Can the U.S. Economy Handle $100 Oil?

The price of oil may soon be hitting $100 a barrel. Fear ripples through economic circles at the notion oil and all things produced from oil would come with greater costs. Not all economists worry though. Some suggest that the high price of oil won’t impact the current economy to the same degree it did in 2011.

 

Now, there would be a decrease in the GDP as a result of the increased price of oil. Analysts at Bloomberg Economics pinpoint the estimated decline at 0.4%. While no one wants to see a decline, the minor decline can be manageable after taking into consideration other factors. Probably the biggest reason economists don’t see too much of an impact from the rising price of oil involves a decreased dependency. The United States simply isn’t as dependent on oil as it once was. The shale industry has cut down on the United States’ dependence on oil imports. As such, rising prices don’t yield the same effect as years past.

 

Also, technology and other developments reduce the amount of energy required for production. Oil isn’t only used to make gasoline. Electricity can be made from oil. A combination of lower fuel and electricity costs means less added costs to production. If the costs don’t increase, then there aren’t any additional expenses that must be passed to consumers.

 

The assessment isn’t intended to downplay the potentially serious impact of rising oil prices. Things would be better if oil wasn’t so expensive. However, no reasons exist to panic if the market becomes capable of handling the rise.

Japan’s Two-Year Growth Streak Comes to an End

Japan’s impressive streak of eight consecutive quarters of growth came to an end this month, as the third-largest global economy reported that its gross domestic product decreased at an annualized rate of 0.6 percent during the first quarter of the year.

 

Wednesday’s release of this data ends what had been the longest period of growth for Japan since the late 1980s. Expert economists point to lackluster performances by a myriad of different industries, rather than just one collapse. A combination of flat spending on investment partnered with weak consumption of private goods contributed to the contraction, which was worse than what financial analysts had predicted.

 

Net exports also decreased, possibly in small part to escalating trade tensions in the global economy. The strength of the Japanese yen against the United States dollar also makes exports including venerable Japanese automobiles and consumer electronics more expensive to global customers. The stability of the yen makes it a safe bet for foreign investors, however, this might be negated if the trade wars come to fruition.

 

Despite the weaker than expected growth, most experts do not expect Japan to slide into a recession. Most predictors demonstrate that the country will rebound with modest growth in the second quarter. The country faces an uphill in growing its economy because of factors including lower than desired inflation, an aging population requiring government subsidies, and lack of females in the workforce.

China Increases Importation of Russian Soybeans

In the wake of the growing trade dispute with the United States, China has tripled its importation of soybeans from Russia. The United States is currently the largest producer of soybeans in the world, and was a major supplier of soybeans to China in the past. In a report released by the Rosselkhoznadzor, Russia’s agricultural agency, from last July to mid-May, Russia has exported approximately 850,000 metric tons of soybeans to China. This is a marked increase from the 340,000 metric tons of soybeans Russia sold to China in the previous growing season.

 

Despite the dramatic uptick in Russian soybean exports to the country, economists with the U.S. government estimate that Russian soybeans will account for less than one percent of the 97 million tons of soybeans that China will import this season. Experts also believe that the increase in exports to China will do little to help the Russian soybean industry. Daniil Khotko, an analyst at Moscow’s Agricultural Market Studies, said the agency expects the country’s soybean industry to grow by no more than 20 percent in the next two to three years.

 

In addition to looking to Russia for soybeans, China has also canceled numerous U.S. shipments due to fears of the impending trade war and have increased scrutiny of American fresh fruit in their ports. Concerns of a trade war come in the wake of President Donald Trump’s proposal to set $150 billion in tariffs on Chinese goods. The Chinese government responded by proposing billions of dollars in tariffs on American goods.

Officials Grapple with the Tax Issues Presented by Crypto

If there’s one topic that has captivated the public for over a year now, it’s cryptocurrency. However, the technology is evolving so quickly that many governments are unsure of how to proceed amid the breakneck speed. While Japan has its own official crypto, U.S. regulators and investors have been slower to adapt to a world with cryptocurrency. With big-time investors such as Charlie Munger even going as far as to refer to crypto as “evil,” it would appear that there is some serious work to be done.

 

With new cryptocurrencies popping up all over the planet on a daily basis, tax professionals the world over are going to need to figure out how to manage their clients’ investments, expectations and payment systems. Indeed, crypto stands poised to take over the world—and businesses should pay careful attention. Even though the whole point of crypto is that it is unregulated, we are seeing more and more regulations pop up on a daily basis—and many in the crypto space believe that this is a very good thing. After all, regulations are a sign that crypto is becoming more mainstream. And the more mainstream it becomes, the faster governments will be able to institute rules that will make it possible to buy a coffee with your crypto. In this new environment, which many have referred to as the gold rush of the twenty-first century, a multitude of people have been able to share in the wealth of these burgeoning economies.

WTO Rules in Favor of US in Airbus Case

The United States scored a win on Tuesday when the World Trade Organization (WTO) ruled that the European Union (EU) was loose in its compliance to cease subsidies for French aircraft manufacturer Airbus. The US Trade Representative (USTR) was arguing on behalf of US-based Boeing, alleging that many European countries had given government aid totaling $22 billion to Airbus in an effort to help the company’s launch of the A380 and A350 airplanes. The USTR said that the ruling will now open the way for countries to impose tariffs on various EU goods and services.

 

The long-standing dispute began in 2004 and was thought to be resolved in 2011 when the WTO sided with the US. However, the US complained further alleging that the EU and other countries were still not in compliance with the ruling. This most recent decision again places the blame on the EU and Airbus, saying that the aircraft manufacturer had not fixed the damage done to rival Boeing.

 

Tuesday’s decision now gives the US authorization to retaliate with sanctions against the offending countries should they choose to do so. The amount of these sanctions will be determined by another forthcoming WTO ruling and could begin as early as 2019. It remains to be seen how this decision will affect relations between the US and other European countries. Tensions between the US and various global economies are already high in light of President Donald Trump’s intention to impose a myriad of tariffs on many countries.

US Calls Out China for Strong-arming American Companies

As trade tensions continue to simmer between the United States and China over tariff threats by both countries, a new controversy is erupting regarding China’s decision to instruct foreign airlines to remove information that insinuates that Taiwan, Macau, and Hong Kong are not part of their country. Not happy with this perceived act of coercion by China, the White House is publicly speaking out about China’s strong-arming. The issue stems from The Civil Aviation Administration of China recent’s directive to 30 international airlines, including those owned and operated by US companies.

White House Press Secretary Sarah Huckabee Sanders called the act “Orwellian nonsense”, stating that China was imposing its Communist views on the rest of the global economy. Chinese government officials consider Taiwan to be a territory, while Macau and Hong Kong are widely recognized as special administrative regions. Sanders and other US officials believe this force of power by China is a reflection of that country’s desire to impress its Communist philosophies on American companies.

This is not the first act of hostile action directed toward US companies by China in relation to this issue. Early this year, China blocked Marriott’s websites and apps in its country for one week after the hotel chain recognized Taiwan, Macau, Tibet, and Hong Kong as individual countries. Delta Airlines also raised the ire of China after it listed Tibet and Taiwan as distinct countries.

Argentinian and Turkish Economies Continue to Falter

As investors continue to flock to the stability and strength of financial markets such as the United States and China, the emerging markets of other less stable economies are feeling the brunt. On Friday, interest rates in Argentina hit 40% as that nation’s central bank forced its third rate hike in just eight days. Prior to the string of hikes, interest rates were hovering at about 27.25%. National officials are executing the hikes as an attempt to stop the Argentine peso from falling more against the stronger US dollar. So far in 2018, the peso is down approximately 15% against the dollar. Argentina is especially vulnerable in this impending economic crisis because of its low rate of imports compared to its country’s amount of exports, known as an account deficit.

On the other side of the ocean, Turkey is also feeling the pain of large account deficit and sliding value of its national currency. The lira has dropped 11% against the US dollar this year alone, while Turkey’s stock market index is also down 11% in 2018. In addition to the account deficit, the threat of political instability, as well as high inflation, are contributing to the perilous economic situation.

Investors leaving these two countries are pouring their money into the more stable US markets due to the increasing bond yields and the strong US dollar. The dollar has boasted a 4 percent surge against other similar currencies since mid-April.

Trump administration holds off on imposing tariffs on Mexico, Canada and the EU

Trump threatened to impose tariffs on steel and aluminum from China, Mexico, the European Union and Canada. While the fate of the Chinese tariff remains uncertain, Trump announced he would hold off on imposing tariffs on Mexico, Canada and the European Union, according to the Chicago Tribune. The president remains concerned with many Chinese economic policies and is waiting for the nation to make concessions.

China’s lax treatment of international intellectual property laws has been a problem for administrations before the current one. Previous presidents kept the current policy intact while making noise about getting the Chinese to respect the intellectual property rights of other nations. Trump is the second president to do more than just make noise. George W. Bush also attempted to correct the situation during his administration.

His policy on the European Union has confused many people as he praises individual countries while criticizing others. Trade relations with Mexico have cooled since the administration placed tariffs on the import of certain produce from the nation. Tensions have increased over the course of his presidency. Comments he made during the campaign and his repeated threat to build a wall and make Mexico pay for it. Mexican president Vicente Fox took to national television to make it clear that Mexico had no intention of paying for Trump’s wall.

All of these trade wars come during Robert Mueller’s investigation and continued accusation of the president’s campaign. The president’s recent hire Rudi Giuliani to help with his legal woes. As the case gets closer, the president’s threats to fire Mueller increase.

Economic Groups Criticize Trump’s World Economic Policy

President Trump has initiated what may become a trade war with China, and Business Insider has an interesting article on its website about how Trump’s recent world economic policy moves are being criticized by several major world trade organizations. The article details how the International Monetary Fund, the World Trade Organization and the Federal Reserve feel that a trade war may not be in the best interests of the global community generally and even the United States specifically.

Essentially, the groups are indicating that, despite Trump’s assurances to Americans via Twitter that trade wars are easy to win, this is rarely the case and that he should be very careful about what he is doing. Trump’s initial plan is to impose tariffs on imported Chinese steel and aluminum. While economists feel that these specific tariffs will have little effect, they could lead to more tariffs as a trade war escalates and this will hurt everyone.

In any event, any major world economic policy change by the Trump administration is likely to have a vast ripple effect, and, due to the complexity of global economics, it’s very difficult to predict exactly what it will be. However, Trump has shown in the past that he’s willing act on his own instincts even when they run contrary to the advice of experts, so he may simply ignore what these economic groups are saying and continue to take the United States down the road of protectionism.

Britain Needs Free Trade Deal But May Not Get It

As Brexit negotiations continue, it is not certain yet if the United Kingdom can secure a free trade deal with the European Union. It is rather clear that British financial services firms will get hit if there’s no deal. The financial sector is quite important to the British economy. But, it is not the only one.

According to BBC News, Britain’s food and drinks industry will face a disaster without a free trade with the EU. And it is the biggest manufacturing sector, which also employs 400,000 people.

The transition after Brexit is expected to last until the end of 2020. Without the trade deal, UK’s exports are going to decline after 2020, while consumers will end up paying higher prices.

The UK wants to be another Singapore, but the country isn’t located in the fast-growing Asia-Pacific region. It is near Europe (not in Europe as some Brexiters say) and 50 percent of its exports go to Europe.

By separating itself, the UK wants to do business with the whole world as it did during its heyday. But, Britain is no longer a superpower and it doesn’t control an empire.

True, seeking business abroad is always a good idea. But will other countries want to open their borders to the British businesses? The United States, for example, are becoming protectionist, while Australia is far away, and Canada is a rather small country when it comes to its population.