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Ford is cutting battery orders in yet another sign that the EV market, despite a constant tailwind from the U.S. taxpayer, is starting to slow.

The company is cutting the orders to curb electric-vehicle losses as it scales back its EV strategy in a slowing plug-in market, according to insiders who spoke to Bloomberg.

Ford CEO Jim Farley has said the company’s EV unit “is the main drag on the whole company right now” and CAT said its “cooperation with Ford is moving forward as normal”.

The company responded by saying it wouldn’t comment on relationships with suppliers.

Bloomberg notes that with plummeting EV prices and weakening demand, Ford’s losses per electric vehicle exceeded $100,000 in the first quarter, doubling last year’s deficit.

Bloomberg Intelligence estimates that Ford’s projected EV unit losses this year will nearly offset profits from its Ford Blue division, which produces traditional internal combustion engine vehicles like the Bronco SUV and gas-electric hybrids such as the Maverick truck.

BI analysts said of the results: “That raises questions about the prudence of investing heavily in EVs.”

Ford’s order reductions highlight industry challenges as U.S. automakers face weaker-than-expected EV demand and battery makers in South Korea, China, and beyond struggle with unsold inventory.

This has affected prices for key metals like lithium, cobalt, and nickel, leading to multiyear lows and stalling new projects. Ford has reduced EV production costs but had to cut prices to stay competitive with Tesla.

Ford CFO John Lawler said in April: “We’ve seen prices coming down quite dramatically and that’s why we haven’t been able to keep up from a cost reduction standpoint.”

…click on the above link to read the rest of the article…

Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them

May 10, 2024

Biden Wants EVs so Badly That He Will Quadruple Tariffs on Them

Astute readers will immediately notice the title of this post makes no sense. It’s not supposed to. But it is exactly what President Biden is doing.

Biden to Quadruple Tariffs on Chinese EVs

Counter to the idea that quick EV adoption is needed to save the planet from a climate disaster, please note Biden to Quadruple Tariffs on Chinese EVs

The Biden administration is preparing to raise tariffs on clean-energy goods from China in the coming days, with the levy on Chinese electric vehicles set to roughly quadruple, according to people familiar with the matter.

Higher tariffs, which Biden administration officials are preparing to announce on Tuesday, will also hit critical minerals, solar goods and batteries sourced from China, according to the people. The decision comes at the end of a yearslong review of tariffs imposed by former President Donald Trump on roughly $300 billion in goods from China.

Officials are particularly focused on electric vehicles, and they are expected to raise the tariff rate to roughly 100% from 25%, according to the people. An additional 2.5% duty applies to all automobiles imported into the U.S. The existing 25% tariff on Chinese electric vehicles has so far effectively barred those models, often cheaper than Western-made cars, from the U.S. market. Biden administration officials, automakers and some lawmakers worry that wouldn’t be enough given the scale of Chinese manufacturing.

Conflicting Goals

We need EVs so badly that we also need a 100% tariff to stop them. That makes no sense but it is the precise message.

Stated differently, we don’t want EVs unless people are willing to pay 100% more for them. And this is despite the claim that the world as we know it will end in 12 years if we don’t act on them.

World Will End in 12 Years

…click on the above link to read the rest of the article…

China Responds To Trump’s “Barbaric” Tariffs: Vows To Fight “Until The End” And Have “The Last Laugh”

August 24, 2019

China Responds To Trump’s “Barbaric” Tariffs: Vows To Fight “Until The End” And Have “The Last Laugh”

After Friday’s blitz of reciprocal trade war escalations, which saw a furious Trump slam the two “enemies of the state”, Fed Chair Powell and China president Xi, following China’s widely expected tariff hike retaliation and Powell’s uneventful Jackson Hole speech, and further raise tariffs on virtually all Chinese imports after stocks suffered another major selloff, we said that the next steps were clear.

And now China has to retaliate and so on

Sure enough, in response China said it would continue fighting the trade war with the US “until the end” as tit-for-tat escalation is now virtually assured with no end in sight.

On Saturday, China’s commerce ministry issued a statement calling on Washington not to “misjudge the situation and underestimate the determination of Chinese people” after US President Donald Trump announced new tariffs on Chinese imports.

“The US should immediately stop its wrong action, or it will have to bear all consequences,” the statement said.

At the same time, a sharply worded commentary in the official party mouthpiece, People’s Daily, said China had the strength to continue the dispute and accused Washington of sacrificing the interests of its own people. Published under the pseudonym “Wuyuehe”, the piece described the latest tariff measures by the US as “barbaric”. The op-ed said China’s own tariffs on $75 billion worth of American products, announced late on Friday, were a response to America’s unilateral escalation of the trade conflict, and vowed that China was determined to fight back “until the end”.

“China’s will to defend the core interests of the country and the fundamental interests of the people is indestructible, and will not fear any challenge,” the author wrote, promising that “history will prove that the side on the path of fairness and justice will have the last laugh.”

…click on the above link to read the rest of the article…

Why it (sort of) makes sense for the US to impose tariffs

May 26, 2019

Why it (sort of) makes sense for the US to impose tariffs

Nearly everyone wonders, “Why is Donald Trump crazy enough to impose tariffs on imports from other countries? How could this possibly make sense?”

As long as the world economy is growing rapidly, it makes sense for countries to cooperate with each other. With the use of cooperation, scarce resources can become part of supply lines that allow the production of complex goods, such as computers, requiring materials from around the world. The downsides of cooperation include:

(a) The use of more oil to transport goods around the world;

(b) The more rapid exhaustion of resources of all kinds around the world; and

(c) Growing wage disparity as workers from high-wage countries compete more directly with workers from low-wages countries.

These issues can be tolerated as long as the world economy is growing fast enough. As the saying goes, “A rising tide raises all boats.”

In this post, I will explain what is going wrong and how Donald Trump’s actions fit in with the situation we are facing. Strangely enough, there is a physics aspect to what is happening, even though it is likely that Donald Trump and the voters who elected him would probably not recognize this. In fact, the world economy seems to be on the cusp of a shrinking-back event, with or without the tariffs. Adding tariffs is an indirect way of allowing the US to obtain a better position in the new, shrunken economy, if this is really possible.

The upcoming shrinking-back event is the result of too little energy consumption in relation to total world population. Most researchers have completely missed the possibility that energy limits could manifest themselves as excessive wage disparity. In fact, they have tended to assume that energy limits would manifest themselves as high energy prices, especially for oil.

…click on the above link to read the rest of the article…

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’

May 25, 2019

Commerce Department Targets China With Proposed Tariffs On ‘Currency Manipulators’

A lot has happened since then-candidate Trump said he would label China a currency manipulator on ‘day one’ should he make it to the Oval Office. So far, at least, the pledge to hold Beijing accountable for manipulating its currency wouldn’t fall into the ‘promises kept’ column. But that could soon change.

Shortly after the Treasury Department delayed its biannual report on suspected currency manipulators – an ominous indication that the issue might resurface in trade talks after Beijing reportedly balked at a pledge to keep its currency stable – the Commerce Department on Thursday revealed that it’s planning to propose a new rule that would allow it to impose anti-subsidy tariffs on imports from countries suspected of undervaluing their currency.

The change would allow the Commerce Department to impose anti-dumping and countervailing duties on products believed to benefit from manipulated currencies. In effect, an artificially depressed currency would be treated as a government subsidy.

Though China wasn’t specifically named in the Department’s announcement, it presence on the Treasury Department’s manipulation ‘watch list’ – which also includes Japan, South Korea, India, Germany and Switzerland – means Chinese companies would be obvious targets.

And just like that, Wilbur Ross has opened up another front in the US-China trade war – albeit one that could ensnare some of Washington’s closest allies, Reuters reports.

“This change puts foreign exporters on notice that the Department of Commerce can countervail currency subsidies that harm U.S. industries,” Commerce Secretary Wilbur Ross said in a statement.
“Foreign nations would no longer be able to use currency policies to the disadvantage of American workers and businesses,” he said.

…click on the above link to read the rest of the article…

Why it (sort of) makes sense for the US to impose tariffs

May 23, 2019

Why it (sort of) makes sense for the US to impose tariffs

Nearly everyone wonders, “Why is Donald Trump crazy enough to impose tariffs on imports from other countries? How could this possibly make sense?”

(a) The use of more oil to transport goods around the world;

(b) The more rapid exhaustion of resources of all kinds around the world; and

(c) Growing wage disparity as workers from high-wage countries compete more directly with workers from low-wages countries.

These issues can be tolerated as long as the world economy is growing fast enough. As the saying goes, “A rising tide raises all boats.”

…click on the above link to read the rest of the article…

Post-tariff considerations

May 17, 2019

Post-tariff considerations

President Trump has declared he will extend tariffs of 25% on all America’s imports of Chinese goods. China is responding with tariff increases of its own. The consequences of this action and reaction will be to kick-start higher monetary inflation in America and an economic slump. This article explains how an overdue credit crisis will be made considerably worse by trade protectionism. It could become the credit crisis to end all credit crises and undermine the whole fiat currency system.

Introduction

Following President Trump’s imposition of 25% tariffs on all Chinese imports, it is time to assesses the consequences. Already, we have seen a contraction in US-China trade of 20% in the first three months of 2019 compared with the same quarter last year, and also compared with the average outturn for the whole of 2018.[i] This contraction was worse than that which followed the Lehman crisis.

In assessing the extent of the impact of Trump’s tariffs on the US economy, we must take into account a number of inter-related factors. Clearly, higher prices to US consumers will hit Chinese imports, which explains why they have dropped 20% so far, and why they will likely drop even more. Interestingly, US exports to China fell by the same percentage, though they are about one quarter of China’s exports to the US.

These inter-related factors are, but not limited to:

The effect of the new tariff increases on trade volumes
The effect on US consumer prices
The effect on US production costs of tariffs on imported Chinese components
The consequences of retaliatory action on US exports to China
The recessionary impact of all the above on GDP
The consequences for the US budget deficit, allowing for likely tariff income to the US Treasury.

These are only first-order effects in what becomes an iterative process, and will be accompanied and followed by:

…click on the above link to read the rest of the article…

China Won’t Be Taking Over

January 10, 2019

China Won’t Be Taking Over

Pablo Picasso Massacre in Korea 1951

In the New Year, after a close to the old one that was sort of terrible for our zombie markets, do prepare for a whole lot of stories about China (on top of Brexit and Yellow Vests and many more windmills fighting the Donald). And don’t count on too many positive ones that don’t originate in the country itself. Beijing will especially be full of feel-good tales about a month from now, around Chinese New Year 2019, which is February 5.

And we won’t get an easy and coherent true story, it’ll be bits and pieces stitched together. What will remain is that China did the same we did, just on steroids. It took us 100 years to build our manufacturing capacity, they did it in under 20 (and made ours obsolete). It took us 100 years to borrow enough to get a debt-to-GDP ratio of 300%, they did it in 10.

In the process they also accumulated 10 times more non-productive assets than us, idle factories, bridges to nowhere and empty cities, but they thought that would be alright, that demand would catch up with supply. And if you look at how much unproductive stuff we ourselves have gathered around us, who can blame them for thinking that? Perhaps their biggest mistake has been misreading our actual wealth situation; they didn’t see how poorly off we really are.

Xiang Songzuo, “a relatively obscure economics professor at Renmin University in Beijing”, expressed some dire warnings about the Chinese economy in a December 15 speech. He didn’t get much attention, not even in the West. Not overly surprising, since both Beijing and Wall Street have a vested interest in the continuing China growth story.

…click on the above link to read the rest of the article…

Gold – A Perfect Storm For 2019

December 13, 2018

Gold – A Perfect Storm For 2019

This article is an overview of the principal factors likely to drive the gold price in 2019. It looks at the global factors that have developed in 2018 for both gold and the dollar, how geopolitics are likely to evolve, the economic outlook and how it is worsened for the dollar by President Trump’s tariff war against China, the availability and likely demand for bullion, and the technical position in paper markets. Taken together, the outlook is bullish for gold.

2018 reprise

For gold bulls, 2018 was disappointing. From 11 December 2017, when gold made a significant bottom against the dollar at $1243, it has ended virtually unchanged today, after being 4.2% up. Gold had to struggle against a rising dollar, whose trade-weighted index rose a net 3.7% over the same period, and as much as 9.4% from its mid-February low.

Dollar strength has been driven less by trade imbalances and more by interest rate differentials. A speculating bank for its own book or for a hedge fund client can borrow 3-month Euro Libor at minus0.354% and invest it in 3-month US Treasury bills at 2.36%, for a round trip of over 2.7%. Gear this up ten times or more, either on a bank’s capital, or through reverse repos for annualised returns of over 27%. To this can be added the currency gain, which at times has added enough to overall returns for an unhedged geared position to double the investment.

Not that these forex returns have been guaranteed, but you get the picture. The ECB and the Bank of Japan have been frozen into inactivity, reluctant to raise rates to correct this imbalance, and the punters have known it.

…click on the above link to read the rest of the article…

Food Crisis In The Making: Farm Bankruptcies Reach Horrifying Levels

November 28, 2018

Food Crisis In The Making: Farm Bankruptcies Reach Horrifying Levels

We are amidst a food crisis. Farms in the United States Midwest are filing for chapter 12 bankruptcy at an alarming rate. And many are saying president Donald Trump’s trade war is taking the most blame.

We hate to say we told you so, but we told you so. The trade war was a bad idea and everyday average Americans are footing the bill for this asinine policy of tariffs. Now, the food supply could be in jeopardy because of political posturing and that will not bode well for already cash-strapped American families.

A total of 84 farms in the upper Midwest filed for bankruptcy between July 2017 and June 2018, according to the Minneapolis Star Tribune. That’s more than double the number of Chapter 12 filings during the same period in 2013 and 2014 in Wisconsin, Minnesota, North Dakota, South Dakota, and Montana, reported Vox.

Farms that produce corn, soybeans, milk, and beef were all suffering due to low global demand and low prices before the trade war, according to economists, but president Trump’s trade war is making the problem even worse by exacerbating the weaknesses in the American economy. China has retaliated against the tariffs by slapping billions of dollars worth of tariffs on United States agriculture exports in response to Trump’s tariffs on Chinese products. Other countries, including Canada, have also added duties to US agriculture products in response to Trump’s tariffs on all imported steel and aluminum.

The worst part is perhaps the solution the government has proposed to the very real problem they have created. Things have gotten so bad that the Trump administration launched a $12 billion aid package for US farmers coping with retaliatory tariffs that foreign countries have imposed on their products.

…click on the above link to read the rest of the article…

How Are Chinese Stocks Responding to Tariffs With the US and a Slowdown in Asian Growth?

November 9, 2018

HOW ARE CHINESE STOCKS RESPONDING TO TARIFFS WITH THE US AND A SLOWDOWN IN ASIAN GROWTH?

Despite US tariffs, China’s September trade balance with the US reached a record high
A number of China’s Asian neighbours have seen a deceleration in growth
The Shanghai Composite has fallen more than 50% since 2015, the PE ratio is 7.2
Government bond yields have eased and the currency is lower against a rising US$

During 2018 Chinese financial markets have been on the move. 10yr bond yields rose from all-time lows throughout 2017 but have since declined: –

China bonds 2006-2018

Source: Trading Economics, PRC Ministry of Finance

Despite this easing of monetary conditions the negative impact US tariffs, continues to weigh on the Chinese stock market: –

China shanghai index 1990-2018

Source: Trading Economics, OTC, CFD

Despite being a leader in frontier technologies such as e-commerce (China has 733mln internet users compared with 391mln in India, 413mln in the EU and a mere 246mln in the US) the recent decline in tech giants Alibaba (BABA) and Tencent (TCEHY) have added to financial market woes. However, as the chart above shows, Chinese stocks have been in a bear-market since 2015. Some of its Asian neighbours have followed a similar trajectory as their economies have slowed in response to a US$ strength and US trade policy.

The notionally pegged Chinese currency has also weakened against the US$, testing it lowest levels in almost a decade: –

China currency 2008-2018

Source: Trading Economics

Meanwhile, President Xi has now announced plans to rebalance China’s economy towards consumption, turning it into an importing superpower. Surely something has to give.

The IMF expects Chinese GDP to grow at 6.6% in 2018. They continue to point to signs of economic progress: –

…click on the above link to read the rest of the article…

The Trade War Is Getting Worse For U.S. Businesses

October 26, 2018

The Trade War Is Getting Worse For U.S. Businesses

President Donald Trump’s trade war is making things even worse than before for businesses in the United States. The trade war has been dragging on for four long months now, and the pain is being felt financially.

Companies’ earlier worries are starting to translate into actual financial pain as new orders coming in from China face the higher duties imposed by the Trump administration. According to Business Insider, many companies have retained their workforce but passed the skyrocketing costs of the tariffs on to the backs of the consumer.

While surveys in previous months fully exposed the worries about the soon-to-come cost increases from the tariffs, new data seems to show that businesses are now grappling with that reality. Surveys from the Federal Reserve and market-research firms released Wednesday outlined more widespread worries about the tariffs, while individual companies have started to tabulate the tens of millions of dollars in new costs they’re likely to incur from the tariffs.

The survey came down to a few points:

Businesses were concerned that goods coming into the US from other countries were more expensive. Many of those goods are used in products sold by American companies to consumers, so the increased import prices prompted a boost in costs for firms and an increase in prices for consumers.
The retaliatory tariffs made it harder for businesses to sell goods to markets like China and Canada.
The buildup in the United States of a supply for those goods subject to tariffs abroad (notably farm goods like pork and soybeans) caused prices to sink in the US and businesses to receive less for their products, putting their entire business at risk.

…click on the above link to read the rest of the article…

Chinese Imports Of US Crude Have “Totally Stopped” As Tariff Threats Persist

October 4, 2018

Chinese Imports Of US Crude Have “Totally Stopped” As Tariff Threats Persist

It has been roughly two months since China threatened to impose a 25% tariff on US energy imports (it eventually went back on those threats), and less than two weeks since the latest round of tariffs has been implemented. But even as China has shied away from its threats to punish the US energy industry, Reuters data are showing that imports of US oil to China have ground to a halt.

Confirming the data, Xie Chunlin, the president of China Merchants Energy Shipping Co, said on Wednesday that crude oil shipments to China have “totally stopped” as the trade war has taken its toll, reversing growth in what had been a rapidly expanding market for US shale producers.

“We are one of the major carriers for crude oil from the U.S. to China. Before (the trade war) we had a nice business, but now it’s totally stopped,” Chunlin said on the sidelines of the Global Maritime Forum’s Annual Summit in Hong Kong.

“It’s unfortunately happened, the trade war between the U.S. and China. Surely for the shipping business, it’s not good,” the CMES president said.

He also said the trade dispute was forcing China to seek soybeans from suppliers other than the United States, adding that China now bought most its soybeans from South America.

In place of US imports, China, which is the world’s largest importer of crude oil, is becoming increasingly reliant on the Middle East and Russia while it has also shifted to using Iranian tankers to bypass impending US sanctions on Iranian crude while also becoming more reliant on Iranian crude in general. But while it’s grabbing the most headlines right now, the trade fight is hardly the only source of contention between US oil producers and China, as China’s yuan-denominated crude futures contracts are beginning to show their teeth.

…click on the above link to read the rest of the article…

As The Trade War Rages – China Won’t Be Held Hostage By The U.S. Dollar

September 28, 2018

As The Trade War Rages – China Won’t Be Held Hostage By The U.S. Dollar

In last week’s Palisade Weekly Letter, I wrote about how the Chinese are now selling their U.S. debt. And since this was an important write-up, I also published it as an article – so if you missed it, click here.

I mentioned that although China’s now a net-seller of U.S. debt – they’re slowing doing so.

I reckon they’re doing just enough to let the Treasury and Trump know that they can send yields soaring and can’t afford it if China unloads the whole $1+ trillion amount.

That’s why we at Palisade Research have called this China’s ‘nuclear‘ option – it’s no doubt a financial weapon of mass-destruction (FWMD).

If China suddenly dumped their $1+ trillion of U.S. debt, it would cause markets worldwide to implode.

But that also means China would suffer. . .

Now, China isn’t stupid. They’ve worked decades to grow their massive dollar surplus and reserves. They won’t recklessly lose it all for nothing.

But still, this put’s China in a corner. Because although they won’t risk blowing themselves up to hurt the U.S. – what if the U.S. must cheapen the dollar to boost trade? Or get out of a recession? Or monetize the Treasury’s never-ending spending and huge fiscal deficits?

The depreciation of the U.S. dollar for any reason is a huge threat to China currently.

Today China holds roughly 3 trillion of dollar reserves. That’s down 25% from the 4 trillion they had in beginning of 2015 (the strong dollar really hurt them).

And putting things into context – if the U.S. dollar devalues by just 10%, that’s more than 300billion of purchasing power lost from China’s dollar reserves. . .

Gone – just like that. And completely out of China’s control.

Imagine if someone else held the power to devalue the money in your own bank account. That puts you at their mercy – in a very fragile place – right?

…click on the above link to read the rest of the article…

The World’s Fragile Economic Condition – Part 1

September 24, 2018

The World’s Fragile Economic Condition – Part 1

Where is the world economy heading? In my opinion, a large portion of the story that we usually hear about how the world economy operates and the role energy plays is not really correct. In this post (to be continued in Part 2 in the near future), I explain how some of the major elements of the world economy seem to function. I also point out some relationships that tend to make the world’s economic condition more fragile.

Trying to explain the situation a bit further, the economy is a networked system. It doesn’t behave the way nearly everyone expects it to behave. Many people believe that any energy problem will be signaled by high prices. A look at history shows that this is not really the case: fighting and conflict are also likely outcomes. In fact, rising tariffs are a sign of energy problems.

The underlying energy problem represents a conflict between supply and demand, but not in the way most people expect. The world needs rising demand to support the rising cost of energy products, but this rising demand is, in fact, very difficult to produce. The way that this rising demand is normally produced is by adding increasing amounts of debt, at ever-lower interest rates. At some point, the debt bubble created to provide the necessary demand becomes overstretched. Now, we seem to be reaching a situation where the debt bubble may pop, at least in some parts of the world. This is a very concerning situation.

Context. The presentation discussed in this post was given to the Casualty Actuaries of the Southeast. (I am a casualty actuary myself, living in the Southeast.) The attendees tended to be quite young, and they tended not to be very aware of energy issues. I was trying to “bring them up to speed.” This is a link to the presentation: The World’s Fragile Economic Condition.

Slide 1

…click on the above link to read the rest of the article…

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