Did get Oracle the Tiktok deal because it cozied up to the US president more than any of the other US companies, wonders international trade expert Harry Broadman at CNBC. Many questions remain after Microsoft was replaced by Oracle.
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China and the US might have their first evaluation of their 6-month old trade agreement soon, but the cross-currents between both countries are here to stay, says Berkeley Research Group managing director Harry Broadman to Bloomberg Markets. China kept largely its promises, while the US cannot afford to take on China in a more aggressive way, he says.
Harry Broadman is a speaker at the China Speakers Bureau. Do you need him at your (online) meeting or conference? Do get in touch or fill in our speakers' request form.
Are you looking for more experts on the ongoing trade war between China and the US? Do check out this list.
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The catalyst for the move is likely Luckin Coffee, the fast-growing Chinese coffee chain that created a network of fake employees and customers that enabled it to grossly fabricate its revenues. Only eight months after going public – on Nasdaq's exchange – the company's valuation had doubled to $12 billion. News of the doctored numbers caused stock to fall by as much as 75% overnight. "
After decades of working in China intensively on financial accounting, there is not a single state-owned enterprise I've worked on that I can think of that abided by international accounting standards," said Harry Broadman, partner and managing director of the emerging markets practice at Berkeley Research Group. "Some of these firms are now listed on the US markets. I've not examined those firms' recent financial accounts, but even if we were given their upstream numbers, the source and integrity of those numbers has always been, in my mind, very dubious."
"I am surprised that it has taken this long, just in terms of the sheer due diligence and regulatory integrity check. I wasn't aware of exactly how many of those Chinese firms were listed on US markets, but I'm actually quite shocked there were that many," he added, "That's not a comment about the Chinese, but about US regulators."
"Anybody who understands how state owned Chinese firms keep accounts, even some of the more privately oriented of them, knows they are just not completely grounded in international accounting standards, like a US firm or a British firm," he said. "Anyone who thinks that is quite myopic."
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“Even in this unusual environment, we’re all trying to out-game one another,” Harry Broadman, managing director of Berkeley Research Group and a globally recognized strategic advisor to CEOs, boards and the White House, told Chief Executive.
“Even in crisis, that begets opportunities. You have to think carefully as the bathtub drains on everyone. You get important information because you’re going to observe how you’re doing relative to competitors—important market signals that you honestly wouldn’t have without this crisis.”
Broadman said that one of the most important “overarching lessons from all of this will be how you manage risk.” It’s crucial in that regard, he advised, for CEOs not to panic; to remain confident in decisions that were made amid prosperity; to understand how the COVID-19 recession is going to stress the existing framework of your industry; and to make sound decisions right now about how to capitalize for the future.
This is where fellow occupants of the “bathtub” come in. “Assume for the sake of argument that you’re all in the same bathtub and you’re all going to fall pretty much at once, even in different ways. Then the bathtub is going to refill again, and you may find that we all will be in the same relative positions as when the crisis began.
“CEOs and boards need to be thinking through that issue in a cool, clinical fashion.”More at the Chief Executive.
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"Modern companies have different vertical suppliers around the world. It could be the input that's not being produced in China – because of the disease – isn't making its way to a factory in Thailand, which then goes to Brazil and then comes to the U.S.," Broadman says.
Almost nine years ago to the day, Japan's Fukushima region was hit by a magnitude 9.0-earthquake and subsequent tsunami. Not only did the natural disaster cause three nuclear meltdowns at a nuclear power plant, it effectively took offline production facilities that reportedly produced 22% of all 300-millimeter silicon wafers, a vital component in semiconductors, globally.
On top of that, as much as 60% of certain necessary auto parts were made in Fukushima.
Although the coronavirus is a different beast entirely, it is an ugly surprise from Mother Nature forcing mainstays of the global economy to reexamine their risk tolerances and supply chain dependencies.
For Broadman, the fact that the coronavirus isn't just hitting some concentrated region is what makes it such a dynamic threat.
"The coronavirus is something that knows no borders and is far more diversified than any supply chain. That's why you're seeing pretty pronounced effects reverberating," he says.
Still, there's a lesson or two here. Even if they rhyme with the lessons presumably learned from Fukushima.
"One of the lessons is that there probably needs to be more attention paid to either redundancies or alternative suppliers should a particular supplier not be available," Broadman says.
"There's always a reaction to say, 'OK, we've learned from this.' Companies will learn, just as consumers will learn, to stockpile things if all of a sudden they're frightened because they couldn't find something. The question is: What's the half-life of that fear factor?" Broadman says.
In a way, one central question for supply chain dynamics moving forward seems to be greed versus safety. Stockpiling, redundant suppliers – these prophylactic measures cost money, Broadman says....
Broadman ... commented on a certain inertia in global supply chain practices. China's scale, combined with its foothold in capital intensive businesses that are time-consuming and expensive to relocate, give the country some enviable competitive advantages.
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“On trade secrets, to be honest, the language that’s in the agreement is pretty loose and generic,” said Harry G. Broadman, managing director at Berkeley Research Group who chairs the firm’s emerging markets practice. “On the face of it, I don’t see — at least on that portion of the agreement — a lot that’s significantly different from previous types of agreements.”
Some of the practices and changes agreed to by Beijing were changes that were already in the works or had been previously agreed-upon...
“The people who are paying the tariffs are U.S. firms and U.S. consumers,” Broadman said. “It’s not clear to me what the actual economic impact will be as a dispute resolution measure to ‘threaten’ China with more tariffs.”
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Some key principles highlighted by the new law are: intellectual property rights of foreign businesses are deemed to be protected in the same way as the local firms; foreign investors can freely remit profits, capital gains and liquidation proceeds to their overseas entities, in renminbi or in foreign currency; and foreign investors should be equivalently treated as the Chinese companies (that is, they will enjoy the “national treatment”).
“One of the key objectives of countries putting in place policies to encourage foreign investment is to lower barriers to business entry in order to stimulate domestic competition, provide local consumers with new products or services, expand employment opportunities and foster innovation－all of which are engines of growth,” said Harry Broadman, managing director and chair of the emerging markets practice at the Berkeley Research Group and a member of the Johns Hopkins Faculty.
This new Foreign Investment Law, and its corresponding regulations that are implemented, mark one of the most significant developments in China’s treatment of foreign investment, experts said.
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It could be weeks before the 86-page agreement is translated into Chinese and further details are released. Several Chinese officials this week said the wording of the deal remained a delicate issue and care was needed to ensure expressions used in text did not re-escalate tensions, raising concerns it could still unravel.
Jorge Guajardo, a former Mexican ambassador to China who is now a senior director at McLarty Associates, said both the dust-up with the Mexicans over U.S. plans to monitor changes to Mexican labor rules, and the delayed release of the text of the China deal raised questions about how Lighthizer operated.
"Both Mexico and China seem to have been caught off guard," Guajardo said. "It's troubling. It does indicate a bit of a pattern on the U.S. side of presenting different agreements than their parties think they agreed to."
Harry Broadman, a former senior USTR official, said there was no reason the Mexico issue should have spilled into public view. Announcing the trade deal with China before the text was translated was also unusual, he said.
"That is not the procedure usually followed in trade negotiations worldwide. Usually you speak after you have something in writing, and both sides release it," Broadman said.
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Harry Broadman, former Assistant U.S. Trade Representative under the Bill Clinton administration and current partner at the Berkeley Research Group, told CNBC that any White House communications regarding the trade war should be seen through the lens of the president’s “singular focus” on his 2020 re-election campaign, adding that the deal touted by U.S. trade officials was “not much of a deal in any kind of meaningful way.”
“As everyone knows, it does not touch on the threshold issues that the administration has been talking about for two years, which is the structural reforms, the intellectual property protections, subsidies, the state-owned enterprises and the like,” Broadman told CNBC via telephone from Washington on Tuesday.
“It’s not even obvious to me how much of that was even discussed in the conversations and the reason for that, I believe, is the metric that Trump and his lieutenants, the Secretary of the Treasury and the U.S. Trade Representative, focus on is how to eliminate the merchandise bilateral trade deficit between the two countries.”
Broadman, who also served as chief of staff on George H.W. Bush’s Council of Economic Advisers, suggested that since the Trump campaign’s focus in both 2016 and 2020 is on eliminating the bilateral trade deficit on goods, the administration’s sole focus would be on demonstrating to Trump’s base that the promise been fulfilled. However, he dismissed the merchandise bilateral trade deficit as an “economically meaningless metric.”...
Broadman, who was part of the U.S. team that negotiated with the WTO, said a marked shift had occurred away from a focus on multilateral and plurilateral regional agreements and toward bilateral efforts between individual nations.
“The other issue within that context, particularly in the bilateral context with China, is that these ‘agreements’ with China and the U.S. under the Trump administration, frankly, are making the U.S. look more like China, in the sense that these state-to-state deals on agricultural purchases are not market-driven purchases,” Broadman said.
He added that the Trump administration was correct to criticize China for being a member of the WTO while maintaining a prominent state role in its economy, but suggested that Trump was now “centering his negotiations by employing the U.S. government on the transaction side.”More at CNBC.
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There are two putative goals of the current US administration for proactive policy “decoupling” between the U.S. and China. The first is to reorient U.S. firms’ supply chains away from China to U.S. sources, which would have the effect of helping to achieve President Trump’s principal trade policy goal with China: elimination of the bilateral U.S.-China merchandise trade deficit. The second is to prevent China’s further progress in the global race for superiority in innovation and market dominance in advanced technology products and services.
It is not up for debate that China has both engaged in trade policies that are not WTO-compliant ever since its accession to the WTO in 2001 as well as in the piracy of intellectual property and technology decades before it joined the WTO and still does. Yet, not only will the U.S. goal of forced bilateral decoupling between the two largest economies fail in a marketplace whose structure is now inherently globalized, but the policy tools being waged by the U.S., combined with its go-it-alone approach to try to contain and isolate China both economically and technologically, will not induce the changes Washington seeks from Beijing.
Indeed, there is an appreciable risk that the outcomes produced by the U.S. strategy of proactive decoupling will serve to only make the U.S. worse off and jeopardize global economic growth. There are far more effective ways to deal with China's conduct and to generate outcomes that will more greatly benefit both the U.S. population and the world community...
What to do? Let's tell it like it is: China is knowingly in broad violation of the legal WTO commitments it signed in 2001.
The world community has a fundamental choice before it. If the globe’s second largest economy cannot live up to its WTO commitments, then let’s all be grownups and take collective action and agree that China shall either fundamentally renegotiate its WTO membership or be removed from that system. The result? Beijing will then not get preferential tariff and other favorable treatments that come with WTO accession.
This is not a pejorative view of China—by any means. Like every nation, the Chinese have the absolute full right to have whatever type of economy they wish. But no country can have its cake and eat it too. Fundamentally, this is a values statement: the goals of Xi Jinping and the Chinese Communist Party, which he leads, are not those shared by the U.S. and many other nations.
If on the other hand, we want to close our eyes about China staying in the WTO, then the only other choice is to terminate the WTO all together since it has zero credibility. However, here is where things become dismal. The Trump administration is itself operating outside the WTO. Indeed, the current occupant of the Oval Office seemingly would quite welcome the demise of the WTO.
Without question, that is an outcome the overwhelming number of the world of nations will deeply regret. As a result, one should be hopeful this would have little chance of occurring.
The question then is: Who will step up to the plate and spur the collective action the world so deeply needs now?Much more in Forbes. (here in pdf-format)
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While the importance of services trade to US competitiveness may have once been out of the mainstream of trade policy thinking, that was decades ago. If Trump’s economic advisers are worth their salt, they should know better. If they do, then why can’t they get through to the boss?
Perhaps Trump’s distorted view towards the importance of international trade in services stems from sheer ignorance. That is hard to believe. After all, he did attend the Wharton School of Business at the University of Pennsylvania, from which he graduated in 1968 with a Bachelor’s Degree in Economics.
Such training, one would assume, equipped him with the tools to understand the concept of cross-border services transactions, even if they were not as commonplace then as they are today.
Alternatively, does it stem from a nostalgic hope to return to years gone by when manufactured merchandise and other goods dominated economic activity in the US and elsewhere? If so, he would do well to recognise that such a wish is far-fetched. Why?Because over the last 20 years, in every country of the world — rich as well as poor — manufacturing’s contribution to GDP actually has been declining while the share of GDP accounted for by services has been rising.
It’s ironic that not only is the core of the Trump Organization in the real estate industry, a prime component of the services sector, but Trump’s course concentration in economics at Wharton was in real estate. Even television, Trump’s second occupation, is a services industry.
Despite this, Trump might well believe that a shift to a services-oriented economy is a sign of economic decline. If so, the latest data, which are for 2015, suggest he would be quite mistaken. In high-income countries, services’ share of GDP has risen to 75 per cent. In low- and middle-income states, the share of GDP accounted for by services has increased to 56 per cent.
Whatever the reason for Trump’s myopia toward the fastest growing portion of international trade, he needs to realise that he — like the rest of us — is not living in an economy of years gone by.More in Gulf News.
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Regrettably, for Mr. Trump, there are other constituencies of his base throughout America’s heartland, Rustbelt and elsewhere that are feeling as much pain as farmers from his 2018 tariffs—or will do so shortly as the bite of his newest wave of tariffs kick in. Perhaps saddest of all is the fact that imposing tariffs on merchandise imports—the president’s choice, if not sole, instrument to seemingly induce WTO-sanctioned “behind-the-border” reforms of China’s economic regime, such as a hold by the state on the free play of prices, weak protection of intellectual property, provision of huge subsidies to state-owned enterprises by state-owned banks that only pretend to require debt repayments, and artificial barriers to market entry and exit—simply will not work.
We Americans are willing to endure pain for gain. But let’s not fool ourselves into thinking as Mr. Trump does, that simply eliminating our bilateral merchandise trade deficit with China, which in and of itself is not an economically meaningful objective but which his tariffs may well do, will alter the core of China’s conduct in the global trading system.
In a nutshell, no matter how high or expansive are tariffs, they will not create effective incentives for China to execute the fundamental market-oriented reforms Beijing legally obligated itself to undertake in its 2001 WTO Accession Agreement. That is the real endgame.
Achieving that goal--necessitating a reduction in the fundamental role of the state in China's economy, which of course Chinese President Xi Jinping is loathe to do since that is the raison d'etre of the Communist Party--is a wholly different matter. That would require both using a different arsenal and employing a fundamentally different strategy, especially marshaling a multilateral coalition of the world's leading trading partners. Our president seems to be moving us further away from that path each passing day.More at the BBC.
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The US campaign against Huawei, one of China's most powerful tech companies, reached new heights earlier this month when the Trump administration added it to a list of companies said to undermine American interests. That forced crucial suppliers like Google and ARM Holdings to cut ties with the Chinese company, while top carriers in the United Kingdom and Japan delayed the launch of Huawei smartphones.
Now China's blacklist could target those same companies, penalizing them for complying with the US ban.
"They have not identified which companies this means but I'm sure, knowing the Chinese as I do, that they will do counterpart targeting matching the US," said Harry Broadman, a former US trade negotiator. He added: "Clearly their buttons have been pressed, with the way we're dealing with Huawei."More at CNN Business.
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It would be disingenuous to blame the Chinese for their extraterritorial ambitions for regional economic development, especially from a European or US vantage point. Still, the process by which Mr Xi has developed and promoted his programme has created serious problems — indeed contradictions — that need not have arisen.
The most salient and fundamental of these — which should be obvious to Mr Xi and his comrades — is the administration’s failure to structure the BRI in a manner consistent with the way China itself has engaged in economic reform so effectively since 1978: incrementally, collaboratively and through experimentation. These are the key ingredients whose use China has mastered over the past four decades to encourage the public to believe in and support its reforms. In effect, Mr Xi’s political ambitions for the BRI are lacking in core “Chinese characteristics”.
Indeed, if there is one lesson the Chinese have taught policymakers the world over, it is that the probability of policy success rises dramatically when reforms are built on engendering “buy-in” from those directly affected and that, as new policies enlarge in scope, they should be modified to embody what has and what has not been found to be effective.
This has been the bedrock of Beijing’s policies almost across the board, including reform of enterprises, cities, internal migration, pensions and the social safety net, education, environmental policy and more.
Yet, instead, with the BRI, in one fell swoop Mr Xi has rushed to enlist more than 60 partner countries and sign more than 120 transport agreements, while unilaterally barring others from participating.
The irony of the Chinese not following their own example is supreme. The negative fallout from Mr Xi’s tactics is occurring in multiple dimensions and, unless there are fundamental modifications, it will continue to haunt him. In conjunction with the external effects of the economy’s structural weaknesses, this could well jeopardise the success of the plan itself.
Beijing’s attempt to rebrand the BRI as the “New Silk Road” has not helped. The analogy rings hollow. The ancient Silk Road was an amalgam of decentralised routes that evolved organically at alocal level, over the course of centuries. It was not a one-way hub and spokes network; there was considerable variation among its routes, from where they sprouted up to where they terminated.
Moreover, while some of these networks emerged as pathways principally facilitating trade in merchandise, most notably in silk and spices but also in arms, tools and the like, perhaps more important was their role in the exchange of ideas and cultures and in human migration.More in the FT column.
