. The latest U.S. futures market data on Friday showed that hedge funds are sitting on their largest short yen position in 17 years and second largest ever.These CFTC figures are for the week through last Tuesday, and the yen has fallen another 2% since then.Japanese officials have expressed their disquiet with the yen’s weakness, but the longer that talk is not backed up with action, the more hollow it rings. Will traders have 160.00 dollar/yen in their sights this week? You would think so.Other countries in Asia are becoming increasingly uncomfortable with exchange rate developments – Indonesia has raised rates to counter the rupiah’s weakness, Vietnam and India have intervened directly in the FX market buying their currencies, and South Korea has indicated it will follow suit.Looking to the week ahead, the U.S. Federal Reserve’s policy decision on Wednesday may tempt FX and other markets to play it safe for the next few days. Stocks appear to have shaken off the wobbles after post-earnings rallies in Alphabet (NASDAQ:GOOGL) and Tesla (NASDAQ:TSLA) shares, in particular, boosted a broader recovery on Wall Street. The S&P 500 has recouped half its losses from earlier this month, the Nasdaq and MSCI Asia ex-Japan even more.Highlights from the Asian economic calendar this week include Chinese PMIs, Bank of Korea meeting minutes, inflation from South Korea and Indonesia, and Hong Kong GDP.Figures on Saturday from Beijing, meanwhile, showed that industrial profits in China fell 3.5% in March, slowing the cumulative rise in the quarter to 4.3% from 10.2% in the first two months of the year.Also in China, Tesla CEO Elon Musk on Sunday arrived on an unannounced visit in Beijing, where he met Premier Li Qiang.Here are key developments that could provide more direction to markets on Monday:- Thailand trade (March)- Singapore unemployment (Q1)- Singapore business expectations (Q1) (Reporting and Writing by Jamie McGeever) More