Archive for the ‘Protectionism’ category

China-EU-Russia-USA

October 2, 2010

New cities and infrastructure is getting built in China. Fresh water, raw materials, and food will become an issue besides the energy. China is also demanding control on South China Sea. The US is claiming interest in that area as well. Furthermore the pressure is increasing in the US to pass a legislation to put duties on imports from China in order to compensate for China’s currency undervaluation. The House of Representatives will most likely pass this bill. The tension is going to go up. On top of this China and Russia have signed a contract on oil and gas deliveries from  Russia to China. China is demanding a lower price than what EU-nations are paying for energy. In my eyes the US and EU relationship should get more focus and value. The future will be pretty much a complicated one: EU must focus on energy and water which leads to think about more presence in the Arabic area and Nordic region. Even the tiny Denmark has claimed rights for oil and gas at North Pole region due to her majesty’s land of Greenland! All these developments will cost money and increase tension. At the end of the day the EU must start to build up an army, although this is now very unpopular and trend is the opposite one. If US is about to focus on more on Asia in military respect (the largest military base outside of the US is in construction now on the island of Guam – 3 hours flight away from Tokyo) and home market issues like the bill to change taxation on foreign income of US corporations and the demand of foreign companies to be registered in the US if they sell products or services in the US. The picture is not blurry but there are many open-ended questions now in the hands of Obama-administration.

The path towards protectionism is open

November 26, 2009

The worldwide downturn is not yet over, however US companies show strenght. Also investing has slowly started. A good sample is Texas Instruments in Richardson, Texas.  Another sign about corporate moves can be seen in NCR returning back to the USA with manufacturing. It is good to remember even Jeff  Immelt’s talk about keeping manufacturing in the US – to have jobs and a strong middle class that can consume.  So far so good – if  the jobmarket improves during 2010 or at latest in 2011, the inland market will start to grow again.

Despite of these slight positive notes there are still plenty of issues that make the life complicated. The amount of US dollars printed during this year has increased at least 4 fold like stated in prior comments. The value against other currencies hasn’t dropped in relation to that but much less. This means that someone is hoarding dollars like never before. Let’s assume that Japan, China, and OPEC-countries are holding those dollars now. The pressure to correct exchange rates is increasing. It is expected that China will revaluate its currency RMB during 2010 around 6%. That is not what US expects but anyhow something. The thing is that some Chinese banks need to downgrade their assets at the same time or get the dollars exchanged to stable currencies like Euro prior to the devaluation. This is likely because China’s revaluation will go against USD only. Another alternative is that Chinese companies will increasingly fast acquire lots of assets in foreign locations and pay them with USD prior to the revaluation of RMB. My prediction is that China will continue, also after the revaluation of RMB, investing in US assets and buying natural resources, land and companies around the whole world. That means that sellers of those assets will at the end of the day have dollars in they hands which less value. So, the wise man doesn’t sell assets against USD  outside of the USA.

The US must however keep on printing dollars in order to ease exports, reduce imports, improve cost competitiveness, pay debts, and balance out the trade deficit.  I have already discussed earlier the risk and effects on inflation and interest rates, so I disrecard them here. All these things make the USA an attractive location for manufacturing again. The USA is a growing nation with all resources and knowhow. So, what will happen? If and when the USA can handle energy question through nuclear, wind, water, coal, gas, oil, solar and hydrogen, it can start to live more independently from the world than today. It is essential for the USA to get Canada, Mexico and some South-American countries to form a single currency and free trade zone – to enlarge the NAFTA. I furthermore expect that the USA will start to withdraw its military presence (requiring the EU to step up), repatriate corporations and attract investments in a big way.

When the external value of USD drops enough this game can begin. It causes a situation where the worldtrade and material flows will get changed. Many projections of the future must get revised drastically. My assumption is that the world will see three major blogs – Asia, Europe, and Americas. There are also some other areas which are dealing with these, but it is not yet clear whether they can remain neutral. Mainly they could be the oil producing countries. Asian and European countries cannot keep up exporting to the USA when the value of USD drops enough. The US will boom through repatriating companies and foreign companies investing in the US. That generates jobs and increases consumption – the GDP will grow nicely. With a growing population this will be a huge success story. In turn, jobs are lost in Asia and Europe. The competition gets so hard and tough that the EU must start to protect its industry and common market by setting up custom duties or some kind of sanctions, fees or charges. This will lead to a situation where China and the USA will retaliate and do the same.  My vision is the end of global free trade.  There are only a few things that can be done by corporations: to get established in every geographical area, and to focus only on one georaphical area or a specialty niche.  There are certainly other options as well, but not in a big way.

The banking and monetary system will face a hit that must get discussed separately. My advise: get special knowledge and knowhow that is valuable in all conditons.  Study, learn, get assets, and stay debt free.