#4. MASSIVE tariffs on what would now be considered international goods

[wokeuplaughing]

I want the us to balkanize soooo bad I think economic disparity would humble texans correctly

[elbiotipo]

Ok so elecciones time en Argentina, and I have a the feeling you know more than I. I was considering the FernándezX2 formula, but I honestly can't take out of my mind the fact that they supported Maduro and probably still do, what proof can we have that they won't go down that route? what do you think of the other candidates?(if you're not comfortable answering its ok just ignore this!!! It's just I heavily distrust like, every single candidate)

(Sorry for the long post, I just REALLY like to talk about politics)

I understand. Elections are a wild time, especially here on Argentina. (I will answer in english because the ask is in English).

I don’t support Maduro either, despite (in fact BECAUSE of) my leftist leanings. I know Cristina and many Kirchnerists supported him, and I think that supporting him based on the legacy of Chávez, while the Venezuelan people suffers and cries for freedom is wrong. However, I also believe that any solution for Venezuela MUST start with dialogue, by the simple and pragmatic fact that Maduro still holds power there, despite the opposition.

Also, Alberto Fernández has took a more pragmatic stance on this. You can read his opinions here: https://www.infobae.com/politica/2019/07/05/tras-las-criticas-de-macri-alberto-fernandez-reconocio-que-en-el-regimen-de-maduro-hay-abusos-y-arbitrariedades-del-estado/

He isn’t alone on this. Uruguay and México have also called for dialogue, as well as many other countries. Now, I think even with this, he is too soft in this, but I also think the current strategy of the Lima Group of cutting all dialogue with Maduro has evidently failed, and another approach is needed.

…

However I will be very clear and strong on this: the Argentine right-wing is using the real suffering of the Venezuelan people as political manipulation and it���s disgusting. The fear of “Becoming Venezuela” is being preached 24/7 in an attempt to spread fear and division. It’s unfounded, stupid, and uses an actual humanitarian crisis to manipulate public opinion. It humilliates the Venezuelan people and does not help towards a solution. They don’t really care about Maduro or Venezuela; only the political points they can extract from it.

We cannot “Become Venezuela” because we are, well, Argentina… Venezuela is the classical example of a single-export nation, in this case oil, that has little local industries and mostly imports all other things, from food to consumer goods. Argentina, meanwhile, has a midly diversified economy; while our main production and exports are indeed agricultural products and food such as soybean, we also have (for now…) a consumer industry, and we produce all of our own food.

Compare and contrast; these are Venezuela’s exports by renueve in 2016:

And these are Argentina’s:

Brown is oil and fossil fuels, yellow is foodstuffs and associated products. The rest are various industries: services, consumer goods, automotives, construction, industrial parts, and so on.

Now, exports don’t mean everything a country produces, but they give us a pretty good idea of the complexity and nature of a national economy. Argentina is a net food producer with a relatively good national industry (again, for now…). Venezuela is a oil-exporting nation that is sensitive to changes on the trade of that commodity. Normally, that wouldn’t be a problem: Oil-exporting economies can grow and work very well, but Maduro’s incompetence and corruption has ruined the nation to an unprecedented state in history, and that’s why the crisis has become so deep.

But no nation is inmune to political mismanagment, and certainly not Argentina. Even with that, could we come to a point like Venezuela with the return of Kirchnerism?

From me, the answer is a confident no.

Why? Simply because the Kirchnerist era was a lot more moderate than what media sells us.

Neoliberals and “economists” tells us the catastrophic tale of rampant spending, national intervention, closing of trade, lack of employment, and other disasters encompassed under the scary word “populism”. If you believed them, you would think Argentina was a Soviet-bloc country that needed to liberalize and privatize everything to refloat again (and go ask them how it worked there…)

In fact, while there were many economical missteps like the “cepo” and the INDEC manipulation (that Alberto has already recognized and will not repeat), Argentina… had a quite moderate and coherent economical system? Tariffs were high, sure, but it’s normal to have high tariffs in key exports to have higher income (and the rich agricultural owners can certainly pay it). Protectionism in key industrial and high-tech industries is necessary for a relatively mid-level economy like us, and is, in fact, one of the reasons economies like South Korea and Japan had their amazing successes once they developed critical size for those industries. The so feared by the economists mass nationalization didn’t happen either, except for YPF, some trains, and Aerolíneas, and I believe there is little argument against our oil resources being back in hand of the state (and Macri is certainly enjoying it thanks to Vaca Muerta, one of the few industries currently growing). Taxes were high and yes, some social plans were mismanaged, but Argentina has an important public education, healthcare, science, social, cultural, and public works sector (not to mention the salaries of the massive police/gendarmerie forces, which nobody wants to talk about apparently…), so obviously relatively high taxes are needed. While I admit some things might be better, I don’t know about you, but I (well, my family) have gotten my taxes back through education, health, roads, and I am proud that my country has, despite all, such a strong scientific and cultural tradition. And of course, labor rights are *strict* (depending where you look…) thanks to a long legacy of worker’s struggles, but are we really gonna lower them just to bring foreign megacorporations to take advantage of us? I think not, thanks.

In fact, besides somewhat high taxes and tariffs, and of course corruption (but that’s a whole other deal…), Argentina during the Kirchnerist years wasn’t the insanity they say. Maybe not an investors paradise, but wasn’t the socialist (lol, another scary word) mismanagement disaster the media sold us, and still sells us. And even in those years we had investments from all over the world. 4 years of Macri and economic “liberalization” and there have been no promised “lluvia de inversiones” for all the destruction of our own economy.

I believe you could compare your own quality of life in those years with right now, but that depends on the particular case. I KNOW my quality of life has descended since Macri took power.

Now, with the current inflation, desindustrialization (there has been a record THREE YEARS of industrial decay on Argentina, and the few factories still open operate at less than 50%), primarization of the economy (the main winners of this economic model are big agribusiness and financial enterprises), historical debts (some to be paid A CENTURY from now) and a nation dependent from the IMF and thus the whims of USA politics, which economic model has brought us closer to collapse, in even less years?

Tarea para la casa.

…

As for the other candidates:

I believed I explained plenty why I never voted for Macri and I won’t vote for him this time either.

I think Lavagna is out of touch, and couldn’t even keep his coalition together, so I doubt his leadership skills; his “centrism” offers little to me. The other progressive parties have no managed to make a coherent option either.

 I sympathize with Del Caño and the Left, but they don’t have the leadership and support to make their promises come true, their parties are always fighting between themselves, and I can’t afford to vote for them, not in this crucial election.

Espert is a neoliberal flirting with anarchocapitalism, defending the worst of the Menemist era, his response to our problems would be accelerating privatization, “liberalization” and the destruction of the economy. He’s also a misogynist pervert, and inmature like his followers. I have a strong dislike for the guy.

I would also take this opportunity to say RIP Unión Cívica Radical (1891-2015). While they were the greatest rivals to Peronism and I never voted for them, I have the outmost respect for those radicals who fought for democracy and civil rights. Unfortunately, the UCR joined the right instead of keeping to its social-democratic ideals (did you know the UCR is an official member of the Socialist International? no, no es joda), and the PRO has chewed and spit them. A sad ending for such a party.

The other far-right and far-left parties are irrelevant, but I hope bazofias such as the Frente Patriota get as few votes as possible.

And of course, there’s Romero Feris, a corrupt, nearly feudal character who those from Corrientes know well, who has used necromancy to revive the Partido Autonomista Nacional, the party of Julio A. Roca. No only it’s corrupt, regressive and racist, it’s also probably haunted and I don’t want ghosts running around my goverment.

I’ve always been a zurdoperoncho, but as it stands now, FernándezX2 is the best option. Alberto is a coherent, disciplined and skilled man, who has proven himself during the Néstor presidency as a good leader, he’s even a little too moderate for my tastes, but the rest of his coalition balances that. Regardless of what you might think of Cristina, she’s the most important political figure of Argentina, and her prescence and leadership is needed for a sucessful progressive political project. The rest of their coalition (except for Massa, who I hate) also have the support and ideas to make their goverment sucessful.

Like with all politicians, I have my objections to some of their positions, and I don’t think they are saints. But I think they are not only the least worst, but indeed the best option we have. I will vote for them with conviction.

[billehrman]

It’s Darkest Before Dawn

It’s amusing to us to listen to the pundits/experts shifting their views almost daily staying one step behind the markets.

Forbes wrote an article about us on August 14, 1995 titled “Looking Beyond the Valley” in which we discussed our methodology to successfully invest which has been influenced over the years by partnering with great global investors such as George Soros. We always say that a successful investor must look through the windshield and “beyond the valley” rather than in the rear-view mirror. Our strength is a thorough understanding of global dynamics: political, economic, monetary, trade and regulatory and all of the inter/intra relationships amongst them. We are fundamentalists at heart always looking for that inflection point recognizing that the past is not necessarily prologue for the future.

Change is occurring everywhere which offers great opportunities to profit for the patient investor. Real change cannot occur unless the problems are recognized and action plans are enacted to right the ship. In fact, that was the topic of last week’s blog. Interestingly, over 90% of the 50,000 investors who read the piece felt that the future was bleak and that we have already, or will soon, enter a recession and bear market. Essentially, many do not agree with our positive longer-term view that the global economy will improve later in the year through 2020. Investor pessimism and cash levels remains high. Markets climb walls of worry and peak when exuberance is too high. By the way, the financial markets had a great week as both stock prices rose and bond yields fell.

You might be curious why both can occur simultaneously. It remains our contention that the global creation of capital is far in excess of the global needs for capital since the global economy is soft. This excess capital is finding its way into financial assets, namely stocks and bonds, which explains why both are rising. The logical question is whether this is creating a bubble or not.

We believe we are nearing an inflection point for global growth. We expect global growth to accelerate in future quarters benefitting from aggressive monetary ease coupled with a ton of fiscal stimulus like in China. And, in the U.S., too. None of this occurs overnight as there are lags between changes in policy, actual implementation and seen impacts. Finally, we remain optimistic that trade deals will be reached which will be a real boost for global growth bringing a sharp improvement in business confidence that will lead to increased hiring and spending. Right now, we are in a goldilocks environment…. growth has bottomed out, no inflation and ridiculously low interest rates. What’s not to like?

We are therefore not surprised that the global economic stats remain weak. Let’s review what is occurring by region:

1.) Economic stats in the U.S. remain weak: U.S. factory production fell for a second month in a row in February. We continue to believe that the threat of higher tariffs in January and the government shutdown as well as a very harsh winter along with poor seasonal adjustments are all putting downward pressure on recent economic statistics. There was a sharp rebound in retail sales in January off of what we believe was poor data reported for December which even revised lower to a 1.6% drop from the previous month. We don’t hold much credence in these numbers, too, as the key retailers continue to report really strong sales. Yes, autos are weak but not by that much to more than offset strong store and online retail sales.

Inflation data continues to be very tame as we had anticipated months ago when we constantly criticized the Fed for not putting more weight in their decisions to inflation remaining well below their 2% threshold despite falling unemployment. We are not saying that inflation is dead, but we do believe that the confluence of global competition, technology and the rise of disruptors will continue to put downside pressure on inflation keeping it under control. It appears that the Fed finally agrees with our view as it has said as such recently. Their primary objective is to promote sustainable economic growth. Thank heaven!

We continue to believe that the Fed will remain on pause for the rest of the year and will end unwinding its balance sheet in a few months further easing its policy. If there is no trade deal, we would expect the Fed to cut rates within a month or two. Don’t forget that the U.S. will continue to run a huge budget deficit which is stimulative for sure.

And what if there are trade deals as we expect?

2.) China’s Congress ended its annual meeting with Premier Li Keqiang pledging government support of over $300 billion including lower fees, tax cuts and massive infrastructure spending. The VAT will be cut meaningfully for all manufacturers too. All of this is in addition to the huge increase in monetary stimulus including reductions in capital ratios which just had been increased a year ago.

All of this stimulus is in reaction to the sharp deceleration in growth as we had predicted. In fact, industrial output fell to a 17-year low in the first two months of the year. We understand that output numbers may have been overstated in November/December of the last year due to trade concerns making comparisons this year difficult. Unemployment rose to 5.35 in February from 4.9% in December.

Growth in China will improve sequentially benefitting from all of this stimulus but the truth is that China needs a trade deal fast as manufacturers are moving production off shore at an increasing rate which will impede China’s future in a big way if not curtailed.

3.) The ECB has reached out to local governments asking them to “step up their game” as there is not much more that the ECB can do at this point. Economic growth remains anemic and inflation is weak. The OECD has said that the region would be best served by coordinated action involving fiscal support and structural reforms. Unless Europe addresses its structural issues, its future will continue to deteriorate. Sounds just like what we have been saying for well over a year now.

It won’t be easy for Europe to resolve its trade issues with any of its trading partners, including the U.S. and China, as each country has different needs and preferences. Europe is really between a rock and a hard place as change does not come easy. By the way, we expect Brexit to be kicked down the road for another few months.

4.) The Bank of Japan lowered its view of its economy on Friday penalized by weakness in exports and production. No surprise! Japan needs an acceleration in global growth to boost its economy so trade deals are the keys to its success. We now expect Prime Minister Abe to delay a sales tax increase to 10% from 8% which was to take effect in October. Japan’s central bank and the government have their hands tied doing much more to stimulate the domestic economy. It’s all about trade.

Looking beyond the valley reveals that it is clear that China and the United States hold the keys to an acceleration in global growth later this year into 2020. We remain optimistic that global growth has not only stabilized at these levels but will improve in the spring as the full impact of all the additional monetary and fiscal easing finds its way through their economies. Then there are the prospects of trade deals.

We remain hopeful that China and the U.S. will reach a deal over the next few months. Even with a deal, we do not expect all existing tariffs to be removed right away until both sides become convinced that the deal is working. A deal with Japan seems likely to follow the one with China and then there is Europe. It won’t be easy reaching a deal with the Eurozone as there are too many players and one deal is not likely to satisfy all. Notwithstanding, Europe needs a deal and fast. So, time will tell.

The bottom line is that we expect China and the U.S. will be the engines driving global growth. Emerging markets, Europe and Japan will be the byproduct beneficiaries which is why we believe that 2020 will be a much better year economically than 2019. And if the responses to last week’s blog were representative of most investors, there is nothing in the market for an acceleration in growth therefore we are not paying for it today. We like these odds as we hold companies today that will do well without faster growth but would absolutely benefit from stronger growth too.

Our portfolios include drug companies with new product flows; global industrial and capital goods companies with volume growth 1.5+ GNP with rising margins and cash flow; technology at a fair price to growth including semis; low cost industrial commodity companies generating huge free cash flow; cable with content like Comcast and Disney; housing related; domestic steel and many, many special situations where internal actions will close the gap between current and intrinsic price. We are flat the dollar and own no bonds whatsoever.

Remember to review all the facts; pause, reflect and consider mindset shifts; analyze your asset mix with risk controls; do independent research and…

Invest Accordingly!

Bill Ehrman Paix et Prospérité LLC

[gordonwilliamsweb]

Viral Post Alleging Obama-Era Device Tax Caused Current PPE Shortage Is Way Off

“Let me be clear, I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

A viral image circulating on social media in April, attributing this statement to President Barack Obama

A social media post, which in April was shared widely on Facebook and made appearances on a conservative online discussion forum, asserts that former President Barack Obama signed legislation that caused companies to manufacture medical devices overseas, including items essential for the current coronavirus pandemic.

This story was produced in partnership with PolitiFact.

This story can be republished for free (details).

Alongside a photo of Obama, the text of the Facebook post says: “Let me be clear. I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

The image piqued our interest because it combined a few hot-button issues. First, the concern that the U.S. is experiencing a shortage of ventilators and personal protective equipment, or PPE, like masks, gowns and gloves to help protect front-line workers from coronavirus. Second, issues related to trade imbalances and the outsourcing of American manufacturing abroad are likely to be frequent themes on the presidential campaign trail. So we decided to dig in.

Though the image did not include sourcing or sponsorship information, its target — the “medical appliance tax bill” — seemed to be a reference to the medical device tax (more formally known as the medical device excise tax) that became law as part of the Affordable Care Act. Additionally, much of the social media post tracked closely to statements made by conservative radio host Rush Limbaugh during an April 2 episode of his talk show, which included a discussion of the medical device tax.

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A Critical Error

Before we get into the specifics of the medical device tax, two critical elements of the post must be addressed. First, did Obama ever say anything like what the viral image claims? We checked with Eric Schultz, a senior adviser to the former president. In an email he replied: “President Obama obviously didn’t say this!”

A key piece of evidence that supports Schultz’s statement is the use of the term “medical appliance device tax bill.”

Bottom line: We couldn’t find any other reference — either official or unofficial — to a piece of federal legislation bearing this name or nickname. And, though the experts we spoke with agreed the social media post was likely directed at the device tax included in the ACA, none had ever heard it referred to by that moniker — a point that adds more skepticism to the image’s claim.

And What Is The Medical Device Tax?

In order to pay for the ACA’s expansion of health coverage, taxes were increased for various industries — including the medical device industry — that would benefit from more people getting health insurance. The tax was controversial and triggered considerable pushback.

The measure set a 2.3% excise tax on medical devices, sold in the United States beginning in January 2013. The tax applied to both domestic manufacturers and importers of medical devices.

But, it did not apply to items made in the U.S. for foreign export, said John McDonough, a professor at the Harvard T.H. Chan School of Public Health who also served as a senior adviser during the Obama administration and helped write the Affordable Care Act.

“The tax was designed deliberately” to avoid forcing manufacturers to move their production overseas, McDonough wrote in an email.

Opponents of the tax argued that it was a severe financial burden on medical device manufacturers. They also estimated that it would have resulted in the loss of more than 20,000 full-time domestic jobs in the industry.

Joseph Antos, a health policy scholar with the American Enterprise Institute, said that the tax was punishing on the medical device industry because it was implemented on “gross sales rather than profits,” which raised issues for small device firms.

However, a 2015 Congressional Research Service report said that the medical device tax seemed to have only “fairly minor effects” on jobs with “output and employment in the industry falling by no more than two-tenths of 1%.”

Antos said that though the tax “clearly” had an effect on the industry, he wasn’t aware of any studies or statistics that showed production and sales moving overseas because of it.

But Paul Van de Water, a senior fellow and expert in health policy at the Center on Budget and Policy Priorities, a left-leaning think tank, took an even harder line on the social media image’s assertion. “It’s absolutely false on the face of it,” he said. “There was no way the tax provided any incentive to shift production overseas.”

Sources:

Center on Budget and Policy Priorities, “Keep the Medical Device Tax,” April 22, 2015

Congressional Research Service, “The Medical Device Excise Tax: Economic Analysis,” Updated June 18, 2015

Email exchange with Mark Brager, vice president of communications, AdvaMed, April 23-24, 2020

Email exchange with Ethan Schultz, senior adviser to Barack Obama, April 23, 2020

Email interview with John McDonough, professor of public health practice, Harvard T.H. Chan School of Public Health, April 24, 2020

Email interview with Peter Petri, professor of international finance, Brandeis International Business School, April 26, 2020

Facebook post, April 23, 2020

Federal Register, “Taxable Medical Devices,” Dec. 7, 2012

Forbes, “Medical Device Tax Is History After Trump Signs Repeal,” Dec. 21, 2019

Healthcare Finance News, “Senate Repeals Medical Device Excise Tax in Move Applauded by Med-Tech Manufacturers,” Dec. 19, 2019

Internal Revenue Service, “Medical Device Excise Tax: Frequently Asked Questions,” Updated March 4, 2020

Internal Revenue Service, “Repeal of Medical Device Excise Tax,” Updated Jan. 30, 2020

NBC News, “Trump’s Trade War Exacerbated Shortage of Medical Equipment,” March 27, 2020

Peterson Institute for International Economics, “US-China Trade War Tariffs: An Up-to-Date Chart,” Feb. 14, 2020

Peterson Institute for International Economics, “COVID-19: China’s Exports of Medical Supplies Provide a Ray of Hope,” March 26, 2020

Phone interview with Paul N. Van de Water, senior fellow, Center on Budget and Policy Priorities, April 24, 2020

Politico, “Lawmakers Put New Focus on China Export Rules,” April 21, 2020

Rush Limbaugh Radio Show, “Does Anyone Remember the Obamacare Medical Device Tax?” April, 2, 2020

Vox, “Why America Ran Out of Protective Masks — and What Can Be Done About It,” March 27, 2020

Phone interview with Joseph Antos, scholar in health care and retirement policy, American Enterprise Institute, April 30, 2020

Van de Water also said that while there was some shift of manufacturing overseas while the tax was in effect, there were other factors leading that push, such as competition and pressure to reduce costs.

“There’s no way to attribute that to the device tax itself,” he added.

And, there’s another complication. Congress acted to put the medical device tax on hold at the end of 2015 — in part due to significant lobbying by the medical device industry, as well as opposition to it from both Republican and Democratic members of Congress who had medical device companies headquartered in their states. In December 2019, President Donald Trump permanently repealed the tax when he signed a bipartisan federal spending package.

“The tax was only in effect for three years, from 2013 to 2015,” said Van de Water. “Even if it [the medical device tax] had some effect, that effect would have ended in 2016. We’re now four years later.”

Other Factors

Finally, does the now nonexistent medical device tax have anything to do with our current PPE shortage in the face of the coronavirus pandemic?

The answer to that is also no, said the experts.

The current personal protective equipment shortage can be attributed to the lack of a stockpile reserve of PPE, an initially slow response by the U.S. and the tariffs imposed against Chinese goods by the Trump administration, said Peter Petri, a professor of international finance at Brandeis University outside Boston.

AEI’s Antos considered it an issue of the huge demand for these items, which has made replenishing stockpiles more difficult.

According to a recent report from the Peterson Institute for International Economics, in 2018 China was the source of 48% of U.S. imports of PPE. Seventy percent of the United States’ mouth and nose protective gear, such as masks, came from China in 2018. Overall, China is a major supplier of PPE to countries worldwide.

Petri said this makes sense since China is a low-cost manufacturer of these relatively simple products. But it also became a problem once the White House started implementing tariffs on Chinese products.

“For nearly a year, U.S. buyers have been moving their PPE business away from China to other countries because of the Trump tariff wall,” Petri wrote in an email.

But those manufacturers in other countries were not able to scale up their production to make up for the amount of supplies needed when the coronavirus hit.

“Meanwhile Chinese suppliers were turning to markets in Europe. The U.S. could not have chosen a worse time to turn its back on the world’s largest PPE producer,” said Petri.

China’s massive manufacturing capacity did allow it to scale up production to account for the coronavirus pandemic, but because it had already established businesses in other locales and in response to the imposed tariffs, Petri suggested, it is unlikely that China would be as receptive now to U.S. requests for PPE.

Our Ruling

Nothing in this viral image is accurate. There is even a spelling error.

Obama did not sign anything into law called the “medical appliance tax bill.” A moratorium was placed on the medical device tax he did sign into law as part of the Affordable Care Act in late 2015. Therefore, that tax was put on hold in 2016 and eventually repealed by Trump in 2019.

Instead, experts we consulted agreed that the current PPE shortage is more aptly linked to the inadequate national emergency stockpile of PPE, increased demand for the products and the Trump administration’s Chinese trade policies.

Our ruling is Pants on Fire.

Viral Post Alleging Obama-Era Device Tax Caused Current PPE Shortage Is Way Off published first on https://nootropicspowdersupplier.tumblr.com/

[dinafbrownil]

Viral Post Alleging Obama-Era Device Tax Caused Current PPE Shortage Is Way Off

“Let me be clear, I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

A viral image circulating on social media in April, attributing this statement to President Barack Obama

A social media post, which in April was shared widely on Facebook and made appearances on a conservative online discussion forum, asserts that former President Barack Obama signed legislation that caused companies to manufacture medical devices overseas, including items essential for the current coronavirus pandemic.

This story was produced in partnership with PolitiFact.

This story can be republished for free (details).

Alongside a photo of Obama, the text of the Facebook post says: “Let me be clear. I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

The image piqued our interest because it combined a few hot-button issues. First, the concern that the U.S. is experiencing a shortage of ventilators and personal protective equipment, or PPE, like masks, gowns and gloves to help protect front-line workers from coronavirus. Second, issues related to trade imbalances and the outsourcing of American manufacturing abroad are likely to be frequent themes on the presidential campaign trail. So we decided to dig in.

Though the image did not include sourcing or sponsorship information, its target — the “medical appliance tax bill” — seemed to be a reference to the medical device tax (more formally known as the medical device excise tax) that became law as part of the Affordable Care Act. Additionally, much of the social media post tracked closely to statements made by conservative radio host Rush Limbaugh during an April 2 episode of his talk show, which included a discussion of the medical device tax.

Email Sign-Up

Subscribe to KHN’s free Morning Briefing.

Sign Up

Please confirm your email address below:

Sign Up

A Critical Error

Before we get into the specifics of the medical device tax, two critical elements of the post must be addressed. First, did Obama ever say anything like what the viral image claims? We checked with Eric Schultz, a senior adviser to the former president. In an email he replied: “President Obama obviously didn’t say this!”

A key piece of evidence that supports Schultz’s statement is the use of the term “medical appliance device tax bill.”

Bottom line: We couldn’t find any other reference — either official or unofficial — to a piece of federal legislation bearing this name or nickname. And, though the experts we spoke with agreed the social media post was likely directed at the device tax included in the ACA, none had ever heard it referred to by that moniker — a point that adds more skepticism to the image’s claim.

And What Is The Medical Device Tax?

In order to pay for the ACA’s expansion of health coverage, taxes were increased for various industries — including the medical device industry — that would benefit from more people getting health insurance. The tax was controversial and triggered considerable pushback.

The measure set a 2.3% excise tax on medical devices, sold in the United States beginning in January 2013. The tax applied to both domestic manufacturers and importers of medical devices.

But, it did not apply to items made in the U.S. for foreign export, said John McDonough, a professor at the Harvard T.H. Chan School of Public Health who also served as a senior adviser during the Obama administration and helped write the Affordable Care Act.

“The tax was designed deliberately” to avoid forcing manufacturers to move their production overseas, McDonough wrote in an email.

Opponents of the tax argued that it was a severe financial burden on medical device manufacturers. They also estimated that it would have resulted in the loss of more than 20,000 full-time domestic jobs in the industry.

Joseph Antos, a health policy scholar with the American Enterprise Institute, said that the tax was punishing on the medical device industry because it was implemented on “gross sales rather than profits,” which raised issues for small device firms.

However, a 2015 Congressional Research Service report said that the medical device tax seemed to have only “fairly minor effects” on jobs with “output and employment in the industry falling by no more than two-tenths of 1%.”

Antos said that though the tax “clearly” had an effect on the industry, he wasn’t aware of any studies or statistics that showed production and sales moving overseas because of it.

But Paul Van de Water, a senior fellow and expert in health policy at the Center on Budget and Policy Priorities, a left-leaning think tank, took an even harder line on the social media image’s assertion. “It’s absolutely false on the face of it,” he said. “There was no way the tax provided any incentive to shift production overseas.”

Sources:

Center on Budget and Policy Priorities, “Keep the Medical Device Tax,” April 22, 2015

Congressional Research Service, “The Medical Device Excise Tax: Economic Analysis,” Updated June 18, 2015

Email exchange with Mark Brager, vice president of communications, AdvaMed, April 23-24, 2020

Email exchange with Ethan Schultz, senior adviser to Barack Obama, April 23, 2020

Email interview with John McDonough, professor of public health practice, Harvard T.H. Chan School of Public Health, April 24, 2020

Email interview with Peter Petri, professor of international finance, Brandeis International Business School, April 26, 2020

Facebook post, April 23, 2020

Federal Register, “Taxable Medical Devices,” Dec. 7, 2012

Forbes, “Medical Device Tax Is History After Trump Signs Repeal,” Dec. 21, 2019

Healthcare Finance News, “Senate Repeals Medical Device Excise Tax in Move Applauded by Med-Tech Manufacturers,” Dec. 19, 2019

Internal Revenue Service, “Medical Device Excise Tax: Frequently Asked Questions,” Updated March 4, 2020

Internal Revenue Service, “Repeal of Medical Device Excise Tax,” Updated Jan. 30, 2020

NBC News, “Trump’s Trade War Exacerbated Shortage of Medical Equipment,” March 27, 2020

Peterson Institute for International Economics, “US-China Trade War Tariffs: An Up-to-Date Chart,” Feb. 14, 2020

Peterson Institute for International Economics, “COVID-19: China’s Exports of Medical Supplies Provide a Ray of Hope,” March 26, 2020

Phone interview with Paul N. Van de Water, senior fellow, Center on Budget and Policy Priorities, April 24, 2020

Politico, “Lawmakers Put New Focus on China Export Rules,” April 21, 2020

Rush Limbaugh Radio Show, “Does Anyone Remember the Obamacare Medical Device Tax?” April, 2, 2020

Vox, “Why America Ran Out of Protective Masks — and What Can Be Done About It,” March 27, 2020

Phone interview with Joseph Antos, scholar in health care and retirement policy, American Enterprise Institute, April 30, 2020

Van de Water also said that while there was some shift of manufacturing overseas while the tax was in effect, there were other factors leading that push, such as competition and pressure to reduce costs.

“There’s no way to attribute that to the device tax itself,” he added.

And, there’s another complication. Congress acted to put the medical device tax on hold at the end of 2015 — in part due to significant lobbying by the medical device industry, as well as opposition to it from both Republican and Democratic members of Congress who had medical device companies headquartered in their states. In December 2019, President Donald Trump permanently repealed the tax when he signed a bipartisan federal spending package.

“The tax was only in effect for three years, from 2013 to 2015,” said Van de Water. “Even if it [the medical device tax] had some effect, that effect would have ended in 2016. We’re now four years later.”

Other Factors

Finally, does the now nonexistent medical device tax have anything to do with our current PPE shortage in the face of the coronavirus pandemic?

The answer to that is also no, said the experts.

The current personal protective equipment shortage can be attributed to the lack of a stockpile reserve of PPE, an initially slow response by the U.S. and the tariffs imposed against Chinese goods by the Trump administration, said Peter Petri, a professor of international finance at Brandeis University outside Boston.

AEI’s Antos considered it an issue of the huge demand for these items, which has made replenishing stockpiles more difficult.

According to a recent report from the Peterson Institute for International Economics, in 2018 China was the source of 48% of U.S. imports of PPE. Seventy percent of the United States’ mouth and nose protective gear, such as masks, came from China in 2018. Overall, China is a major supplier of PPE to countries worldwide.

Petri said this makes sense since China is a low-cost manufacturer of these relatively simple products. But it also became a problem once the White House started implementing tariffs on Chinese products.

“For nearly a year, U.S. buyers have been moving their PPE business away from China to other countries because of the Trump tariff wall,” Petri wrote in an email.

But those manufacturers in other countries were not able to scale up their production to make up for the amount of supplies needed when the coronavirus hit.

“Meanwhile Chinese suppliers were turning to markets in Europe. The U.S. could not have chosen a worse time to turn its back on the world’s largest PPE producer,” said Petri.

China’s massive manufacturing capacity did allow it to scale up production to account for the coronavirus pandemic, but because it had already established businesses in other locales and in response to the imposed tariffs, Petri suggested, it is unlikely that China would be as receptive now to U.S. requests for PPE.

Our Ruling

Nothing in this viral image is accurate. There is even a spelling error.

Obama did not sign anything into law called the “medical appliance tax bill.” A moratorium was placed on the medical device tax he did sign into law as part of the Affordable Care Act in late 2015. Therefore, that tax was put on hold in 2016 and eventually repealed by Trump in 2019.

Instead, experts we consulted agreed that the current PPE shortage is more aptly linked to the inadequate national emergency stockpile of PPE, increased demand for the products and the Trump administration’s Chinese trade policies.

Our ruling is Pants on Fire.

from Updates By Dina https://khn.org/news/fact-check-viral-post-alleging-obama-era-device-tax-caused-current-ppe-shortage-is-way-off/

[stephenmccull]

Viral Post Alleging Obama-Era Device Tax Caused Current PPE Shortage Is Way Off

“Let me be clear, I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

A viral image circulating on social media in April, attributing this statement to President Barack Obama

A social media post, which in April was shared widely on Facebook and made appearances on a conservative online discussion forum, asserts that former President Barack Obama signed legislation that caused companies to manufacture medical devices overseas, including items essential for the current coronavirus pandemic.

This story was produced in partnership with PolitiFact.

This story can be republished for free (details).

Alongside a photo of Obama, the text of the Facebook post says: “Let me be clear. I signed the medical appliance tax bill that forced companies to outsource manufacturing of masks, gowns, gloves and ventilaors [sic] to China, Europe and Russia to avoid the tax.”

The image piqued our interest because it combined a few hot-button issues. First, the concern that the U.S. is experiencing a shortage of ventilators and personal protective equipment, or PPE, like masks, gowns and gloves to help protect front-line workers from coronavirus. Second, issues related to trade imbalances and the outsourcing of American manufacturing abroad are likely to be frequent themes on the presidential campaign trail. So we decided to dig in.

Though the image did not include sourcing or sponsorship information, its target — the “medical appliance tax bill” — seemed to be a reference to the medical device tax (more formally known as the medical device excise tax) that became law as part of the Affordable Care Act. Additionally, much of the social media post tracked closely to statements made by conservative radio host Rush Limbaugh during an April 2 episode of his talk show, which included a discussion of the medical device tax.

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A Critical Error

Before we get into the specifics of the medical device tax, two critical elements of the post must be addressed. First, did Obama ever say anything like what the viral image claims? We checked with Eric Schultz, a senior adviser to the former president. In an email he replied: “President Obama obviously didn’t say this!”

A key piece of evidence that supports Schultz’s statement is the use of the term “medical appliance device tax bill.”

Bottom line: We couldn’t find any other reference — either official or unofficial — to a piece of federal legislation bearing this name or nickname. And, though the experts we spoke with agreed the social media post was likely directed at the device tax included in the ACA, none had ever heard it referred to by that moniker — a point that adds more skepticism to the image’s claim.

And What Is The Medical Device Tax?

In order to pay for the ACA’s expansion of health coverage, taxes were increased for various industries — including the medical device industry — that would benefit from more people getting health insurance. The tax was controversial and triggered considerable pushback.

The measure set a 2.3% excise tax on medical devices, sold in the United States beginning in January 2013. The tax applied to both domestic manufacturers and importers of medical devices.

But, it did not apply to items made in the U.S. for foreign export, said John McDonough, a professor at the Harvard T.H. Chan School of Public Health who also served as a senior adviser during the Obama administration and helped write the Affordable Care Act.

“The tax was designed deliberately” to avoid forcing manufacturers to move their production overseas, McDonough wrote in an email.

Opponents of the tax argued that it was a severe financial burden on medical device manufacturers. They also estimated that it would have resulted in the loss of more than 20,000 full-time domestic jobs in the industry.

Joseph Antos, a health policy scholar with the American Enterprise Institute, said that the tax was punishing on the medical device industry because it was implemented on “gross sales rather than profits,” which raised issues for small device firms.

However, a 2015 Congressional Research Service report said that the medical device tax seemed to have only “fairly minor effects” on jobs with “output and employment in the industry falling by no more than two-tenths of 1%.”

Antos said that though the tax “clearly” had an effect on the industry, he wasn’t aware of any studies or statistics that showed production and sales moving overseas because of it.

But Paul Van de Water, a senior fellow and expert in health policy at the Center on Budget and Policy Priorities, a left-leaning think tank, took an even harder line on the social media image’s assertion. “It’s absolutely false on the face of it,” he said. “There was no way the tax provided any incentive to shift production overseas.”

Sources:

Center on Budget and Policy Priorities, “Keep the Medical Device Tax,” April 22, 2015

Congressional Research Service, “The Medical Device Excise Tax: Economic Analysis,” Updated June 18, 2015

Email exchange with Mark Brager, vice president of communications, AdvaMed, April 23-24, 2020

Email exchange with Ethan Schultz, senior adviser to Barack Obama, April 23, 2020

Email interview with John McDonough, professor of public health practice, Harvard T.H. Chan School of Public Health, April 24, 2020

Email interview with Peter Petri, professor of international finance, Brandeis International Business School, April 26, 2020

Facebook post, April 23, 2020

Federal Register, “Taxable Medical Devices,” Dec. 7, 2012

Forbes, “Medical Device Tax Is History After Trump Signs Repeal,” Dec. 21, 2019

Healthcare Finance News, “Senate Repeals Medical Device Excise Tax in Move Applauded by Med-Tech Manufacturers,” Dec. 19, 2019

Internal Revenue Service, “Medical Device Excise Tax: Frequently Asked Questions,” Updated March 4, 2020

Internal Revenue Service, “Repeal of Medical Device Excise Tax,” Updated Jan. 30, 2020

NBC News, “Trump’s Trade War Exacerbated Shortage of Medical Equipment,” March 27, 2020

Peterson Institute for International Economics, “US-China Trade War Tariffs: An Up-to-Date Chart,” Feb. 14, 2020

Peterson Institute for International Economics, “COVID-19: China’s Exports of Medical Supplies Provide a Ray of Hope,” March 26, 2020

Phone interview with Paul N. Van de Water, senior fellow, Center on Budget and Policy Priorities, April 24, 2020

Politico, “Lawmakers Put New Focus on China Export Rules,” April 21, 2020

Rush Limbaugh Radio Show, “Does Anyone Remember the Obamacare Medical Device Tax?” April, 2, 2020

Vox, “Why America Ran Out of Protective Masks — and What Can Be Done About It,” March 27, 2020

Phone interview with Joseph Antos, scholar in health care and retirement policy, American Enterprise Institute, April 30, 2020

Van de Water also said that while there was some shift of manufacturing overseas while the tax was in effect, there were other factors leading that push, such as competition and pressure to reduce costs.

“There’s no way to attribute that to the device tax itself,” he added.

And, there’s another complication. Congress acted to put the medical device tax on hold at the end of 2015 — in part due to significant lobbying by the medical device industry, as well as opposition to it from both Republican and Democratic members of Congress who had medical device companies headquartered in their states. In December 2019, President Donald Trump permanently repealed the tax when he signed a bipartisan federal spending package.

“The tax was only in effect for three years, from 2013 to 2015,” said Van de Water. “Even if it [the medical device tax] had some effect, that effect would have ended in 2016. We’re now four years later.”

Other Factors

Finally, does the now nonexistent medical device tax have anything to do with our current PPE shortage in the face of the coronavirus pandemic?

The answer to that is also no, said the experts.

The current personal protective equipment shortage can be attributed to the lack of a stockpile reserve of PPE, an initially slow response by the U.S. and the tariffs imposed against Chinese goods by the Trump administration, said Peter Petri, a professor of international finance at Brandeis University outside Boston.

AEI’s Antos considered it an issue of the huge demand for these items, which has made replenishing stockpiles more difficult.

According to a recent report from the Peterson Institute for International Economics, in 2018 China was the source of 48% of U.S. imports of PPE. Seventy percent of the United States’ mouth and nose protective gear, such as masks, came from China in 2018. Overall, China is a major supplier of PPE to countries worldwide.

Petri said this makes sense since China is a low-cost manufacturer of these relatively simple products. But it also became a problem once the White House started implementing tariffs on Chinese products.

“For nearly a year, U.S. buyers have been moving their PPE business away from China to other countries because of the Trump tariff wall,” Petri wrote in an email.

But those manufacturers in other countries were not able to scale up their production to make up for the amount of supplies needed when the coronavirus hit.

“Meanwhile Chinese suppliers were turning to markets in Europe. The U.S. could not have chosen a worse time to turn its back on the world’s largest PPE producer,” said Petri.

China’s massive manufacturing capacity did allow it to scale up production to account for the coronavirus pandemic, but because it had already established businesses in other locales and in response to the imposed tariffs, Petri suggested, it is unlikely that China would be as receptive now to U.S. requests for PPE.

Our Ruling

Nothing in this viral image is accurate. There is even a spelling error.

Obama did not sign anything into law called the “medical appliance tax bill.” A moratorium was placed on the medical device tax he did sign into law as part of the Affordable Care Act in late 2015. Therefore, that tax was put on hold in 2016 and eventually repealed by Trump in 2019.

Instead, experts we consulted agreed that the current PPE shortage is more aptly linked to the inadequate national emergency stockpile of PPE, increased demand for the products and the Trump administration’s Chinese trade policies.

Our ruling is Pants on Fire.

Viral Post Alleging Obama-Era Device Tax Caused Current PPE Shortage Is Way Off published first on https://smartdrinkingweb.weebly.com/

[rolandfontana]

How to Succeed with your China Tariff Exclusion Request (or not)

Back in June, Adams Lee (one of my fellow international trade lawyers) urged those who manufacture products in China for the U.S. to Get Going on Your China Tariff Exclusion Requests Now. 

Adams’ advice has clearly not gone unheeded. These days, client calls to discuss exclusion requests are as much a part of my morning routine as my first cup of joe. The deadline for filing List 3 exclusion requests is September 30, 2019, though one wonders why the United States Trade Representative (USTR) is even bothering with a deadline. According to Roll Call, the process for reviewing exclusion requests has “slowed to a painful crawl” and “USTR in July up to the 19th had completed work on just 60 of the total 2,900 requests for tariff waivers on [List 2] tranche requests”.  Not a promising sign when trying to determine how long it will take to sort out the 60,000 List 3 requests for which USTR is bracing — never mind the looming List 4 requests, when essentially all China imports will be subject to tariffs.

Our clients are understandably interested in any patterns that are emerging regarding approvals. Thanks to the Mercatus Center, we know List 1 requests for capital goods have been approved at a higher rate than intermediate goods or consumer goods, but for List 2 requests, consumer goods were approved at a higher rate than either capital or intermediate goods. It is important, however, to keep in mind that consumer goods account for only a fraction of the List 1 and 2 requests. More on this later.

Turning to the substance of the requests, after reviewing many of the requests adjudicated by USTR, it is clear approved requests tended to clearly articulate why the product for which an exclusion was sought cannot be sourced from anywhere other than China. I emphasize cannot because what trips up many requestors is that they end up explaining why they do not want to source from elsewhere.

For instance, take this denied tariff exclusion request from List 1:

[Company X] respectfully requests that you grant its request for an exclusion.

While we cannot seek exclusions on every component that we source from China, we are pursuing exclusions for several higher value and/or larger volume components, including this product.

[Company X’s] sourcing decisions are guided by a number of factors including availability of the part; quality of the part; landed cost… desire to work with a particular supplier; capacity of a supplier to produce volume needed on deadline; supply chain risk management; and minimizing capital investment.

*    *    *    *

Failure to grant [Company X’s] exclusion request will increase the company’s production costs. As a result, the company will reduce its margins, pass the additional cost onto consumers… negatively affect… the 60,000+ American workers [Company X] employs… (emphasis added)

Readers from my generation may remember the The Far Side, a brilliant comic created by Seattle’s own Gary Larson. One of my favorite cartoons juxtaposed what an owner said to his dog (“You stay out of the garbage! Understand, Ginger?”) with what Ginger actually heard (“blah blah Ginger blah”). To USTR (Ginger) this request is screaming, “I don’t want to pay more, blah blah”.

To be sure, paying more for products manufactured in China is a completely legitimate concern and I am not trying to make light of the real struggles faced by Company X and others that have their products made in China. But we are right now in a large-scale trade war with China (with no end in sight) and in the same way our grandparents were expected to buy Liberty bonds during World War I, the USTR expects businesses that ship China manufactured products to the United States (and  the buyers of those products) to bear economic burdens as the country “max[es] out [its] economic power.”

Company X’s tariff exclusion request (above) does passingly mention availability of its product outside China, but it fails to flesh out how that forces it to get that product from China. Is the product not available at all in a third country? Or is it available, but not at the sufficient volume or necessary quality?

It is worth keeping in mind that USTR largely avoided consumer goods in Tariff Lists 1 and 2, but consumer goods account for more than 30% of the List 3 products (compared to less than 1% in the first two lists). This shift could bring about a sea change in tariff exclusion rejection patterns. USTR has rejected just over 60% of the List 1 tariff exclusion requests and 45% of the List 2 requests it has received.

My suspicion is that the move towards consumer goods in List 3 will cause tariff exclusion rejection numbers to increase from Lists 1 and 2. One of the key issues for USTR when it considers exclusion requests is the following:

Whether the particular product [for which the tariff exclusion is being sought] is available only from China. In addressing this factor, requesters should address specifically whether the particular product and/or a comparable product is available from sources in the United States and/or in third countries.

A familiar theme in this blog is the shift of manufacturing activity out of China, primarily to Southeast Asia and to Mexico.  In How to Stop Manufacturing in China: Try Harder, we wrote how in many instances (but certainly not all), it is neither difficult nor expensive to move manufacturing outside China:

This probably sounds harsh, but many companies would benefit from moving their manufacturing out of China that have not yet done so for reasons more related to inertia than to economics or anything else. I realize change is hard but if you are in a situation where you are essentially paying 25% more than your competitors and at huge risk of your products being slapped with retroactive duties ranging from 20% to 250%, inertia is not a good excuse.

Of course, there are companies that have almost no choice but to have their products made in China. China has been developing its export-oriented capabilities for decades and its manufacturers enjoy access to a massive internal market and to levels of government assistance that cannot be matched in other low-cost destinations. As per a Quartz article:

Then there are the products the US almost exclusively gets from China. Raising tariffs on these goods will likely cost American consumers, and leave importers in a bind to find substitutes in the short-term—in the long-run, manufacturers may look to produce these goods outside China. We identified 11 product categories that China supplied 95% of US imports worth at least $100 million in 2018 by analyzing data from the US Census Bureau. All 11 product categories were on the list of goods for which the US has threatened to raise tariff rates by 25%. The US has since agreed to delay these hikes as part of negotiations.

By contrast, China’s manufacturing competitors have been flooding the lower ends of the value chain. Simply put, it is easier to set up a sneaker factory than a chemical processing plant. Back to Quartz:

The US imports about $100 million dollars in soy sauce every year. China supplies 42%. But it also gets a lot of soy sauce from Japan (17%), Hong Kong (14%) and Thailand (7%). If the US raises tariffs on Chinese soy sauce, importers might shift their buying to these other countries to avoid cost increases.

This means that when it comes to consumer goods, we expect fewer U.S. importers will be able to answer “No” to the key question in the exclusion request form: “Is this product, or a comparable product, available from source[s] in third countries?”. As a result, it can be fully expected that USTR will deny a higher rate of List 3 and List 4 requests.

What all of this means is that if you really need to source your products from China, you need to ensure that your tariff exclusion requests are as strong as they can be. On the flip side, what is happening with the tariff exclusion process is another reminder that the conversation about getting out of China needs to happen now, especially because we do not see the United States eliminating its China tariffs soon, if ever:

If your company is thinking there will be a solution to the US-China trade war and that solution will obviate any need to move your manufacturing from China, you are very likely engaging in wishful thinking. The US-China trade war has been going on for more than a year now and, if anything, we are farther away from resolution than when it started.

What is happening with the tariff exclusion process underscores this point. By now, everyone should have disabused themselves of any notion that  tariff exclusions would be an effective workaround. They will not, unless you can truly show that your product cannot be sourced in a third country. This is the time to recognize the difference between needing to source your product from China and preferring to do so.

If you need to stick with China and you are looking down at the tariff barrel, make sure you look at some of the approved tariff exclusion requests for inspiration and be sure to clearly spell out why you do not have a China alternative, remembering that “I would have to pay more” is not going to cut it. On the other hand, if you can source your product from somewhere other than China at comparable cost and quality, it is probably time for you to move on.

I will in the meantime be working on completing and submitting more tariff exclusion requests.

How to Succeed with your China Tariff Exclusion Request (or not) syndicated from https://immigrationattorneyto.wordpress.com/

[itsnelkabelka]

Speech: Foreign Secretary's speech at Raisina Dialogue, New Delhi

Good afternoon.

It’s a great honour to be speaking here at the second Raisina Dialogue and fantastic to be back in India.

I have come on several official trips now as well as various family weddings and we always try to remember to bring something for our Sikh relatives who live in both Delhi and Mumbai can you guess what it is; that’s right – we tend to bring a bottle of whisky, Black Label whisky to add to the astonishing 1.5 billion litres of whisky that are consumed every year in this country and why do we bring a bottle of scotch – to our relatives in Mumbai and Delhi - normally black label though I have just bought something called green label.

I hope it isn’t crème de menthe the reason my friends is that this wonderful country still sets a tariff of 150 per cent on whisky imports and I believe this matters.

Though I have no particular desire to attack Indian whisky tariffs. I think the time has come to stick up for free trade to make the case once again for the immense benefits of a globalised economy where we learn from each other and trade freely with each other and that case needs setting out here now and I believe I am perhaps the man to do it because I belong to a select group of people who are not always approved of by the global elites.

In the pages of good left liberal papers I am denounced as…wait for it…a populist because I was involved in a movement opposed to what I see as the undemocratic nature of the EU, and we were successful and so I am bracketed with various other leaders around the world who are said to be populist people who come to power on the tide of a sort of pitchfork wielding rebellion against the conceit of the ruling classes and so I want to stick up not for the populists, they can take care of themselves - we populists have pretty thick skins. I want to stick up for those who vote for them because they aren’t bad people.

They may feel worried about the security of the world, or about terrorism. They feel that they aren’t allowed to hold widespread opinions, and that they are being sneered and disapproved of. They look at this great glittering globalised economy and they see some people getting very rich indeed and they wonder why their own families aren’t keeping pace and they fear that they will be the first generation not be overtaken, in prosperity, by their own children, and so I say that these people should not be dismissed, or patronized, but nor should we draw the wrong conclusions, about the wave of populism.

The answer is not to put up barriers or weaken trading systems the answer is to give them jobs and a sense of respect and to show how trade can work for both sides how fair exchange benefits everyone is not zero sum.

The answer is for great nations such as India and Britain to tackle their concerns together not to go back to the world of the 1930s with strong men in power everywhere with autarkic and beggar thy neighbour policies of tariffs and other barriers to trade.

You may remember Lord Copper of the Beast, in Evelyn Waugh’s satirical novel scoop, published in 1936 who personally briefs a young reporter about his world view, and the coverage he wants to see. “The policy of the Beast is for strong, mutually antagonistic governments everywhere,” he says.

Well, that is not my policy, and it is not our policy. We believe still in military cooperating in the UK, and we believe in NATO as the cornerstone of our defence and we are one of the few countries in the alliance to meet the target of spending two per cent of our GDP and we have shown our commitment to our collective security in sending a battalion to Estonia as part of Nato’s enhanced forward presence.

We support the UN in holding to account the regimes of such men as Bashar al Asad and by the way we were the first P5 country to call for India to join the Security Council as well as the Nuclear Suppliers Group.

Like India we know the threats of terrorism - and I can tell you that some of my wife’s family were there that night in Mumbai in 2008 when the appalling attacks took place - and we are already working together to tackle those threats with ever greater intelligence sharing and we have some of the most formidable intelligence capabilities in the world; and we have no inhibitions in sharing our most advanced technology with India.

Take the Hawk jet trainer – a world beating aircraft, designed and made in Bangalore by Hindustan aeronautics, in alliance with BAe systems; and I know Mr Jaishankar said this morning, he thought Europe was in danger of shrinking from the world. I am here to tell you in the nick of time, this is not the UK’s ambition.

We have reach, we have just decided to restore our military presence east of Suez with a £3 bn commitment over ten years and a naval support facility in Bahrain We have a commitment to the whole world.

The Royal Air Force has just sent Typhoon fighters to Japan and South Korea on Exercise Eastern Venture, showing that Britain remains one of a handful of countries able to deploy air power 7,000 miles from our shores.

We have ambition. Our Strategic Defence and Security Review makes clear that the Royal Navy’s new aircraft carriers will be present in Asian waters.

The Five Power Defence Arrangement – which joins Britain with Malaysia, Singapore, Australia and New Zealand – remains the only permanent and multilateral defence pact in Asia.

Twice a year, British forces exercise alongside our allies in South-East Asia.

And as our naval strength increases in the next ten years, including two new aircraft carriers, we will be able to make a bigger contribution. In the Indian Ocean, we have a joint UK-US facility on Diego Garcia – an asset that is vital for our operations in the region.

We’re also a member of the UN Command on the Korean Peninsula; while in Brunei we have a deployable garrison of British Gurkhas.

And like this country we have our principles, a similar approach to the world.

When it comes to the tensions in the South China Sea. We are in favour of the rules based order. Britain takes no position on the merits of the competing claims.

But we do take a view on how they are pursued.

We oppose the militarisation of the South China Sea and we urge all parties to respect freedom of navigation and settle their disputes peacefully in accordance with international law.

We regard last year’s ruling by the Permanent Court of Arbitration in The Hague as binding on both China and the Philippines.

Indeed, may I respectfully say to our Indian friends that we believe in respecting all such judgments as binding.

We believe India can be a vital force for stability in this region, the keystone of a giant natural arch, created by the Indian ocean running from Perth in the east to Cape Town in the west.

This is the vast hinterland in which India rightly seeks to influence events and we support Prime Minister Modi in his ambition for India to rejoin the neighbouring geographies. Imagine how wonderful it would be if the nations of south Asia, Afghanistan, India and Pakistan, could break down the barriers of mistrust and make the most of their economic opportunities.

And that is why security matters. Because without trust between countries; without freedom of the sea lanes, 25% of world trade goes through the Straits of Malacca; without a rules based international order, we will find our world reverting to that uncertainty of the 1930s.

When trade declined and we know the consequences of this, and it is declining, as a share of GDP, for the first time since the 1990s, and that is partly why I am so excited by the opportunities presented to the UK today. Because as our Prime Minister Theresa May said yesterday, we believe we can strike a new and healthy relationship with the European Union, supportive of the EU.

And as I have said before, we can be outside the main body of the cathedral, but still be a flying buttress, based on free trade and intergovernmental cooperation but allowing us, for the first time in 44 years, to campaign for free trade not just because it is in Britain’s interest but because it has lifted billions out of poverty in the last 50 years and has been the single greatest engine of human progress and that is because free trade and economic interpenetration are of massive mutual benefit and it is a cliché but it is true that Britain and India achieve together what they might never manage to pull off individually.

It is an astonishing fact that India invests more in the UK than it invests in the rest of the EU put together. I need hardly tell you that the biggest manufacturing employer in Britain is an Indian company, which makes beautiful Jaguars in Castle Bromwich I in the West Midlands, and then sells them back to India.

You may have heard that curry restaurants in Britain manage to employ more people than the ship-building, coal mining and steel industries combined, which may explain the struggle that some Britons now have with their waistline.

But I don’t want you to think we are just sitting around crunching poppadoms. We Brits are here too. There are four JCB factories here in India. We have British scientists teaming up with Indian counterparts to fight superbugs.

One in 20 private sector jobs in India is in a UK-owned company, and our trade is growing by 3 per cent a year. But when you consider that this is a country where there are 800 m people under the age of 35 you can see the scale of the opportunity because the population of Ireland is less than 4 million and Britain somehow does more trade with Ireland than with the whole of India.

Prime Minister Modi has laid out an exciting plan for an $830bn infrastructure plan and it is time for British engineers and surveyors and planners and consultants and architects and lawyers and bankers, and I hope they are here today, to step up to the plate and o take part in this incredible development and break down these barriers.

And that is why the time is coming when we need to turbo charge this relationship with a new free trade deal. We can’t negotiate it now. But we can sketch it out in pencil.

And so let us go back to the whisky with which I began.

It is an extraordinary fact that no-one can deny, that even though Scotland is incontestably the home and progenitor of Scotch, the only place in the world where the water trickles through the peaty glen in exactly the right way; to turn into liquid fire even though whisky is itself a Gaelic word uisge beatha. Does anyone know what it means? H2o – water of life.

The total share of Scotch whisky – the authentic whisky – in the Indian market, the biggest single market in the world, is something like 4 per cent netting the UK only £80m a year in exports.

Now imagine if we could just double or treble that – by removing those pesky tariffs and giving the Indian consumer more money to spend on other things to a mere 8 per cent. Think of the boost to the morale of the Indian whisky drinker and the boost to Scottish industry.

And then think how wonderful systematically it would be if we could have zero tariffs on Indian products such as those electric cars or buses that we are now seeing on the streets of London.

This is not the time to put up walls and barriers.

This is the time to tear these barriers down.

We may be leaving the EU, and we may be taking back control of our borders. But my Indian friends, that does not mean we want to haul up the drawbridge or deter Indian talent from our country.

I am proud to say that the UK economy, the fastest growing major economy in Europe, is the most diverse on earth.

With the biggest tech sector in our hemisphere; with the biggest banking sector – indeed 40 per cent of all foreign exchange transactions take place in London. More dollars are bought and sold in London than in New York.

The most visited museums in the world, in fact there are more visitors to the British Museum than to some EU countries, which I won’t name, such is my diplomatic finesse.

We have the best universities in the world – Cambridge alone has produced more Nobel prize winners than every university in China and Russia added together and multiplied by two.

Of the kings, queens, presidents and prime ministers of the world, 1 in 7 was educated in Britain, and that is a ratio we want to keep, and we are improving on.

There are more Chinese students than any other city in the world (other than China, which clearly has a lot) and why do they come because we welcome talent.

And it is by being open, and by breaking down barriers that we will in the long term create the good jobs, and good incomes, that offer real hope and comfort to our electors.

And so let’s work together. Not to ignore or condemn the voices of populism, but to understand and address their concerns Britain and India are united by our values, and by our approach to the problems of the world.

And it is by working together to improve our security that we will allow the freedom and openness that will drive our prosperity.

from Announcements on GOV.UK http://ift.tt/2jwpO8J via IFTTT

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G20 Meeting Between Xi and Trump Concludes: What Should You Do Next?

REUTERS/Jonathan Ernst

The G20 meeting is over, leaving much to digest and decisions to be made. In this post we will report on what happened and what we believe will happen going forward. Most importantly, we will suggest what international businesses should be doing in response to all this.

  What Happened at the Trump-Xi meeting at G20?

The below image from Bloomberg, U.S.-China Trade Truce: A Side-by-Side Comparison of Statements, nicely sums things up.

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Let’s unpack this a bit, statement by statement.

1. No new tariffs. For now. This means exactly what it says, and quite a bit more. This means that so long as things are moving forward between the United States and China and so long as President Trump doesn’t do something imperiously, there likely will not be new tariffs imposed on Chinese goods coming into the United States for a while. Or, if past history is any predictor of future performance (and we all know that it is), this merely means there will be no new tariffs until there are. Let us not forget that when President Trump met with President Xi in Argentina, President Trump made this same statement and yet he imposed new tariffs by tweet a few months later.

Reality.  The 25% tariffs that were on tap to start very soon almost certainly will not start very soon, but if there is no trade deal between the United States and China relatively soon (whatever that means), there will almost certainly be new tariffs down the road. This is but a temporary truce.China is insisting on a “balanced” trade deal and because of China’s long history of IP and market opening transgressions the United States has made clear there will be no such deal. See China wants a “balanced” trade deal at summit, but the US isn’t interested. The U.S. and China were not able to reach a deal in the last year and unless the intellectual property and market opening issues disappear or get resolved, the odds of a trade deal are slim.

In A China-America trade truce could enshrine a global economic shift, the New York Times had this to say:

The United States would keep in place broad tariffs on Chinese goods for months or perhaps years to come. Global companies would almost certainly respond by continuing to shift at least the final stages of their supply chains out of China.” As long as the threat is out there, there are risks in depending on these long supply chains,” said Jacques deLisle, director of the Center for the Study of Contemporary China at the University of Pennsylvania. “Businesses don’t like uncertainty, and this prolongs the uncertainty.”

Action Plan. If you are making products in China for sale to the United States or sourcing products from China for sale to the United States, this should not give you any comfort at all and you should either continue looking for alternative countries or — if feasible — start looking for alternative countries. China is high risk right now and it will likely be high risk for at least the next decade, trade deal or no trade deal. We still have the 25% tariffs on $250 billion in Chinese goods and the threat of more tariffs at any time. See Has Sourcing Product From China Become TOO Risky? See also The US-China Cold War Starts Now: What You Must do to Prepare. Tariffs or no tariffs, you should expect a massive increase in duties (up to and maybe even beyond 200%) to be imposed (sometimes retroactively!) on Chinese products. See Importing From China (Directly OR Indirectly) has Big RETROACTIVE Risks.

2.  Agreed to restart talks where they left off. Or not. It is not clear whether there was agreement on this or not, but it hardly matters where talks begin. What matters is whether they continue and end in a resolution or not.

Reality. There will be a deal or there will be no deal. That is what matters.

Action Plan. See above.

3. Negotiations must be equal, reflect mutual respect and address respective concerns. I don’t mean to trivialize this, but a statement like this is really just for internal consumption in China.

Reality. There will be a deal or there will be no deal. That is what matters.

Action Plan. See above.

4. Trump threatens future tariffs if no deal is made. This is key.

Reality. How long will Trump wait for a deal before he imposes new tariffs? I predict 10% tariffs within 3-5 months and another 15% on top of that within 1-2 months of that. It is not clear to me what impact the 2020 elections will have on this.

Action Plan. See above.

5. Trump says China will buy a “tremendous” amount of food and agriculture products. U.S. will give China a list of things to buy. Okay.

Reality. China will probably make a few big soybean and other food purchases from the United States to a lot of fanfare, but future orders will likely depend on trade war progress. What about China’s tariffs on U.S. food and agricultural products? No indication those will be removed.

Action Plan. Try to sell what you can.

  What about Huawei?  President Trump also vaguely mentioned that he would now “as a favor” allow Huawei to make purchases from the United States so long as those purchases do not impact national security. It is not at all clear what this means and because of that it is not at all clear what impact this might have on the trade war, if any. If Huawei is in fact a national security threat, it strikes me as weird for anything to really change here, especially since the U.S. government has been warning other countries about the Huawei threat. If the United States does flip on this issue in exchange for a few Chinese orders of U.S. soybeans, U.S. credibility around the world likely will take another massive hit. In addition to this and per the New York Times: “leaders from both major American parties have indicated that the United States could continue to take a tough line on China no matter who is in the White House. The attitudes toward Huawei, in particular, show an appetite on both sides of the aisle for taking a tough line.”

What does the United States-China future hold? As our regular readers know, we are unrelentingly negative regarding the future for the US-China relationship. It is not at all clear either China or the United States care about their relationship for reasons beyond short term economic stability and large factions in both countries would prefer an immediate decoupling. See Trump’s Offer Of U.S. Tech Lifeline For Huawei Prompts Fierce Political Backlash and Does China WANT a Second Decoupling? The Chinese Texts Say That it Does.

  What should you do? If you are already in China or selling to China, you almost certainly should not leave. See Why NOW Is a Good Time to Double Down on Doing Business in China. You should though make double-sure that you and your company are in full compliance with Chinese law, especially as related to taxes and employment and visas. See Want to Keep Your Business in China? Do These Things NOW. See also, Foreign Companies in China: What We are Seeing and Hearing NOW and Foreign Companies in China: What We are Seeing and Hearing NOW, Part 2. 

If you are having your products made in China and sold to the United States or sourced in China and sold to the United States, you really do need to be considering other options, a safety valve, for diversification, or as a replacement. See US-China Tariff Updates: What You Can (and Should NOT) do NOW

Most importantly, keep your eyes and your eyes wide open.

G20 Meeting Between Xi and Trump Concludes: What Should You Do Next? syndicated from https://immigrationattorneyto.wordpress.com/

[rolandfontana]

Who Pays the Tariffs on China Imports? President Trump vs. CNN and What YOU Can do NOW to Reduce Your China Prices

On May 5, President Trump tweeted that he would be raising tariffs to 25% on $200 billion worth of Chinese products and that he would eventually impose this same tariff rate on pretty much all products from China. Since then, the media has been all over the map on who will be paying for these tariffs. On the one side, we have President Trump and the media favorable to him stating (or at least implying) that “China will be paying these tariffs.” On the other side, we have the media stating (or at least implying) that the U.S. consumer will be paying these tariffs via increased retail prices

Well guess what and no surprise, it ain’t that simple. Truth is a many companies and people from all over the world will be paying the tariff. I say this based in large part on what our international lawyers and international trade lawyers have already seen from the last round of US tariffs.

The onslaught of tariffs is subjecting companies that import Chinese products into the United States to overall price increases and our China lawyers are getting an earful about this from clients that sell their products on relatively thin margins to big retailers like Walmart, Target and Home Depot. Our clients with super strong brand names and eye-popping profit margins are — at least for now — remaining much calmer. Some of our clients have flat out told us that they do not really care about the tariffs. We have a client that pays around $60 for the products it has made in China and then sells those products for $1700 to $2100. How much should it care about a $15 price increase? We have another client that pays 20 cents for the product it has made in China and then sells that product for $12. How much should it care about a 5 cent per unit price increase? So yes, the tariffs do not fall equally on all.

But no matter your profit margin (with some exceptions) and no matter to whom you sell your products, now is the best time to be doing two things: 1) looking into the possibility of at some point diversifying or moving your supply chain out of China, and 2) trying to get your China suppliers to lower your product pricing. Our international lawyers are working nearly non-stop to help our clients diversify their manufacturing to countries outside China — so far this has mostly been to other Asian countries, such as Vietnam, Cambodia, the Philippines, Malaysia, Pakistan, India, Thailand and Taiwan, but also to Mexico, Eastern Europe, Portugal, and Spain and even to Canada and the United States — more so after the announcement of the “new NAFTA” agreement, a/k/a the USMC.

This post is going to focus on who actually will pay the China tariffs, yet in doing so it also sets out some steps you should consider taking now to reduce your China product costs.

I will begin by explaining who will pay the 25% Trump tariffs and I will use a widget as my example, with the following assumptions.

Assume China Factory was manufacturing its widgets and selling them for $100 each before the tariffs.

Assume European Widget Company was buying these widgets from China Factory for $100 each before the tariffs and selling almost all of those widgets in the United States wholesale to Big Box Retailers for $140 which they in turn sell at retail for $280.

Assume China Factory/European Widget Company will now have to pay a 25% tariff on its widgets that go to the United States and further assume this means European Widget Company’s total cost for the widgets (as landed in the US) just went up to $125 because of the US tariffs.

What happens next? Does China Factory turn around and say to European Widget Company “we feel your pain and we badly want to alleviate that (and because China the country is now further subsidizing China Factory) we will cut our widget prices to $75 so your landed US costs will remain at $100, resulting in no change to your US pricing? Under this scenario, China will pay the tariffs.” Is this realistic? Of course not.

Does European Widget Company say to China Factory Company, “Hey that’s really too bad about the U.S. tariffs. Because we so love the US and China we will just pay you the same $100 we have always been paying you for the widgets and we will keep selling them to the US Big Box Retailers for $140. We will incur all losses from the tariffs so neither China nor the US will be impacted in the slightest.” This scenario is equally implausible.

Now let’s throw in some more assumptions, based on what happened with previous rounds of US tariffs against Chinese goods and what to a certain extent is already happening in this round of US tariffs against Chinese goods:

China reduces its income tax rates for Chinese export manufacturers, thereby reducing their overall costs by 4%.

China reduces its VAT rates for Chinese export manufacturers, thereby reducing their overall costs by 4%.

China pushes down the value of the RMB, thereby increasing by 2% the RMB Chinese export manufacturers get from their Dollar and Euro sales.

So right there we have a 12% reduction in costs for China Factory. Note that the numbers above are rough calculations and individual valuations will vary.

What should and what will the European Widget Company do in light of the above numbers? It will go to China Factory and say something like the following:

Monsieur, as you well know, times are tough selling widgets to the United States because of the new and onerous tariffs. We essentially have to pay 25% more than if we were to purchase them from any country other than China. Speaking of other countries, did I tell you we’ve been looking at having some of our other products made in Vietnam or Thailand? I went to both countries last week and they were so nice and they have such great food and I was surprised at how many people in both countries speak French. Do you realize that if we were to have  our widgets made in Vietnam or Thailand we’d be free from the 25% tariffs and free from all this acrimony and risk tied in with the US-China relationship. I have a friend who says the United States and China will at some point cease all trade between them. I don’t think that is possible, do you?

But I keep hearing that China’s recent income tax reductions and VAT rebate increases and RMB devaluations — and who knows what else the Chinese government is doing and will do to subsidize you Chinese manufacturers — has reduced your manufacturing costs by 15% to 20%. With all this it seems you should cut your pricing to us by 20%. I know this will cut into your profits a tiny bit but our profits are going to get cut as well no matter what you do and no matter what happens. Because we have had such a great relationship with you for the last 8 years (including our willingness to overlook your early indiscretions, like when you (1) sold our product in the grey market out the side door; (2) registered OUR trademark in China and we had to convince you to assign it to us or (3) you reduced the steel content in our widgets from 20% to 5% to save money and we only learned of this by enduring massive customer returns of our widgets due to failures and then as compensation you offered us a 5% discount on our next set of purchases), don’t you think it only fair that our two companies share in the profit losses here? Gosh I would hate to spoil our relationship that took us so long to build by moving our widget production to Thailand or Vietnam, which is what my General Manager says we should do.

And in the end, China Factory reduces its prices to European Widget Company by 12% and their new contract makes clear all pricing is in RMB, though payments will be made in Euros.

European Widget Company, is now paying $88 for widgets for which it previously paid $100. If you add the 25% tariff to the new $88 price, European Widget Company is now looking at a new $110 US landed price.

Does European Widget Company then go to its Big Box Retailer buyers and say, “Hey, you have always been great so I am going to keep selling you our widgets for $140 so your profits are not impacted?” No. Does European Widget Company go to its Big Box Retailer buyers and say, “Hey, because of the 25% tariffs I will need to increase my sales price to you by $25 and so I am now going to charge you $165 per widget?” Let’s imagine European Widget Company does this. How will Big Box Retailers respond? There is a 99+ percent chance they will tell European Widget Company “no way” and then talk about how ,”Maybe we should start having our own widgets made in Vietnam or Thailand” and they very well might. For this reason, this scenario is very unlikely.

A more realistic scenario would be for European Widget Company to go to Big Box Retailers and say that its costs have gone up and it is working hard to diversify its widget production outside China, that it has done some exploratory trips to Vietnam and Thailand and will soon be testing some widget manufacturers there, but in the meantime, it needs to raise its prices by $7 and can that price increase work. The Big Box Retailers will say no and trot out their own Vietnam/Thailand/Malaysia/Pakistan/Mexico/Indonesia/India/Philippines/Taiwan scenarios and in the end agree to pay $2 more per widget. And then Big Box Retailers will flip around and raise its retail widget prices anywhere from zero to five dollars.

So in the end, the China government, the China Factory, the European Widget Company, the Big Box Retailers and the Consumers all end up paying some portion of the 25% tariffs. Of course the portions will vary depending on profit margins and on the market and on the industry and on the product and on supply and demand and on the price elasticity of demand and on Chinese government subsidies and tax cuts and RMB devaluations and on the companies involved and on a whole host of other things. But the above scenario is not an unrealistic one and it mimics some of the scenarios our international lawyers saw play out during the last round of tariffs.

So what about the flip side? What about the soybean farmers in the United States who are now likely to get socked by Chinese tariffs against their soybeans? Here is how I see that playing out. These farmers will likely be hurt badly in the short term, but they may end up barely being impacted in the long term. How can that be, when the U.S. was at one time selling approximately $15 billion in soy beans to China annually, which constitutes around 60% of U.S. soybean production? The soybean farmers will all be wiped out, right? Wrong. I am not for a minute going to tell you that America’s soybean farmers will be just fine because that is not likely to be the case. But I am going to tell you that soybeans are essentially a commodity. This means that if the U.S. stops selling soybeans to China, China will get its soybeans from other countries, and the subsequent vacuums created in non-China markets will be filled by U.S. soybean farmers. I mention this not to minimize any impacts but to make clear that U.S. soybean farmers are not going to lose $15 billion a year in sales.

Bottom Line: U.S. tariffs on Chinese goods will in most cases lead to increased pricing/decreased profits for pretty much everybody in the product supply and selling chain. But the impact on your business will depend at least in part on the steps you take now.

5-18-2019 UPDATE. In China’s currency is sending a warning signal about the trade war, CNBC.com writes that the RMB has lost 2.7% of its value as against the dollar, just since President Trump’s May 5 tariff tweet! Are you making your China product supply contracts dollar or Euro denominated?

Who Pays the Tariffs on China Imports? President Trump vs. CNN and What YOU Can do NOW to Reduce Your China Prices syndicated from https://immigrationattorneyto.wordpress.com/