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    U.S. Limits China’s Ability to Benefit From Electric Vehicle Subsidies

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    The Biden administration issued new rules to prevent Chinese firms from supplying parts for electric cars set to receive billions of dollars in tax credits.The Biden administration proposed new rules on Friday aimed at shifting more production of electric vehicle batteries and the materials that power them to the United States, in an attempt to build up a strategic industry now dominated by China.The rules are meant to limit the role that firms in China can play in supplying materials for electric vehicles that qualify for federal tax credits. They will also discourage companies that seek federal funding to build battery factories in the United States from sourcing materials from China or Russia.The rules could encourage shifts in automotive supply chains, which continue to rely heavily on China for materials and components of electric vehicles. Automakers are also facing intense cost pressures as they try to modify their factories to make electric cars, and China offers some of the most advanced and lowest-priced battery technology in the world.The Biden administration is trying to use billions of dollars in new federal funding to change that dynamic and create a U.S. supply chain for electric vehicles.The climate law that President Biden signed in 2022 includes up to $7,500 in tax credits to consumers who buy electric vehicles made in the United States using largely domestic materials. The law also included a general ban on Chinese products. Lawmakers mandated that firms in China, Russia, North Korea and Iran be prohibited from providing certain materials to cars that received those tax breaks.But the law left open several questions, including what constitutes a Chinese or Russian company. Administration officials said those definitions included any entity that was incorporated or had headquarters in China or Russia, as well as any firm in which 25 percent of the board seats or equity interest was held by Chinese or Russian governments.Chinese companies that set up operations outside China appear to be able to benefit from the rules as long as the Chinese government is not a significant shareholder. That provision came as a relief to some automakers, which feared that the Biden administration might bar them from contracting with Chinese-owned mines or factories in the United States or other parts of the world.Lithium hydroxide is processed at a facility in Bessemer City, N.C. American companies are investing in factories and technologies aimed at developing the materials needed for electric vehicle.Travis Dove for The New York TimesThe law also requires battery makers that strike contracts or licensing agreements with Chinese firms to ensure that they are retaining certain rights over their projects. That provision is intended to make sure a Chinese firm is not effectively in control of such a project.Some conservative lawmakers had challenged Ford Motor’s plans to license technology from the Chinese battery giant known as CATL for a plant in Marshall, Mich., arguing that such a partnership should not be eligible for federal tax credits. Some Republican lawmakers suggested on Friday that the Treasury Department’s guidance did not go far enough to lessen the country’s dependence on China.“At a time when China is using massive subsidies to undercut U.S. manufacturers and throttle the global market for battery components, Treasury’s naïve new regulations would open the floodgates for American tax dollars to flow to Chinese companies complicit in trade violations and forced labor abuses,” said Representative Mike Gallagher of Wisconsin, chairman of the House Select Committee on the Chinese Communist Party. The rules kick in for battery components in 2024, and in 2025 for critical minerals like lithium, cobalt and nickel. They could be adjusted depending on industry comment.The rules could have a profound impact on the U.S. electric vehicle market, which is rapidly growing — battery-powered vehicles made up about 8 percent of new cars sold in the third quarter. Car and battery makers said Friday that they were still reviewing the rules, and that it would take time to determine how many models would qualify for tax credits.Tesla said on Friday that the two least expensive versions of its Model 3 sedan would qualify for only half the $7,500 credit starting in January. The Model Y sport utility vehicle also might not qualify for the full credit after Dec. 31, Tesla said. The Model Y and Model 3 are the top two electric vehicles by sales in the United States. Tesla buys some batteries from CATL.John Bozzella, the chief executive of Alliance for Automotive Innovation, wrote in a blog post Friday that the rules struck “a pragmatic balance,” including by exempting trace materials. If the administration had banned all minor Chinese parts from the supply chain, no car models might have qualified for tax credits next year, he said.Many cars have already been disqualified from purchase credits by other rules, like a requirement that vehicles be assembled in North America. Only about 20 vehicles currently qualify for the program out of more than 100 electric vehicles sold in the United States.The rules also raised new questions about whether stricter requirements for supply chains could continue a trend of driving more shoppers to lease, rather than buy, vehicles.The prohibition on sourcing from China applies only to vehicles that are sold, not to those that are leased. Consumers can receive tax credits for electric vehicles they lease from auto dealers, and that has led to a boom in E.V. leasing.Jack Fitzgerald, chairman of Fitzgerald Auto Malls, which operates dealerships in Florida, Maryland and Pennsylvania, said he had seen a spike in customers leasing electric vehicles. But he said concern about electric vehicle range and the availability of chargers, more than price, was holding back electric vehicle sales.“That’s the principal thing,” Mr. Fitzgerald said.Auto industry lobbyists have warned that extremely strict rules could stifle electric vehicle sales, and they have urged the administration to strike more trade deals to secure supplies of scarce battery minerals. But Paul Jacobson, the chief financial officer of General Motors, said the company had structured its electric vehicle operations to be successful regardless of the federal rules.“We’re not anchoring the business on saying this has to happen” with regard to regulations, Mr. Jacobson told reporters on Thursday. If regulations change, he added, “it’s not a backbreaking thing for us.”While the rules may create headaches for automakers, they are likely to benefit companies planning to supply batteries from factories in the United States.“It’s actually good news for us,” said Siyu Huang, chief executive of Factorial, a Massachusetts company that is developing next-generation electric vehicle batteries with support from Mercedes-Benz, Hyundai and Stellantis, the owner of Dodge, Jeep and Ram.Acquiring large amounts of lithium, an essential ingredient in batteries, could be difficult because most of the metal is processed in China, Ms. Huang said. But the rules will encourage investment in U.S.-based refineries, she continued. “Its definitely going to be another incentive to build more domestic supply,” Ms. Huang said.John DeMaio, chief executive of Graphex Technologies, which is building a factory in Michigan to process graphite for batteries, said the rules might temporarily slow electric vehicle sales by making it harder to qualify for the tax credit. But in the long run, he added, they will encourage investment in domestic suppliers.“It might be a hiccup,” he said, “but in general it provides certainty and clarity to get people off the fence.”Wally Adeyemo, the deputy secretary of the Treasury Department, said in a briefing with reporters that the rules would help advance the administration’s goals of building up an American clean energy supply chain while also cutting emissions in the transportation sector.“These changes take time, but companies are making the investments and Americans are buying these cars,” he said.Over the past year, companies have invested $213 billion in the manufacturing and deployment of clean energy, clean vehicles, building electrification and carbon management technology in the United States, according to tracking by the Rhodium Group and the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology. That is a 37 percent increase from a year earlier..A lithium mine in northern Quebec. A majority of the world’s lithium and cobalt is processed in China.Brendan George Ko for The New York TimesStill, the global electric vehicle industry remains heavily anchored in China, which is the world’s largest producer and exporter of electric vehicles. China produces about two-thirds of the world’s battery cells, and refines most of the minerals that are key to powering an electric vehicle.The rules also restrict automakers from sourcing nickel used in their batteries from Russia, which is one of the world’s largest nickel producers.One of the challenges for automakers will be developing systems to track all the components of their battery through a long, and often opaque, supply chain.Vehicles that are reported incorrectly will be subtracted from an automaker’s eligibility for tax credits, Treasury said, and automakers that commit fraud or intentionally disregard the rules could be declared ineligible for the credit in the future. More

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    U.S. Debates How Much to Sever Electric Car Industry’s Ties to China

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    Some firms argue that a law aimed at popularizing electric vehicles risks turning the United States into an assembly shop for Chinese-made technology.The Biden administration has been trying to jump-start the domestic supply chain for electric vehicles so cleaner cars can be made in the United States. But the experience of one Texas company, whose plans to help make an all-American electric vehicle were upended by China, highlights the stakes involved as the administration finalizes rules governing the industry.Huntsman Corporation started construction two years ago on a $50 million plant in Texas to make ethylene carbonate, a chemical that is used in electric vehicle batteries. It would have been the only site in North America making the product, with the goal of feeding battery factories that would crop up to serve the electric vehicle market.But as new facilities in China came online and flooded the market, the price of the chemical plummeted to $700 a ton from $4,000. After pumping $30 million into the project, the company halted work on it this year. “If we were to start the project up today, we would be hemorrhaging cash,” said Peter R. Huntsman, the company’s chief executive. “I’d essentially be paying people to take the product.”The Biden administration is now finalizing rules that will help determine whether companies like Huntsman will find it profitable enough to participate in America’s electric vehicle industry. The rules, which are expected to be proposed this week, will dictate the extent to which foreign companies, particularly in China, can supply parts and products for American-made vehicles that are set to receive billions of dollars in subsidies.The administration is offering up to $7,500 in tax credits to Americans who buy electric vehicles, in an effort to supercharge the industry and reduce the country’s carbon emissions. The rules will determine whether electric vehicle makers seeking to benefit from that program will have the flexibility to get cheap components from China, or whether they will be required instead to buy more expensive products from U.S.-based firms like Huntsman.After pumping $30 million into the project, Huntsman halted work on it. “If we were to start the project up today, we would be hemorrhaging cash,” said Peter R. Huntsman, the company’s chief executive.Callaghan O’Hare for The New York TimesCan the World Make an Electric Car Battery Without China?From mines to refineries and factories, China began investing decades ago. Today, most of your electric car batteries are made in China and that’s unlikely to change soon.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.We are confirming your access to this article, this will take just a moment. However, if you are using Reader mode please log in, subscribe, or exit Reader mode since we are unable to verify access in that state.Confirming article access.If you are a subscriber, please  More

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    China’s Xi Jinping Draws Elon Musk, Tim Cook and other U.S. CEOs to Gala in San Francisco

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    Amid frosty U.S.-China relations, Xi Jinping emphasized friendship in an address to executives from Apple, Boeing, Nike and others.The streets outside the San Francisco hotel where Chinese leader Xi Jinping addressed a crowd of American business executives Wednesday night were chaotic, echoing with police sirens and the chants of protesters. A woman had strapped herself to a pole 25 feet in the air in front of the hotel, yelling “Free Tibet!” as a cold rain fell.But inside the ballroom of the Hyatt Regency, the atmosphere was warm and friendly. More than 300 executives and officials listened attentively as Mr. Xi — the leader of a country often considered America’s greatest rival — spoke for over half an hour about an enduring friendship between China and the United States that could not be diminished by recent turmoil.Mr. Xi spoke of pandas. He spoke of Ping-Pong. He spoke of Americans and Chinese working together during World War II to battle the Japanese. He addressed the tensions that have rocked U.S. and Chinese relations in the past year only briefly and obliquely, comparing the relationship to a giant ship that was trying to navigate through storms.“The number one question for us is: are we adversaries, or partners?” Mr. Xi asked. Seeing the other side as a competitor, he said, would only lead to misinformed policy and unwanted results. “China is ready to be a partner and friend of the United States.”Among those who paid thousands of dollars to attend the dinner and hear Mr. Xi’s message were Tim Cook, the chief executive of Apple, Larry Fink of BlackRock, and Jerry Brown, the former governor of California. They mingled with executives from Boeing, Pfizer, Nike and FedEx. Elon Musk popped by during the cocktail hour to greet Mr. Xi, but departed before dinner began.Mr. Xi’s tone was welcomed by many of those in attendance, who believe that more engagement between the United States and China will improve the lives of people in both countries, reduce misunderstandings and potentially even deter a war.“I think it’s important Americans and Chinese are meeting again face to face,” John L. Holden, managing director for China of McLarty Associates, a consultancy, said as he queued outside the hotel. “This is not a magic bullet, but it is something that can provide possibilities that wouldn’t exist otherwise.”President Biden met with Mr. Xi earlier in the day at the Filoli Estate outside of San Francisco.Doug Mills/The New York TimesMr. Xi’s positive tone, and the enthusiasm of some of the event’s attendees, struck a sharp contrast with much of the recent conversation in the United States about China, which has focused on potential economic and security threats.Republican lawmakers have blasted President Biden for his “zombie engagement” with China. Recent polls have shown that Americans are more concerned about the rise of China than at any point since the end of the Cold War.At a news conference Wednesday, Mr. Biden celebrated a successful meeting with Mr. Xi earlier that day, which had resulted in agreements to fight drug trafficking and increase communication between the countries’ militaries. But when asked if he still thought Mr. Xi was a dictator, Mr. Biden replied: “Well, look, he is.”China has for decades been an attractive market for American businesses because of its size and growth, but the country’s slowing economy and increasingly authoritarian bent have been cooling the enthusiasm executives feel toward China.Foreign companies say the Chinese government has been slowly squeezing them out in favor of local competitors. While some think Chinese leaders have been shaken by a recent drop-off in foreign investment in China and are motivated to mend ties, executives are still concerned about recent crackdowns in China on foreign business and strict regulations, including on how companies use Chinese data.For companies that manufacture in China, supply chain disruptions during the pandemic also sent a strong message that firms should not rely on a single country for their goods, and kicked off a trend toward “de-risking.” Still, some American businesses are still making a lot of money in China. “I don’t think that anybody thinks that one dinner, or one visit, or one conference is going to reverse all the hostility that has built up between the U.S. and China,” Michael Hart, the president of the American Chamber of Commerce in China, said in an interview on Tuesday. But he added that if Mr. Xi had a friendlier stance toward the United States, “that will hopefully mean a slightly more friendly operating environment toward U.S. business in China.”Supporters of Mr. Xi near his hotel in San Francisco on Tuesday.Jim Wilson/The New York TimesIn the ballroom, 34 tables were laid with roses and orchids. They were numbered 1 to 39, skipping any number with a four, which in Chinese sounds similar to death, as well as unlucky number 13. Guests chose between a coffee-crusted Black Angus steak and vegetable curry with jasmine rice and toasted pistachios.Gina Raimondo, the U.S. secretary of commerce who spoke at the dinner, thanked Mr. Xi for a productive meeting earlier that day, where Chinese officials had met with Mr. Biden and his deputies.“We all know that we have differences,” Ms. Raimondo said at the dinner. “I’m not going to pretend otherwise. That being said, President Biden has been very clear that while we compete with China and other countries, we do not seek conflict and we do not seek confrontation.”“We want robust trade with China,” Ms. Raimondo said. She said that many of the people in attendance remained keenly interested in doing business in China. “I know that because many of you come to see me and tell me that,” she said, to laughter.Mr. Xi, who has overseen China’s military modernization and increasingly robust projection of power abroad, emphasized China’s commitment to a rules-based international system, its efforts to eradicate poverty, and its peaceful nature. Mr. Xi also touted his personal connections to the United States, including the time he spent in Iowa in the 1980s and an old photo he said he keeps of himself in front of the Golden Gate Bridge.“China has no intention to challenge the United States or unseat it,” he said.Stephen A. Orlins, the president of the National Committee on United States-China Relations, one of the groups sponsoring the event, said he was there when the committee hosted previous Chinese leaders in the United States — Deng Xiaoping, Jiang Zemin and Hu Jintao — and that all had projected a friendly demeanor. He recalled Mr. Deng famously donning a cowboy hat during a U.S. visit in 1979.“When they stand in front of an American, they tend to be more constructive and pro-American. It’s just part of what happens,” Mr. Orlins said. “They’re not going to come to an event like this and put their thumb in the eye of us as the sponsors and the audience.”Mr. Xi touted his connections to the United States during his speech. Jeff Chiu/Associated PressMr. Orlins’ group and the other organizer of the event, the U.S.-China Business Council, went through a logistical Olympics to set up the dinner. Because of security concerns, the organizers could not reveal the location until the day before, and guests received an invitation to an event with an unnamed “senior Chinese leader.”Mr. Orlins said his group knew that Mr. Xi had attended every meeting of the international grouping known as the Asia-Pacific Economic Cooperation, and concluded that he would do the same when the meeting occurred in San Francisco this week. So they extended an invitation nine months ago to host Mr. Xi.Three or four weeks ago, Mr. Orlin said he was told that Mr. Xi’s presence was still uncertain, but that he should start preparations.The Chinese protocol office peered over every attendee; they were extremely sensitive about security, especially since someone had crashed a sedan into the Chinese consulate in San Francisco just weeks before. The White House insisted that the dinner happen after Mr. Biden’s meeting with Mr. Xi Wednesday, so as not to upstage that event.The groups had to hire copious security and staff, and even fly in translation equipment, since local supplies were already claimed by the Asia-Pacific conference. Even though far more people wanted to attend the event than there was capacity for, Mr. Orlin said the $40,000 the groups charged for some tables would only partially recoup the costs of the event.Mr. Orlins said the Chinese had prepared three versions of a speech Mr. Xi could deliver that night. After Wednesday’s events with Mr. Biden, Mr. Xi had picked the friendliest one. More

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    Biden’s Pacific Trade Pact Suffers Setback After Criticism From Congress

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    The administration will no longer try to announce the completion of the trade terms this week, after prominent Democrats objected to some provisions.The Biden administration has pulled back on plans to announce the conclusion of substantial portions of a new Asian-Pacific trade pact at an international meeting in San Francisco this week, after several top Democratic lawmakers threatened to oppose the deal, people familiar with the matter said.The White House had been aiming to announce that the United States and its trading partners had largely settled the terms of its Indo-Pacific Economic Framework for Prosperity, an agreement that aims to strengthen alliances and economic ties among the United States and its allies in East and South Asia.But Senator Sherrod Brown, Democrat of Ohio, and other prominent lawmakers have criticized the pact, saying it lacks adequate protections for workers in the countries it covers, among other shortcomings.The Biden administration, facing the possibility of additional critical public statements, has decided not to push to conclude the trade portion of the agreement this week, and has been briefing members of Congress and foreign trading partners in recent days on its decision, the people said.The agreement has been a key element of the Biden administration’s strategy to counter China’s growing influence in Asia by strengthening relations with allies. The framework’s partners include Australia, Indonesia, Japan, South Korea and Singapore and together account for 40 percent of the global economy.The Indo-Pacific Economic Framework for Prosperity has four main parts, or “pillars.” The first portion, which the administration completed in May, aims to knit together the countries’ supply chains.The Biden administration still appears likely to announce the substantial conclusion this week of two other big portions of the agreement, one on clean energy and decarbonization and another on taxation and anticorruption. The Commerce Department negotiated those two pillars, as well as the supply chain agreement.But the thorniest part of the framework has been the trade pillar, which is being overseen by Katherine Tai, the U.S. trade representative, and her office. The trade negotiations cover issues such as regulatory practices, procedures for importing and exporting goods, agriculture, and standards for protecting workers and the environment.Congressional Democrats, including Senator Ron Wyden of Oregon, who leads the Senate Finance Committee, have expressed concern over the labor and environmental standards. Lawmakers of both parties have criticized the administration for not closely consulting Congress during the negotiations, while others have been dismayed by the administration’s recent clash with big tech firms over U.S. negotiating positions on digital trade.Katherine Tai, the U.S. trade representative, second from left, has pledged to include tough labor standards in the agreement.Jason Henry/Agence France-Presse — Getty ImagesIn a statement last week, Mr. Brown, who is facing a tough re-election fight next year, called for cutting the entire trade pillar from the agreement, saying it did not contain strong enough protections to ensure workers aren’t exploited.“As the administration works to finalize the Indo-Pacific Economic Framework, they should not include the trade pillar,” Mr. Brown said. “Any trade deal that does not include enforceable labor standards is unacceptable.”Members of Congress and their staffs had communicated concerns about a lack of enforceable provisions in meetings for several months, one Senate aide said.In a meeting with White House officials this fall, officials from the Office of the United States Trade Representative proposed waiting until next year to announce the completed trade pillar, at which point all of the agreement’s contents, including the labor provisions, would be settled, according to a person familiar with the deliberations, who was not authorized to speak publicly.But White House officials were eager to have developments for President Biden to announce during the meetings in San Francisco. U.S. trade officials pushed their partners in foreign countries in recent weeks to complete a package of agreements that did not include the labor provisions, intending to finish them in 2024.After Mr. Brown’s public objections, the White House and the National Security Council asked to pull back on the announcement, the person who is familiar with the deliberations said.A spokesman for the National Security Council said in a statement that the Biden administration had focused on promoting workers’ rights and raising standards throughout the negotiations, and that the parties were on track to achieve meaningful progress.A spokesperson for Ms. Tai’s office said it had held 70 consultations with Congress while developing and negotiating the Indo-Pacific framework and would continue to work with Congress to negotiate a high-standard agreement.The decision to push back final trade measures until next year at the earliest is a setback for the Biden administration’s strategic plans for Asia. It’s also a demonstration of the tricky politics of trade, particularly for Democrats, who have frequently criticized trade agreements for failing to protect workers and the environment.Ms. Tai worked with Mr. Wyden, Mr. Brown and others during the Trump administration, when she was the chief trade counsel for the House Committee on Ways and Means, to insert tougher protections for workers and the environment into the renegotiated North American Free Trade Agreement.Ms. Tai has pledged to include tough labor standards in the Indo-Pacific agreement, which covers some countries — such as Malaysia and Vietnam — that labor groups say have low standards for protecting workers and unions. But critics say the power of the United States to demand concessions from other countries is limited because the deal does not involve lowering any tariff rates to give trading partners more access.While doing so would promote trade, the Biden administration and other trade skeptics argue that lower barriers could hurt American workers by encouraging companies to move jobs overseas. A previous Pacific trade pact that proposed cutting tariffs, the Trans-Pacific Partnership negotiated by the Obama administration, fizzled after losing support from both Republicans and Democrats.In a statement, Mr. Wyden said senators had warned Ms. Tai’s office for months “that the United States cannot enter into a trade agreement without leveling the playing field for American workers, tackling pressing environmental challenges and bulldozing trade barriers for small businesses and creators.”“It should not have taken this long for the administration to listen to our warnings,” Mr. Wyden said. “Ambassador Tai must come home and work with Congress to find an agreement that will support American jobs and garner congressional support.” More

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    Drought Saps the Panama Canal, Disrupting Global Trade

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    For over a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic Oceans, helping to speed up international trade.But a drought has left the canal without enough water, which is used to raise and lower ships, forcing officials to slash the number of vessels they allow through. That has created expensive headaches for shipping companies and raised difficult questions about water use in Panama. The passage of one ship is estimated to consume as much water as half a million Panamanians use in one day.“This is the worst we have seen in terms of disruption,” said Oystein Kalleklev, the chief executive of Avance Gas, which transports propane from the United States to Asia.The problems at the Panama Canal, an engineering marvel that opened in 1914 and handles an estimated 5 percent of seaborne trade, is the latest example of how crucial parts of global supply chains can suddenly seize up. In 2021, one of the largest container ships ever built got stuck for days in the Suez Canal, choking off trade. And the huge demand for goods like surgical masks, home appliances and garden equipment during the pandemic strained supply chains to their breaking point.Before the water problems, the canal handled some 38 ships a day. In July the authorities cut that to 32 vessels.Fewer passages could deprive Panama of tens of millions of dollars in revenue, push up the cost of shipping and increase greenhouse gas emissions when ships travel longer routes.In Panama, a lack of water has hampered canal operations in recent years, and some shipping experts say vessels may soon have to avoid the canal altogether if the problem gets worse. Fewer passages could deprive Panama’s government of tens of millions of dollars in annual revenue, push up the cost of shipping and increase greenhouse gas emissions when ships travel longer routes.Though Panama has an equatorial climate that makes it one of the wettest countries, rainfall there has been 30 percent below average this year, causing water levels to plunge in the lakes that feed the canal and its mighty locks. The immediate cause is the El Niño climate phenomenon, which initially causes hotter and drier weather in Panama, but scientists believe that climate change may be prolonging dry spells and raising temperatures in the region.Before the water problems, as many as 38 ships a day moved through the canal, which was built by the United States and remained under its control until 2000. The canal authority in July cut the average to 32 vessels, and later announced that the number would drop to 31 on Nov. 1. Further reductions could come if water levels remain low. The canal authority is also limiting how far a ship’s hull can go below the water, known as its draft, which significantly reduces the weight it can carry.Container ships, which transport finished consumer goods, typically reserve passage well in advance, and have not faced long delays. But ships carrying bulk commodities generally don’t book passage.Tree trunks are visible due to low levels of water. The drought also presents tough choices for Panama’s leaders, who must balance the water needs of the canal with those of residents.Vessels waiting to cross the Panama Canal. The passage of one ship is estimated to consume as much water as half a million Panamanians use in one day.This presents bulk shipping companies with an expensive calculus: They can risk waiting for days, pay a big fee to jump the line or avoid the canal entirely by taking a longer route.Mr. Kalleklev, the shipping executive, said his company decided in August to pay $400,000 in a special auction to move a ship ahead in the queue, roughly doubling the total cost of using the canal. Other companies have paid over $2 million, a cost they will sometimes bear to ensure ships don’t miss their next assignment. A portion of these extra costs will be passed on to consumers, already pummeled by inflation.The pain, however, has been limited because the U.S. economy is not running very hot and demand for imported goods is relatively muted.“If this was a year ago, when we still had record high freight rates and consumers still spending a lot on containerized goods from the Far East, then you would see more drama than you have now,” said Peter Sand, chief analyst at Xeneta, a shipping market analytics company.But traffic through the canal is likely to remain at lower levels in the coming months. Reducing passages helps conserve water, because huge amounts are used up every time a ship goes through the locks as it travels the 40 miles across Panama.The drought also presents tough choices for Panama’s leaders, who must balance the water needs of the canal with those of residents, over half of whom rely on the same sources of water that feed the canal.The canal’s board recently proposed building a new reservoir in the Indio River to bolster the water supply and increase traffic through the canal, which generates over 6 percent of Panama’s gross domestic product. Under the plan, the new water supply could allow for an additional 12 to 15 passages daily.For over a century, the Panama Canal has provided a convenient way for ships to move between the Pacific and Atlantic Oceans.The canal’s board recently proposed building a new reservoir in the Indio River to bolster the water supply and increase traffic through the canal.“In optimal terms, the canal can handle 38 transits per day, so 12 to 15 is a lot,” said Rodrigo Noriega, a lawyer and a columnist for Panama’s La Prensa newspaper.Building the reservoir is expected to cost nearly $900 million, and the canal authority could start accepting bids from contractors toward the middle of next year with construction starting early in 2025. But that timeline could well be delayed; the construction of larger locks was completed two years late, in 2016, and that project was marred by cost disputes.The new reservoir would also involve acquiring land that is protected by a 2006 law, and displace at least some of its inhabitants. Mr. Noriega said he expected Panama’s legislature to pass a law that would lift the ban on acquiring land. But he and others note that new water sources could also be built in other places.Without a new water source, the canal could lose significant amounts of business. Other ocean routes are, of course, longer and more expensive, but they are less likely to have unpredictable delays. One alternative is to transport goods between Asia and United States through the Suez Canal to the East Coast and Gulf Coast. Another is to ship goods from Asia to the West Coast ports — and then transport them overland by train or truck.“In theory, something that offers a cheaper, shorter route should always be in favor, but it’s the uncertainty that can be a killer,” said Chris Rogers, head of supply chain research at S&P Global Market Intelligence.Protracted disruptions at the canal could stoke interest in building land routes in Mexico, Colombia and other countries that have coastlines on both oceans, said Richard Morales, a political economist who is running as an independent candidate for vice president in an election next year.The efforts to secure new water supplies could be a race against climate change.Because interest in building a canal dates to the 19th century, Panama has rainfall records going back some 140 years. That gives scientists more confidence when concluding that a weather change is a permanent shift and not merely random, said Steven Paton, a director of the Smithsonian Tropical Research Institute’s Physical Monitoring Program on an island in Lake Gatun, which makes up a large part of the canal and supplies most of its water.He said that while scientists were unsure about climate change’s impact on El Niño, two of the driest El Niño periods of the last 140 years had occurred in the last quarter-century, and that the current one could be the third.“It doesn’t say that this is climate change,” Mr. Paton said, “but it does say that this is wholly consistent with almost all of the climate change models.”Sol Lauría More

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    Shipping Contributes Heavily to Climate Change. Are Green Ships the Solution?

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    On a bright September day on the harbor in Copenhagen, several hundred people gathered to welcome the official arrival of Laura Maersk.Laura was not a visiting European dignitary like many of those in attendance. She was a hulking containership, towering a hundred feet above the crowd, and the most visible evidence to date of an effort by the global shipping industry to mitigate its role in the planet’s warming.The ship, commissioned by the Danish shipping giant Maersk, was designed with a special engine that can burn two types of fuel — either the black, sticky oil that has powered ships for more than a century, or a greener type made from methanol. By switching to green methanol, this single ship will produce 100 fewer tons of greenhouse gas per day, an amount equivalent to the emissions of 8,000 cars.The effect of global shipping on the climate is hard to overstate. Cargo shipping is responsible for nearly 3 percent of global greenhouse gas emissions — producing roughly as much carbon each year as the aviation industry does.Figuring out how to limit those emissions has been tricky. Some ships are turning to an age-old strategy: harnessing the wind to move them. But ships still need a more constant source of energy that is powerful enough to propel them halfway around the world in a single go.Unlike cars and trucks, ships can’t plug in frequently enough to be powered by batteries and the electrical grid: They need a clean fuel that is portable.Ursula von der Leyen, center, the president of the E.U. Commission, stands with the captains of the Laura Maersk as well as company and government officials in Copenhagen in September.Betina Garcia for The New York TimesThe Laura Maersk is the first of its kind to set sail with a green methanol engine and represents a significant step in the industry’s efforts to address its contribution to climate change. The vessel is also a vivid illustration of just how far the global shipping sector has to go. While roughly 125 methanol-burning ships are now on order at global shipyards from Maersk and other companies, that is just a tiny portion of the more than 50,000 cargo ships that ply the oceans today, which deliver 90 percent of the world’s traded goods.The market for green methanol is also in its infancy, and there is no guarantee that the new fuel will be made in sufficient quantities — or at the right price — to power the vast fleet of cargo ships operating worldwide.Shipping is surprisingly efficient: Transporting a good by container ship halfway around the world produces far less climate-warming gas than trucking it across the United States.That’s true in part because of the scale of modern cargo vessels. The biggest container ships today are larger than aircraft carriers. Each one is able to carry more than 20,000 metal containers, which would stretch for 75 miles if placed in a row.That incredible efficiency has lowered the cost of transport and enabled the modern consumer lifestyle, allowing retailers like Amazon, Walmart, Ikea and Home Depot to offer a vast suite of products at a fraction of their historical cost.Yet that easy consumption has come at the price of a warmer and dirtier planet. In addition to affecting the atmosphere, ships burning fossil fuel also spew out pollutants that reduce the life expectancy of the large percentage of the world’s people who live near ports, said Teresa Bui, policy director for climate at Pacific Environment, an environmental organization.Cargo ships at the Port of Los Angeles in 2021 sometimes had to wait days to dock because of congestion, producing huge amounts of pollution.Coley Brown for The New York TimesThat pollution was particularly bad during the Covid-19 pandemic, when supply chain bottlenecks caused ships to pile up outside of the Port of Los Angeles, producing pollution equivalent to nearly 100,000 big rigs per day, she said.“They have been under regulated for decades,” Ms. Bui said of the shipping industry.Some shipping companies have tried to cut emissions in recent years and comply with new global pollution standards by fueling their vessels with liquefied natural gas. Yet environmental groups, and some shipping executives, say that adopting another fossil fuel that contributes to climate change has been a move in the wrong direction.Maersk and other shipping companies now see greener fuels such as methanol, ammonia and hydrogen as the most promising path for the industry. Maersk is trying to cut its carbon emissions to zero by 2040, and is pouring billion of dollars into cleaner fuels, along with other investors. But making the switch — even to methanol, the most commercially viable of those fuels today — is no easy feat.Switching to methanol requires building new ships, or retrofitting old ones, with different engines and fuel storage systems. Global ports must install new infrastructure to fuel the vessels when they dock.Perhaps most crucially, an entire industry still needs to spring up to produce green methanol, which is in demand from airlines and factory owners as well as from shipping carriers.Methanol, which is used to make chemicals and plastics as well as fuel, is typically produced using coal, oil or natural gas. Green methanol can be made in far more environmentally friendly ways by using renewable energy and carbon captured from the atmosphere or siphoned from landfills, cow and pig manure, or other bio waste.By using green methanol, the Laura Maersk could produce 100 fewer tons of greenhouse gas per day, equivalent to the emissions of 8,000 cars.Betina Garcia for The New York TimesCargo ships require fuel sources that are powerful enough to propel them halfway around the world in a single go.Betina Garcia for The New York TimesFlemming Sogaard Christensen, the chief engineer of the Laura Maersk, inside the engineering room. The ship’s engine can burn oil or a greener type of fuel made from methanol.Betina Garcia for The New York TimesBut the world today does not yet produce much green methanol. Maersk has committed to using only sustainably produced methanol, but if other shipping companies end up using methanol fuel made with coal or oil, that will be no better for the environment.Ahmed El-Hoshy, the chief executive of OCI Global, which makes methane from natural gas and greener sources like landfill gas, said companies today were producing “infinitesimally small volumes” of green methanol using renewable energy.“Companies haven’t done much in our industry yet quite frankly,” he said. “It’s all hype.”Fuel producers still need to master the technology to build these projects, he said. And in order to finance them they need buyers who are willing to commit to long-term contracts for green fuel, which can be three to five times as expensive as conventional fuel.Maersk has signed contracts with fuel providers including OCI and European Energy, which is building in Denmark what will be the world’s largest plant producing methanol with renewable electricity. The shipping company already has clients like Amazon and Volvo that are willing to pay more to have their goods transported with green fuels, in order to reduce their own carbon footprints.But many other companies are not yet willing to pay the necessary cost for greener technologies, Mr. El-Hoshy said.The missing piece, said Mr. El-Hoshy and others in the shipping and methanol industries, is regulation that would help level the playing field between companies trying to clean up their emissions and those still burning dirtier fuels.The European Union is ushering in rules that encourage ships to decarbonize, including new subsidies for green fuels and penalties for fossil fuel use. The United States is also spurring new investments in green fuel production and more modern ports through generous domestic spending programs.Maersk has clients like Amazon and Volvo that are willing to pay more to have their goods transported with green fuels, in order to reduce their own carbon footprints.Betina Garcia for The New York TimesBut proponents say the key to a green transition in the shipping sector are global rules that are pending through the International Maritime Organization, the United Nations body that regulates global shipping.The organization has long received heavy criticism for its lagging efforts on climate. This summer, it adopted a more ambitious target: eliminating the global shipping industry’s greenhouse gas emissions “by or around” 2050.To get there, nations have promised to agree on a legally binding way to regulate emissions by the end of 2025, which they would put into effect in 2027.Yet countries have yet to agree on what kind of regulation to use. They are debating whether to adopt a new standard for cleaner fuels, new taxes per ton of greenhouse gas emitted or some kind of mix of tools.Some developing countries, and nations that export low-value goods like farm products, say that strict regulation would raise shipping costs and be economically harmful.Proponents of the regulation — including Maersk — say it’s necessary to avoid penalizing those who are trying to clean up the business, and provide certainty about the industry’s direction.“There has to be an economic mechanism by which you level the playing field so that people are incentivized and not punished for using low-carbon fuels,” said John Butler, the chief executive of the World Shipping Council, which represents container carriers including Maersk.“Then you can invest with some confidence,” he added.A container ship traveling halfway around the world produce less climate-warming gas than a truck traveling across the United States.Betina Garcia for The New York TimesVincent Clerc, the chief executive of Maersk, said the company would continue to adopt new green technologies as they became available.Betina Garcia for The New York TimesStill, Maersk acknowledges that green methanol is unlikely to be the final solution. Experts say that the fuel’s reliance on finite sources of waste, like corn husks and cow manure, mean there will not be enough to power the entire global shipping fleet.In an interview, Vincent Clerc, the chief executive of Maersk, said that the entire maritime sector was unlikely to ever be powered predominantly by methanol. But Maersk had no regrets about moving some of its fleet from fossil fuels to methanol now, then adopting new technologies as they become available, he said.“This marks a real systemic change for this sector,” Mr. Clerc said, gesturing toward the vessel piled high with 20-foot containers in front of him.Eric Leveridge, the climate campaign manager for Pacific Environment, said his group was glad that Maersk and other shipping companies were moving toward more sustainable fuels. But the organization is still concerned that “it is more for optics and that the impact is potentially being exaggerated,” he said.“When it comes down to it, even if there is this investment, there’s still a lot of heavy fuel oil ships on the water,” he said. More

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    How High Interest Rates Sting Bakers, Farmers and Consumers

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    Home buyers, entrepreneurs and public officials are confronting a new reality: If they want to hold off on big purchases or investments until borrowing is less expensive, it’s probably going to be a long wait.Governments are paying more to borrow money for new schools and parks. Developers are struggling to find loans to buy lots and build homes. Companies, forced to refinance debts at sharply higher interest rates, are more likely to lay off employees — especially if they were already operating with little or no profits.Over the past few weeks, investors have realized that even with the Federal Reserve nearing an end to its increases in short-term interest rates, market-based measures of long-term borrowing costs have continued rising. In short, the economy may no longer be able to avoid a sharper slowdown.“It’s a trickle-down effect for everyone,” said Mary Kay Bates, the chief executive of Bank Midwest in Spirit Lake, Iowa.Small banks like Ms. Bates’s are at the epicenter of America’s credit crunch for small businesses. During the pandemic, with the Fed’s benchmark interest rate near zero and consumers piling up savings in bank accounts, she could make loans at 3 to 4 percent. She also put money into safe securities, like government bonds.But when the Fed’s rate started rocketing up, the value of Bank Midwest’s securities portfolio fell — meaning that if Ms. Bates sold the bonds to fund more loans, she would have to take a steep loss. Deposits were also waning, as consumers spent down their savings and moved money into higher-yielding assets.Higher Interest Rates Are Here More

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    Fragile Global Economy Faces New Crisis in Israel-Gaza War

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    A war in the Middle East could complicate efforts to contain inflation at a time when world output is “limping along.”The International Monetary Fund said on Tuesday that the pace of the global economic recovery is slowing, a warning that came as a new war in the Middle East threatened to upend a world economy already reeling from several years of overlapping crises.The eruption of fighting between Israel and Hamas over the weekend, which could sow disruption across the region, reflects how challenging it has become to shield economies from increasingly frequent and unpredictable global shocks. The conflict has cast a cloud over a gathering of top economic policymakers in Morocco for the annual meetings of the I.M.F. and the World Bank.Officials who planned to grapple with the lingering economic effects of the pandemic and Russia’s war in Ukraine now face a new crisis.“Economies are at a delicate state,” Ajay Banga, the World Bank president, said in an interview on the sidelines of the annual meetings. “Having war is really not helpful for central banks who are finally trying to find their way to a soft landing,” he said. Mr. Banga was referring to efforts by policymakers in the West to try and cool rapid inflation without triggering a recession.Mr. Banga said that so far, the impact of the Middle East attacks on the world’s economy is more limited than the war in Ukraine. That conflict initially sent oil and food prices soaring, roiling global markets given Russia’s role as a top energy producer and Ukraine’s status as a major exporter of grain and fertilizer.“But if this were to spread in any way then it becomes dangerous,” Mr. Banga added, saying such a development would result in “a crisis of unimaginable proportion.”Oil markets are already jittery. Lucrezia Reichlin, a professor at the London Business School and a former director general of research at the European Central Bank, said, “the main question is what’s going to happen to energy prices.”Ms. Reichlin is concerned that another spike in oil prices would pressure the Federal Reserve and other central banks to further push up interest rates, which she said have risen too far too fast.As far as energy prices, Ms. Reichlin said, “we have two fronts, Russia and now the Middle East.”Smoke rising from bombings of Gaza City and its northern borders by Israeli planes.Samar Abu Elouf for The New York Times Pierre-Olivier Gourinchas, the I.M.F.’s chief economist, said it’s too early to assess whether the recent jump in oil prices would be sustained. If they were, he said, research shows that a 10 percent increase in oil prices would weigh down the global economy, reducing output by 0.15 percent and increasing inflation by 0.4 percent next year. In its latest World Economic Outlook, the I.M.F. underscored the fragility of the recovery. It maintained its global growth outlook for this year at 3 percent and slightly lowered its forecast for 2024 to 2.9 percent. Although the I.M.F. upgraded its projection for output in the United States for this year, it downgraded the euro area and China while warning that distress in that nation’s real estate sector is worsening.“We see a global economy that is limping along, and it’s not quite sprinting yet,” Mr. Gourinchas said. In the medium term, “the picture is darker,” he added, citing a series of risks including the likelihood of more large natural disasters caused by climate change.Europe’s economy, in particular, is caught in the middle of growing global tensions. Since Russia invaded Ukraine in February 2022, European governments have frantically scrambled to free themselves from an over-dependence on Russian natural gas.They have largely succeeded by turning, in part, to suppliers in the Middle East.Over the weekend, the European Union swiftly expressed solidarity with Israel and condemned the surprise attack from Hamas, which controls Gaza.Some oil suppliers may take a different view. Algeria, for example, which has increased its exports of natural gas to Italy, criticized Israel for responding with airstrikes on Gaza.Even before the weekend’s events, the energy transition had taken a toll on European economies. In the 20 countries that use the euro, the Fund predicts that growth will slow to just 0.7 percent this year from 3.3 percent in 2022. Germany, Europe’s largest economy, is expected to contract by 0.5 percent.High interest rates, persistent inflation and the aftershocks of spiraling energy prices are also expected to slow growth in Britain to 0.5 percent this year from 4.1 percent in 2022.Sub-Saharan Africa is also caught in the slowdown. Growth is projected to shrink this year by 3.3 percent, although next year’s outlook is brighter, when growth is forecast to be 4 percent.Staggering debt looms over many of these nations. The average debt now amounts to 60 percent of the region’s total output — double what it was a decade ago. Higher interest rates have contributed to soaring repayment costs.This next-generation of sovereign debt crises is playing out in a world that is coming to terms with a reappraisal of global supply chains in addition to growing geopolitical rivalries. Added to the complexities are estimates that within the next decade, trillions of dollars in new financing will be needed to mitigate devastating climate change in developing countries.One of the biggest questions facing policymakers is what impact China’s sluggish economy will have on the rest of the world. The I.M.F. has lowered its growth outlook for China twice this year and said on Tuesday that consumer confidence there is “subdued” and that industrial production is weakening. It warned that countries that are part of the Asian industrial supply chain could be exposed to this loss of momentum.In an interview on her flight to the meetings, Treasury Secretary Janet L. Yellen said that she believes China has the tools to address a “complex set of economic challenges” and that she does not expect its slowdown to weigh on the U.S. economy.“I think they face significant challenges that they have to address,” Ms. Yellen said. “I haven’t seen and don’t expect a spillover onto us.” More