More stories

  • in

    Gina Raimondo, a Rising Star in the Biden Administration, Faces a $100 Billion Test

    WEST LAFAYETTE, Ind. — Gina Raimondo, the commerce secretary, was meeting with students at Purdue University in September when she spotted a familiar face. Ms. Raimondo beamed as she greeted the chief executive of SkyWater Technology, a chip company that had announced plans to build a $1.8 billion manufacturing facility next to the Purdue campus.“We’re super excited about the Indiana announcement,” she said. “Call me if you need anything.”These days, Ms. Raimondo, a former Rhode Island governor, is the most important phone call in Washington that many chief executives can make. As the United States embarks on its biggest foray into industrial policy since World War II, Ms. Raimondo has the responsibility of doling out a stunning amount of money to states, research institutions and companies like SkyWater.She is also at the epicenter of a growing Cold War with China as the Biden administration uses her agency’s expansive powers to try to make America’s semiconductor industry more competitive. At the same time, the administration is choking off Beijing’s access to advanced chips and other technology critical to China’s military and economic ambitions.China has responded angrily, with its leader, Xi Jinping, criticizing what he called “politicizing and weaponizing economic and trade ties” during a meeting with President Biden this month, according to the official Chinese summary of his comments.The Commerce Department, under Ms. Raimondo’s leadership, is now poised to begin distributing nearly $100 billion — roughly 10 times the department’s annual budget — to build up the U.S. chip industry and expand broadband access throughout the country.How Ms. Raimondo handles that task will have big implications for the United States economy going forward. Many view the effort as the best — and only — bet for the United States to position itself in industries of the future, like artificial intelligence and supercomputing, and ensure that the country has a secure supply of the chips necessary for national security.But the risks are similarly huge. Critics of the Biden administration’s plans have noted that the federal government may not be the best judge of which technologies to back. They have warned that if the administration gets it wrong, the United States may surrender its leadership in key technologies for good.“The essence of industrial policy is you’re gambling,” said William Reinsch, a trade expert at the Center for Strategic and International Studies, a think tank. “She’s going to be in a tough spot because there probably will be failures or disappointments along the way,” he said.The outcome could also have ramifications for Ms. Raimondo’s political ambitions. In less than two years in Washington, Ms. Raimondo, 51, has emerged as one of President Biden’s most trusted cabinet officials. Company executives describe her as a skillful and charismatic politician who is both engaged and accessible in an administration often known for its skepticism of big business.Ms. Raimondo’s work has earned her praise from Republicans and Democrats, along with labor unions and corporations. Her supporters say she could ascend to another cabinet position, run for the Senate or perhaps mount a presidential bid.Inflation F.A.Q.Card 1 of 5What is inflation? More

  • in

    U.S. Blocks Dominican Republic Sugar Imports, Citing Forced Labor

    An import ban targets sugar from Central Romana Corporation, a behemoth whose sugar is sold under the Domino brand.WASHINGTON — The Biden administration announced Wednesday that it would block shipments of sugar from Central Romana Corporation, a Dominican Republic company that produces sugar sold in the United States under the Domino brand and that has long faced allegations of subjecting its workers to poor labor conditions.U.S. Customs and Border Protection issued what is known as a withhold release order against the company “based on information that reasonably indicates the use of forced labor in its operations,” including abusive working and living conditions, excessive overtime, withheld wages and other violations.“Manufacturers like Central Romana, who fail to abide by our laws, will face consequences as we root out these inhumane practices from U.S. supply chains,” AnnMarie R. Highsmith, the executive assistant commissioner of the agency’s Office of Trade, said in a statement.Central Romana responded that it was “very disappointed” by the decision and that it had been investing significantly for years to improve the living conditions of its employees.“We disagree vehemently with the decision as we do not believe it reflects the facts about our company and the treatment of our employees,” it said in a statement on Wednesday.Central Romana, which is the largest landholder and employer in the Dominican Republic, exports more than 200 million pounds of sugar to the United States each year. It is owned partly by the Fanjul family, an influential force in U.S. politics for decades as key donors to both Republicans and Democrats.The measures have been the subject of an intense debate on Capitol Hill, where profits from the sugar industry are funneled into generous campaign contributions and lobbying expenditures, according to people familiar with the discussions who spoke on the condition of anonymity.The United States is the most important market for Dominican sugar, and the move could have a crippling effect on Central Romana, which alone produces roughly 59 percent of the Dominican Republic’s sugar, according to the U.S. Department of Agriculture.It could also cause significant disruptions to U.S. sugar imports in the near term, though economists said the impact on sugar prices, which are heavily influenced by regulation, remained to be seen. Those regulations include price supports that keep U.S. sugar prices far above those on world markets, as well as preferential tariff rates for sugar imported from the Dominican Republic.Charity Ryerson, the executive director at Corporate Accountability Lab, a Chicago-based human rights organization, said the restrictions would be a powerful impetus for Central Romana to improve conditions for its workers.“Central Romana has been on notice for years but has failed to comply with even the most basic of labor and human rights standards in their operation,” she said. “From this moment forward, we have a really significant opportunity for C.B.P., for Central Romana and civil society to work together to ensure that workers are free, they’re treated fairly and that forced labor never happens on these farms again.”The Dominican sugar industry has been the subject of scrutiny for decades for its poor labor practices. Media reports and human rights groups have said Central Romana exerts tremendous power over its workers, many of whom are Haitian migrants and some of whom lack citizenship.Many workers live in dilapidated housing without running water and electricity, according to civil society groups. The company has also been accused of forcibly evicting families from their homes in the Dominican Republic, and employing a force of masked and armed guards that intimidate workers.Central Romana has publicly defended its practices and has said it offers among the best working conditions in the industry. A congressional delegation that visited the Dominican Republic and met with workers this summer said the country had made progress toward addressing some of the worst abuses, including child labor and human trafficking.But the delegation still found evidence that forced labor was persisting on the sugar cane farms. Sugar cane cutters faced “arduous working and living conditions” and “a culture of fear appears to permeate the industry,” Representatives Earl Blumenauer of Oregon and Dan Kildee of Michigan, both Democrats, said in a statement.Members of the Fanjul family, Cuban exiles who started sugar cane farms in Florida and acquired the Dominican Republic company in the 1980s, have been a powerful force in American politics for decades, known for relationships with the Bush family, the Clintons and Senator Marco Rubio, Republican of Florida, among others.They are part owners of American Sugar Refining, the world’s largest sugar refinery, which processes sugar from the Dominican Republic at its U.S. facilities and sells to companies including Hershey. More

  • in

    Price of Diesel, Which Powers the Economy, Is Still Climbing

    Russia’s invasion of Ukraine is one reason that the fuel is scarce. Another is a series of yearslong, intertwined events that cover the globe.HOUSTON — Gasoline prices have dropped as much as a dollar a gallon since early summer, easing a financial strain on many people. But the price of diesel, the fuel that moves trucks, trains, barges, tractors and construction equipment, has remained stubbornly high, helping to prop up the prices of many goods and services.On Wednesday, a gallon of diesel fuel in the United States cost $5.357 on average, according to AAA. That was down from a record of $5.816 in June but well above the $3.642 it cost a year ago. (A gallon of regular gasoline now averages $3.805.)The surge in diesel costs has not garnered the attention from politicians and the public that the jump in gasoline prices did, because most of the cars in the United States run on gas. But diesel prices are a critical source of pain for the economy because they affect the cost of practically every product.“The economic impact is insidious because everything moves across the country powered by diesel,” said Tom Kloza, the global head of energy analysis at the Oil Price Information Service. “It’s an inflation accelerant, and the consumer ultimately has to pay for it.”Sherri Garner Brumbaugh, the president of Garner Trucking in Findlay, Ohio, said the weekly cost of fueling one of her heavy-duty trucks in September was $1,300, more than double the $600 she paid two years earlier. “A good portion gets passed onto my customers with a fuel surcharge,” she said.Both gasoline and diesel prices are tied to the price of oil, which is set on the global market. The price of each fuel immediately shot up after Russia invaded Ukraine in February. But their paths have diverged sharply. Over the last year, the cost of diesel has ballooned by over 40 percent, compared with 11 percent for gasoline.Diesel prices are high because the fuel is scarce worldwide, including in the United States, which in recent years became a net exporter of oil and petroleum products. Oil analysts said there were simply not enough refineries to meet the demand for diesel, especially after Russia’s energy exports fell when the United States, Britain and some other countries stopped buying them.Diesel inventories are always a bit low in the spring and fall, during agricultural planting and harvesting seasons, but this fall supplies are at their lowest level since 1982, when the government began reporting data on the fuel.The tightest market is in the Northeast, where oil refineries have closed in recent years and where the diesel crunch is complicated by winter demand for heating oil. The two fuels are virtually the same but are taxed differently. An especially cold winter could make the situation worse by increasing the demand for heating oil.In Massachusetts, for example, diesel is selling for more than $5.90 a gallon (about $2.33 more than it did a year earlier). In Texas, it costs $4.73 a gallon.Trucks, trains, barges, tractors and construction equipment all use diesel, and its price affects the cost of practically every product.Jim Watson/Agence France-Presse — Getty ImagesWhile Russia’s war in Ukraine sent diesel prices soaring, the current situation is partly the result of an interconnected, slow-building series of events that extends across the globe. Some analysts trace the roots of the U.S. diesel shortage to a fire at Philadelphia Energy Solutions in 2019, which forced the refinery to shut down, taking out one of the Northeast’s important diesel producers.But refineries have been closing elsewhere. Over the last several years, 5 percent of U.S. refinery capacity, and 6 percent of European refinery capacity, has been shut down. A few refineries closed or scaled back because of the collapse in energy demand in the early months of the coronavirus pandemic. Some older refineries were shut down because they were inefficient and their profits weren’t large enough for Wall Street investors. Other refineries were closed so that their owners could convert them to produce biofuels, which are made from plants, waste and other organic material.“Because we shut those refineries down, we don’t have enough capacity,” said Sarah Emerson, the president of ESAI Energy, a consulting firm.As much of the global economy recovered in 2021 and 2022, demand for diesel climbed quickly. But then, after Russia invaded Ukraine, the Biden administration banned Russian oil and petroleum imports, which amounted to 700,000 barrels of diesel and other fuels a day, much of it intended for the Northeast.Diesel prices have also soared so much higher than the cost of gasoline in part because of a decision by the International Maritime Organization several years ago to require most oceangoing ships to replace their high-sulfur bunker fuel with less polluting fuels starting in 2020. That has slowly increased demand for diesel over the last two years.“A substantial amount of diesel is needed in the new bunker blends, and that is a hidden demand for diesel molecules,” said Richard Joswick, the head of global oil analysis for S&P Global Platts. He estimated that the global shipping fleet was now consuming half a million barrels of diesel a day, or roughly 2 percent of the world’s supplies.At the same time, while American refiners are now making tidy profits, 30 percent of their production is being exported. Latin America has become a particularly profitable market, as American diesel replaces fuel from Venezuela, where the state-controlled oil sector has been hobbled by corruption, mismanagement and U.S. sanctions. Some American diesel also goes to Europe.The impact of exports on domestic prices has led some analysts to speculate that the Biden administration could eventually restrict exports to boost supplies at home. But energy experts said that might not have the desired effect because diesel had become a globally traded commodity. Denying Latin America fuel could also backfire because many countries in the region sell crude oil to the United States.“We have a symbiotic relationship with Latin America on diesel and crude,” said Ms. Emerson of ESAI Energy. “We can disrupt that, but it doesn’t immediately fix the problem.”The global diesel shortage was also exacerbated by labor strikes at French refineries this fall. And utilities in Europe have been stockpiling diesel in case they cannot find enough natural gas to fuel their power plants.Russian diesel has continued to flow to Europe since the war began, but stricter sanctions that the European Union plans to impose on Russia in February could potentially cause havoc to the diesel business of traders, banks, insurance companies and shippers.Still, some energy experts said prices could soon begin to ease.Help may be on the way from an unlikely source: China. In recent months, China has been loosening export controls on diesel. Its exports rose from 200,000 barrels a day in August to 430,000 barrels a day in September, and the country has the capacity to sell even more, according to estimates by ESAI Energy.Nearly a third of Chinese diesel exports went to the Netherlands in recent months, taking some pressure off the European market. And oil refineries being built in Kuwait and China could come online as early as next year, further increasing supply.Demand for diesel and its price could also fall if much of the world slides into a recession next year, as some economists and policymakers are expecting.“A deep recession would certainly cut into diesel demand,” said Mr. Joswick of S&P Global Platts. “We don’t forecast a recession, but that is certainly a possibility.” More

  • in

    Russian Trade Boomed After Invading Ukraine, Providing Ample War Funds

    Russia’s relationship with the world is continuing to evolve rapidly. To assess the global shifts, The Times analyzed years of country-level trade data compiled by the Observatory of Economic Complexity, an online data platform. Because the data is published with a lag, the picture it provides is inherently backward looking. Russia’s ability to trade with […] More

  • in

    GDP Rose in 3rd Quarter, but US Recession Fears Persist

    .dw-chart-subhed {
    line-height: 1;
    margin-bottom: 6px;
    font-family: nyt-franklin;
    color: #121212;
    font-size: 15px;
    font-weight: 700;
    }

    Gross Domestic Product
    Note: Quarterly changes in gross domestic product, adjusted for inflationSource: Bureau of Economic AnalysisBy The New York TimesEconomic growth rebounded over the summer, the latest government data shows, but slowing consumer spending and a rapidly weakening housing market mean the report will do little to ease fears of a looming recession.Gross domestic product, adjusted for inflation, rose 0.6 percent in the third quarter, a 2.6 percent annual rate of growth, the Commerce Department said Thursday. It was the first increase after two consecutive quarterly contractions.But the third-quarter figures were skewed by the international trade component, which often exhibits big swings from one period to the next. Economists tend to focus on less volatile components, which have showed the recovery steadily losing momentum as the year has progressed.“Ignore the headline number — growth rates are slowing,” said Michael Gapen, chief U.S. economist for Bank of America. “It wouldn’t take much further slowing from here to tip the economy into a recession.”Consumer spending, the bedrock of the U.S. economy, rose just 0.4 percent in the third quarter, down from a 0.5 percent increase in the quarter before, as rapid inflation ate away at households’ spending power.The slowdown in spending will be welcome news for policymakers at the Federal Reserve, who have been trying to cool off consumer demand to tamp down inflation. The central bank has raised interest rates aggressively in recent months, and is expected to announce another big increase at its meeting next week.But forecasters and investors have become increasingly concerned that the Fed will go too far in its efforts to slow the economy and will end up causing a recession. Consumer spending has continued to increase despite higher interest rates and rising prices, but it is unclear how long that can last.“‘Borrowed time’ is how I would describe the consumer right now,” said Tim Quinlan, senior economist at Wells Fargo. “Credit card borrowing is up, saving is down, our costs are rising faster than our paychecks are.”The impact of rising interest rates is clear in the housing market, where home building and sales have both slowed sharply in recent months. The third quarter was in some sense a mirror image of the first quarter, when G.D.P. shrank but consumer spending was strong. In both cases, the swings were driven by international trade. Imports — which don’t count toward domestic production figures — soared early this year as the strong economic recovery led Americans to buy more goods from overseas. Exports slumped as the rest of the world recovered more slowly from the pandemic.Both trends have begun to reverse as American consumers have shifted more of their spending toward services and away from imported goods, and as foreign demand for American-made goods has recovered. Supply-chain disruptions have added to the volatility, leading to big swings in the data from quarter to quarter.Few economists expect the strong trade figures from the third quarter to continue, especially because the strong dollar will make American goods less attractive overseas. More

  • in

    As Britain’s Economy Stumbles, One Sector Is Booming: Whisky

    LONDON — Britain’s economy has been buffeted by the effects of Brexit, the war in Ukraine and, most recently, the government’s dramatic reversal on a series of planned tax cuts that led to the resignation of Prime Minister Liz Truss. But for Scotland’s whisky producers, business is booming, and the British pound’s precipitous decline against major currencies is providing an extra boost, making whisky more affordable for buyers outside of Britain.“The currency has had a major effect — there’s no question about that,” said John Stirling, the co-founder of Arbikie Distillery in Scotland.The volume of whisky exports from Britain has grown over the past two years, including a 10.5 percent increase during the 12 months ending in July over the same period the year before, according to government data.At the Arbikie Distillery. Global demand for whisky has been growing.The surge in exports, driven by higher demand from the United States and the Asia-Pacific region, comes as 20 distilleries have opened in Scotland in the past six years, bringing the total number of distilleries there to 141.As demand for Scotch rises, the pound is trading near historically weak levels. Last month, the pound briefly sank to $1.035, a record low against the dollar in response to Ms. Truss’s economic overhaul, which included £45 billion ($50 billion) in unfunded tax cuts, spooking investors. Her government has since scrapped almost all of the planned cuts, but the pound’s decline has been part of a larger downward trend against major currencies, including those used in the United States, France, Taiwan, India, Singapore and China, the top destinations for Scotch. In the year ending in July, 18 percent of whisky exports, by value, went to the United States, according to government data.Britain is also facing systemic economic issues, such as weak productivity, low pay growth, a shortage of workers and unsteady business investment since the country voted in 2016 to leave the European Union. On Wednesday, the government reported that the country’s consumer prices had risen 10.1 percent in the year through September, driven in part by food prices that recorded their largest increase in more than 40 years.Mr. Perez-Solar with one of the casks at Arbikie Distillery. Twenty distilleries have opened in Scotland in the past six years.With high inflation expected to weigh on consumer spending and business investment, the International Monetary Fund predicted the British economy would go from 3.6 percent growth this year to a 0.3 percent contraction next year.But whisky companies like James Eadie have been able to weather the economic headwinds.“Overall if you look at the last two to three years, we’ve just been going through an incredibly buoyant time,” Rupert Patrick, the chief executive of James Eadie, said. “We’ve all been slightly scratching our heads saying, I wonder why it is so good at the moment.”Inflation F.A.Q.Card 1 of 5What is inflation? More