The Trump administration seems determined to implement the sort of state capitalist regime that was popular throughout much of the world, until the neoliberal revolution of 1975-95. This philosophy is based on the false idea that it’s possible to subsidize industry as a whole—that there is no opportunity cost of protecting a given sector. Six months ago the administration imposed tariffs on imported washing machines. Whirlpool executives were thrilled. Now the company is reeling: “After nearly a decade of litigation, we are thankful that the U.S. government has announced an effective remedy,” CEO Marc Bitzer told analysts on the company’s earnings call in January. “This decision is a victory for American workers and will enable new manufacturing jobs here in the United States, including the 200 new jobs we have announced at our Clyde, Ohio manufacturing plant. At this point, however, it is too early to quantify the financial impact on 2018, but this is without any doubt a positive catalyst for Whirlpool.” Fast-forward to July, the company is already singing a different tune as the 25% tariffs imposed on imported steel from China have made the cost of raw materials used in building appliances more expensive. On Monday, the maker of KitchenAid and Maytag appliance missed second-quarter earnings estimates, sending shares lower. The stock was last trading down just over 13%. Year-to-date, shares are 23% lower. American farmers voted overwhelmingly for Trump. Unfortunately, the farm sector is a net exporter and is being hurt by Trump’s trade war. So what’s the next step? Under state capitalism, the distortions caused by one government intervention lead to new regulations, new trade barriers, and new government spending programs. Here’s the Financial Times: The Trump administration on Tuesday readied billions of dollars in new aid to placate farmers and offset any economic impact from his trade wars, even as the president hailed his growing list of tariffs as “the greatest”. The new aid plan was aimed at soyabean, pork and other farmers who have been hit by retaliatory tariffs imposed by US trading partners such as China, according to people familiar with the proposal. Up to $12bn in aid will be offered for farmers in part through the New Deal-era Commodity Credit Corporation, which has the authority to either lend money to farmers or buy their crops in economic emergencies, according to US media reports. Recall that fiscal policy was already set at an extraordinarily expansionary level. Never before in American history has an administration decided to dramatically increase the budget deficit when we are late in an economic expansion and not at war. We’ve never seen anything like this. Unfortunately, in first order terms it’s all a zero sum game. Money used to subsidize one industry must come from another industry. It’s impossible to subsidize all industries at the same time. Tariffs that help some firms are a barrier to other firms, even if there is no explicit retaliation. And when you bring in second order effects things get even worse. Economic activity is redirected away from our most productive industries toward less productive industries, such as making steel and washing machines. This sort of state capitalism was the model used after WWII in countries such as Argentina. It did not end well. As Adam Smith noted, there is a great deal of ruin in a nation. The washing machine and steel industries are a trivial part of GDP. Maybe this is all a negotiating tactic and there will be a face saving deal that leaves the basic neoliberal regime in place. I still think that is the most likely outcome. But in a small way we are beginning to see the sort of moves that led to the widespread adoption of state capitalism in the middle of the 20th century. This is something that we need to watch closely. PS. Free market fans like me should never lose sight of the fact that many of our business leaders are evil. They put their own company’s well being ahead of the well being of America. You can argue that that’s their job, but it does not make their lobbying efforts morally justifiable. And I’m not even sure it is “their job”. More and more stocks are held in either index funds, or in the portfolios of large financial institutions. If you want to do what’s best for your stockholders, you need to think about more than the impact of your actions on the price of your company’s stock. You need to think about the impact on a broad portfolio of stocks. Trade wars are not good for the overall stock market. (19 COMMENTS)
In a "watershed" move that has industry watchers scratching their heads, and which will ripple throughout the auto industry, General Motors announced that it is ending a 25-year practice and switching its reporting of U.S. auto sales from monthly to quarterly, effective immediately, in "an effort to give a more accurate view of its business operations." According to the US automaker, Q2 sales will be released on July 3, Q3 sales on Oct. 2 and Q4 sales on Jan. 3, 2019. The latest US sales report for March 2018, will be released as previously scheduled on April 3 at 9:30am ET, at which point there will be a three month radio silence. The change, which does not impact dealers reporting monthly sales to the automaker, was announced Tuesday ahead of GM releasing U.S. light-duty vehicle sales for March, its last monthly report. It follows by five years a decision to stop reporting North American production data. Fiat Chrysler has followed suit on that front. It is unclear how or why providing market updates two-thirds less frequently is supposed to provide a "more accurate view" of the business, and the transition has pundits wondering just how bad recent trends must be for the company to resort to such a dramatic adjustment in public reporting. Coincidentally, the announcement comes just hours after we published that the "Subprime Auto Bubble Bursts As "Buyers Are Suddenly Missing From Showrooms." How did GM justify the move? GM cited monthly sales being subject to many issues that make them more volatile than quarterly sales, including product launch activity, weather, other seasonal factors, the number of selling days and incentive activity. "Thirty days is not enough time to separate real sales trends from short-term fluctuations in a very dynamic, highly competitive market," Kurt McNeil, U.S. vice president of sales operations, said in a statement, even though it was for nearly three decades. "Reporting sales quarterly better aligns with our business, and the quality of information will make it easier to see how the business is performing." Once again: one wonders what the real cause for the unexpected lack of clarity truly is. According to Autonews, GM is the first major automaker to change how it reports monthly light-vehicle U.S. sales results since the industry dropped 10-day reports in the early 1990s. It is a step certain to be considered by other automakers - if it hasn't been already. Some more details on the decisions: as Autonews adds, the company conducted due diligence prior to making the decision. That included analyzing nearly three years of stock trading data on sales days and researching how other industries and companies report sales. GM benchmarked companies such as Amazon Inc., Apple Inc., AutoNation, John Deere, Penske Corp., Walmart Inc. and Whirlpool Corp. -- all of which do not report sales on a monthly basis. California electric vehicle manufacturer Tesla Inc. also reports quarterly sales instead of monthly results. Well yes, if GM polls companies which all report sales on a quarterly basis, it will find precisely what it is looking for. The question is why was GM reporting sales monthly for decades, and nobody had a problem with that. Until now. "GM gave this decision a lot of thought," said IHS Markit senior analyst Stephanie Brinley, adding this "wasn't a knee jerk" reaction to its sales or business operations. "Other automakers are going to have to take that same look." Michelle Krebs, executive analyst with Autotrader, said she wouldn't be surprised if other automakers followed GM in reporting on a quarterly basis. "I understand the reasons they are doing it," she said. "There can be a lot of fluctuation during a month." Krebs compared the newest change to the auto industry switching from 10-day sales reports to monthly sales in the '90s. "What happened was they decided to go monthly, and everybody did it," she said. "That would make me believe everybody is going to follow suit and follow GM's lead." Foreign units of GM will have separate treatment of sales reporting: GM's Canadian operations, according to company spokesman Jim Cain, will continue to issue monthly sales results. GM China, the automaker's top-selling market, will cease reporting on a monthly basis; however its joint ventures will continue to report wholesale volumes to government and industry associations. GM's operations in Brazil and Mexico will also continue to report sales to their respective associations. Cain declined to speculate if the company expects other companies will cease reporting sales on a monthly basis. "With respect to competitors, we're doing what we think is right for our business," he said. "Competitors will have to assess for themselves whether it makes sense to continue with the status quo." If others do follow GM, it could take years for the entire industry to move to quarterly reporting, much like it did to shift to monthly. For example, the former Chrysler Corp. eliminated 10-day reports in 1991; GM didn't do so until 1994. The move is merely the latest attempt by GM to mask and massage trend data; it comes nearly five years after GM stopped holding a monthly sales call with media and investors, something Ford Motor and other competitors continue to do. Switching to quarterly sales reporting, Krebs cautioned, could lead to "less transparency" and "leave an information gap" for the industry, which could lead to unintended speculation, particularly if some automakers follow GM but others do not. Naturally, GM argues it is not being less transparent, as it will continue to report the same amount of information on a quarterly basis as it currently does monthly. The disclosed data includes total deliveries, brand and nameplate sales, fleet mix and inventory, more than many of its competitors report. The company will also continue sharing J.D. Power PIN estimates for incentive spending and average transaction prices. In the end, all that will happen is that wealthy hedge funds will start using satellite tracking services to keep tabs on dealer lots and be informed on a day to day basis about trends, while the rest of the investing public will once again have to wait for months to realize why the stock - if indeed the subprime bubble has not burst - is down.
At 50, two decades of stable family life fell apart. In this extract from her memoir, the novelist recalls finding strength in the chaos – and a new voiceAs Orson Welles told us, if we want a happy ending, it depends on where we stop the story. One January night I was eating coconut rice and fish in a bar on Colombia’s Caribbean coast. A tanned, tattooed American man sat at the table next to me. He was in his late 40s, big muscled arms, his silver hair pinned into a bun. He was talking to a young English woman, perhaps 19 years old, who had been sitting on her own reading a book, but after some ambivalence had taken up his invitation to join him. At first he did all the talking. After a while she interrupted him.Her conversation was interesting, intense and strange. She was telling him about scuba diving in Mexico, how she had been underwater for 20 minutes and then surfaced to find there was a storm. The sea had become a whirlpool and she had been anxious about making it back to the boat. Although her story was about surfacing from a dive to discover the weather had changed, it was also about some sort of undisclosed hurt. She gave him a few clues about that (there was someone on the boat who she thought should have come to save her) and then she glanced at him to check if he knew that she was talking about the storm in a disguised way. Continue reading...
JennAir, the Whirlpool luxury appliance brand, is launching a new line of kitchen appliance designs and new branding imagery at the Architectural Digest Design Show. In its rebranding efforts, the company looked to its past heritage to design a product line for the new luxury consumer.
On today’s episode, Alexander Green examines the controversial Trump tariffs on steel and aluminum - and their probable effects on the markets.
Authored by Peter Schiff via Euro Pacific Capital, With his announcement last week of broad tariffs on imported steel and aluminum, President Trump launched what could be the first salvo of an all-out global trade war. Seemingly itching for a fight, he gleefully tweeted that “Trade wars are good, and easy to win.” It seems like Trump thinks the conflict will play out much like Ronald Reagan’s 1983 week-long invasion of Grenada rather than the more telling quagmires that unfolded in Vietnam, Afghanistan and Iraq. He’s wrong. Apart from overestimating America's bargaining position, Trump and his supporters grossly misunderstand the nature of international trade and how Americans have benefited from a system that has allowed us to continually consume foreign goods on credit. While this “benefit” has also placed a cost on domestic industries, I don’t believe that Trump has any idea how a trade war can reduce current American living standards. As justification for his surprise offensive, Trump likes to highlight how America’s gargantuan annual trade deficit (which has grown to more than $600 billion during his presidency) is simply the yardstick by which “stupid” American trade policies are subsidizing foreign economies. In his mind tariffs are just a means to take back what we have foolishly given away. As Trump explained via Twitter “ When we are down $100 billion with a certain country and they get cute, don’t trade anymore - we win big.” But does a country with a trade deficit really subsidize the country with the surplus? Or is it the other way around? Let’s suppose you keep chickens at home, and your neighbor has a cow. Everyday you trade a half dozen eggs for a quart of milk. This is the nature of trade. You offer something that you have in abundance (that other people don’t) for something that someone else has in abundance (that you don’t). But let’s suppose you eat a few of your chickens and your egg production drops to four per day. You continue to get your quart of milk, but everyday your neighbor adds two eggs to the account that you owe. Theoretically, you will one day owe your neighbor a whole bunch of eggs. But, in the meantime, does that two-egg deficit represent a benefit to you or your neighbor? Remember your neighbor still has to deliver the same amount of milk for less of a current payoff. He MAY get that deferred compensation down the road, but he’s not getting it now. And with every egg you go into the hole, the greater the chances that your neighbor may ultimately get stiffed. Who is likely to be worse off if this trade were to suddenly stop? Remember, you are not the only potential trading partner available to your neighbor. Maybe the house across the street will give him six eggs for his milk? The eggs/milk deficit that you have with your neighbor allows you to consume more than your production capacity would typically allow. While this is a definite benefit to you now, it does dissuade you from making the sacrifices necessary to increase your egg production. Your own industry atrophies while your neighbor’s doesn’t. But so what? You still get all the milk you need. The point of an economy is to maximize consumption. Since goods cannot be consumed that have not been produced, it goes without saying that production is a necessary precondition to consuming. But, if given the choice, most people would be happy to outsource the production to someone else and concentrate solely on the consumption. But in the real world such an arrangement is untenable over the long term. Of course your milk/eggs trade arrangement will be a problem if your neighbor cuts off your credit and demands full payment. Then you are stuck with a big debt, reduced egg production, and no milk. But, for America, that day has yet to come. For now, our trading partners are happy to take our debt rather than our goods. But if Trump starts making more unreasonable demands, they may not be so willing. It’s helpful to remember that a tariff is essentially a tax that will be paid by domestic consumers. It’s not like American producers will keep prices where they are and simply manufacture more steel to make up for the lost imports. Instead, prices will likely rise to almost the same level as the taxed imported products. Profits at American steel companies will increase, but production probably won’t. The manufacturers will know that the artificial political barrier protecting them could be removed at any time. Will they take the risk in investing in plant and equipment capacity when they know that removal of the tariffs would instantly eliminate their advantages and expose them to losses? Given the thin support that such tariffs will have beyond the narrow steel industry, it’s safe to assume that current manufacturers will stand pat and use the extra profits to issue dividends and buy back shares. To a lesser extent, they may increase wages for the nation’s 140,000 steel workers. But this industry-specific benefit will come at a great cost to the overall economy. Raising the cost of steel would also raise the cost of every American product manufactured with steel. Right now the discussion is focused on beer cans, with people arguing about how many cents per soup can the tariffs will add. But this is just the tip of the iceberg. The real impact will be seen for metal-intensive items that are manufactured both here and abroad. While the Trump tariffs will directly raise the price of imported steel (and indirectly the price of domestic steel), it does nothing about the price of goods made FROM steel. So a domestic manufacturer of home appliances, such as Whirlpool, will have to pay more for steel used to make a refrigerator. But its foreign competitors will be able make refrigerators with untaxed steel and then ship the finished product to the U.S. without facing a tariff. This will give the foreign firm a competitive advantage over Whirlpool both at home and abroad. Whirlpool will shed profits and may shed workers. So whatever advantages are given to steel manufacturers will be paid for by companies and workers that use steel. The problem for Trump is that there are only 140,000 domestic workers in the steel-making industry, but more than six million workers in industries that make stuff FROM steel. (American Iron & Steel Institute) Trump’s gambit is also politically ham-fisted. He likes to say that his tariffs are aimed at bad actors like China. But that country is far down the list of steel exporters to America. The move really hits our close allies first, particularly Canada, a country that accounts for 16% of our steel imports, according to a December 2017 report from the Dept. of Commerce. But 50% of U.S. steel exports GO to Canada. Total cross-border trade between the U.S. and Canada in 2016 came in at more than $600 billion annually, according to the Office of the U.S. Trade Representative. That’s a very big applecart to push over for a comparatively small gain. Potentially even more dangerous is the way the tariffs will be implemented. By absurdly claiming that they are being done in the interest of “national security” rather than economic advantage, the Trump administration is inviting embarrassing losses at the World Trade Organization, which combined with a rapidly deteriorating diplomatic environment could further isolate the U.S economically. The big problem is where it all ends. Already major voices in the European Union (particularly from Germany) have threatened retaliatory tariffs on politically and symbolically sensitive American exports like bourbon, blue jeans, and Harley-Davidson motorcycles. Trump has threatened to tax European cars, if the EU follows through on those threats. Given the personalities involved, and the national pride at stake, it’s not hard to see that this tit-for-tat could escalate quickly and lead to a full-blown trade war on multiple fronts. But this is not a war we can win. A decline in imports will force us to rely on our own production to meet all of our consumption. But we no longer make large categories of products that we consume. Even if we were to be able to ramp up production quickly, American consumers would be looking at much higher prices. With plenty of indications that inflation is already starting to percolate, now is not a time to go out looking for more. But most concerning is the likelihood that a large decline in trade translates into a diminished international appetite for U.S. dollars. With government borrowing about to surpass $1 trillion annually (even while the Federal Reserve itself is set to begin selling more than $600 billion annually in Treasury bonds) we will need to find lots of buyers for U.S. dollars for years to come. If a trade war discourages those buyers, the dollar will fall and interest rates will rise even faster. But it could get much worse than that. If a recession forces the Federal Reserve into another round of quantitative easing, we will desperately need foreigners to show up at our bond auctions. If they don’t we will lose the ability to export our inflation, and all the excess liquidity will remain at home, where it will push up prices on the limited domestic supply of goods and services. This means even higher prices for American consumers, many of which will also be unemployed. The combination of rising unemployment and inflation will be bad politics for Trump, as it will allow democrats to use the “misery index” to defeat him in 2020 much as Ronald Reagan used it to defeat one-term Democratic Jimmy Carter forty years earlier. Let’s hope that Trump’s bluster on trade is just a negotiating tactic. Maybe he’s crazy like a fox, and his threats will produce a favorable outcome for the U.S. But given his international unpopularity, and how quickly world leaders have mobilized for war, I wouldn’t count on it. More likely his blunders on trade will simply move our day of economic reckoning that much closer.
Our host enjoyed a spot of outdoor cooking – and a sprinkle of outrageous flirting – with Michelin-starred chef Niklas EkstedtIf you had to guess what Mary Berry would cook in a show called Classic Mary Berry (BBC One), I think you might get one dish – possibly more – correct. Perhaps not her eggs benedict florentine, since it is an amalgamation (“Why have one when you can have both together?” she asks, reasonably). But you might guess that her breakfast would involve bacon, toasted muffins (English ones, naturally) and poached eggs.Mmm, it does looks good. She makes the hollandaise look like a breeze. But I have an issue with the whirlpool system of poaching: how can you do that if you are poaching more than one egg, which you almost certainly would be if you were doing eggs benedict florentine? You can’t make lots of vortices in one pan, can you? Staggered breakfast? Continue reading...
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The manufacturer repaired our machine with the promise there was no further riskWe own a Hotpoint tumble dryer (bought February 2014 for £399) which was subject to the Whirlpool/Hotpoint recall/repair programme. Ours was repaired in 2016 and we believed this ensured there was no further fire risk. But in early February this year – a few seconds after switching it on – it caught fire. The cause was a build-up of fluff and lint on the heating element. We would consider ourselves reasonably diligent regarding cleaning and maintaining the filter, yet it clearly wasn’t sufficient. I have been liaising with John Lewis, which provided the warranty, to get the device inspected. I have also written to my local MP, asking him to bring this to the attention of the business, energy and industrial strategy committee which took evidence on this matter, and a possible link between cuts to a Trading Standards budget and the agreed course of action for Hotpoint. Most worryingly, Trading Standards and Hotpoint claim the agreed modification makes the appliance safe. Continue reading...
Whirlpool (WHR) is gaining from its ongoing growth initiatives as well as cost-productivity programs. However, high raw material inflation remains a potent threat.
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