Tag: CNBC

Trump: Now Ford can build Focus in U.S.; Ford: That makes no sense

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Auto analysts groaned on Sunday in response to tweets sent by President Trump that touted his tariffs on Chinese imports and his claim that the trade war would inspire Ford Motor Co. to build its Ford Active crossover in the U.S. rather than overseas.

Wrong, Ford said.

The Dearborn-based company issued a statement in response to the president’s tweet:

“It would not be profitable to build the Focus Active in the U.S. given an expected annual sales volume of fewer than 50,000 units and its competitive segment. Ford is proud to employ more U.S. hourly workers and build more vehicles in the U.S. than any other automaker.”

Jon Gabrielsen, a market economist who advises automakers and auto suppliers, said, “This is further evidence that neither the president nor his trade representatives have any clue of the complexities of global supply chains.”

A trade war actually hurts one of America’s most iconic companies, Gabrielsen said. “This forces Ford to forfeit the sales they would have had if they could continue to import that low-volume niche vehicle.”

Ford on Aug. 31 canceled plans to import the Focus Active crossover from China to the United States because of costs from the escalating trade war.

“Given the negative financial impact of the new tariffs, we’ve decided to not import this vehicle from China,” Kumar Galhotra, president of Ford North America, told reporters.

The Focus Active was meant to take the place of the Ford Focus in the U.S. because Ford is phasing out the entry-level car as it shifts its production to pickups and SUVs. Focus Active was scheduled to go on sale in the late summer of 2019.

“Basically, this boils down to how we deploy our resources. Any program that we’re working on requires resources — engineering resources, capital resources,” Galhotra said. “Our resources could be better deployed at this stage.”

Tariffs imposed by President Donald Trump on Chinese products and the threat of more had a direct impact on the Aug. 31 decision, according to Ford officials. The United States already has imposed tariffs on steel and aluminum from China and, as of July, put a 25 percent tax on autos imported from China.

“Ford was pretty clear in its statement: Focus production will not shift in part or in whole back to the U.S.,” said Stephanie Brinley, a senior analyst at London-based IHS Markit.

Trump didn’t tweet about the Ford announcement at the time. On Sunday, he quoted the CNBC TV network and tweeted, “‘Ford has abruptly killed a plan to sell a Chinese-made small vehicle in the U.S. because of the prospect of higher U.S. Tariffs.'” CNBC. This is just the beginning. This car can now be BUILT IN THE U.S.A. and Ford will pay no tariffs.”

“Ford is one of the companies that has the highest U.S. content and the most U.S. autoworkers of any company,” said Kristin Dziczek, vice president of the Industry, Labor & Economics Group at the Center for Automotive Research in Ann Arbor.

“You know, their statement was very clear. It’s too costly to build that car here and they weren’t planning to. They don’t make business decisions based on tweets. They make decisions based on whether there’s a demand here for the vehicle and if it can be done profitably. Demand for small cars is waning, so they thought they would build some for the rest of the world and bring a few for folks here who want one,” Dziczek said.

Building the car may still be the plan, but not in the U.S., she emphasized, along with other analysts. At issue is finding low-wage production sites to maintain profit margins, and that doesn’t include the U.S. or Canada.

“This trade thing turns into Whac-A-Mole,” Dziczek said. “You can shut off China and things will come from India, Thailand, Taiwan, Poland, Slovenia. There are loads of low-cost countries for parts and vehicles.”

After touting his tariff plan, the president also cited tariff data that alarmed analysts.

“If the U.S. sells a car into China, there is a tax of 25%. If China sells a car into the U.S., there is a tax of 2%. Does anybody think that is FAIR? The days of the U.S. being ripped-off by other nations is OVER!”

Wrong again, Dziczek said. “China lowered the tariff rate from 25 percent to 15 percent for most-favored nation status — which is offered to World Trade Organization members — but raised it to 40 percent for the U.S. in retaliation to the tariffs we put on Chinese goods.”

She continued, “And the tariffs we charge for goods coming into the U.S. is 2.5 percent, not 2 percent. And then we put an additional 25 percent on cars coming from China into the U.S. So now they’re paying 27.5 percent. This is why Ford had to re-evaluate.”

American automakers ship about 250,000 vehicles a year from the U.S. to China, while China ships about 50,000 vehicles to the U.S. annually, Dziczek noted.

For example, every Buick Envision sold in the U.S. is made in China. General Motors has petitioned that the car be excluded from tariffs on Chinese-built products.

Ford spokesman Mark Truby emphasized Sunday that the company plans to build many new vehicles in America. “For example, we are starting production soon of the Ford Ranger in the factory just outside of Detroit where the Focus was previously built. We’re not defensive about building in America. Nobody does more than us. We also have to make a business case that works.”

[Detroit Free Press]

White House: It’s in ‘Public Interest’ for Staff to Skirt Ethics Rules to Meet With Fox News

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It is “in the public interest” for the White House’s top communicator to be excused from federal ethics laws so he can meet with Fox News, according to President Donald Trump’s top lawyer.

Bill Shine, Trump’s newly minted communications director, and Larry Kudlow, the White House’s top economist, who worked at CNBC before his White House post, have both been excused from provisions of the law, which seeks to prevent administration officials from advancing the financial interests of relatives or former employers.

“The Administration has an interest in you interacting with Covered Organizations such as Fox News,” wrote White House counsel Don McGahn in a July 13 memo granting an ethics waivers to Shine, a former Fox executive. “[T]he need for your services outweighs the concern that a reasonable person may question the integrity of the White House Office’s programs and operations.”

Kudlow, a former CNBC host, received a similar waiver allowing him to communicate with former colleagues.

Including Shine and Kudlow, the White House has granted a total of 20 waivers to provisions of various federal ethics laws and the ethics pledge that President Trump instituted by executive order the week he took office. Federal agencies have granted many more such waivers.

The news media has been a particular object of those waivers. Early in the administration, after The Daily Beast questioned the propriety of then-White House chief strategist Steve Bannon’s communications with employees of Breitbart News, the pro-Trump outlet he led before and after his White House tenure, the White House issued a blanket ethics waiver allowing all senior West Wing appointees to freely communicate with the press.

That move was widely seen as an effort to retroactively cover Bannon for previous meetings that would’ve otherwise run afoul of ethics rules—a move that may itself have constituted a violation of those rules.

Kudlow, a former CNBC host, received a similar waiver allowing him to communicate with former colleagues.

Including Shine and Kudlow, the White House has granted a total of 20 waivers to provisions of various federal ethics laws and the ethics pledge that President Trump instituted by executive order the week he took office. Federal agencies have granted many more such waivers.

The news media has been a particular object of those waivers. Early in the administration, after The Daily Beast questioned the propriety of then-White House chief strategist Steve Bannon’s communications with employees of Breitbart News, the pro-Trump outlet he led before and after his White House tenure, the White House issued a blanket ethics waiver allowing all senior West Wing appointees to freely communicate with the press.

That move was widely seen as an effort to retroactively cover Bannon for previous meetings that would’ve otherwise run afoul of ethics rules—a move that may itself have constituted a violation of those rules.

[The Daily Beast]

EPA Chief Scott Pruitt Says Carbon Dioxide is Not a Primary Contributor to Global Warming

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Environmental Protection Agency Administrator Scott Pruitt said Thursday he does not believe carbon dioxide is a primary contributor to global warming.

“I think that measuring with precision human activity on the climate is something very challenging to do and there’s tremendous disagreement about the degree of impact, so no, I would not agree that it’s a primary contributor to the global warming that we see,” he told CNBC’s “Squawk Box.”

“But we don’t know that yet. … We need to continue the debate and continue the review and the analysis.”

The statement contradicts the public stance of the agency Pruitt leads. The EPA’s webpage on the causes of climate change states, “Carbon dioxide is the primary greenhouse gas that is contributing to recent climate change.”

Pruitt’s view is also at odds with the opinion of NASA and the National Oceanic and Atmospheric Administration.

“The planet’s average surface temperature has risen about 2.0 degrees Fahrenheit (1.1 degrees Celsius) since the late 19th century, a change driven largely by increased carbon dioxide and other human-made emissions into the atmosphere,” NASA and NOAA said in January.

Sen. Brian Schatz, D-Hawaii, co-chair of the Senate Climate Action Task Force, slammed Pruitt for his comments, calling his views “extreme” and “irresponsible.”

“Anyone who denies over a century’s worth of established science and basic facts is unqualified to be the administrator of the EPA. Now more than ever, the Senate needs to stand up to Scott Pruitt and his dangerous views,” he said in a statement.

Schatz said lawmakers would hold Pruitt accountable through the appropriations process and oversight of the EPA, and by making sure he follows the Clean Air Act and Clean Water Act.

Pruitt previously served as Oklahoma attorney general, where he rose to prominence as a leader in coordinated efforts by Republican attorneys general to challenge President Barack Obama‘s regulatory agenda. He sued or took part in legal actions against the EPA 14 times.

Democrats and environmentalists opposed Pruitt’s nomination to lead the EPA due to his close relationship with fossil fuel companies and his history of casting doubt on climate change. Conservatives and the energy industry have cheered his efforts to push back on what they view as over-regulation under Obama.

Pruitt maintained on Thursday it’s possible to be pro-growth, pro-jobs and pro-environment all at once.

“This idea that if you’re pro-environment you’re anti-energy is just something we’ve got to change so that attitude is something we’re working on very much,” he said.

Asked whether he would seek to roll back the EPA’s 2009 determination that carbon dioxide and five other greenhouse gases are a danger to public health, Pruitt suggested he would like to see Congress take up the issue.

“I think all those things need to be addressed as we go forward but not least of which is the response by the legislative branch with respect to the issue,” he said.

The Supreme Court ruled in 2007 that the EPA has the authority to regulate heat-trapping gases from automobiles. In 2014, it determined the agency could also regulate some sources of greenhouse gases, such as power plants.

Pruitt also called the Paris Agreement, an international accord aimed at mitigating the impacts of climate change, “a bad deal.” He said it puts the United States on a different playing field than developing countries like China and India.

The United States has vowed to reduce its greenhouse gas emissions to 26 to 28 percent below 2005 levels by 2025. In comparison, China has committed to reach peak carbon emissions levels by 2030, but will try to reach that point sooner.

“I happen to think the Paris accord, the Paris treaty, or the Paris Agreement, if you will, should have been treated as a treaty, should have gone through senate confirmation. That’s a concern,” he said.

The Paris Agreement was negotiated by the State Department, and future adherence to U.S. commitments made under Obama will be guided by Secretary of State Rex Tillerson.

Tillerson, the former chief of Exxon Mobil, said during his Senate confirmation hearing that he believes the United States should remain a party to the Paris Agreement.

(h/t CNBC)

Reality

There is nothing in the scientific literature that can back up Scott Pruitt’s claim. On the contrary there is overwhelming scientific evidence that carbon dioxide [CO2] in the atmosphere is the primary driver of climate change.

Science has been aware for over 150 years that carbon in the atmosphere will retain heat. The year was 1859 to be exact, and it was scientist John Tyndall who made the discovery that carbon in the atmosphere trapped heat. Then in 1896 Svante Arrhenius calculated that, based on this simple principle of physics, higher levels of CO2 in the atmosphere would raise global temperatures. These discoveries are the cornerstones of climate science, in 150 years have yet to be disputed, and instead continues to be confirmed by observation.

To explain further, the science, in short, says the following. CO2 lets through short wave light, the kind that passes through our atmosphere, but traps long wave radiation, the kind that is reflected and travels back into space. This experiment can be done in a laboratory, and should you have the time you could see it for yourself.

The site at this link has compiled a list of just a handful of the published scientific papers of laboratory measurements of CO2 absorption properties, ranging from 1861 all the way up to 2008. Knowing this evidence, scientist reached a consensus a long time ago that CO2 is indeed a contributor to global warming.

Just to reiterate here, Scott Pruitt’s acceptance of science predates the presidency of Abraham Lincoln, the American Civil War, and the First Transcontinental Railroad. This is the equivalent trying to attack a state-of-the-art military drone with a Civil War era musket.

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Trump Says Fed Policy He Supported is Now a Partisan Conspiracy

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In May, Donald Trump thought the Federal Reserve handled interest rates exactly right.

“Right now I am for low interest rates, and I think we keep them low,” he told CNBC.

Today, he said Fed chair Janet Yellen’s interest rate decisions proved she was “obviously not independent” from the White House and was, in fact, a partisan conspirator out to help Democrats.

“It’s staying at zero because she’s obviously political and she’s doing what Obama wants her to do,” Trump told CNBC on Monday. “And I know that’s not supposed to be the way it is, but that’s why it’s low.”

In an interview last week with Reuters, Trump said the low rates had created a “false economy,” adding, “at some point the rates are going to have to change.”

What changed between May and today? Nothing. The Fed has the same policy of low interest rates that Trump gushed over just four months ago. They last voted to raise rates in December 2015, the first time in nearly a decade, although there’s speculation among analysts that they could raise them this month.

Like a lot of Trump’s flip-flops, it’s not clear what prompted the shift. But it’s hard to reconcile Trump’s comments from springtime, where he warned of terrible economic consequences from an interest rate hike, with his comments today.

Trump repeated his strong support for a low interest rate policy throughout his May interview with CNBC, warning that “one point more, even, is devastating” and that “we have to be very, very careful” about making changes as a result.

While he said he planned to replace Yellen when her term expired, he described her at that time as a kindred spirit on the issue.

“She is a low interest rate person, she has always been a low interest rate person, and I must be honest — I am a low interest rate person,” Trump told CNBC on May 5. “If we raise interest rates and if the dollar starts getting too strong, we’re going to have very major problems.”

He gave Fortune a similar assessment in April, saying a rate increase would be “scary” for the economy.

“The best thing we have going for us is that interest rates are so low,” Trump said. “There are lots of good things that could be done that aren’t being done, amazingly.”

On Monday, those substantive arguments for low interest rates had disappeared in favor of wild accusations of shady behavior around the same course of action.

“She’s keeping them artificially low” to boost Obama, he said. “Watch what’s going to happen afterwards, it’s a very serious problem. And I think it’s very political. I think she’s very political. And to a certain extent, I think she should be ashamed of herself.”

This isn’t the first time Trump has lurched erratically between extremes on the issue. He also accused Yellen of refusing to raise rates for political reasons last November.

“Janet Yellen should have raised the rates,” Trump told reporters. “She’s not doing it because the Obama administration and the president doesn’t want her to.”

The Fed voted to raise rates the next month.

Bumps in the economy tend to hurt the party in power, and partisans often grumble around election time that low interest rates are helping incumbents. Already, markets have been shaky this week as investors increasingly believe the Fed might announce a rate increase, which could slow growth in the short term in order to guard against inflation.

Whatever his motive, Trump’s comments drew a brush-back from Minneapolis Federal Reserve President Neel Kashkari, who is a Republican.

“Politics simply does not come up,” Kashkari said on CNBC Monday. “We look at the economic data and … everyone around the table is committed to achieving our dual mandate of employment and inflation.”

(h/t NBC News)

Reality

With the many other flip-flops since becoming the Republican party’s nominee, Trump rejected almost every stance that his supporters loved which separated him from the other Republican primary candidates.

Donald Trump Just Threatened to Cause an Unprecedented Global Financial Crisis

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In an interview on CNBC, Donald Trump broke with tired clichés about the evils of federal debt accumulation. “I am the king of debt,” he said. “I love debt. I love playing with it.”

But he replaced fearmongering about debt with an even more alarming notion — a bankruptcy of the United States federal government that would incinerate the world economy.

“I would borrow, knowing that if the economy crashed, you could make a deal,” Trump said. “And if the economy was good, it was good. So therefore, you can’t lose.”

With his statement, Trump not only revealed a dangerous ignorance about the operation of the national monetary system and the global economic order, but also offered a brilliant case study in the profound risks of attempting to apply the logic of a private business enterprise to the task of running the United States of America.

Trump’s business logic makes sense

Trump is a businessman, and in terms of thinking like a businessman his idea makes sense.

The interest rate that investors currently charge the United States in order to borrow money is very low. A smart business strategy under those circumstances would be to borrow a bunch of money and undertake a bunch of big investment projects that are somewhat risky but judged to possibly have a huge payoff.

You now have two possible scenarios.

In one scenario, the investments work out and you make a ton of money. In that case, you can easily pay back the loan and everyone wins.

In another scenario, the investments don’t work out and you don’t make much money. In that case, you objectively can’t pay back the loan. You either work out a deal with the people you owe money to in which they accept less than 100 percent of what you owe them (this is called a “haircut”) or else you go to bankruptcy court and a judge will force them to accept less than 100 percent.

This is how businesspeople think — especially those who work in capital-intensive industries like real estate. And for good reason. This is the right way to run a real estate company.

Applying this idea to the United States would destroy the economy

The United States of America, however, is not a real estate development company. If a real estate company defaults on its debts and its creditors lose money, that’s their problem. If a bank fails as a result, then it’s the FDIC’s responsibility to clean it up.
The government doesn’t work like that. Right now, people and companies all around the world treat US government bonds as the least risky financial asset in the universe. If the government defaults and banks fail as a result, the government needs to clean up the mess. And if risk-free federal bonds turn out to be risky, then every other financial assetbecomes riskier. The interest rate charged on state and local government debt, on corporate debt, and on home loans will spike. Savings will evaporate, and liquidity will vanish as everyone tries to hold on to their cash until they can figure out what’s going on.

Every assessment of risk in the financial system is based on the idea that the least risky thing is lending money to the federal government. If that turns out to be much riskier than previously thought, then everything else becomes much riskier too. Business investment will collapse, state and local finances will be crushed, and shockwaves will emanate to a whole range of foreign countries that borrow dollars.

Remember 2008, when the markets went from thinking housing debt was low-risk to thinking it was high-risk, and a global financial crisis was the result? This would be like that, but much worse — US government debt is the very foundation of low-risk investments.

What’s especially troubling about Trump’s proposal is that there is genuinely no conceivable circumstance under which this kind of default would be necessary. The debt of the federal government consists entirely of obligations to pay US dollars to various individuals and institutions. US dollars are, conveniently, something the US government can create instantly and in infinite quantities at any time.

Of course, it might be undesirable to finance debts by printing money rather than raising taxes or cutting spending. In particular, that kind of money printing could lead to inflation, and even though inflation is very low right now there’s no guarantee that it will always be low.

But a little bit of inflation is always going to be strictly preferable to destroying the whole American economy, especially because a debt default would cause a crash in the value of the dollar and spark inflation anyway.

Trump doesn’t know what he’s talking about

This is the second time this week that Trump has revealed a profound ignorance of an issue related to government debts.

The early instance in which he kept proposing that Puerto Rico declare bankruptcy even though doing so is illegal was on a question that’s very important to Puerto Ricans but not so important to everyone else. It is, however, important to pay attention to how presidential candidates approach issues across the board — and what we saw with Puerto Rico is that Trump approached the issue by simplistically applying business logic without bothering to check whether it applies to the actual situation.

Now in the CNBC interview he’s done the exact same thing on a matter of more consequence —not the debts of Puerto Rico but the debts of the United States of America. It’s understandable that a real estate developer might assume that what works in real estate would work in economic policy, but it’s not true. And Trump hasn’t bothered to check or ask anyone about it.

(h/t CNBC)

Reality

What Donald Trump is proposing to pay off the national debt (which is money that we are obligated to pay creditors and for services) is to borrow large sums of money at a lower rate. In other words robbing Peter to pay Paul.  Should the economy be healthy then we can pay back that borrowed money no problem. However should the economy crash, and the United States is unable to meet the legal obligation of debt repayment (‘defaulting‘) then Trump proposed to renegotiate that new debt at a lower rate.

While Trump did not say the word ‘default’ he explained the exact definition of the word default in his proposal.

This raised eyebrows by suggesting an unorthodox approach towards cutting the national debt… not paying it then renegotiate terms. Such a renegotiation risks creating financial turmoil because U.S. Treasuries are considered the safest assets on the planet and a major benchmark for valuing other securities. Calling into question their safety could cause borrowing rates to rise and create confusion in the markets.

Confusion in the markets is a very bad thing. Wall Street and businesses need to know what the rules are in order to subvert play them.

Media

http://video.cnbc.com/gallery/?video=3000515269

Trump Flip-Flops on Elements of His Tax Plan

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Presidential candidate Donald Trump today backed away a bit from his tax plan, describing it as open to negotiation.

Pressed by CNBC as to how he could simultaneously brand himself as a populist who will take on wealthy elites while proposing sweeping tax cuts for billionaires, Trump backed away from his plan.

I am not necessarily a huge fan of that. I am so much more into the middle class who have just been absolutely forgotten in our country.

Trump described his tax proposal, which was the most detailed policy paper he put out in the campaign, as merely a starting point for a future deal.

You know, when you put out a tax plan, you are going to start negotiating. You don’t say, ‘OK, this is our tax plan, lots of luck, folks.’ There will be negotiation back and forth. And I can see that going up, to be honest with you.

The Trump tax plan has attracted criticism in two main areas: first, in that it loses too much revenue, and second, in that it primarily benefits high-income taxpayers. Both are shown in the Tax Foundation analysis published last year. A third criticism, albeit a more subtle one, is that Trump’s plan reduces rates without doing much to improve tax bases, and therefore generates less growth than it could otherwise, as Tax Foundation President Scott Hodge has argued.

If Trump moderates some of the elements of his tax plan, he may want to consider getting rid of the preferential rate for pass through income, which benefits wealthier Americans and encourages relabeling, and also reducing the size of the zero bracket in his plan, which is about four times larger than the current standard deduction, and contributes substantially to the plan’s $10 trillion revenue loss.

(h/t Tax Foundation)

Reality

A politician changing their mind toward a better idea can be a good thing as it shows progress. But when a politician changes their mind, not organically, but timed as a means to maximize their popularity, this is called a flip-flop.

In our review of Donald Trump’s tax reform plan would reduce federal revenues by $9.5 trillion dollars over 10 years causing massive cuts from the military to Social Security. Any change here would be progress.

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