Daily Picks Tuesday: Biggest Economies Are Not Prepared for Another Recession
June 19, 2018
5 Min Read
Trump ratchets up China trade conflict with fresh tariff threat
- In retaliation to China's retaliation, President Trump has threatened an extra 10% tariff on $200bn worth of goods.
- China has said it will fight back firmly with “qualitative” and “quantitative” measures if the U.S. publishes an additional list of tariffs on Chinese goods.
- The trade conflict between the world’s two biggest economies is quickly escalating.
Bank of England to keep rates steady as winter chill slow to lift
- Patchy growth, as the economy prepares to leave the European Union in March next year,places Bank of England (BoE) policy in sharp contrast to the United States.
- The BoE expects the first-quarter weakness to be temporary, but has been much vaguer about precise timing of rate increases.
- Since last meeting, inflation has fallen to a one-year low of 2.4% and April industrial output and construction data were strikingly weak.
- However, business surveys for May have perked up, pointing to second-quarter growth of 0.3-0.4% in line with the maximum rate the BoE thinks the economy can sustain without causing too much inflation.
- “August would be too much of a gamble and (we) see November as the next best opportunity for a hike, assuming data strengthens more than we expect and that Brexit remains free of major disruption,” - Barclays
Summers Warns the Biggest Economies Are Not Prepared for Another Recession
- Former U.S. Treasury Secretary Lawrence Summers warned that developed countries are badly equipped for another recession, both economically and politically.
- The remarks come as the world’s most powerful monetary policy makers start scaling back the extraordinary levels of support they’ve lent their economies since the financial crisis a decade ago.
- Massive stimulus - including a fiscal boost and unsustainable stock market gains - has obscured the full picture.
- The avoidance of inflation is no longer the top issue, it’s the “maintenance of sound growth and getting to full employment."
- Central banks should be wary of raising interest rates just to control inflation.
How Much Would An iPhone Cost If Apple Were Forced To Make It In America?
- There is a good argument that Apple would not be able to manufacture any iPhones at all if forced to manufacture in the U.S. as it would be rendered completely non-competitive.
- It's not really about differences in the cost of labour. It is more about the supply chain and it is mostly about differences in the necessary skills required to manufacture hundreds of millions of iPhones at high-quality to satisfy current market demand.
- "China stopped being the low labour cost country many years ago and that is not the reason to come to China from a supply point of view" - Tim Cook
- China has developed and scaled tooling engineering which is a highly skilled position that requires years of training and experience.
- Relative scarcity of qualified precision tooling engineers is just one of many reasons why it would be hard to scale manufacturing of the iPhone in the U.S.
- It would take an entire generation for the U.S. to build the skills required, a problem that has impacted mass-production of the Tesla model 3.
- The U.S would need to re-design much of their public educational system where students start moving down the vocational path during high school. Which would be a pretty massive undertaking.
- Precision tooling is just one slice of the overall equation, we haven't even yet considered the other aspects of scaling such as building the component supply chain, improving our logistics infrastructure and finding hundreds of thousands of workers willing to work the assembly line (even with robots and automation).
- Forcing Apple to manufacture only in the United States means that in a best case scenario you probably go from the ability to produce hundreds of millions of iPhones per year to producing single-digit millions per year at a much higher per-unit cost. That would bring us to prices in the $30,000 to $100,000 range.
- The idea of comparative advantages in Economics teaches us that just because we can do something, doesn't mean we should.