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The Mixed Motives and Multiple Objectives of Joe Biden’s Trade Policy

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This article is an on-site version of the Trade Secrets newsletter. Participation here Get our newsletter sent straight to your inbox every Monday

Welcome to the first trade secret of 2023. I’ve been making New Year’s predictions for the next twelve months, Sometimes they are moderately accurate. But that was in the days when trade policy included separate initiatives whose outcome you could judge — investment agreements, appointments of World Trade Organization director-generals, retaliation against digital services taxes, futile attempts to get China to buy American soybeans. . . This kind of thing. These days, globalization has bounced back through a whole host of interrelated macroeconomic and geopolitical issues: global growth, inflation, the US-China tech conflict, global energy shocks, COVID-19 and the Ukraine war. My only prediction is that we will see a lot of traders having to learn new things very quickly, including here at Trade Secrets.

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Today’s lead article looks at how these cross-cutting issues affect one of the biggest running stories: the aggressive moves of the United States in industrial policy. suspended water It revolves around the problem of food price inflation in the United Kingdom. As always, if you have opinions you’d like to unpack, email me at alan.beattie@ft.com.

Diverse motives and contradictory goals. . .

Joe Biden has left no doubt about his intentions for 2023. He has been, as he tweeted to the world on Jan. 5, “The Year of Buying American Products”. It became apparent to US trading partners that the President was really serious about using spending and regulations and export controls to establish and maintain leads across a range of tech products. It is also clear that the United States will not let international trade rules, such as the USTR rules, stand in the way Rejection of contempt for the decision of the World Trade Organization Against national security definitions shown. How will the rest of the world react?

It is difficult, because the United States has mixed motives and Multiple goals. This comes as no surprise: Biden is, for once, an anti-China Cold War neo-warrior with coalition-building instincts who believes in boosting American manufacturing and fighting climate change. It is big and crowded.

From the perspective of the domestic/industrial economy, it is trying to promote all of the following:

  • Products that have real implications for national security (semiconductors for military use)

  • High added value products where the United States wants global leadership (electric cars)

  • Products whose workers, especially unionists, may swing elections (steel)

  • Low income inequality in the United States

In terms of geopolitics/geoeconomics, he simultaneously wants to do the following:

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  • combating climate change

  • Make the US self-sufficient/secure in important commodities

  • Building regional and global alliances

  • American Interests Abroad Project

Obviously, these disputes were established immediately. We see This book review is for my Financial Times colleague Rana Forouhar Showing that some anti-globalization masses finally got the economic localism they wanted, but in the wrong way and for the wrong reason, i.e. bashing China. (The greatest betrayal, and so forth.)

For example: notorious electric car balances In the Reducing Inflation Act, the high value-added product target—having now added Canada and Mexico as beneficiaries—addressed the regional alliance objective. But they undermine the goal of climate change by restricting competition that might provide Americans with the cheapest electric vehicles, as well as the goal of a global alliance by annoying Europeans, Japanese and Koreans.

National Security Tariffs on steel and their descendants from quotasaddressing the swing voter’s goal and the goal of self-sufficiency—though it seems unlikely Significantly reduce inequality, like all trade policies. But it annoys global allies once again and means ignoring the World Trade Organization, thus missing the United States from a leading role in the global economy.

. . . Make commercial diplomacy mind-boggling

When it comes to execution, the administration has to choose its path carefully and try to hit as many targets as possible, which becomes even more difficult when you add in people on Capitol Hill with different preferences. The US Treasury adjusts EV credits to allow for European, Japanese and Korean cars, but that’s the way it is Annoying Buy America (or Buy USMCA) Senator Joe Manchin of West Virginiawho wants to stay of execution. Manchin’s running mate is Democratic Senator Raphael Warnock of Georgia It is also trying to delay support distributions But for a discordant reason, namely, wanting time for the Hyundai plant in his home state to get up and running first.

This means that US trading partners and putative allies are forced to make difficult calculations of optimal policy responses. Do they rely on quiet diplomacy to negotiate holes in the IRA, rely on Biden’s coalition-building instincts, or raise the WTO case to ramp up international pressure?

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Is the European Union compatible with US plans for the Green Steel Club? This would promote transatlantic harmony and boost steel production, but undermine Europe’s plans for a mechanism to adjust carbon limits and make Brussels vulnerable to a WTO challenge from China and others.

Are the EU, Japan and Korea trying to integrate their semiconductor supply networks with the US, or are they striving for self-sufficiency? And if this is the latter, where does the money come from?

This is even before we factor in other strategic considerations – the EU’s desire to keep Americans engaged in Ukraine, the US’s attempt to lock Europe into a general anti-Chinese stance on everything, emerging Non-Aligned Movement Middle-income countries that do not want to side with the pillars of a superpower.

These are difficult satanic judgments to make, and I can’t predict how they will end. As the old saying goes: I don’t have a solution, but I admire the problem.

In addition to this newsletter, I write the “Trade Secrets” column for the Financial Times web site every Thursday. click here To read the latest and visit ft.com/trade-secrets To see all my previous columns and newsletters too.

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suspended water

Sometimes the British gloomy reputation sound justification. General inflation is bad in the UK, but soaring food prices for the nation are even worse.

But wait. Is there The silver lining to this cloud? It seems that consumers – or at least supermarket shoppers – are not bearing the brunt of this component of the cost-of-living crisis. Farmers and traders themselves suffer from this headache. Well, the news is still not good for the country as a whole. (Jonathan Moles)

the New York Fed measure of supply chain stressAfter falling sharply between May and September, it has stabilized above the historical average between October and December. Renewed problems with Chinese supplies thanks to Covid-19 lockdowns prevented further declines.

China’s electric car makers are worried about the end of government subsidies and a shortage of semiconductors.

In a stark indication of the complexities of the relationship between commercial diplomacy and geopolitics, Taiwan asked to join the proceedings to dispute the Chinese appeal to US semiconductor export controls at the World Trade Organization, though it’s not clear which side he’ll take, or indeed if he’ll move aside at all.

My distinguished colleague at the Financial Times, Helen Thomas It addresses completely politically motivated problems of industrial policyhere in connection with the UK’s repeated bailouts of the steel industry.

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Rishi Sunak, Prime Minister of the United Kingdom du dayIt said It is one of the usual British concessions now To Brussels on post-Brexit arrangements, in this case by modestly postponing until after the country’s next general election to rescind EU law in place in the UK.


Trade secrets from the editor Jonathan Moles


Europe Express Your essential guide to what matters in Europe today. Participation here

Britain after Britain’s exit from the European Union Keep up to date with the latest developments as the UK economy adjusts to life outside the EU. Participation here

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Economic

We need to pay more attention to skewed economic signals

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The writer is chair of Queen’s College, Cambridge and advisor to Allianz and Gramercy

Inflation was the dominant economic and financial issue of 2022 for most countries around the world, especially for advanced economies that have a consequential impact on the global economy and markets.

The effects have been seen in declining living standards, increasing inequality, increasing borrowing costs, stock and bond market losses, and occasional financial mishaps (fortunately small and so far contained).

In this new year, recession, both actual and feared, has joined inflation in the driving seat of the global economy and is likely to replace it. It’s a development that makes the global economy and investment portfolios subject to a wide range of possible outcomes — something that a growing number of bond investors seem to be aware of more than their equity counterparts.

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International Monetary Fund iYou will likely review soon Her economic growth forecasts again, predicting that “a third of the world will be hit by recession this year”. What is particularly notable to me about these worsening global prospects is not only that the world’s three major economic regions – China, the European Union and the United States – are slowing down together, but also that this is happening for different reasons.

In China, a chaotic exit from the wrong Covid-19 policy is undermining demand and causing more supply disruptions. Such headwinds to domestic and global economic well-being will continue as long as China fails to improve the coverage and effectiveness of its vaccination efforts. The strength and sustainability of the subsequent recovery will also require that the country more vigorously renew a growth model that can no longer rely on greater globalization.

The European Union continues to deal with energy supply disruptions as the Russian invasion of Ukraine continues. Strengthening inventory management and reorientation of energy supplies is well advanced in many countries. However, it is not yet sufficient to lift immediate constraints on growth, let alone resolve long-term structural headwinds.

The United States has the least problematic view. The headwinds to growth are due to the Fed’s struggle to contain inflation after mischaracterizing rate increases as fleeting and then initially being too timid to adjust monetary policy.

The Fed’s shift to an aggressive front-load of interest rate hikes came too late to prevent the spread of inflation in the services sector and wages. As such, inflation is likely to remain stubborn at around 4 percent, be less sensitive to interest rate policies and expose the economy to greater risk for accidents from additional policy errors that undermine growth.

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The uncertainties facing each of these three economic areas suggest that analysts should be more careful in reassuring us that recessionary pressures will be “short and shallow”. They need to be open, if only to avoid repeating the mistake of prematurely dismissing inflation as transient.

This is especially important because these diverse drivers of recessionary risk make financial fragility more threatening and policy shifts more difficult, including potentially Japan. Get out of interest rate control Policy. The range of possible outcomes is extraordinarily large.

On the one hand, a better policy response, including improving the supply response and protecting the most vulnerable populations, can counteract the global economic slowdown and, in the case of the United States, avert a recession.

On the other hand, additional policy errors and market turmoil can lead to self-reinforcing vicious cycles with rising inflation and rising interest rates, weakening credit and compressed earnings, and stressing market performance.

Judging by market prices, more bond investors are better understanding this, including by refusing to follow the Fed’s interest rate guidance this year. Instead of a sustainable path to higher rates for 2023, they believe recessionary pressures will lead to cuts later this year. If true, government bonds would provide the yield and potential for badly missed portfolio risk mitigation in 2022.

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However, parts of the stock market is still weakly bearish pricing. Reconciling these different scenarios is more important than investors. Without better alignment within markets and with policy signals, the positive economic and financial outcomes we all desire will be no less likely. They will also be challenged by the risk of more unpleasant outcomes at a time of less economic and human resilience.

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Macro hedge funds end 2022 higher, investors say, while many others take big losses By Reuters

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© Reuters. FILE PHOTO: Traders work on the trading floor of the New York Stock Exchange (NYSE) in New York City, US, January 5, 2023. REUTERS/Andrew Kelly

By Svea Herbst Baylis

NEW YORK (Reuters) – Some hedge funds betting on macroeconomic trends have boasted of double and even triple-digit gains for 2022, while other high-profile companies that have long been on technology stocks have suffered heavy losses in volatile markets, investors said.

Rokos Capital, run by Chris Rokos and one of a handful of so-called global macro companies, gained 51% last year. Fund investors this week, who asked not to be identified, said Brevan Howard Asset Management, the company where Rokos once worked, posted a gain of 20.14% and Caxton Associates returned 16.73%.

Haider Capital Management’s Haider Jupiter Fund rose 193%, an investor said.

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Data from hedge fund research showed that many macro managers have avoided crumbling stock markets that have been rocked by rapid interest rate increases and geopolitical turmoil, including the war in Ukraine, to rank among the best performers in the hedge fund industry. The company’s macro index rose 14.2% while the general index of hedge funds fell 4.25%, its first loss since 2018.

Equity hedge funds, where the bulk of the industry’s roughly $3.7 trillion in assets are invested, fared worse with a loss of 10.4%, according to HFR data. And while that beat the broader stock market’s loss of 19.4%, some high-profile funds posted even bigger losses.

Tiger Global Management lost 56% while Whale Rock Capital Management ended the year with a 43% loss and Maverick Capital lost 23%. Coatue Management ended 2022 with a loss of 19%.

But not all companies that bet on technology stocks suffered. John Thaler JAT Capital finished the year with a 3.7% gain after fees after a 33% increase in 2021 and a 46% gain in 2020.

Sculptor Capital Management (NYSE::), where founder Dan Och is fighting the company’s current CEO in court over his salary increase, posted a 13% drop.

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David Einhorn’s Greenlight Capital, which bet that Elon Musk would be forced to buy Twitter, ended the year up 37% while Rick Sandler’s Eminence Capital rose 7%.

A number of so-called multi-manager companies where teams of portfolio managers bet on a variety of sectors also boast positive returns and have been able to deliver on their promise that hedge funds can deliver better returns in distressed markets.

Balyasny’s Atlas Fund (NYSE: Enhanced) gained 9.7%, while Point72 Asset Management gained 10%. Millennium Management gained 12% while Carlson Capital ended the year with a 7% gain.

Representatives for the companies either did not respond to requests for comment or declined to comment.

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German automakers point to easing supply chain problems

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Sales at BMW and Mercedes-Benz jumped in the final months of 2022 as the German premium auto brands indicated supply chain problems plaguing the industry were abating.

Automakers around the world have experienced parts shortages since the pandemic, especially semiconductors, leaving many of them with large fleets of incomplete vehicles that can’t be delivered to customers.

BMW and Mercedes each said their full-year vehicle deliveries fell last year by 4.8 percent and 1 percent, respectively, due to Suppliers Bottlenecks as well as lockdowns in China and the war in Ukraine.

But supply pressures eased in the last quarter of the year, as BMW recorded a 10.6 percent jump in sales, with 651,798 vehicles delivered, and Mercedes fulfilling 540,800 orders, up 17 percent from the same period in 2022.

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BMW He said the main effects of supply chain bottlenecks and continued lockdowns were felt in the first six months of the year, adding that “sales were steadily picking up in the second half.”

Mercedes boss Ula Kallenius told the Financial Times last week that the list of problems in the auto supply chain was declining, but added that long waits for cars would continue into 2023.

“One chip is enough to be vital [ . . .] Missing, and then you can’t finish the car, even if you have everything else.

Both brands recorded strong sales growth electric car. Mercedes, which last week announced a plan to build 10,000 charging docks, said EV shipments grew 124 percent to 117,800 last year compared with its predecessor.

Similarly, BMW reported strong growth in electric vehicle sales, with deliveries of fully electric vehicles doubling last year to 215,755.

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Analysts at Bank of America said that sales of electric vehicles, including hybrid cars, reached a historic peak last November, with 1.1 million units sold. They attributed this largely to the upcoming phase-out of customer subsidies in Germany.

Participate in Mercedes BMW and BMW prices held steady Tuesday morning as investors priced in an image of an improving showing.

Rolls-Royce, a subsidiary of BMW, announced Monday that sales have hit a 119-year record, driven by strong demand in the United States, its largest market.

The luxury brand has been largely unaffected by the semiconductor pressure, mainly because it makes relatively few compounds and therefore needs fewer chips.

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