Economy

The opening of Tesla’s Shanghai factory in 2019 was a breakthrough for electric vehicles and for overseas carmakers: it was the first wholly foreign-owned plant in the world’s largest car market. But it also marked the start of an even bigger trend, which promises to upend the structure of global manufacturing, bring a new wave of deindustrialisation to Europe and trigger trade tensions of an intensity to match the 1980s. That trend is the emergence of China as a car exporter.As Gregor Sebastian and François Chimits of the Mercator Institute for China Studies documented recently, China’s car exports are taking off, many of them are electric vehicles and most are going to Europe. From almost nothing a few years ago, China exported half a million electric vehicles in 2021, and its market share in Europe was second only to Germany’s. As the car market goes electric, Europe could quickly find itself running a trade deficit with China in automobiles. That would be a dramatic shift in market structure. Europe and Japan now buy consumer goods from China, and send luxury cars — or their most vital components — in the other direction. The badges on Chinese vehicles arriving in Europe do not necessarily reveal their origins. About half of them are Teslas from Shanghai; other marques include Dacia, Polestar and BMW. Tesla has recently opened a European plant in Germany, but the production decisions of other makers suggest a meaningful cost advantage for China. If batteries replace combustion engines, and China dominates car production, the disruption will be immense. Automobile manufacture underpins the prosperity of Europe and Japan. Companies such as Toyota and Volkswagen, plus their supply chains, employ millions of people in stable, skilled manufacturing jobs. They underpin national current account surpluses. A shift in the location of car manufacturing would have an even greater impact than the past migrations of steel, electronics or shipbuilding. Sebastian and Chimits argue that Europe should already be retaliating against Chinese industrial policies, which provide cheap capital to carmakers and tie electric vehicle subsidies for Chinese consumers to local production. Meanwhile, Chinese-made electric vehicles are eligible for EU subsidies to European consumers and they attract a tariff of just 10 per cent compared with the 27.5 per cent levied by the US.Europe should indeed demand fair and reciprocal treatment. Protection, however, is no substitute for competitiveness. Even if the US and Europe wall off their car markets with high tariffs, the prize in global automotive trade is to produce for the many wealthy countries — from Norway to Australia and the Middle East — that lack the scale to support a car industry of their own. For Japanese and European carmakers, the challenge is that while electric vehicles may be high-tech, they are not complex. Internal combustion engines were at the heart of 20th-century industrial prowess. A vehicle built around one is a complex assembly of crankshaft, pistons, fuel pumps, turbochargers and myriad other components, each of which must be mastered and integrated. Even after 150 years of development it is still a difficult task, calling for deep technical expertise and a vast network of suppliers, rather than access to the lowest possible labour costs. The drive train of an electric vehicle, by comparison, is extraordinarily simple: a battery, a motor and not much else. Production of the crucial component, the battery, is a business of huge scale and thin margins; the economics are similar to another green technology, the solar panel. Assembly of electric vehicles needs some of the skills of traditional carmaking, but bears comparison as well to other electrical goods. Solar panels and consumer electronics are industries where Chinese manufacturing dominates on cost. You can still buy a Philips or a Sony TV, but they are no longer made in Japan or the Netherlands. Something similar may happen to famous automotive names. Furthermore, the value in electric vehicles may migrate to the software that runs them, as it has done in consumer electronics. In that case, Europe may find itself in the familiar, depressing position of buying Chinese-made products that run American software. But in any version of this future there will be a traumatic reshaping of the global economy. The arrival of Japanese cars on global markets caused something close to a trade war in the 1980s. If China starts to absorb the global auto industry, however, the trade tensions of the 2020s will be a whole lot [email protected]

Video: Cars, companies, countries: the race to go electric More

Treasury Secretary Janet Yellen told CNBC that the White House has several strategies that will reduce inflation she conceded is too high for Americans.
In a separate interview Tuesday, Yellen admitted she was wrong when she called inflation “transitory” last year.

Treasury Secretary Janet Yellen emphasized that the White House has several strategies ready to go that will reduce an inflation burden she conceded is too high on Americans.
In an interview Tuesday with CNBC’s Becky Quick, Yellen listed efforts aimed at prescription drug costs, the budget deficit and oil production that could bring down prices running near the fastest pace since the early days of the Reagan administration.

The remarks came the same day President Joe Biden met with Yellen and Federal Reserve Chairman Jerome Powell, whose institution has begun fighting inflation with interest rate hikes.
“The president emphasized his intention to do everything he can to lower the costs that Americans face for important items in their budget,” Yellen said in describing the meeting. She noted “prescription drugs, for utility bills, things where the president acting on his own or working with Congress can make a difference, and also his support for deficit reduction.”
In both a statement before the meeting and an op-ed piece for The Wall Street Journal, Biden stressed the Fed’s role in bringing down prices.
The Journal piece specifically said, “First, the Federal Reserve has a primary responsibility to control inflation.” Meanwhile, Yellen — who was Powell’s immediate predecessor as head of the central bank — also noted that responsibility.
“The Fed has a dual mandate and it is maximum employment and price stability. I think that’s the way it’s phrased in the law,” she said in the interview that aired Wednesday on “Squawk Box.” “But we are at full employment. We have a very strong labor market. That’s been achieved, but inflation is way too high, and it’s really a big burden on American households. And so maintaining full employment while bringing inflation down, that’s the president’s priority and I believe that’s consistent with how the Fed sees its programs.”

For its part, the Fed has approved two rate hikes this year totaling 75 basis points. Officials have indicated that additional 50 basis point increases are likely over the next several meetings, after which the central bank can evaluate the impact that monetary policy tightening is having.
Both Powell and Yellen spent much of 2021 saying inflation was “transitory” and likely to abate once Covid pandemic-specific factors such as supply chain problems and outsized demand for goods over services returned to normal.
In a separate interview Tuesday, Yellen admitted she was wrong.
“I think I was wrong then about the path that inflation would take,” she told CNN’s Wolf Blitzer. “There have been unanticipated and large shocks that have boosted energy and food prices, and supply bottlenecks that have affected our economy badly that I … at the time, didn’t fully understand.”
In the CNBC interview, Yellen said a spending package “could very well have reductions on the costs of prescription drugs that would make a difference to every family that has drug costs as part of its household budget.”
While she said that “could make a difference very quickly,” most of the administration’s plans likely would take longer to filter through the economy.
Biden has frequently blamed the Russian attack on Ukraine for record-high gasoline prices, but energy costs were already climbing sharply higher before the war. The administration also has said energy companies are sitting on thousands of oil leases that could allow greater production, though those leases likely would take years to develop.

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NEW YORK (Reuters) – U.S. corporate bonds posted their first positive monthly return this year in May as easing inflation jitters alleviated pressure on rates and the possibility of a less hawkish Federal Reserve mitigated concerns over companies’ ability to repay their debt. Total returns as measured by the ICE (NYSE:ICE) BofA U.S. corporate index, which tracks dollar-denominated investment-grade corporate debt, were 0.55% in May, Refinitiv data showed – the first positive number since November. Total returns for the ICE BofA U.S. High Yield Index, a commonly used benchmark for the junk bond market, were 0.27%, the first positive monthly return since December. Total returns include interest payments and price changes.Bonds have been slammed this year with the U.S. Federal Reserve increasingly determined to tighten monetary policy to fight unrelenting inflation.But U.S. government bond yields subsided in May and market inflation expectations eased, with investors now believing fewer rate hikes may be necessary and some thinking the central bank will likely pause its tightening in September.”A large part of this return, certainly in the investment grade corporate market, is from lower interest rates in general,” said Steven Abrahams, senior managing director at Amherst Pierpont Securities.Benchmark 10-year Treasury yields on Tuesday were some 10 basis points lower than at the end of April, after a volatile month in which they hit a 3.2% multi-year high before dropping sharply.Further helping returns, investment grade bond spreads – the interest rate premium investors demand to hold corporate debt over safer U.S. Treasury bonds – were stable in May at roughly 140 basis points, after widening 17 bps in April. High-yield bonds’ duration – or their sensitivity to interest rate changes – is half that of their investment grade counterparts, which helps explain why monthly returns, whilst positive, were lower, said Abrahams.On a monthly basis, high-yield spreads have widened by about 30 bps but last week they dropped by more than 70 bps from a peak of 494 bps – the highest since November 2020.”Sentiment has definitely improved on spreads,” said Ryan O’Malley, portfolio manager at Sage Advisory, adding that some sectors in the high-yield space such as energy were helping the performance of the overall asset class. More

COLOMBO/LONDON (Reuters) – Sri Lanka is in talks with the International Monetary Fund (IMF) to borrow at least $3 billion via the lender’s extended fund facility (EEF), sources familiar with the matter told Reuters. The island state’s government expects another round of technical talks with the IMF in early June and hopes to reach to a staff-level agreement as soon as the end of this month, two of the sources said, speaking on condition of anonymity. A spokesperson for the IMF didn’t immediately reply to a request for comment. Spokespeople for Sri Lanka’s finance ministry and central bank didn’t respond to a request for comment. Sri Lanka has requested a rescue plan to overcome its worst economic crisis since independence in 1948. It defaulted on some overseas debt earlier this year and is struggling to pay for imports of basics such as fuel and medicine. An EFF programme, which would be the 17th IMF plan for the nation, requires countries to make structural economic reforms “to correct deep-rooted weaknesses,” according to the IMF’s website. These programmes normally last three years with a grace period of 4-1/2 years to start paying back the loan, once the plan is approved.A $3 billion deal would represent almost four times the country’s quota with the IMF. The IMF said last week it was in talks with Sri Lanka for a “comprehensive” reform package, but didn’t specify what type of programme was being negotiated.Prime Minister Ranil Wickremesinghe, who took office in May after mass protests forced the resignation of his predecessor, Mahinda Rajapaksa, plans to present an interim budget within weeks.The government announced on Tuesday a taxation overhaul to boost revenue, hiking corporate tax and raising the value added tax (VAT) rate to 12% from 8% with immediate effect.Sri Lanka recently appointed financial and legal advisers to kick off talks with bondholders and bilateral lenders, such as China and Japan. More

The US and Taiwan have launched a fresh initiative to deepen economic engagement just days after Washington unveiled a regional framework that excluded Taipei.The Biden administration said the “US-Taiwan Initiative on 21st-century Trade” would “develop an ambitious road map” for negotiations in areas from agriculture and digital trade to climate.President Joe Biden last week launched the Indo-Pacific Economic Framework with 12 other countries, and later added Fiji. The US did not ask Taipei to participate partly because some south-east Asian nations were concerned about antagonising China, which claims sovereignty over Taiwan.The new initiative disguises the disappointment Biden’s trade policy has been for Taiwan. President Tsai Ing-wen took a big political gamble two years ago by opening the island’s market to unpopular US pork and beef, a move she hoped would kick-start talks on a bilateral “free trade” agreement that would expand access to the American market.Ahead of IPEF’s launch last week, a bipartisan group of 252 US House and Senate lawmakers had urged Biden to include Taiwan in the regional framework to demonstrate support. “The exclusion of Taiwan from IPEF dealt a hard blow,” said Bonnie Glaser, a Taiwan expert at the German Marshall Fund. “This step is welcome, but it falls short of both IPEF and a bilateral FTA. Nevertheless, if agreements are reached in all these areas, they could comprise future chapters of a bilateral trade deal if the politics become more favourable.”A senior Taiwanese official said the new initiative was “important to further boost the substance of our dialogue on trade. But of course we remain keen to negotiate a bilateral free trade agreement at some point, and to join IPEF.”Both IPEF and a White House pledge to invest $150mn in members of the Association of Southeast Asian Nations were designed to answer criticism that US Indo-Pacific strategy has been too heavy on security while lacking a trade component.But some observers questioned what contribution the new US-Taiwan initiative would make. Many of its elements were already being discussed by the governments. When they resumed their Trade and Investment Framework Agreement talks a year ago, digital trade, trade facilitation and supply chain security were among the central topics.Officials have also been discussing some of the same issues under the US-Taiwan Economic Prosperity Partnership Dialogue launched in late 2020.Joining IPEF and having a free trade deal with the US are particularly important to Taiwan because Chinese pressure has resulted in locking it out of most existing bilateral and regional trade deals. China and Taiwan have both applied to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, an 11-nation trade deal that replaced the Trans-Pacific Partnership after it was abandoned by the US under then-president Donald Trump in 2017.Taiwan is the US’s ninth-largest trading partner based on 2020 data, according to the US trade representative office. The island is one of the world’s largest suppliers of semiconductors and other electronic components. More

WASHINGTON (Reuters) – The United States will launch new trade talks with Taiwan, U.S. officials said on Wednesday, just days after President Joe Biden launched an economic plan for Asia intended to push back on China that excluded the Chinese-claimed island.Washington and Taipei will “move quickly to develop a roadmap” for the planned U.S.-Taiwan Initiative on 21st-Century Trade in the coming weeks, which would be followed by in-person meetings in the U.S. capital later in June, two senior U.S. administration officials told reporters.The initiative would aim to “reach an agreement with high standard commitments that create inclusive and durable prosperity” on issues that include customs facilitation, fighting corruption, common standards on digital trade, labor rights, high environmental standards, and efforts to curb state-owned enterprises and non-market practices, one of the U.S. officials said.The bilateral initiative largely parallels the Biden administration’s Indo-Pacific Economic Framework, an economic partnership with 13 Asian countries that he launched last week during a visit to Seoul and Tokyo. But the United States did not invite democratically self-governed Taiwan to join the IPEF talks.Analysts had said other countries would be hesitant to join a grouping with the island for fear of angering Beijing, which regards Taiwan as its own territory. Over 200 members of the U.S. Congress had urged Taiwan’s inclusion in IPEF. The talks with Taiwan, led for Washington by the U.S. Trade Representative’s office, would supplement several existing dialogues with the island, including one led by the Commerce Department on export controls and other supply chain issues, the official said.NO TARIFF CUTS, ‘MARKET ACCESS’ Like IPEF, the initiative with Taiwan would not need congressional approval because it will not include market access requirements or reduced tariffs, the official added. The so-called U.S. “fast track” negotiating authority for major trade agreements expired in July 2021, and the Biden administration has not asked Congress to renew it. “We think there’s a lot of robust areas that we can cover, that would really deepen our economic engagement, our economic ties, without dealing with market access issues. But of course, obviously, we’re not ruling anything out for the future,” the official said. A second official said the new initiative added to other efforts to “highlight the U.S. commitment to the region, specifically economically.”The United States had lacked an economic pillar to its Indo-Pacific engagement since former president Donald Trump quit a multinational trans-Pacific trade agreement, in part out of concern over U.S. jobs.But trade experts have questioned whether Washington could build momentum behind any framework that didn’t offer increased access to the U.S. market. The United States doesn’t have official relations with Taiwan, a major producer of semiconductors, but has been stepping up engagement with the island as China seeks to isolate it from global institutions.The announcement came after a virtual meeting on Wednesday between Deputy U.S. Trade Representative Sarah Bianchi and Taiwan’s chief trade negotiator John Deng under the unofficial American Institute in Taiwan and the Taipei Economic and Cultural Representative Office in the United States. More

BENGALURU/LONDON (Reuters) – The global property market frenzy that gathered pace during the pandemic as people scrambled to buy more living space is likely over as interest rates rise, and house price inflation is expected to drop off, Reuters surveys of market experts showed.Huge price rises of as much as 50% through the past few years may be coming to an end, turning to modest falls in 2023 in some countries, according to analysts covering nine key world property markets.But they also say any declines won’t make housing more affordable, especially for first-time buyers, just as the basic cost of living soars and mortgage rates go up – for the first time in many young people’s lifetimes.”There is definitely a slowdown. So the pace of growth is slowing pretty much everywhere … (and) it is likely that a number of markets will see price falls,” said Liam Bailey, global head of research at Knight Frank. “The question really is whether there is a risk of a kind of crash scenario in certain markets.”For now, most real estate specialists aren’t forecasting even a 10% correction in house prices, instead sticking to the view that housing inflation will slow substantially, in most cases to less than the rate consumer prices are currently rising.With wages unlikely to match any of these inflation trends any time soon, agreement is exceptionally strong among analysts about the hit to basic affordability in the next few years from record high house prices and higher interest rates.A more than two-thirds majority of analysts, or 83 of 119, who answered an additional question said affordability for first-time buyers would either worsen or worsen significantly over the next two years. The remaining 36 said it would improve.Even in property markets like India and Dubai – which avoided the panic buying and high double-digit annual price appreciation seen during the worst of the pandemic in markets like the United States, Canada and Australia – analysts still agree affordability will worsen. Graphic: Reuters Polls- Global housing market – https://fingfx.thomsonreuters.com/gfx/polling/klpykolwnpg/Reuters%20Polls-%20Global%20housing%20market.png INFLATION CHALLENGES Part of that has to do with the cost of building new homes, which almost universally are not being constructed fast enough to keep up with demand. Soaring costs from supply chain disruptions facing all businesses around the world are set to be passed on to first-time buyers, in much the same way as consumers are paying more for everything they buy.”The same inflation challenges … specifically in the construction market, and supply chain woes, which continue to plague … developers and house builders … are not being mitigated to any extent,” said Adam Challis, executive director of research and strategy for EMEA at JLL.”In fact over the short term, it’s very much likely to get worse as people have returned to the cities … and becoming much more excited about their urban living choices.”Indeed, while analysts are generally reluctant to predict the thinking behind consumer behaviour, it was the urge for people to move while struck by COVID-19 lockdowns that got them bidding for property. Very few expected that to happen.Looking forward there seems little reason to predict existing homeowners, flush with home equity from soaring prices, will be much more restrained acting on a desire to return to city life.That leaves first-time buyers, who have been in a difficult situation coming up with a deposit for a property for the better part of a generation, in a worse situation every year that goes by. That may hold even if prices fall.”Your purchase price may be reduced … but actually the cost of servicing a loan may not actually decline along with that price,” added Knight Frank’s Bailey.Swathes of people in most countries, particularly the young, have resigned themselves to renting over owning. But the shortage of homes has also driven up rents everywhere.Asked what would happen to affordability in the home rental market over the next two years, more than 80% of analysts, or 82 of 99, said it would worsen. The rest said it would improve.(For other stories from the Reuters quarterly housing market polls:) More

Averages prices for souvlaki have risen far faster than headline measures of inflation – hovering at a 28-year high around 10% in Greece – trotted out by national statistics agencies.The classic meal of grilled meat wrapped in flatbread with salad and garlic yogurt now costs 3.30 euros ($3.55) on average in an around Athens, up an eye-watering 30% from last summer.With the cost of its main ingredients – meat, vegetables and sunflower oil – all up sharply along with energy prices as war and pandemic disrupt supply chains, the surge lays bare some of the main pressures facing the world economy at grassroots level.”The war in Ukraine has affected us a lot,” said 79 year-old Thanasis Golas, owner of one of the oldest kebab shop in Monastiraki district in the shadow of the Acropolis as he sliced off pieces of pork for his mainly foreign clientele.”Greek customers have been reduced substantially.”Long seen as an inexpensive treat accessible to almost anyone, souvlaki has increasingly become the kind of item people on tight budgets think twice before buying.”In the past I would buy three or two souvlaki, today I only bought one, because it is very expensive, and wages are low right now,” says Morina Ntotsi, a 58-year-old cleaner who earns 720 euros a month.The Grill and Restaurant Union in Athens says that the price of pork has risen 30% the last 12 months, the sunflower oil generally imported from Ukraine by 125% and electricity bills more than 100%.”I hope the war ends soon,” said Spyros Bairachtaris, whose family has owned a restaurant near the Acropolis for more than 140 years and who, following a doubling of his electricity bill, is struggling to hold his souvlaki at under 3 euros per serving.For at least one tourist, however, the snack remains a snip at that price.”I would pay 10 euros for that souvlaki, it’s delicious,” said Dave Disis, from the U.S. state of Georgia.($1 = 0.9326 euros) More