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QuickHit

QuickHit: Will China Invade Taiwan? (Part 2)

This is Part 2 of the QuickHit episode on “Will China invade Taiwan?” with Chris Balding and Albert Marko. In this second part, the guys discussed Hong Kong, the semiconductor industry, and possible actions by the Biden administration. Tony Nash is hosting this show where the two experts discuss likely possibilities for China, Taiwan and other countries that may be affected by the conflict between the two countries like the US, Japan, and South Korea.

 

In Part 1, we looked at the plausibility of China invading Taiwan and what that might look like. In Part 2, we look at is Hong Kong a precedent for China potentially taking over Taiwan? We also look at the global semiconductor industry and firms like TSMC. What kind of impact would Chinese action on Taiwan have toward TSMC and also how would we expect the US to react and what would the different reactions do to US credibility in East Asia?

 

You can watch the Part 1 here: https://www.completeintel.com/2021/01/27/quickhit-will-china-invade-taiwan-1/

 

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This QuickHit episode was recorded on January 26, 2021.

 

The views and opinions expressed in this Chinese invasion of Taiwan QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

CB: What you’re saying about body bags makes perfect sense. Is Xi that directly rational? Because it would seem like there would be a better way to handle Hong Kong than what has taken place?

 

AM: Hong Kong was a little financial center with no military, no nothing. There’s just a bunch of woke millennials running around, thinking they can hold off the PLA. That doesn’t work like that in real life. You got to come at them with guns to earn your freedom. It was a circle by China. It was inevitable.

 

TN: Since ‘97, there hasn’t been a question as to whether Hong Kong is China. Hong Kong is China. And people have shrugged their shoulders since ‘97 and said look, it’s China. It’s a matter of time. It’s a special zone.

 

CB: Maybe my meaning was lost a little bit. The cost-benefit of what Xi has done in China or in Hong Kong, he clearly probably could have reaped more benefit by saying we’re gonna let Hong Kong continue to be Hong Kong for another 10 years or something. There wasn’t really a need for him to move. It’s probably going to create bigger problems internationally. There’s probably assets that are going to move out of Hong Kong and other places, Singapore. So what if we look at a strict cost-benefit, there wasn’t really a reason for Xi to do that.

 

TN: There was. The protests that would come, first every five years, then every two years, and so on, it was becoming increasingly embarrassing to Beijing. The official channel to as an inward or outbound investment lane through Hong Kong, it’s still there. But Beijing couldn’t take the embarrassment of this and what they didn’t want is to have some rogue police brigade kill a bunch of 25-year-olds on accident. I believe they had to pull the trigger and I think this has been planned and architected over years and it seems like something sudden that people are like “wait, what’s going on?” They’re rolling military and this has been planned for years.

 

CB: What you’re getting at is this was embarrassing domestically and he basically said to hell with the consequences internationally? If we apply that same basic line of thinking to Taiwan, the question would then become, well, they’re willing to deal with the international consequences. We know that in colossal range barriers. What other domestic issues are at play here about Taiwan?

 

TN: I think it’s backwards. It was more embarrassing internationally because the CCP plays international media like a fiddle. Xi Jinping goes into Davos or speaks at a WEF event. Everyone walks away, enlightened and they play international media like a fiddle. They were less worried about what international media would think and even less worried about what domestic populations would think over time.

 

They just needed to rip the band-aid off so that kind of righteous reporters in Hong Kong wouldn’t keep raising this story because it’s inconvenient. They knew that at some point, they were going to take over, and so they just did it and that it’s inevitable that’s going to happen. They just did it.

 

And global media? They’ve fallen in line over the last nine months. Nobody talks about Hong Kong anymore and the rights and being trampled upon and all that stuff. International media have fallen in line on this. They don’t care. They want to make China happy. Why? Because the CCP and their companies are going to buy supplements in their newspapers and in their online forums and they’re going to pay for their think tank pieces and all that stuff.

 

CB: There are specific media outlets that are decidedly less critical of China than they used to be as an editorial line.

 

AM: I agree and I love that analogy of like ripping the band-aid off because Hong Kong was ripping a band-aid off but Taiwan would be like ripping duct tape off a Greek guy’s chest. That’s the problem here, and that’s what we think we have to understand that not only is it economically damaging, it’s politically damaging internationally, militarily. The risks, just in my opinion, way outweigh the benefits of trying to take over Taiwan.

 

TN: Let’s say this happened. Let’s say six, nine months, something happens. What happens economically? I know there’s cross holdings with CCP princes and stuff but let’s look at say semiconductors, TSMC. The otherfoundries are disrupted for a period of time.

 

AM: I know where you’re going with this and this would actually make me flip my position if I was advising China. If they wanted to hit the West and create even a bigger semiconductor shortage, then you absolutely destroy Taiwan. This is where I’m going. You absolutely would do that.

 

TN: Right. So, does it make SMIC relevant and does it make the Chinese foundries relevant? What is in that gap? TSMC, all the execs are moving to Phoenix. What happens then?

 

CB: Taiwan and TSMC are in the very awkward space. At this point, they’re probably like THE manufacturing firm. The other places do the design and stuff like that. There’s a lot of firms that are in the mid and low end. But when it comes to your high-end stuff, it’s pretty much TSMC. I think you could make a case that Beijing says, “screw it!” Forget about Taiwan. If we can capture TSMC, we’ve got it all.

 

TN: We just invade Hsinchu, right?

 

AM: The Chinese, for all the negative things that I have to say about them, are really good asymmetrically combating the West especially the United States where they’ve weaponized Caterpillar, weaponized multiple American companies within China to hit the United States politically and economically. That would make perfect sense from the Chinese perspective to just cut off the semiconductors specifically because those semiconductors go to Apple, to the big three automobile sector, which is the only thing right now that’s going to be able to get unemployment back down to a decent level for the Biden administration.

 

TN: If that did happen, would that present an opportunity for Japanese, Korean firms to fill that void to circumvent Chinese control or has that ship sailed years ago and there’s no way they can recover that?

 

AM: I don’t think that they’d be able to recover especially in the near term. I think the chip shortage would be so, so damaging to the entire global economy that it would be pretty devastating for a while.

 

CB: And the people I talk to in chips basically say, when it comes to manufacturing of higher end chips, it’s basically TSMC. Not even Intel these days is manufacturing their own chips. So even if TSMC is Chinese tomorrow, it would probably take five years before Korean and Japanese firms at the earliest would be producing high-end chips that could compete with TSMC.

 

TN: If China threatens to invade Taiwan and the West is like “look, do whatever you want, we just want to make sure we have our chips.“ Is that really a plausible negotiating point?

 

AM: I don’t think the West could even trust China in that respect. Has the Chinese ever given us assurances and anything like that ever?

 

TN: Let’s act like this happens. Something happens in June, July whatever. What does the US Navy do? Will they protect Taiwan or will they distance and reevaluate?

 

AM: The US would probably let Taiwan defend itself for a certain period of time and float in a carrier strike group just to deter China at some point. They’d have to walk defense there. That’s not an easy solution. You’re talking about going up against China within proximity of their borders, which they would have an advantage of.

 

CB: They’re not going to do something like this just launching a couple volleys of low-grade missiles. This is moving all your chips to the center of the table. And so basically, the question that the US Navy would have to ask is are we going to move all our chips to the middle of the table otherwise, let China have it.

 

TN: If the US says, “fine, we’re not going gonna move our chip to the side of the table. Let China have it,” then does that destroy US credibility in East Asia because the obligation of the US to defend Japan, Korea and so on, those are gone then, because US has an obligation to defend Taiwan.

 

AM: The South Korea would be the biggest problem immediately after that.

 

CB: One of the first comments about by the administration foreign policy was the Japanese defense minister saying China is a real problem, you boys need to get your big boy pants on. That was a month ago or a couple weeks ago. That was pretty much the Japanese saying, “you know this isn’t 2008 boys. We’ve got to be ready.”

 

The other thing was, is over the past couple years, there’s been a shift in the US Military. Basically, all the US Military in Korea is now way far down the peninsula. And South Korea knows that. The US Military is in a position where if the North Korea decides to stream across the border, they can pretty much pack up their personnel and be gone in a couple of hours. If something happens, Tokyo and Seoul are absolutely going to be paranoid. Doesn’t stand right there and start firing back.

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QuickHit

QuickHit: Will China Invade Taiwan? (Part 1)

Albert Marko and Christopher Balding are back for another #CageMatch special episode for QuickHit, where the two experts discuss the million dollar question: Will China invade Taiwan? Tony Nash is hosting this episode with Marko and Balding sharing what they think the two countries will do. Does China have the capability (and money) to invade Taiwan? If ever, will Taiwan ever retaliate? Can they afford to go to war? And how will the US fit in all these? Will this be another war waiting to happen?

 

This China and Taiwan conflict is Part 1 of 2 episodes. Subscribe to our Youtube Channel and signup to the CI Newsletter to be among the first to know when the second part is out.

 

The China-Taiwan relations was briefly discussed in the first ever #CageMatch episode. Watch the Part 1 here. 

 

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📺 Subscribe to our Youtube Channel.

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📈 Check out the CI Futures platform to forecast currencies, commodities, and equity indices

 

This QuickHit episode was recorded on January 26, 2021.

 

The views and opinions expressed in this Chinese invasion of Taiwan QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

Show Notes

 

TN: We’ve seen some build up of China’s activity toward Taiwan especially over the last month and we wanted to have a deeper discussion about one of the big questions that is out there which is “Will China invade Taiwan?” and is that a viable likely possibility or is it just saber-rattling to shake things up a little bit. With the new Biden administration and the change over there, there is potentially an opportunity for China to take a more aggressive stance toward Taiwan, the region and, the U.S.

 

We’re joined by Chris Balding and Albert Marco to talk about this. Let’s go through your basic thesis. Chris, what’s your position China preparing to invade Taiwan? Do you think it’s something that is possible and or likely?

 

CB: I would put what we think of as a full-scale invasion, where there’s soldiers and rubber rafts storming the beaches of Taiwan. I think that is relatively unlikely as a scenario. But I do think what is much more likely, and I would put it above 50% is some type of escalated conflict either in the East or South China Sea over the next 18 months as distinctly possible.

 

And when I say that, let me emphasize, we’re talking a range of possibilities. This could be everything from a PLA navy boat ramming a Taiwanese fishing boat. It could mean blowing up a shoal or something like that they’re fighting with Vietnam about. There’s a range of possibilities, but some type of conflict within the next 18 months is distinctly possible.

 

The reason I say 18 months is Xi will be going up for election of his third term in about 18 months. That is a very important time period. And I guarantee you, Xi and those around him know what basically they’re looking to accomplish within those 18 months. You have a number of complicating factors. It’s not uncommon for Chinese leadership to say: “Hey there’s a changeover in the U.S. Let’s see what we can get away with”. That’s not why they would do it. The timing is fortuitous.

 

So, I do think some type of escalation in the East and South China over the next 18 months is likely.

 

TN: Okay. Albert, what do you think?

 

AM: China likes the poke and they like the prod and they like to test the perimeters of defenses like most nations. When it comes to offensive capabilities, they want to test their adversary’s defensive capabilities.

 

Do I think that there’s going to be some kind of escalation? Well, I kind of agree with Chris there. Something might happen along those lines. But I don’t think it would be anything very serious. China would need an assurance of a quick and decisive victory if they were to attempt something like that. Obviously, a full-scale invasion is definitely not going to happen.

 

But even blowing up a shoal or taking out a couple fishing trawlers or whatnot, they certainly don’t want to sit there and affect their shipping lanes. Taiwan straits in that entire region, is the world’s biggest trading lanes for ships. You can’t have the United States running there with an armada just to protect Taiwan. It would adversely affect the Chinese economy. Xi at that point in 18 months, like he’s running up for election like Chris said, he can’t afford any kind of hiccups right now in the Chinese economy. And most of the CCPs elite are ingrained with Taiwanese companies. So, for them to sit there and disrupt that wealth, I just don’t see it happening.

 

TN: We saw over the last week where the Chinese government said that they can now defend itself in its claimed territorial waters. And with China expanding its claims, whether it’s with India, South China Sea, wherever it is, it seems to me that they’re telegraphing a more aggressive stance. Do we expect that as a warning? That is fairly hollow but they just want to put it out there or is that something that we believe they’ll act on against the Philippines, Vietnam, Taiwan, Japan or something like that. Could we see the claim over, maybe, the Senkaku Islands go hot at some point for some phosphorous hills or whatever?

 

CB: A lot of this follows a very similar pattern of what we call “salami slicing,” is over the course of a couple years, they just continue to slice away and slice away and slice away, until the last logical step in progression of some type of escalation. That’s a similar type of strategy. That’s part of why I say a full-scale invasion of Taiwan, likely no, I don’t think it is. I generally agree with Albert in that sense that I would put it as a very low probability type of event.

 

Are there other types of conflicts that may take place? Whether that is Taiwan or Chinese navy and fishing vessels circle islands and stuff like that. Absolutely. I think it’s relatively likely 50 percent over the next 18 months.

 

There’s been very under-the-radar moves in the sense that within the past year, maybe 18 months, Xi replaced key generals that oversaw the southern and eastern areas, which are very closely tied to Taiwan.

 

If there’s not some type of conflict, they’ve taken all the move that seemed to indicate signal that yes, they are at the very least they want to stick out their chest a lot more in these areas. And I think probably the one area where I would fundamentally disagree with Albert is that I think he’s perfectly right on “why would China do this this? This could mess up their shipping lanes they’re invested in Taiwan.?” And the reason I disagree is not that I think Albert is wrong. But I think, it’s the wrong type of rationale.

 

If we look at why is China picking a fight with India in a frozen ground on the Himalayas at 25,000 feet? It makes no sense. I mean there’s little logical reason. They’ve successfully turned India against. They’re kicking out in India. They’re kicking out Chinese apps as fast as they can find them. And they’re looking to start an Indian smartphone market. Very little action is proven has provoked a very large reaction from India. Albert’s rationality, in a way, is perfectly accurate. I don’t think that necessarily captures the reality of what I would call Chinese rationality of the logic that they’re using to make those decisions and the risks they’re willing to take.

 

TN: If we take the Hong Kong scenario and we talk about the salami slicing that Chris talked about. After the umbrella revolution in 2014, intel I was hearing out of China was that the decision was made in Beijing that Hong Kong would lose its status as a global financial center. And it was just a matter of time, right? And we’ve hit that point effectively. Okay? Hong Kong is not a place where you, unless you want risk, where you’re going to necessarily park your assets. It’s taken five years. They were patient and it seems to me they’re beyond the tipping point. It was that kind of salami-slicing approach to taking away the credibility of Hong Kong, but also injecting the inevitability of Chinese ownership. Is it possible that can happen with Taiwan?

 

AM: Well, of course, it is certainly possible. There’s no question about that. Do I think it’s possible in the next 18 months? Absolutely, like even Chris agrees. I don’t think that’s going to happen in 18 months.

 

There’s no Chinese build up militarily for Taiwan invasion. If you were to look at every single military offensive project has logistics involved. There’s just none piling up. The United States would see that in satellite images well in advance.

 

However, back to the Himalayas, which I think is something we should rather key on. If you want to talk about India’s slicing away stuff, there is a rationale for the Himalayan conflict. It’s the watershed. They need that water and they they’ve been piping that water into agricultural areas in China for years now and they haven’t done too much of it because it’s going to really upset India. You have a billion people in India versus a billion people in China that needs fresh water. It’s going to be a problem. They’ve built mountaintop bases. They have built up a military presence there. That’s where I would actually focus in the next 18 months as a real skirmish.

 

This Taiwan thing, I completely agree. It’s well within the Chinese game playbook to slice away and just wait for their time. But a Taiwanese invasion would be extremely costly for the Chinese. The risk-reward for the Chinese right now to even think about adventuring into Taiwan would cost them significant military losses, significant economic losses. It would ruin some BRI projects. It would ruin the perception of China as a growing superpower. There’s just so many negatives that I can’t see any real generals in the PLA telling Xi that this is a good idea. Now that’s not to say that Xi won’t do it anyways because…

 

CB: Tony, let me ask a question. So, Albert, 70 people I’ve talked to say they actually see the military risks increase significantly to Taiwan based upon hardware that’s getting onboarded in the PLA. They see the risks to Taiwan’s increase significantly post about 2022. Okay. Would you share a similar outlook?

 

AM: You have to understand, when it comes to offensive versus defensive capabilities, the defense always has a clear-cut advantage, right? Offensively, it takes seven dollars per one dollar of defense of offensive spending to actually take over. Now without a doubt, China would win over the long term. But at what cost will the PLA navy take? The Taiwanese defenses are no joke. They’re well equipped to at least hold them off for quite a long time and invading. Even the PLA. The PLA officers, that’s a social structure. That’s a social ladder realistically. How would it look like for Xi if the firstborn son of some of these elite families are coming home in body bags?

Categories
QuickHit

QuickHit: $70 Crude & $5 Copper are coming

Returning guest Tracy Shuchart graced our QuickHit this week with interesting and fresh insights about oil and gas. What is she seeing on the industry — is it coming back to the normal levels, or better? Why she thinks oil will reach 70+ USD per barel? What’s happening on copper and why does its price going up? And is she seeing any surprises under the Biden administration?

 

Tracy Shuchart is the energy and material strategist for Hedge Fund Telemetry and she is a portfolio manager for a family office. She’s pretty active on Twitter with a large following. Check out her on Twitter: https://twitter.com/chigrl

 

💌 Subscribe to CI Newsletter and gain AI-driven intelligence.

📺 Subscribe to our Youtube Channel.

📊 Forward-looking companies become more profitable with Complete Intelligence. The only fully automated and globally integrated AI platform for smarter cost and revenue planning. Book a demo here.

📈 Check out the CI Futures platform to forecast currencies, commodities, and equity indices

 

This QuickHit episode was recorded on November 24, 2020.

 

The views and opinions expressed in this QuickHit episode are those of the guests and do not necessarily reflect the official policy or position of Complete Intelligence. Any content provided by our guests are of their opinion and are not intended to malign any political party, religion, ethnic group, club, organization, company, individual or anyone or anything.

 

 

Show Notes

 

TN: We’re seeing a lot happening in markets on the energy side and in things like industrial metals. We’re starting to see some life back into energy not just food but even in energy companies who come a fair bit off of their loads that we saw in Q2 and Q3. Can you help us understand what’s happening there? Why are we seeing, if we see people walking down again in the US and locking down in Europe, why are we starting to see life in energy?

 

TS: Part of that reason is we are seeing a little bit of that rotation into value from growth and the energy sector has been really beat up. It’s finding a little bit of love just from that kind of rotation. But also, we’re seeing these lockdowns and things like that, but what people aren’t really realizing, because of all these lockdowns and things of that nature, we’re actually seeing demand up in other areas where there really was not so much demand before.

 

So everyone’s talking about nobody’s driving anymore. Nobody’s flying anymore. When you know in fact, everybody’s online, e-commerce, we’ve got cargo ships full in the port of Los Angeles. They’re lined up there. That’s shipping fuel. And it’s not just in Los Angeles. Asia’s seeing the exact same thing. Singapore. Trucking has become huge if you you know look at the truck index. It’s basically exploding from 2019-2018 levels because you you have trucks that have to go from the port of LA to all the way to Atlanta. You have everybody ordering on Amazon so you have all sorts of trucking going on. And even down to the little things like propane. They’re actually seeing double propane demand right now merely because everybody’s dining outside and it’s getting cold.

 

So demand showing up in these little places that typically didn’t have as much demand before. Recently, they were talking about the airlines this holiday season. That air travel is picking up in the United States. Domestic travel is almost completely back to normal in Asia and in China, particularly. So things aren’t as bad as it seems.

 

TN: So when we talk about oil and gas companies, we’re really starting to see some of those oil and gas companies to come back as well. We’ve spoken over the past six or nine months a couple times and it seemed like there were fundamental operating issues with those companies. Are you seeing those oil and gas companies cycle through their issues?

 

TS: A lot of the Q3 calls that I was on, a lot of these companies are changing their tune a little bit. We’ve also had a lot of of mergers and acquisitions in this space. We’ve had a lot of bankruptcies in the space. That pile, it’s gotten smaller. Only stronger surviving and not that I don’t think that they’re 100 in the clear, but the bigger names and the bigger companies are finding a little bit of love right now especially you see that in refining right now, because heating oil is actually pulling up that whole sector right now. The whole energy sector. Refiners were the first ones to really take off because refining margins are getting better as oil prices get higher and things of that nature. So that kind of started leading and then of course, they’re the safe havens likePBX, XOM, BP, Equinor…

 

Once people see oil getting some sort of footing, they’re more likely to move into those stocks. They’re beaten up. If you’re looking for value stocks, you want to look for something that’s 80 percent off the ties. It’s a bargain.

 

TN: We had also talked about crude prices would stay depressed into Q2 or something of next year of 21. Does that seem about right, still? Do we still expect things to stay in the low to mid 40s until Q2? Obviously, we’ll see bouncing around. I’m not saying I’ll never go above that. But do you expect people will think to stay in that range for the next two quarters or has that moved forward a little bit?

 

TS: That’s moved forward a little bit. I remember when we spoke last, we were talking it to the end of this year and I saw the upper 38s. Obviously that averaged this quarter so far. We’ll be a little bit higher. So I think that we’re still in that range. We’re not going to see a huge bounce in oil. Not yet, but it’s coming.

 

TN: You say it’s coming. What brings that about? Is it demand? Is it supply? Is it a massive shortfall? Where’s the pressure that would bring about that 70 plus?

 

TS: We’re going to have a supply shock just like we had a demand shock this time. We’ll have a supply shock just because of the sheer lack of Capex in the market and the sheer amount of companies that have gone under. I don’t think that you’re going to see shale back at 13.5 million barrels per day anytime in the near future ever again. A lot of those wells are closed. They’re gonna open them up again. It’s just not cost effective. So we lost a lot of producing capacity just because that. So as we move on and we move forward in time and flights come back and we start having more and more demand, I think we’re gonna find a shortfall so I wouldn’t be surprised if we see 60, 70 dollars a barrel in 2022.

 

TN: We’ve seen copper have just a stellar few months and given the demand issues that we’ve seen in the markets probably a little bit surprising. So can you talk us through some of those dynamics and help us understand is this here to stay? Are these elevated prices here to stay? Or is this something that we’ll see for a relatively quick cycle then it will turn back?

 

TS: With copper, we really had a supply issue because a lot of the mines were closed during the summer. China by that time had already been pretty much back up and running and ordering what they normally order. That’s kind of lifted prices off of that like two dollar level initially because we had a supply problem and then I think the expectation is, there’s a lot riding on electric vehicles, which require a lot of copper.

 

Manufacturing is rebounding in a lot of places. Maybe not Germany. But it is rebounding here. It is rebounding in Asia, not just China. It’s rebounding in Australia. There is that anticipation of demand. We’re starting to get supply back online and yet you know prices are still going higher. I don’t think we’re gonna go straight to five dollars by stretching the imagination. But that’s kind of where copper lost its disconnect with the market. When you know markets started coming down, copper’s still shooting up because it’s generally considered a gauge of the health of the global economy. But that kind of correlation went out of whack when we had a whole bunch of supply problems.

 

TN: And based on copper prices today, I would think everyone was back to work, we’re all traveling, probably with disposable income. So there is that weird disconnect right now and I’m not sure that it’s necessarily an indicator that a lot of people really point to.

 

So we’ve just had a big change in the US as well with the election and some shifting around. What are you expecting over the next few months? Are you expecting big surprises, big moves or what are you looking at over the next few months?

 

TS: Everybody pretty much knows Biden. Everybody knows his voting record. I looked at it as an energy strategist, obviously. I’m looking at his voting record and went on his past history and is the new green deal going to dictate the markets or how is he prone to be? He’s been in the office since the 70s. So we already know him. All his picks so far have been in been in DC forever, right. Whether it’s in an Obama administration, etc. So I don’t think there’s really a whole lot of surprises, which is why I think the market is so calm right now, because the election’s basically over. We don’t have that anymore. We’ve got this vaccine and the people that are going to be taking office in January are people that everybody’s familiar with. So I think that’s also giving the markets a little bit of complacency at this point.

 

TN: Right. It does feel a little bit complacent to be honest. I think you’re right. I think you’re right. So let’s see if there’s a surprise over the next few months.

 

TS: Right? You never know.

 

TN: Tracy, hey, thanks again for your time. It’s always great to talk to you. We really appreciate everything you say. I just want to ask everyone watching if you could follow us on YouTube. We look forward to seeing you next time. Great! Thanks.

Categories
Podcasts

US economy suffers sharpest contraction in decades

Tony Nash joins the BBC Business Matters to discuss the US economy contraction, Federal government’s cash subsidy, the upcoming US election and Trump’s issue on postal ballots, lithium batteries and electric vehicles, and Eid al-Adha.

 

This podcast first and originally appeared in BBC Business Matters at  https://www.bbc.co.uk/sounds/play/w172x18vhgd3z2p

 

BBC Notes

Official data shows that the world’s biggest economy contracted by 9.5% in three months. That’s worse than at any point since the US government started keeping quarterly records in 1947. We hear from Professor Tara Sinclair, an economist at George Washington University. Black Lives Matter protests have added to a continuing backlash against brands selling skin-whitening creams in South Asia; Nikhil Inamdar reports from Mumbai on an industry under threat. We talk to listener, Elizabeth Pendleton, in Colorado Springs about the unemployment picture in Colorado. The BBC’s Ed Butler reports on the world’s biggest lithium deposit; it’s in Bolivia and is worth billions of dollars to a world scrambling to reduce its reliance on carbon. Plus, we’re joined throughout the programme by Tony Nash, co-founder and Chief Economist at Complete Intelligence in Houston, Texas and from Lahore in Pakistan, Mehmal Safraz, co-founder of The Current PK.

 

Show Notes

 

BBC: Talk about Houston for us.

 

TN: Just on my block, I have 6 houses for sale. If that tells you anything about the oil and gas down turn as a result of COVID, we really are starting to see some action on the real estate side. It is a seasonal thing partly because of summer. But we are the epicenter of epicenter of oil and gas. And the oil and gas went to receptical in May. We’re still seeing the after-shock of that even though we’re back above $40 for WTI and Brent. Something interesting is that I’m speaking recently with somebody from Panama Canal today and they were telling me about the volume in trade and what they’ve seen. They’ve reflected what Samara said and that things kept slowing down until June and then in July, they’ve started to come back. I really thought that April and May was the worst of it, but things kept declining into June, which was really difficult.

 

BBC: And that shipping, of course, is a crucial indicator, because we can track not just what China is doing, what US is doing. We can follow everybody’s trade globally by watching those boats.

 

TN: That’s right. And this is not a market failure. This was governments pulling the plug on economies and we say that personal consumption fell by 25% in the first quarter. But it’s no surprise because nobody can get out of their house because restaurants were closed, etc. On one hand these are shocking numbers, but on the other hand they are not shocking numbers when states and local governments pull hte plug on economies and people cannot get out, then this really isn’t a surprise. To be honest, I’m surprised that more data isn’t as bad or worse than the US because there were harsher lockdowns in a lot of other countries. I don’t understand it on some level.

 

BBC: In Houston, are we rising predictably to debate as the president proposes another idea by tweet?

 

TN: It’s more about his objection to postal ballots than it is about election day because there is a recent study done by CBS News in the US looking at potential fraud around election ballots and they found that something like 3% of them didn’t even arrive to the person and then fraudelent ballots that looked like what they’ve sent out, could have been sent similarly. I think what Trump is doing is trying to get the discussion going about fraud around postal ballots more than moving the election.

 

BBC: Has it always been a relatively tiny minority voting by post apart from those early voting?

 

TN: Well he said, and he said this several times. He doesn’t have an issue with what’s called absentee balloting, which is a slightly different process. But with mass postal balloting, there are several states like Oregon that do mass postal balloting. But fraud in US elections has become a very big concern. In the last election, ballots were found in the back of people’s cars. There was a rental car that was returned with ballots in it. Fraud in US elections has become a very big concern and I think Trump is voicing that concern a lot of people.

 

BBC: In Texas, dig into the nitty gritty of the state level.

 

TN: What ends tomorrow in the US is Americans are getting $600 a week additional from the Federal government on top of the state funds, unemployment funds, that they get, which are lower, like $350 a week. The $600 a week is extraordinary. I know people who don’t even make that much money when they are working fulltime, who are getting $600 a week. But at the local level, the problem is, you have the state and local governments who are closing things down. But it’s actually the Feds who have had to pay more money and it’s a lot of money to help make up for the economic decisions that were made at the state and local level. This is really where, through the whole COVID thing, and I said this many, many times to people, the state and local governments don’t have the resources to pay back for the decisions taht they’ve made. The decisions are made at the lower level. But it’s really only the Fed who has the money to provide this level of income to allow the economy to keep moving forward.

 

TN: Obviously, the environment is a big concern. But I think the payoff is also a big concern. It really all depends on how quickly the battery industry grows. If the payback isn’t there, it’s like looking at the Tarzans in Canada. Relatively expensive way to pull up oil, but oil now is too cheap for the Tarzans to function. If they pull it out in a very expensive way, the question really is not just environmental sustainability but economic sustainability as well.

 

BBC: I take your point on the environment, but compared to some of the alternatives. What I thought I knew in places like the Democratic Republic of Congo had the lithium mines, which is the other resource to be tapped, leading to headlines a couple of years ago in Financial Times, “Congo child labor in you electric car”, makes up that whole sector really problematic.

 

TN: Absolutely. Look, if it’s a better way, it’s great. I mean, the problem then is the supply chains and figuring out how to get it to market, which those are never easy. But if it’s a better way, more humane, then great.

 

BBC: Were you surprised by the little footnote in the report that it’s China that has the downstream value chain sewn up.

 

TN: No, not at all. China has a very high profile electric car program. And really a lot of subsidies for electric vehicles. So that actually doesn’t surprise me at all. It is the largest market.

 

BBC: And this is why the developments happen, right? Because I read recently, I probably get the numbers slightly wrong, but it said there’s a new battery coming that can run something like a million miles over 16 years instead of a couple of hundred thousand miles in 5 years.

 

TN: Yeah. But people will get bored by their car by then. People want to sell their car after a couple hundred thousand miles. If it can change hands multiple times, great.

 

BBC: This is something not widely celebrated in the US, but certainly a lot of Muslims in the US will bring this extremely to heart today.

 

TN: Absolutely. And Houston is the most diverse city in the US, so we’ve got a very large Moslem population in Houston. I have friends in Austin who are celebrating, so it’s definitely all around here.