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Trade War

Newsletter 12 - February 24, 2020

Dexter Roberts
Feb 24, 2020
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Welcome to the 12th edition of Trade War. The economic fallout from the coronavirus continues to widen, putting more pressure on multinationals to move at least part of their supply chains out of China. Meanwhile, at least one official in the Trump administration is using the crisis as an argument to bring manufacturing and presumably he hopes jobs, back to the U.S.

“Got to get that back on shore”

White House trade adviser Peter Navarro says the crisis shows, “not surprisingly,” that the U.S. has offshored too much of its supply chain, reports Bloomberg News. “A lot of [the U.S. supply chain] is in China, some of it is in India, some in Europe, but we’ve got to get that back on shore,” Navarro said on February 23.

AirPods, iPad, & Apple Watch Crossing the Strait?

Meanwhile big U.S. (and global) brands like Apple may be moving some of their supply chain out of China, but it isn’t coming to the U.S. Apple is “shifting manufacture of AirPods, iPad, Apple Watch from China to Taiwan due to ongoing coronavirus outbreak,” reports the Taiwan News.

Twitter avatar for @ustaiwan
US-Taiwan Business Council @ustaiwan
Apple shifting manufacture of AirPods, iPad, Apple Watch from China to Taiwan due to ongoing coronavirus outbreak
taiwannews.com.twApple moving production from China to Taiwan ... | Taiwan NewsApple shifting manufacture of AirPods, iPad, Apple Watch from China to Taiwan due to ongoing outbreak
9:26 PM ∙ Feb 18, 2020
90Likes63Retweets

Apple in China continues to take a hit as its supplier factories are running at only partial capacity, and business is lackluster as it begins to reopen its stores which earlier had been shut because of the virus, reports China’s Global Times. “Apple's iPhone sales in China may fall by at least 40 percent to 50 percent in February and March compared with the same period last year,” the state paper reports, citing industry analysts.

Worker dorm quarantines

⁦‪Even as some of China’s hundreds of millions of migrant workers start to return to their work places, many are first facing quarantines. At Apple top supplier Foxconn’s Kunshan facility, at least dozens are being held in quarantines in their dormitories, reports NPR’s Emily Feng.

Twitter avatar for @EmilyZFeng
Emily Feng 冯哲芸 @EmilyZFeng
@NPR Workers trickling back need to do 2 weeks quarantine in worker dorms, so even if remaining 200m or so migrant workers get back to work in next few days, they won't be in full action for a while. Here's part of Foxconn's Kunshan campus, where at least dozens already quarantined
Image
3:32 AM ∙ Feb 20, 2020
8Likes6Retweets

And a blow to wages

All those workers who are undergoing quarantine likely at reduced pay and those who have yet to return, are taking serious salary hits. For the average migrant worker returning to work two or three weeks later than usual, that means a reduction in annual income of roughly 5-6%, 1-1.5 trillion RMB, or 1-2% of GDP, estimates Beijing-based finance professor Michael Pettis.

Twitter avatar for @michaelxpettis
Michael Pettis @michaelxpettis
If the average migrant worker returns to work 2-3 weeks later than normal, this should reduce his annual income by roughly 5-6%, which I am guessing is roughly 1-1.5 trillion RMB, or 1-2% of GDP. scmp.com/economy/china-… via @SCMPNews
scmp.comCoronavirus slows return of China’s migrant workersLess than one third of China’s 291 million migrant workers have returned to their jobs because of the coronavirus outbreak, the transport ministry says.
5:12 PM ∙ Feb 18, 2020
70Likes29Retweets

Surviving is the goal

At smaller firms, just surviving is the goal. According to a survey this month of small- and medium-sized Chinese companies a third “only had enough cash to cover fixed expenses for a month,” with another third only enough for two months, reports Bloomberg News.

There’s no money

“Across China, companies are telling workers that there’s no money for them -- or that they shouldn’t have to pay full salaries to quarantined employees who don’t come to work,” reports Bloomberg’s Lulu Yilun Chen 

Twitter avatar for @luluyilun
Lulu Yilun Chen @luluyilun
Across China, companies are telling workers that there’s no money for them. A growing number of people are facing the question of how to pay for their next meals and rent bloomberg.com/news/articles/… @JPaskin @hongjinshan
bloomberg.comBloomberg - Are you a robot?
11:20 AM ∙ Feb 19, 2020
52Likes64Retweets

Media and Sell Side dripping out reality on lag

Investor Dan McMurtrie of Tyro Partners predicts two quarters of “severe supply chain disruption.” That ugly fact is still being obscured however as “Media and Sell Side [are] dripping out reality on lag because they have to maintain access,” McMurtrie tweets.

Twitter avatar for @SuperMugatu
Dan McMurtrie @SuperMugatu
Serious Take: Base case for anyone doing any actual channel checks here should be 2 quarters of severe supply chain disruption. Media and Sell Side dripping out reality on lag because they have to maintain access. Autos, Semis, Travel annual numbers are absurd.
6:39 PM ∙ Feb 20, 2020
1,265Likes417Retweets

Service sector, just as bad — maybe worse

“Most of the coronavirus attention has focused on manufacturing supply chains. The hits to the service sector, in my opinion, are just as bad — maybe worse — and not recoverable,” tweets Tony Fratto of Hamilton Place Strategies. “People aren’t going to make extra restaurant visits or take make up the taxi rides they missed.”

Twitter avatar for @TonyFratto
Tony Fratto @TonyFratto
Most of the coronavirus attention has focused on manufacturing supply chains. The hits to the service sector, in my opinion, are just as bad — maybe worse — and not recoverable. People aren’t going to make extra restaurant visits or take make up the taxi rides they missed.
11:22 PM ∙ Feb 20, 2020
32Likes6Retweets

China economy running at 50% to 60% capacity

China’s economy was likely running at about 50% to 60% capacity in the week to Feb. 21, says a Bloomberg Economics report.

CFIUS Bombshell

Back in the U.S. some are predicting that security reviews of foreign investment—through CFIUS or the Committee on Foreign Investment in the United States—are set to grow dramatically. Calling it a “bombshell” Peterson Institute research fellow Martin Chorzempa predicts it will be much more “cumbersome and costly” for foreigners to invest in the U.S. going forward.

Twitter avatar for @ChorzempaMartin
Martin Chorzempa 马永哲 @ChorzempaMartin
Bombshell in @DeptofDefense budget demand: projecting ~5x increase in #CFIUS cases (security reviews on foreign investment) filed in 2020, from 233 last year to 1,200! Will be much more cumbersome and costly for foreigners to invest in the US... h/t @WalteRiley
6:13 PM ∙ Feb 19, 2020
35Likes19Retweets

Notable/In Depth

The U.S. declared Xinhua, CGTN, People's Daily, China Radio, and China Daily as state operatives (and Beijing retaliated by expelling three Wall Street Journal reporters).

"Ears and Eyes of the Party" It’s worthwhile to recall how close the links have always been between China’s state-controlled media organs and the Chinese Communist Party. Here is Xinhua editor He Ping admiring a banner reading "Ears and Eyes of the Party."

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
Xinhua editor He Ping admiring banner reading "Ears and Eyes of the Party" while visiting Yan'an (2012) - As the US declares Xinhua, CGTN, People's Daily, China Radio, and China Daily as state operatives and Beijing retaliates by expelling 3 WSJ reporters), good time to repost..
Image
5:58 PM ∙ Feb 19, 2020
6Likes1Retweet

China car sales going down…

Twitter avatar for @next_china
Bloomberg Next China @next_china
China car sales tumble 92% in first half of February on virus trib.al/d2L8Mhh
Image
4:36 AM ∙ Feb 21, 2020
383Likes305Retweets

And a personal plug as publication nears. The My new book THE MYTH OF CHINESE CAPITALISM will be released March 10. “A clearheaded and persuasive counter-narrative to the notion that the Chinese economic model is set to take over the world” says Publishers Weekly. Available for preorder:

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
My new book THE MYTH OF CHINESE CAPITALISM is on sale March 10. “A clearheaded and persuasive counter-narrative to the notion that the Chinese economic model is set to take over the world” says Publishers Weekly (the Malamute likes it too!) Pre-order here: amazon.com/dp/1250089379/…
Image
2:54 AM ∙ Feb 19, 2020
127Likes28Retweets

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