Trump’s trade war comes to Wisconsin
Call it a tale of two manufacturers. On Monday, Milwaukee-based Harley-Davidson, Inc. announced plans to shift some production of its iconic motorcycles overseas. Three days later, in a field just 30 miles south of Harley headquarters, Foxconn Technology Group, the Taiwanese company that is the world’s largest contract electronics manufacturer, broke ground on a sprawling $10 billion plant that will produce flat-panel displays.
Trump and his aides have sought to portray Foxconn as the poster child for Trump’s America First economic policies while dismissing the move by Harley-Davidson as an aberration. More likely it’s the other way around.
Foxconn’s decision to build a factory in Wisconsin was a one-off, requiring an extraordinary package of tax incentives and other sweeteners worth more than $4 billion. Foxconn promises the plant will eventually create 13,000 jobs with an average salary of $54,000. But Quartz estimates Wisconsin taxpayers are subsidizing Foxconn at a rate of $307,692 for each worker. According to one government analysis, the plant won’t begin to make the state money until 2042.
Meanwhile, Trump’s get-tough trade policies hit Harley-Davidson with a double whammy. The company says Trump’s tariffs on imported steel and aluminum will raise its manufacturing costs by $20 million this year. Tariffs imposed by the European Union in retaliation to Trump’s policies will raise duties on U.S. motorcycles exported to Europe to 31%, up from 6%, adding $45 million to Harley’s costs this year—and as much as $100 million on an annual basis. For Harley, which faces shrinking sales at home and reported net income of $594 million last year, cost increases of that magnitude are almost impossible to swallow. In a financial filing, the company described its decision to shift production as “the only sustainable option to make…motorcycles accessible to customers in the EU and maintain a viable business in Europe.”
And Harley is hardly the only U.S. producer caught in the cross-fire of the escalating trade war. The E.U.’s retaliatory tariffs will penalize $3.2 billion worth of American products, including bourbon, orange juice and playing cards. Wisconsin dairy farmers are worried about retaliatory tariffs from Mexico. Retaliatory tariffs announced by Canada, set to take effect July 1, will hit $12.6 billion of U.S. exports ranging from mustard to motorboats. Chinese tariffs could slash U.S. soybean exports to that country by 65%, costing farmers in Illinois, Iowa, Minnesota and other states as much as $3.3 billion, according to a Purdue University study. General Motors warned Friday that tariffs on imported vehicles being considered by the Trump administration could lead to “a smaller GM” and risked isolating US businesses from the global market.
Economy and Trade
Entering bear country. The Shanghai Composite Index entered a bear market this week, dropping over 20% since its peak in January and wiping out a total market cap greater than Canada’s entire economy. Trade tariffs, a possible property bubble and China’s credit risk have all given investors cause for concern. South China Morning Post
Data doubts. Despite the downturn, a new report from independent data analyst China Beige Book argues that China’s economy is better than official data shows. The report contends that the most recent figures reflect the situation at the beginning of the year and that retail sales, borrowing and interest rates are already recovering. Bloomberg
New commitments. President Trump rolled back his plan to block Chinese companies from investing in US tech firms and has instead supported a bill to strengthen the powers of the Committee on Foreign Investment in the United States (CFIUS). The bill would expand the number of companies and the types of risk subject to CFIUS review. New York Times
Loosening up: China announced on Thursday a long-awaited loosening of foreign investment restrictions in sectors including banking, autos, heavy industry and agriculture. The National Development and Reform Commission (NDRC), China's top economic planner, released a new version of the so-called negative list identifying industries where foreign investment is limited or prohibited. The number of items on the new negative list, which will take effect July 28, was cut to 48 from 63 in the previous version, published last June. China will also ease or scrap ownership caps on businesses including ship and aircraft manufacturing, power grids and the breeding of crops. Nikkei Asian Review
Hit the gas. The International Energy Agency predicts that China will become the world’s number one importer of natural gas in 2019, as it continues to wean itself off of coal. China threatened tariffs on U.S. oil and gas imports but exempted liquid natural gas (LNG). However industry observers remain wary, lest China changes its mind. Financial Times
Politics and Policy
Not an inch. US Defense Secretary Jim Mattis arrived in Beijing on Tuesday to, in his own words, "have a conversation". The conversation touched on issues regarding Taiwan and China’s actions in the South China Sea. However, Xi Jinping told Mattis that China wouldn’t cede "even one inch" of its territory. Reuters
Home and Huawei. A report from an independent think tank labelled Huawei as the largest sponsor of overseas junkets for Australian MPs. Still, Canberra looks set to veto Huawei’s involvement in building Australia’s forthcoming 5G network, as Australia is increasingly worried about China’s subversive influence. Financial Times
Veterans, vexed. People’s Liberation Army veterans have been protesting in the eastern city of Zhenjiang. Their protest was catalysed by the alleged beating of another veteran, who himself was protesting over poor pension benefits. This is not the first time PLA veterans have organised mass demonstrations, but the response from the government has been more heavy-handed. TIME
In Case You Missed It
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Yan Xuetong on the bi-polar state of our world China Media Project
Innovation and Tech
Less dough for "little rice": Xiaomi Corp (1810.HK), the world's fourth-largest smart-phone maker, priced its Hong Kong initial public offering (IPO) at the bottom of an indicative range Friday, raising $4.72 billion. It was the world’s biggest tech float in four years, and valued the firm at about $54 billion. But the valuation was half the $100 billion industry insiders touted for the company at the beginning of the year, and raised doubts about prospects for the raft of other Chinese tech companies hoping to raise money in coming months. Reuters
Baidu buyback. Tech giant Baidu has agreed a plan to buyback $1 billion worth of its shares over the next year. Despite the announcement, on Wednesday, shares fell 3% the same day. Nasdaq
Don't buy the hype: China is fooling itself if it thinks it can soon overtake the United States as a world leader in science and technology, according to the editor of a leading journal under the supervision of China's Ministry of Science and Technology. In a widely discussed essay, Liu Yadong, editor-in-chief of Science and Technology Daily, argued that "the large gap in science and technology between China and developed countries in the West, including the US, should be common knowledge, and not a problem....But it became problematic when the people who hype [China’s achievements] … fooled the leadership, the public and even themselves.” South China Morning Post
Tax Chain. China’s first blockchain-based tax invoice was issued by Guangzhou Gas Group this week. It issued the invoice using a platform called Tax Chain, which has been developed by Guangzhou's municipal tax department and utilises Alibaba Cloud. The new tech could help tackle rampant tax fraud. Yicai Global
Alibaba block. Jack Ma has called Bitcoin a bubble, but is evidently interested in the tech behind it. Affiliate Ant Financial launched a blockchain service in Hong Kong that allows remittances to the Philippines. Hong Kong has a large population of Filipino workers, many of whom send part of their earnings to their families back home. Fortune