Articles in Category: Global Trade

However much we may focus on supply and demand fundamentals, metal prices and economic stability will be influenced more in 2017 by trade policy than just about any other issue.

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The new Trump Administration in Washington has already shaken up the status quo for NAFTA with threats to renegotiate the terms of that 20-year-old agreement in a manner that would have been inconceivable just six months ago.

Now, Peter Navarro, who heads the new National Trade Council, described the euro this week as an “implicit Deutsche Mark” that gives Germany a competitive advantage over its trade partners and accused Germany’s structural imbalance in trade with the rest of the E.U. and the U.S.A. as the result of a deliberately engineered-to-be-undervalued currency. Navarro accused Germany of engineering a grossly undervalued euro to exploit the terms of trade with its principal trading partners and called it illegal. Read more

North Dakota Senator John Hoeven (R.) said the U.S. Army Corps of Engineers is ready to provide the easement necessary to build the final leg of the $3.8 billion Dakota Access oil pipeline under North Dakota’s Lake Oahe.

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Hoeven said he spoke with acting Secretary of the Army Robert Speer and Vice President Mike Pence Tuesday.

The Army Corps issued a statement Wednesday saying it had initiated the steps outlined in President Donald Trump’s directive to complete the 1,172-mile crude oil pipeline but that no permit has been granted. A decision will be made “once a full review and analysis is completed” in accordance with the directive, Malcolm Frost, a spokesman, said in the statement.

U.S. Representative Kevin Cramer, a Republican from North Dakota, also said that the Army Corps had notified Congress of its plan to grant the easement. A spokesman for the Standing Rock Sioux tribe and others that have fought against its construction, said Tuesday that it will challenge any suspension of the federal environmental review that previously held up the pipeline. However, the Tribe lost a previous challenge in federal court when a judge approved the final eight miles of the route, noting that the proposed route does not go through tribal lands.

Navarro: Germany Takes Advantage of Undervalued Euro

Peter Navarro, the head of President Trump’s new National Trade Council, recently gave an interview to the Financial Times. The economist told the FT that Germany is using a “grossly undervalued” euro to “exploit” the U.S. The euro has weakened against the dollar over the past two years.

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He also told the FT that one of the administration’s trade priorities is unwinding and repatriating the international supply chains on which many U.S. multinational companies rely, “It does the American economy no long-term good to only keep the big box factories where we are now assembling ‘American’ products that are composed primarily of foreign components,” he said. “We need to manufacture those components in a robust domestic supply chain that will spur job and wage growth.”

Based on preliminary Census Bureau data, the American Iron and Steel Institute (AISI) reported that the U.S. imported a total of 2,686,000 net tons of steel in December 2016, including 2,146,000 net tons nt of finished steel (down 4.3% and up 0.6%, respectively, vs. November final data).

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For the full year of 2016, total and finished steel imports are 33,009,000 and 26,327,000 nt, down 14.9% and 16.4%, respectively, compared to full year 2015. Finished steel import market share was an estimated 26% in December and is estimated at 26% for full year 2016.

Key finished steel products with significant import increases in December compared to November include oil country goods (up 55%), line pipe (up 38%), sheets and strip all other metallic-coated products (up 27%), tin plate (up 24%), sheets and strip hot-dipped galvanized (up 14%) and hot-rolled bars (up 11%). Tin plate (up 15%) had a significant increase in 2016 vs. the prior year.

Trump Signs Order Mandating Regulations Be Cut

President Donald Trump signed an executive order Monday morning requiring that for every new federal regulation implemented, two must be rescinded.

“This will be the biggest such act that our country has ever seen,” Trump declared moments before signing it in the Oval Office. “There will be regulation, there will be control, but it will be a normalized control where you can open your business and expand your business very easily. And that’s what our country has been all about.”

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The executive order signing, which fulfills a campaign pledge, comes after the president held a listening session with small-business leaders.

Among the ideas that the Trump administration has mentioned as a way to pay for the planned southern border wall is a 20% tax on all goods coming in from Mexico. Press Secretary Sean Spicer and other administration insiders were quick to point out that this is just one of many ideas (including taxing remittances sent to municipalities from nationals working in the U.S.) being considered for how to get Mexico to pay for the wall that it certainly doesn’t want.

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If President Donald Trump makes good on threats to gut NAFTA and impose stiff tariffs on Mexican goods, economists say he risks a trade war that could lead to the very thing he is hoping to avoid — a huge surge in Mexican migration here to the U.S.

A stiff tariff policy and a wall could very well be catastrophic for the Mexican economy. Recession, a dramatic weakening of the peso, soaring inflation, interest rates and unemployment would only be the start of it.

“Mexico is smaller than the U.S. and can be harmed by conflict more than the U.S. would be,” said Adam Posen to the Associated Press. Posen is president of the Peterson Institute for International Economics, a Washington think tank that supports free trade.

Still, it’s hard to argue that Trump’s talk couldn’t conceivably leave U.S. manufacturers with a better deal with Mexico, precisely because the one they have right now is so, so bad. According to the Office of the U.S. Trade Representative, the U.S. goods and services trade deficit with Mexico was -$49.2 billion in 2015.Mexico is currently our third-largest goods trading partner with $531 billion in total (two way) goods trade in that year, the last for which full figures are available. Goods exports totaled $236 billion; goods imports totaled $295 billion. Is that -$49.2 billion an opportunity? Possibly for both the U.S. and Mexico?

A Mexico-U.S. Deal That Targets China?

Bank of America Corp. chief Mexico and Canada economist, Carlos Capistran, pointed out in a recent report that 90% of the U.S. trade deficit lies outside North America. Bringing together more resources from Mexico and Canada within the NAFTA free-trade zone could help make everyone more competitive and narrow that gap.

It’s not a crazy idea, really, at all. China has played a greater role boosting the U.S. trade deficit than Mexico over time, even without a free-trade agreement. From 1993 to 2015, the gap with China grew by $361 billion versus Mexico’s roughly $49.2 billion. Mexico also buys about twice as much from the U.S. as China does. A Bloomberg article points out that deterring imports from Mexico, in some future negotiation, could give way to mutual export growth for both countries, spurred “by helping to create larger and more innovative companies.”

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Of course, after President Enrique Pena Nieto canceled a trip to Washington to discuss new trade terms after President Trump’s executive order asking for the aforementioned wall… we’re not heading in that direction right now. The best that either side can hope for is that the Trump at the negotiating table is far different than the Trump in campaign mode. As a businessman and a politician it can’t be lost on him that the trade deficit numbers with China are far worse than those with Mexico… and we just might need each other yet.

President Donald Trump has formed a manufacturing jobs initiative, one that will include executives from Ford Motor Co., Dow Chemical, U.S. Steel Corp. and others.

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Part of Trump’s overall jobs creation agenda, the project will involve ongoing meetings between the president and business leaders to “share their experiences and gain their insights.” According to a press release, Trump will call on the executives listed for perspectives on “how to best promote job growth and get Americans back to work again.”

Many of the executives listed as part of the initiative met with Trump on his first full day in office on Monday: Dow’s Andrew Liveris, Dell Computer‘s Michael Dell, Under Armour‘s Kevin Plank, Tesla Motors‘ Elon Musk Lockheed Martin‘s Marillyn Hewson, Klaus Kleinfeld of Arconic, Inc. and Nucor Corp.‘s John Ferriola. Scott Paul, President of the trade association the Alliance for American Manufacturing and union leaders Richard Trumka and Thea Lee, both executives in the leadership of the AFL-CIO, are also in initiative.

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Press Secretary Sean Spicer said at a press briefing on Monday that the group will meet next month and then going forward on a quarterly basis.

Here’s the full list of Trump’s manufacturing jobs initiative members:

  • Andrew Liveris, The Dow Chemical Company
  • Bill Brown, Harris Corporation
  • Michael Dell, Dell Technologies
  • John Ferriola, Nucor Corporation
  • Jeff Fettig, Whirlpool Corporation
  • Mark Fields, Ford Motor Company
  • Ken Frazier, Merck & Co., Inc.
  • Alex Gorsky, Johnson & Johnson
  • Greg Hayes, United Technologies Corp.
  • Marilynn Hewson, Lockheed Martin Corporation
  • Jeff Immelt, General Electric
  • Jim Kamsickas, Dana Inc.
  • Klaus Kleinfeld, Arconic
  • Brian Krzanich, Intel Corporation
  • Rich Kyle, The Timken Company
  • Thea Lee, AFL-CIO
  • Mario Longhi, U.S. Steel
  • Denise Morrison, Campbell Soup Company
  • Dennis Muilenburg, Boeing
  • Elon Musk, Tesla
  • Doug Oberhelman, Caterpillar
  • Scott Paul, Alliance for American Manufacturing
  • Kevin Plank, Under Armour
  • Mchael Polk, Newell Brands
  • Mark Sutton, International Paper
  • Inge Thulin, 3M
  • Richard Trumka, AFL-CIO
  • Wendell Weeks, Corning

Alcoa Corp. reported higher-than-expected revenue in its first quarterly results after the metals company split into two in November, helped partly by a rise in alumina prices.

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The producer of aluminum, alumina and bauxite also said it expects a 4% growth in global aluminum demand in 2017 even as the market remains modestly oversupplied.

Amazon.com Inc. is taking to the high seas.

The online retail giant has begun handling shipment of goods by ocean to its U.S. warehouses from Chinese merchants selling on its site — taking on a role it previously left to global freight-transportation companies, the Wall Street Journal reported.

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The move marks Amazon’s latest step in a multiyear effort to build out its delivery business. The company doesn’t own or operate ships, but is openly acting as a global freight forwarder and third-party logistics provider, categories of companies that book space on ocean vessels and truck goods between ports and warehouses.

The demise of the primary aluminum smelting industry in the western world has been like a long, slow train crash. As this graph from CRU shows, the decline has been relentless, and although many reasons are cited for the closures of U.S. and European smelters, power costs and the resulting cost of production are a primary cause.

Source: CRU Group

According to North American trade group the Aluminum Association, since 2015 seven U.S.-based aluminum smelters — more than 60% of U.S. primary aluminium smelting capacity — have been curtailed or closed. Over a similar time frame as the graph shows, Chinese aluminum production has grown from 11% of global primary aluminum in the year 2000 to nearly 55% today.

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The West has been surprisingly philosophical about the loss of smelting capacity, appearing to take the view that aluminum is such an energy-intensive product that the movement of smelters to low-power cost locations has a logical inevitability about it.

Where is Aluminum Production Going?

That argument holds true for the growth in the Middle East. Production in and around the cradle of civilization has jumped from 0.9 million metric tons in 1999 to an expected 5.7 mmt this year. But it hasn’t until recently had much logic for high-power cost locations like China. Even Beijing would appear to agree that power production and prices are sufficiently precious and high-cost that exporting primary aluminum is not a logical business model even for an export-orientated economy like China’s. Read more

After ordering, yesterday, that the Keystone XL and Dakota Access pipelines be moved forward, President Donald Trump issued another executive order that required them, and all pipeline projects, to use only American-made steel.

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According to Trump’s memo, steel produced in the U.S. must be used “for all new, expanded or retrofitted pipelines in the United States.”

It further defined “produced in the United States” to:

  1. With regard to iron or steel products, that all manufacturing processes for such iron or steel products, from the initial melting stage through the application of coatings, occurred in the U.S.
  2. Steel or iron material or products manufactured abroad from semi-finished steel or iron from the U.S. are not “produced in the U.S.” for purposes of this memorandum.
  3. Steel or iron material or products manufactured in the U.S. from semi-finished steel or iron of foreign origin are not “produced in the United States” for purposes of this memorandum.

This definition differs a bit from the existing Buy American Act of 1933, which required the federal government to prefer U.S.-made products in its purchases. The Hoover administration-signed act was essentially extended to procurement for federal surface transportation products with the similarly named Buy America Act of 1983 during the Reagan administration.

Will President Trump’s “American-made” definition mean a boom for U.S. steel pipe manufacturers? Source: Adobe Stock/Pavelyudin.

Shortly thereafter, Miller extended those Reagan-era beliefs and standards to beer production.

Buy American… If You Can

All kidding aside, according to the Buy American Act, in certain government procurement situations, the requirement to purchase U.S.-made steel may be waived by the contracting officer or the head of the contracting activity under certain conditions: If the domestic cost is 25% or more expensive than if foreign-sourced, if the product is not available domestically in sufficient quantity or quality, or “if doing so is in the public interest,” a virtual elastic clause that has allowed substitution on federal projects for decades.

That 25% can be a high hurdle. For Department of Transportation projects, the cost of the American component must be so high as to increase the entire project contract cost by 25%, not just the cost of the specific item. For example, in a bridge project, the cost of a U.S. girder would have to be so high as to increase the whole bridge project cost by 25%, something that rarely if ever happens.

On non-DOT construction projects under the Buy American Act, the Federal Acquisition Regulations (FAR) specify adding a 6% cost differential in comparing bids. The relevant section (48 CFR 25.204 section b) reads “Unless the head of the agency specifies a higher percentage, the contracting officer must add to the offered price 6% of the cost of any foreign construction material proposed for exception from the requirements of the Buy American statute based on the unreasonable cost of domestic construction materials…”

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President Donald Trump is expected, today, to order the construction of a wall between the U.S. and its southern border with Mexico, the first in a series of actions this week to crack down on illegal immigration and bolster national security.

Trump’s executive order is expected to direct the department of Homeland Security to begin the process for designing and building the wall with possible involvement from the General Services Administration. Trump is also expected to ask the Congress to fund the wall’s construction.

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The immigration moves are also expected to include slashing the number of refugees who can resettle in the U.S. and temporarily blocking Syrians and others from war-torn nations from entering, at least temporarily, until a vetting process can be set up to make sure refugees or other immigrants are not linked to terrorist radical movements.

Other executive orders today are expected to seek to end sanctuary cities and the practice of releasing undocumented immigrants detained by federal officials before trial.

Dow Breaks 20,000

U.S. equities rose to all-time highs in early trading today after the series of executive orders from Trump in the first few days of this week increased bullish sentiment on Wall Street.

The Dow Jones Industrial Average broke above 20,000 for the first time, rising 150 points as Boeing and IBM contributed the most gains.

Well, President Donald Trump certainly hit the ground running this week.

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On his first day in the Oval office he signed 3 executive orders, the most significant of which is probably the one withdrawing the U.S. from the Trans-Pacific Partnership trade deal — TPP. The TPP is a giant free trade agreement forged by the Obama administration with the aim to cut taxes and develop trade with 11 other Pacific Rim nations from emerging markets to mature economies like Australia. Trump has been consistent throughout his campaign and since that TPP was bad for American jobs so his statement on signing the executive order as “a great thing to the American worker,” comes as no surprise.

What Does No Deal Mean for the US?

Critics have argued that backing out of TPP would reduce America’s strategic position in the Asia-Pacific region and leave the door open for China to take the lead as the champion of free-trade. According to Fox News, U.S. Sen. John McCain (R-Ariz.) called the withdrawal a “serious mistake that will have lasting consequences for America’s economy and our strategic position in the Asia-Pacific region.” Read more