Economy

After the stunning victory at Amazon by a little-known independent union that didn’t exist 18 months ago, organized labor has begun to ask itself an increasingly pressing question: Does the labor movement need to get more disorganized?Unlike traditional unions, the Amazon Labor Union relied almost entirely on current and former workers rather than professional organizers in its campaign at a Staten Island warehouse. For financing, it turned to GoFundMe appeals rather than union coffers built from the dues of existing members. It spread the word in a break room and at low-key barbecues outside the warehouse.In the end, the approach succeeded where far bigger, wealthier and more established unions have repeatedly fallen short.“It’s sending a wake-up call to the rest of the labor movement,” said Mark Dimondstein, the president of the American Postal Workers Union. “We have to be homegrown — we have to be driven by workers — to give ourselves the best chance.”The success at Amazon comes on the heels of worker-driven initiatives in a variety of other industries. In 2018, rank-and-file public-school teachers in states like West Virginia and Arizona used social media to plan a series of walkouts, setting in motion one of the largest labor actions in recent decades and forcing union leaders to embrace their tactics.White-collar tech workers have organized protests at Google and Netflix over issues like sexual harassment and prejudice toward transgender people. At colleges like Grinnell and Dartmouth, workers have recently formed unions that are unaffiliated with existing labor groups.And at Starbucks, where workers have voted to unionize 10 corporate-owned stores and filed for elections in roughly 150 more over the past six months, the campaign has largely expanded through worker-to-worker interactions over email, text and Zoom, even as it is being overseen by Workers United, an affiliate of the Service Employees International Union.Nonunion Starbucks employees typically receive advice from their newly unionized counterparts, then meet with co-workers in their stores, distribute union cards, decide whether and when to file for an election and respond to media inquiries — responsibilities that professional union staff members often carry out in traditional campaigns.“I can give my opinions — experience means something, but living it means more,” said Richard Bensinger, an organizer for Workers United, referring to the difference between organizing as an outsider and working at a company.Some union officials have criticized the labor movement for being content to shrink gradually, like a wheezing media giant ill suited for the internet age, rather than experiment with new models and invest aggressively in recruitment. They have pointed to a decline in funding for an A.F.L.-C.I.O. department dedicated to organizing, though the federation’s president, Liz Shuler, has said organizing remains a priority and is funded through different mechanisms.A Landmark Win for Unionization at AmazonWorkers at an Amazon warehouse on Staten Island delivered one of the biggest victories for organized labor in a generation.The Vote: Despite heavy lobbying by the company, workers at the warehouse chose to unionize by a wide margin.How the Union Won: After Amazon fired Christian Smalls, he and his best friend rallied other warehouse workers with home cooking and TikTok videos.Amazon’s Approach: The company has tried to counter unionization efforts with employee “training” sessions that carry clear anti-union messages.Times Investigation: In 2021, we found that the Staten Island facility clearly displayed the stresses in Amazon’s employment model.Other activists and scholars have complained that even when established unions do invest in organizing, some are too intent on controlling key decisions and use workers merely as props who recite union-crafted talking points.Amazon employees on Staten Island lined up to vote last month.DeSean McClinton-Holland for The New York TimesIn her book “No Shortcuts: Organizing for Power in the New Gilded Age,” the organizer and scholar Jane McAlevey wrote skeptically of two common approaches of established unions. One is “advocacy,” in which union officials try to hammer out deals with corporate executives or political power brokers to allow workers to unionize, but with little input from workers.Ms. McAlevey also questioned an approach she called “mobilization,” in which the union takes on an employer primarily through the efforts of a professional staff, consultants and a cadre of activists rather than a large group of rank-and-file workers. “The staffers see themselves, not ordinary people, as the key agents of change,” she wrote.Some union officials have argued that the Fight for $15 campaign, in which the service employees’ union has spent tens of millions of dollars seeking to raise wages and help fast-food workers unionize, and OUR Walmart, which had similar goals for Walmart employees, were effectively mobilization efforts run largely by professional operatives.“They were engaged in a campaign to try to bring to bear a lot of external pressure, with show strikes and community support, to jack up Walmart to deal with them,” said Peter Olney, a former organizing director of the International Longshore and Warehouse Union, alluding to protests involving activists but few workers. “My critique is that was not going to happen. Walmart is not going to respond to show strikes. You have to have real strikes.”The critics typically acknowledge that the campaigns helped galvanize support for higher wages even if they fell short of unionizing workers. Defenders say the goal is to have an impact on a company- or industrywide scale rather than a few individual stores. They point to certain developments, like a pending California bill that would regulate fast-food wages and working conditions, as signs of progress.In other cases, workers themselves have perceived the limitations of established unions and the advantages of going it alone. Joseph Fink, who works at an Amazon Fresh grocery store in Seattle with roughly 150 employees, said the workers there had reached out to a few unions when seeking to organize in the summer but decided that the unions’ focus on winning recognition through National Labor Relations Board elections would delay resolution of their complaints, which included sexual harassment and health and safety threats.When the workers floated the idea of staging protests or walkouts as an alternative, union officials responded cautiously. “We received the response that if we were to speak up, assert our rights publicly, we’d be terminated,” Mr. Fink said. “It was a self-defeating narrative.”The workers decided to form a union on their own without the formal blessing of the N.L.R.B., a model known as a “solidarity union,” whose roots precede the modern labor movement.For workers who do seek N.L.R.B. certification, doing so independent of an established union also has advantages, such as confounding the talking points of employers and consultants, who often paint unions as “third parties” seeking to hoard workers’ dues.At Amazon, the strategy was akin to sending a conventional army into battle against guerrillas: Organizers said the talking points had fallen flat once co-workers realized that the union consisted of fellow employees rather than outsiders.“When a worker comes up to me, they look at me, then see I have a badge on and say, ‘You work here?’ They ask it in the most surprising way,” said Angelika Maldonado, an Amazon employee on Staten Island who heads the union’s workers committee. “‘I’m like, ‘Yeah, I work here.’ It makes us relatable from the beginning.”In recent years, a variety of groups have sought to make it easier for workers to organize independently. The nonprofit Solidarity Fund has provided stipends to workers involved in organizing campaigns and awarded $2,500 grants to seven Amazon workers on Staten Island last year.A for-profit company, Unit, provides software allowing workers to track the support of co-workers and file authorization signatures electronically with the N.L.R.B. The company, structured as a public benefit corporation, pairs workers with one of its professional organizers during the most delicate portions of the unionizing process, such as employer anti-union meetings. It recently helped its first group of workers unionize at Piedmont Health Services, a health care provider in North Carolina with roughly 40 eligible employees.Christian Smalls, an Amazon union leader and former employee, introduced Angelika Maldonado, who works at the Staten Island warehouse, at a rally last month.DeSean McClinton-Holland for The New York TimesThe problem for independent organizing efforts is that their momentum can be hard to sustain, even with such cutting-edge tools, or after securing a win through a strike or an election.“The organizing never stops,” said Kate Bronfenbrenner, director of labor education research at Cornell University. “You can’t sit back. For a normal first contract campaign, it averages three years. If Amazon contests this in court, this is going to take a lot longer.”Established unions like the Retail, Wholesale and Department Store Union, which came close to winning a do-over election last week at an Amazon warehouse in Bessemer, Ala., and recently notched a victory at the outdoor retailer REI, can provide institutional support to see the effort through.For worker-led unions, such challenges may point to the need for a hybrid approach in which they retain control of their organizations but seek guidance and resources from more established unions — something that is already occurring to varying degrees.The Amazon workers on Staten Island received pro bono legal help from employees of established unions as well as office space, and the Communications Workers of America lent them a messaging platform capable of sending out texts to co-workers en masse.At Starbucks, Workers United has paid for extensive legal work, such as litigating the company’s challenges to election petitions. One of the Buffalo baristas involved in the original campaign is also an organizer paid by Workers United.The question is whether traditional unions, while ramping up their contributions to these efforts, including opposition research and other public relations strategies, will be able to resist the temptation to seize control from the workers who fueled them.Mr. Dimondstein, who said his postal workers union was prepared to contribute resources to the Amazon campaign with no strings attached, advised his fellow union leaders to stand down and play a similar long game.“We need to make sure this doesn’t break down into jurisdictional fights — who’s getting these types of workers, these members,” he said.But when asked whether he thought established unions would be able to resist that temptation, Mr. Dimondstein confessed his uncertainty. “Well, I don’t know how confident I am,” he said. “I know it’s necessary.” More

This is the second part of a series on the weaponisation of financeTwo weeks after Russian tanks rolled into Ukraine, South African president Cyril Ramaphosa held a phone call with Russia’s Vladimir Putin. On the same day, European leaders meeting in Versailles warned democracy itself was at stake. Yet Ramaphosa struck a very different tone.“Thanking His Excellency President Vladimir Putin for taking my call today, so I could gain an understanding of the situation that was unfolding between Russia and Ukraine,” he wrote on Twitter. Ramaphosa, who has blamed Nato expansion for the war, said Putin “appreciated our balanced approach”.The South African president is not alone in pursuing a “balanced” position to the war. “We will not take sides. We will continue being neutral and help with whatever is possible,” Brazil’s Jair Bolsonaro said after Russia invaded Ukraine. Mexican president Andrés Manuel López Obrador also declined to join the sanctions being imposed on Russia. “We are not going to take any sort of economic reprisal because we want to have good relations with all the governments in the world,” he said.And, then, there is China: an increasingly close ally of Russia. The world’s second-largest economy has scrupulously declined to criticise the invasion of Ukraine. It might seem that most of the world is united in condemnation of the war in Ukraine, but while there is a western-led coalition against Russia, there is no global coalition. This could have important implications for the future of international finance as countries around the world respond to the dramatic move by the US and its allies to freeze Russia’s foreign currency reserves.“The sanctions have been earth-shattering,” admits John Smith, who used to be the leading sanctions official at the US Treasury department and now co-heads the national security practice at Morrison & Foerster, a law firm. “They’ve broken the mould.”The power of the sanctions on Russia is based on the dominance of the US dollar, which is the most widely-used currency in trade, financial transactions and central bank reserves. Yet by explicitly weaponising the dollar in this way, the US and its allies risk provoking a backlash that could undermine the US currency and sunder the global financial system into rival blocks that could leave everyone worse off.“Wars also upend the dominance of currencies and serve as a doula to the birth of new monetary systems,” says Zoltan Pozsar, an analyst at Credit Suisse.China, in particular, has long-term plans for its currency to play a much bigger role in the international financial system. Beijing views the dollar’s dominant position as one of the bulwarks of American power that it wants to chip away at, the flipside of the US Navy’s control of the oceans. The Ukrainian conflict will solidify this view.Zhang Yanling, former executive vice-president of Bank of China, said in a speech last week the sanctions would “cause the US to lose its credibility and undermine the dollar’s hegemony in the long run”. She suggested China should help the world “get rid of the dollar hegemony sooner rather than later”.The death of the dollar has been predicted on countless occasions before, only for the US currency to maintain its position. Inertia is a powerful force in cross-border finance: once a currency is widely used, that becomes a self-perpetuating position.But if there is a steady shift away from the dollar in the coming years, the sanctions on Russia’s central bank might come to be seen not as a bold, new way of exerting pressure on an opponent but the moment when the dollar’s dominance began to decline — a financial Suez Canal.Analysts point out that previous examples of financial warfare have mostly related to blocking money for terrorism or deployed in specific cases such as Iran’s nuclear programme. Targeting a country of Russia’s size and power is unprecedented, and for better or worse it could become a blueprint for the future, argues Mitu Gulati, a financial law professor at the university of Virginia. “If you change the rules for Russia, you’re changing the rules for the whole world,” he says. “Once these rules change, they change international finance forever.” ‘It was simply theft’As Russia accelerated its build up of forces on the border of Ukraine earlier this year and the threat of war hung in the air, the country’s leading financial officials conducted a stress-test of the impact of potential sanctions.But when one senior Russian banker suggested modelling what would happen if the rouble went over the symbolic mark of 100 to the dollar — a huge jump at the time — the suggestion was dismissed as unrealistic.By the end of February, Russia had launched an invasion of Ukraine, sanctions had been introduced and a large part of the Russian central bank’s foreign reserves had been frozen. Western governments surprised themselves and Moscow with the strength of their economic response to the war. As a result, the rouble fell to 135 against the dollar, a depreciation of about 50 per cent since the start of the year.“No one who was forecasting what sanctions the west might impose could have predicted that, when the central bank reserves [were frozen],” Russia’s foreign minister Sergei Lavrov said in March. “It was simply theft.”Five weeks into the war, the situation looks different — at least superficially. The rouble has regained most of the ground it lost in the days after the sanctions were first announced — prompting some Russian officials to claim that the measures had failed.“This is the beginning of the end of the dollar’s monopoly in the world,” Vyacheslav Volodin, speaker of the Russian Duma lower house of parliament, said on Wednesday. “Anyone who keeps money in dollars today can no longer be sure that the US will not steal their money.”Volodin added: “The ‘hellish’ sanctions didn’t work. They hoped to collapse the economy and paralyse Russia’s banking system. It didn’t work.”But analysts say the rebound largely reflects the draconian capital controls and interest rate increases Russia has unveiled in response. They add that the economic impact is undoubtedly going to be severe, regardless of the rouble’s movements. “It’s very grim,” says Carmen Reinhart, the World Bank’s chief economist. “Modelling at a time like this is an art, so I don’t want to be too precise, but we’re talking about significant, double-digit declines in economic activity and skyrocketing inflation.”Nonetheless, there are a few tentative signs that Russia could find ways around the sanctions that bypass the dollar-based US financial system. One area is trade. India, a country which is eager to maintain the independence of its foreign policy, has been flirting with the idea of providing a payments backdoor to Russia.Indian officials say the government and central bank have looked into the viability of a rupee-rouble arrangement — a mechanism the two countries used during the Soviet Union era, which also involved barter trades involving oil and other goods. But officials stress that the issue is not yet settled. Such arrangements are “not easy to undo once the crisis goes,” one official cautions.Some fear the war is the beginning of a profound shift in the global economy. Larry Fink, the chief executive of BlackRock, the world’s largest investment group with $10tn of assets under management, argued in his annual letter to shareholders that “the Russian invasion of Ukraine has put an end to the globalisation we have experienced over the last three decades”. One result, he said, could be a greater use of digital currencies — an area where the Chinese authorities have made significant preparations. Even the IMF believes the dollar’s dominance could be diluted due to the “fragmentation” of the system, although it will likely remain the primary global currency. “We are already seeing that with some countries renegotiating the currency in which they get paid for trade,” says Gita Gopinath, the IMF’s first deputy managing director.The sanctions could also accelerate changes in the infrastructure of international finance. As part of its push to reduce dependence on US-controlled systems, China has spent years developing its own renminbi-denominated cross-border interbank payments system (Cips), which now has 1,200 member institutions across 100 countries.Cips is still small compared with Swift, the European-based payments system, which is an important part of the sanctions regime against Russia. But the fact that the biggest Russian banks have been kicked off Swift has given a potential growth opportunity to the Chinese rival.

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“Cips has the potential to be a game changer,” says Eswar Prasad, a former senior IMF official now at the Brookings Institution. “China is setting up an infrastructure for payments and payment messaging that could one day provide an alternative to the western-dominated international financial system and in particular Swift.”Even before the war, there were also tentative signs of a big shift already under way in the composition of central bank reserves — one of the main building blocks of the international financial system. US government debt has for much of the past century been central banks’ preferred place to stash away rainy-day money, given the size and strength of the US, the safety and tradeability of its debt and the dominant role of the dollar in international trade and finance. In the 1960s, former French president Valéry Giscard d’Estaing called this America’s “exorbitant privilege”. But that privilege has been eroded in recent decades. Of the $12tn worth of foreign currency reserves held by central banks around the world at the end of 2021, the dollar accounts for about 59 per cent, according to the latest IMF data. That is down from 71 per cent in 1999, when the euro was launched. The European common currency is the principal dollar alternative — it accounts for 20 per cent of central bank reserves — but there has also been a marked shift into smaller currencies such as the Australian dollar, the Korean won and above all the Chinese renminbi, according to Barry Eichengreen, Berkeley economics professor who is the dean of studies of the international monetary system. In a recent report co-authored with the IMF, he called this “the stealth erosion of dollar dominance”, and argued it “hints of how the international system may evolve going forward”. The use of central bank sanctions would probably accelerate the process, he told the Financial Times. “It’s a huge deal. Freezing the assets of the Russian central bank certainly came as a surprise to me, and it would appear to Putin as well,” he says. “These issues have always come up in the past whenever the words ‘weaponise’ and ‘dollar’ are spoken. The worry is always that this will work to the disfavour of US banks, and you go some way towards eroding the dollar’s exorbitant privilege.”Yu Yongding, a leading economist at the Chinese Academy of Social Sciences, said in a speech last week that sanctions had “fundamentally undermined national credibility in the international monetary system”. Yu, who used to be an adviser to the Chinese central bank, added: “What contracts and agreements can’t be dishonoured in international financial activities if foreign central banks’ assets can be frozen.”Is it too early for the death knell of the US dollar?Yet for all the speculation about the impact of the sanctions, there are also strong reasons to believe they will not promote a shift in the tectonic plates that underpin global finance — at least for the foreseeable future.Despite the recent rebound in the rouble, there is no easy way for Russia to escape from the impact of the sanctions. Natalya Zubarevich, director of the regional programme of the Independent Institute for Social Policy, says people are expecting results “too quickly” from the sanctions. “Sanctions do not work quickly,” she says. “The other sanctions will have an effect over months, not days.” Moreover, the threat of US and European sanctions on entities that actively try to help Russia evade the financial blockade will be a major deterrent — even for banks in countries that are amenable to helping Moscow. Nor is it easy for challengers to displace the dollar. The uncomfortable realisation for countries that might now be nervously eyeing their vulnerability to similar sanctions is that there is simply a lack of viable alternatives. Even Eichengreen says he is nowadays less worried about the dollar’s standing than he used to be, after it survived the “erratic” presidency of Donald Trump.That dilemma is particularly acute for China. With foreign currency reserves of $3.2tn that need to be invested, it has no choice but to have extensive dollar holdings. Outside of Europe and potentially Japan, which have stood shoulder-to-shoulder with America in this case, there simply are not enough liquid financial assets in other currencies to meet that demand.“We have very accommodative monetary policy, we are very open with our markets, things are easily convertible and we are safe as an economy. Until those things change, the rest of it ain’t changing,” says Brian O’Toole, a sanctions expert at the Atlantic Council and former senior official at the US Treasury. “If we’re acting with all of our partners and allies in this, where else are you going to go? There’s no place else that has anything approaching the level of liquidity and access that the US market has. It doesn’t exist anywhere.”China also faces an intractable problem if it wants other countries to hold its currency in their reserves. Its capital controls are not as strict as they used to be, but the renminbi is still not a fully convertible currency. In the decade since it first started trying to internationalise the renminbi, the Chinese Communist party has come to realise it can have a global currency that might one day rival the dollar or it can retain tight control over its domestic financial system, but it cannot have both.Prasad points out that despite the message that countries can no longer rely completely on “their carefully built up war chests at times of war” in light of the “quite dramatic moves by the western economies”, there is simply a paucity of viable alternatives. “The harsh reality though is that the renminbi at this stage is not a big enough player in international finance to be a viable alternative to the dollar,” he says.Paramilitary police officers march at the Bund, in front of the Lujiazui financial district of Pudong in Shanghai. The Chinese Communist party has come to realise it can have a global currency that rivals the dollar or it can retain tight control over its financial system, but it cannot have both © Aly Song/ReutersGiven the profound changes that have taken place in the global economy over the last four decades, it might seem an anachronism that the traditional western allies still dominate the financial world. But for the time being, there is little escape from the hold that their currencies enjoy.Smith, the former Treasury official, points out that “the death knell of the US dollar in the international economy has been sounded every year” since roughly 2008, when Washington first blocked Iran from using the US dollar for its international energy transactions. But nothing tangible has ever come from it. “There’s been a lot of hoopla ever since about the US dollar losing its status as the reserve currency and the currency of choice in the energy markets and in the international economy, [but] we have not seen that occur,” he says. “The US dollar has continued to remain strong as a source of stability in international financial transactions, and that is likely to continue even after the dust settles on the Ukraine war that Russia has unleashed.”Additional reporting by Sun Yu in Beijing and Chloe Cornish in Mumbai More

Owners of aircraft had a tough period during the pandemic but ship owners have been steaming ahead — and for investors eyeing this sector, there appears to be still more upside on the horizon. Key measures of shipping activity such as the Baltic Exchange Dry index shot up in the pandemic recovery, peaking at levels not seen since the early 2000s. That index has now fallen back but remains at elevated levels. A flotilla of publicly listed shipping businesses, ranging from funds through to the likes of Clarkson, a ship broker, have seen their share prices rocket. The listed funds segment of the London market has been a particular favourite as income-focused investors have backed two ship-owning, asset-backed funds: Tufton Oceanic Assets, which floated in 2018, and Taylor Maritime Investments, which listed last year. I have holdings in both.These closed-end investment companies have experienced rapid share price appreciation. This has pushed their once generous dividend yields of 7 per cent down to slightly less adventurous levels of 4.9 and 5.9 per cent respectively. Cynics might presume that the best is behind these funds as shipping markets stabilise — and possibly even cool off, should we see an energy induced recession — but I think they might still reward the patient investor.It is important to understand the characteristics of the two funds. Both started off as income-focused vehicles but benefited from a substantial uplift in net asset value as their ships appreciated in value. This meant both have been busy raising extra capital in recent months. They have been canny about buying the right kind of second-hand ship — the average fleet age of Taylor Maritime’s fleet is 11 years — and then trading ships as purchase prices have shot up. Tufton recently divested the container ship Vicuna for $18mn, realising a net internal rate of return of 46 per cent in a matter of a few years.Both have avoided the pitfalls of previous listed, asset-backed income vehicles — aircraft leasing funds, for instance — which used complex financial engineering involving lashings of debt and a layer of equity on top. Both also have a large fleet of ships — Tufton with 19 last time I counted, Taylor Maritime 30 — which aren’t as state of the art as the aircraft leasing funds’ massive, gleaming A380s. The funds have also avoided the dependence on just one big lessor and have fairly short charter durations ranging between a few months and a few years. But there are crucial differences between them. Tufton has a more diversified portfolio of ships including an early emphasis on container ships, as well as chemical tankers and bulk carriers in the smaller category known as Handysize. Taylor Maritime is heavily focused on Handysize bulk carriers and has also invested a fair amount of capital in a separate entity called Grindrod Shipping, an international shipping company listed in the US and South Africa, which owns a modern fleet of 25 predominantly Japanese-built geared dry bulk vessels.Again, some readers might well acknowledge these subtleties but pose a more basic question. Aren’t we past the best of the cycle and now into a more difficult spell? There’s no doubt the pace of activity has cooled. But Edward Buttery, chief executive of Taylor Maritime, points to substantial upside in the data on his Handysize bulker segment. This shows that congestion at ports is still at heightened levels, with not enough ships to go around. His prediction is that the current strong market will persist through to at least “2023 and beyond”.That rosy forecast does not, of course, cover another risk: a sudden flood of new ships being ordered and chartered out. Buttery’s response is that the bulker ship segment has not been prey to the overcapacity binges typical of the container ships sector. Looking at new ship orders he observes that “the Handysize order book remains the tightest of all dry bulk sectors. It is worth noting that the lack of capacity in shipyards is such that even if ship owners wanted to, they could not order more than a handful of ships before 2024.”

Another risk is the duration of charter periods. Taylor seems to have shorter duration contracts, largely because that’s where the market is currently paying the highest rates. Tufton appears to have slightly longer durations, with the average expected charter length running at 1.9 years. If demand were suddenly to freeze up, Taylor might be more vulnerable.Another risk is that older bulk and tanker ships operated by Tufton and Taylor Maritime suddenly become uneconomic because of tougher environmental regulations. Both funds are investing heavily in upgrading their ships — for instance, to use biofuels — but there’s no obvious answer to the rapid need to decarbonise the fleets. Most progress is likely to be around progressively replacing fossil fuels with alternative low or no-carbon fuel, such as methanol and ammonia. In the meantime, the owners of newer vessels with better fuel efficiencies are likely to be the beneficiaries — and both funds score highly on this measure.I remain optimistic. Both funds are churning out cash because of high returns on assets deployed. Tufton currently boasts a run rate yield on its fleet of 14 per cent. And there may be more upside to come on the value of those ships. The funds team at investment bank Jefferies have been running their slide rule over the two fleets and reckon both might be worth substantially more than is stated. Using data from Clarksons, they reckon that average second-hand price of a 10-year-old Handysize vessel has increased from $17mn at the end of 2021 to $18.5mn currently, which could imply a $35mn uplift in net asset value (NAV) for Taylor. This gives an estimated NAV of $1.73 a share, implying the shares trade at an 18 per cent discount. As for Tufton, the analysts have tentatively added another $20mn NAV uplift on their more mixed fleet, implying a NAV of $1.44 a share, which in turn equates to a 5.8 per cent discount. Jefferies also notes that the big Japanese shipyards are sharply pushing up prices on new ships to pay for extra energy and steel costs, thus supporting the price of existing ships.The rather mundane segments of the shipping market targeted by both funds have had bad decades in the past. There was a decade-long downturn in bulker rates before the current boom. And all the talk of strong asset backing could be pie in the sky if there is a sudden economic slowdown. But on balance I think there remains real potential for an uplift in values. And don’t forget those well-covered dividend payouts, which should satisfy the income-hungry investor.David Stevenson is an active private investor and has interests in securities where mentioned. Email: [email protected]. Twitter: @advinvestor More

The relationship between China and the US will shape the world’s future on every dimension. Alas, those relations have been deteriorating for a long time. Indeed, probably the only issue on which Republicans and Democrats agree is that China is a huge threat to America’s interests and values. Aaron Friedberg of Princeton University agrees enthusiastically with this view. Indeed, his major complaint is against those who ever believed anything different. Fred Bergsten agrees that this is now an enormously challenging relationship — yet takes a contrasting perspective on the threat.Bergsten is a doyen of American thinkers on international economic policy. The founder of the Peterson Institute for International Economics has devoted his life to the promotion of the liberal international economic order. His book, The United States vs China, starts from the view that preservation of that order should be our core objective. It also focuses on the economic aspects of the bilateral relationship, arguing that “It would be far superior, from both a US and global perspective, to decouple the economic issues from the inherently contentious security and values issues.”

Friedberg considers this hopelessly naive. For him economics cannot be separated from politics. The Chinese Communist party is, he argues in Getting China Wrong, a Leninist organisation ruthlessly dedicated to its own power. Quite simply, “Beijing believes that rivalry with the West is inescapable and the stakes are existential.” Bergsten’s analysis is made in terms of the “Thucydides trap” and the “Kindleberger trap”. The first concept comes from Harvard’s Graham Allison, who started from a pattern first identified by the great historian of the Peloponnesian war, in which a rising power (Athens) clashes with an established one (Sparta). The second concept came from the late Charles Kindleberger, who argued that interwar economic disaster was largely due to Britain being too weak to act as the hegemon the world economy then needed, while the US was too inward-looking to do so. In their economic relations, argues Bergsten, the US and China might now fall into the Thucydides trap. In so doing, they would also open the Kindleberger trap. The relationship between the US and China is fundamentally different from that in the cold war, which was an ideological and security conflict. The two sides were engaged in an economic competition, which the Soviets lost, but they were economically disengaged from each other. China, however, has created an economy that already matches America’s on many dimensions. Moreover, China and the west are economically interconnected with each other and the rest of the world.Bergsten concludes from these realities that the US must “reject any efforts to contain China. Even if it were desirable, containment cannot succeed, as President Trump demonstrated. China is too large and too dynamic to be suppressed and few, if any, other countries would join the United States in an effort to do so.”Fortunately, this will be unnecessary, since China is a “revisionist rather than a revolutionary power”. Bergsten’s core recommendation is what he calls “conditional competitive co-operation”.

Competition “will characterize much of their daily interaction through trade, investment, and financial exchanges”. But co-operation is essential to “provide a foundation for a stable and successful international economic order”. Conditionality will also be necessary, since both sides “will rightly insist that the other accept and faithfully implement agreed rules of the game to govern their interactions”.This leads to 10 policy recommendations. Among these are that the US should resume a global leadership role, everybody should continue to defend the current system and prevent its erosion, there should be a new multilateral trade package, and China should over time even be granted full quota and voting parity with the US in the IMF. The most important recommendation, concludes Bergsten, is for the US to undertake “a comprehensive program of domestic economic and social reforms to restore a sustainable political foundation for the country to exercise responsible global economic leadership again”.Friedberg’s analysis and recommendations are essentially the opposite. “What is emerging today,” he asserts, “is an intense, global, economic, technological, military, diplomatic, and ideological rivalry between two superpowers.” Whether we call it a “new Cold War” or use words like “containment” is neither here nor there. “Engagement was a gamble rather than a blunder,” he argues, “but the odds were always extremely long.” A “more accurate appreciation” of the CCP regime might have instilled “a greater sense of realism about the chances for success and a heightened sensitivity to early indications of failure.”

So what is to be done? Friedberg recommends four main lines of effort: “the United States and its partners must mobilize their societies for a protracted rivalry with China and harden them against CCP influence operations; partially disengage their economies from China’s while strengthening ties among themselves; intensify military preparations and diplomatic measures to deter coercion or aggression; and actively challenge Beijing’s ideological narratives, both in the developing world and, to the extent possible, inside China itself.”The two books differ on almost everything. Yet they do agree on two points: first, alliances with other liberal democracies are an immense asset for the US, especially in the economic struggle; second, Donald Trump was a catastrophe, not least because of his inability to recognise this reality. The books’ pre-eminent value is that they set out their opposing views with great clarity. Bergsten focuses on the huge potential gains from bringing China into the system as an equal partner. Friedberg sees an increasingly repressive, deceitful and irreconcilable enemy. Other perspectives exist. One is that the US, not China, is the more aggressive power. America has fought a series of foreign wars in recent decades, not China. It insists on strategic supremacy, not China. The US has 800 military bases abroad; China has just one. Moreover, under Donald Trump the US broke many of its international commitments, notably those in the World Trade Organization. The US may view its actions against China as purely defensive. Unsurprisingly China (and others) view them differently.Again, Friedberg is a moralist. He insists that the CCP, not China, is the enemy. But international realists would argue that ideology does not matter as much as China’s actual and potential power: friction is inevitable.I find Bergsten’s aspirations appealing and Friedberg’s view depressingly one-sided. But the latter’s perspective seems destined to win. This is partly because the push towards economic separation is now being driven by deep distrust on both sides. As important is the increased repressiveness of the Chinese regime and the re-emergence of one-man rule. Above all, China’s support for Russia’s invasion of Ukraine and attempt to split Europe from the US are unacceptable. China has, alas, chosen to be the west’s enemy. Whether Friedberg’s world was inevitable I do not know. It will be hard to escape from it now. This will prove to be a tragedy for humanity.The United States vs. China: The Quest for Global Economic Leadership by C Fred Bergsten, Polity £25, 384 pages Getting China Wrong by Aaron Friedberg, Polity £25, 246 pagesJoin our online book group on Facebook at FT Books Café More

After months of debate, the US Federal Reserve has a plan to shrink its $9tn balance sheet as it tries to tighten monetary policy and tackle the highest inflation in decades. Details of the plan were contained in minutes from the latest policy meeting in March, when the Federal Open Market Committee implemented the first interest rate increase since 2018 and signalled its intention to continue raising it to a “neutral” level that neither fuels nor slows growth. Besides interest rate rises, shrinking the balance sheet is the second pillar of the Fed’s plan to scale back the huge injection of monetary stimulus pumped into the economy at the onset of the pandemic. “It’s hard to look at the balance sheet plan the FOMC released and get the impression that they are anything but serious about removing policy accommodation,” said Robert Rosener, senior US economist at Morgan Stanley.Here is what the Fed has proposed and why financial markets are on edge:How will the Fed shrink the balance sheet?Officials broadly agree the Fed should shed up to $95bn of assets a month from the central bank’s huge balance sheet, and build up to that level over roughly three months starting in May. The Fed will seek to “roll off” $60bn of Treasuries each month by not reinvesting the proceeds from maturing bonds. When the amount of maturing Treasuries falls short of that level, the central bank has suggested making up the difference by reducing its holdings of shorter-dated Treasury bills, of which it holds roughly $325bn worth. The Fed also wants to reduce its holdings of agency mortgage-backed securities (MBS), which it started buying during the pandemic, capping the reduction in this asset class by $35bn a month. However, economists say it may fall short of this target given when the securities are expected to mature. Stephen Stanley, an economist at Amherst Pierpont, estimates holdings of agency MBS will decline by just $25bn a month. Fed policymakers have said they would consider selling some of the stockpile outright, rather than waiting for the securities to roll off the balance sheet, but this would only happen when the pruning process is “well under way”. How aggressive is the Fed’s plan?Surging inflation coupled with one of the tightest labour markets in history has prompted the Fed to plan a balance sheet reduction that would be much quicker than the last time it attempted to reduce its holdings. After hoovering up bonds in the wake of the 2008 financial crisis, the Fed waited until 2015 to raise rates and then a further two years or so before paring down its balance sheet. It then took about another year for the Fed to lift the cap on asset reduction to $50bn a month. Lael Brainard, a Fed governor who is poised to become vice-chair, said this week that a more rapid pace was warranted this time round “given that the recovery has been considerably stronger and faster than in the previous cycle”.The Fed has adopted a similar approach to raising interest rates, with many officials now backing half-point interest rate rises at one or more meetings this year — the first time such an increase will have been used since 2000. Wall Street is braced for multiple half-point adjustments, with the first coming in May.“By gradually dialling up the rhetoric, [the Fed has] allowed markets to recalibrate to this new monetary regime without an excessive tightening of financial conditions,” said Diana Amoa, chief investment officer of Kirkoswald, a hedge fund. How have financial markets reacted? The beginning of the end of the Fed’s pandemic-era stimulus has affected every corner of financial markets. The record rally in US stocks and the boom in the housing market were built on low borrowing costs ushered in by the Fed’s ultra-loose monetary policy. Borrowing costs have jumped since early March as the market anticipated higher interest rates, sending mortgage rates soaring and stocks plummeting from all-time highs. A smaller Fed balance sheet could accelerate those trends. As the Fed retreats, the supply of Treasuries available to investors will balloon, driving US government bond yields — which rose to three-year highs on Wednesday — higher still. Will there be liquidity issues? The flood of supply could also have an impact on liquidity — the ease with which traders can buy or sell — in the Treasury market, which has deteriorated to the worst level since the start of the pandemic.“This is a lot of Treasury collateral for the market to absorb in an environment where there is elevated volatility and a lot of uncertainty,” said Mark Cabana, head of US rates strategy at Bank of America.Chaos ensued the last time the Fed attempted to reduce its balance sheet. In 2019, short-term funding rates spiked, suggesting the central bank had withdrawn too much from the market. However, the Fed hopes it can avoid a rerun of that specific liquidity problem after it established a permanent facility last year that allows eligible investors to swap Treasuries for cash. More

European banks are stepping up their complaints to Brussels about a lack of clarity on how to implement EU sanctions on Russia and a “misalignment” with equivalent measures imposed by the US and UK.Representatives of the region’s biggest banks, including the European Banking Federation, are due to discuss their concerns with European Commission officials in a video conference on Thursday, while the umbrella organisation plans to set out its questions in a letter to Brussels. The issues include whether to handle the proceeds of investment sales for Russian clients, how to judge if a company is controlled by sanctioned individuals and managing existing agreements with Moscow’s central bank.The confusion among banks over EU measures against Moscow in response to its invasion of Ukraine could intensify as Brussels is this week discussing a fifth round of restrictions to target Russian coal imports and widen restrictions on its banking sector.The commission published a Q&A addressing some of the initial questions raised by the banks in an earlier letter the sector sent to Brussels. EU officials are keen to provide more detailed guidance to the lenders while also addressing the risk of “over-compliance”, in which lenders take an overzealous approach to sanctions.One worry is that banks could refuse to hold deposits for Russian residents of the EU, when current sanctions only prevent the bloc’s banks from accepting new deposits of more than €100,000 from Russians who do not also have an EU passport. “You tend to err on the side of prudence,” said a senior European banker.Two types of “over-compliance” are raising concerns, said a commission official: “One is excessive compliance by member states, who might be excessively cautious and address issues that may not be entirely covered by sanctions.“Then there can be over-compliance by banks, for example discontinuing deposits by Russian customers even if they are resident here and not captured by the sanctions. Firms might take decisions to preserve their reputation or limit risks more broadly; this is not only about sanctions,” the official added. Valdis Dombrovskis, the commission’s executive vice-president, told the Financial Times: “Clearly we understand there needs to be some guidance to banks and institutions that are applying sanctions and we are looking at this.”One of the main worries of the bigger European banks with operations across the globe is that they are being pulled in different directions because of a lack of harmony between EU, US and UK sanctions on Russia.While western countries have attempted to co-ordinate their measures, the banks say there are important differences. For instance, the key question of whether an entity is controlled by people or companies on the sanction list is defined by the US as whether they own 50 per cent or more, but the EU defines it as more than 50 per cent.If two sanctioned people or entities together own more than half of a company, the EU and US consider that to count as control, but the UK does not.Furthermore, the UK does not consider secondary trades in shares of a sanctioned company as breaching sanctions, but the US does and the EU does in some cases.Some banks are also unsure what they should do with repurchase agreements where the counterparty is the Russian central bank, which is now subject to sanctions. Repurchase agreements are a way for banks to raise money or to provide financing by securing a loan against an asset.Banks are seeking guidance on whether they should try to unwind repurchase agreements with the central bank by returning funding or liquidating assets. If such unwinding transactions were considered to be in breach of sanctions, those agreements would be effectively frozen.There is also concern among lenders about trading and investment accounts they hold on behalf of Russians. The banks want clarity on whether the Russian client selling investments worth more than €100,000 would breach sanctions.The EBF declined to comment on the issues.“Given the scale of sanctions, demands for clarification were important and the risk of varying interpretations significant,” said the commission official. “This is why we put out FAQs. This is also why we are reaching out with business associations and stakeholders.” More

Europe is blessed with many things but abundant and accessible mineral wealth and processing infrastructure are not among them. Industrially, Europe has positioned itself as a centre of excellence for research and development and high-end manufacturing, insulated from the challenges of extracting and processing raw commodities. Politically, Europe has driven the global agenda in environmental, social and governance best practices. These policies have to an extent reinforced the region’s separation from the world of commodities. All of this made sense in a world where supply chains were globally integrated. But the invasion of Ukraine has highlighted the risks of being too far removed from sources of supply.Europe’s immediate priority is to find alternative sources of energy, given its dependence on Russian oil and gas. However, if the region is to remain globally competitive in manufacturing, most notably cars, then it also needs to secure reliable access to raw materials. Rare earths, industrial and battery metals are vital areas to prioritise, given the importance of lithium, nickel, copper and cobalt to electrification.

Decarbonisation of the global economy has been a cause that Europe has rightly championed. The region has developed the most sophisticated carbon credit market. It has also been the first to set clear thresholds for recycled content in electric battery manufacturing. The world is following the lead that Europe has established.But European companies need reliable and affordable commodities to produce the goods required by a decarbonised world. In this respect, Europe finds itself not only far less naturally well-endowed than the US or Canada. It has also fallen far behind China which has been systematically building its supply chain in these critical minerals. In the long term, China is unlikely to want to merely sell Europe battery materials or even batteries, but rather the consumer goods that they power. China understandably wants to retain as much of the associated value creation from its own investment in electrification. This poses a far more existential threat to Europe’s manufacturing base than the short-term gas shortage or even longer-term energy price inflation. In order to be able to secure supplies of these critical minerals, European manufacturers must fundamentally review how they approach procurement. Western mining companies also need to rediscover their own appetites for risk. The exploration and development departments of the western miners have been systematically downgraded over the past two decades. There has been an increasing focus on existing large-scale mines operating in developed countries, particularly North America and Australia. This trend has been far more pronounced within metals than in the energy markets. Even Latin American democracies such as Chile have come to be seen as being unacceptably high risk in terms of incremental capital. Yet it is an unavoidable fact that the vast majority of reserves of critical minerals are not located in first-world geographies. The west, particularly Europe, cannot afford to neglect developing markets in this way. Investors and NGOs should both recognise that their influence here has been and remains substantial. There is an opportunity for Europe to take the lead in reconnecting the best exploration and development projects with capital where it is most abundant and responsible. The ESG leadership Europe has championed need not be sacrificed, rather it should form a blueprint for the development of emerging markets, particularly Africa, where so much of the incremental supply resides.There are also substantial opportunities for Europe to help develop the processing sectors in these emerging economies. This will enable developing counties to share more of the total value of the underlying materials mined there. Initiatives such as the Fair Cobalt Alliance should be supported and replicated.

Perhaps the DRC will not yet manufacture European cars, but there is no reason why it should continue to export unrefined ore, wholesale, to China. European manufacturers must also reassess how they secure reliable long-term supply of materials. This will perhaps include direct investments in mining assets. Europe also needs to rebuild its own refining and smelting capacity, especially given the increasing importance of recycling to decarbonisation. The current “not in my back yard” position can only be changed by government policy. Energy costs will remain an issue, but this must be balanced with security of supply. Europe can no longer afford to outsource everything which is challenging, dirty or can be done cheaper elsewhere. Europe collectively needs to address the challenges made evident by the war in Ukraine or it risks becoming a manufacturing museum and merely a holiday destination. Paul Smith is the non-executive chair at Trident RoyaltiesThe Commodities Note is an online commentary on the industry from the Financial Times More

Your browser does not support playing this file but you can still download the MP3 file to play locally.Far-right leader Marine Le Pen has put in an unexpectedly strong showing and looks set to go head to head with Emmanuel Macron in the second round of France’s presidential election. Gideon talks to the FT’s Anne-Sylvaine Chassany and Bruno Cautrès of Sciences Po about the issues French voters care about and what happens next.Clips: Reuters, HuffPost, France interwww.ft.com/rachman-reviewWant to read more?French election polls: the race for the presidencyRightwing presidential candidates’ immigration ‘obsession’ belies reality of modern FranceEmmanuel Macron warns he could lose French election to the far rightFrance votes: Macron’s frontrunner status conceals deep rifts in societySubscribe to The Rachman Review wherever you get your podcasts – please listen, rate and subscribe.Presented by Gideon Rachman. Produced by Fiona Symon. Sound design by Jasiu SigsworthRead a transcript of this episode on FT.com See acast.com/privacy for privacy and opt-out information.Transcripts are not currently available for all podcasts, view our accessibility guide. More