Mish's Global Economic Trend Analysis

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China Ponders Tariffs on EU Wine in Response to EU Tariffs on Solar Panels; Repetitive Stupidity Posted: 05 Jun 2013 09:45 PM PDT No one wins a trade war. Ever. Not countries, not companies, and certainly not consumers. Yet, here we go again. People's Daily says China has more cards to play in EU trade dispute. China still has plenty more cards to play in an increasingly ugly trade dispute with the European Union, the official People's Daily newspaper said on Thursday, accusing Europe of not realizing that its global power was waning. The EU will impose duties on imports of Chinese solar panels from this week, a move that infuriated Beijing despite European attempts to soften the blow with a reduced rate. China in response announced on Wednesday its own anti-dumping and anti-subsidy probe into imports of wine from the EU. "We have set the table for talks, (yet) there are still plenty of cards we can play," the newspaper wrote. "China does not want a trade war, but trade protectionism cannot but bring about a counter-attack." A declining Europe needs to understand it can no longer laud it over other countries, the paper added. "Times change and power rises and falls. Still this has not changed the deep-rooted, haughty attitudes of certain Europeans," it wrote. Repetitive Stupidity Time and time again, politicians place tariffs to "protect" jobs. In turn this provokes retaliation. This retaliation by China is mild so far. The implied threat is tariffs on Airbus or industrial components from Germany. Chancellor Merkel understands this which is precisely why Germany was against the tariffs on solar panels, even though a German manufacturer was in play. I have talked about this before. Here is a snip from EU On Collision Course With Germany Over Tariffs; Yet Another Reason for UK to Exit EU written May 20, 2013. Damage of Tariffs I do not believe it is possible to accurately predict the damage caused by inane tariffs. Much depends on how China would respond. But even if China did not respond, there is no advantage to artificially forcing up prices. Krugman "Was" Right! Inquiring minds may also wish to read Paul Krugman "Was" Right. How and Why We Forget the Obvious It is a simple statement of fact that the more goods and services we receive for our money, the better off we all are. The cheaper, the better! Time and time again we forget free trade and lower prices are a benefit! We forget because unions, socialists, and corporations forced to compete against the sun (or Skype), scream "unfair advantage" at the top of their lungs, via political contributions to politicians willing to "tax the sun" to be re-elected. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

First Quarter Hourly Compensation Plunges 3.8%, Most on Record; Manufacturing Hourly Compensation Plunges 6.9%; What's Going On? Posted: 05 Jun 2013 08:14 AM PDT Inquiring minds are digging into the stunningly bad Quarter-Over-Quarter decline in wages and real wages across all sectors as noted in the Revised First Quarter BLS Productivity and Costs report. Sector Nonfarm Business Business Manufacturing Durable Nondurable Productivity 0.5 2 3.5 3.6 3.9 Output 2.1 3.1 5.3 6.4 4.2 Hours 1.6 1.1 1.8 2.8 0.2 Hourly compensation -3.8 -3.1 -6.9 -8.1 -4.9 Real hourly compensation -5.2 -4.6 -8.3 -9.4 -6.4 Unit labor costs -4.3 -5 -10 -11.2 -8.5 Year-Over-Year numbers are still positive but the revised quarterly numbers shown above are an unmitigated disaster. The BLS notes "Unit labor costs in nonfarm businesses fell 4.3 percent in the first quarter of 2013, the combined effect of a 3.8 percent decrease in hourly compensation and the 0.5 percent increase in productivity. The decline in hourly compensation is the largest in the series, which begins in 1947." What's Going On? It's quite easy to explain why this is happening, and it was all too predictable as well.  Obamacare and inane Fed policies are in play as noted yesterday in Fed Policies and Obama Programs Exacerbate Credit Crunch to Small Businesses. The Fed believes that holding interest rates low fosters business growth, hiring, and bank lending? So why isn't that happening?  .... by holding interest rates low, the Fed encourages not hiring, but rather corporate investment in software and hardware solutions that enable companies to get rid of workers. Why hire someone at increasing minimum wages, and increasing costs of medical care, when you can borrow money for next to nothing and invest in solutions that require fewer workers? What About Obamacare? Obamacare is a huge part of the jobless recovery problem as well. I have talked about this on numerous occasions. Here is a partial list: October 9, 2012: Is Obamacare Responsible for the Surge in Part-Time Jobs? October 20, 2012: Mish Obamacare Mailbag: Expect More Part-Time Jobs February 2, 2012: Obamacare in Action: Retail Workweek Hits 3-Year Low February 19, 2013: Opting Out of Obamacare (the Unaffordable Health Care Act); Not Even Labor Unions Want It May 3, 2013: Obamacare Affects Part-Time Employment Yet Again; Nullification Bill Passes South Carolina House; Analysis of Healthcare Penalty Rates   The evidence is now so overwhelming that no one but Obama and the Democrats can deny that Obamacare is responsible for the massive surge in jobs (nearly all of them part-time). Results In Today The results are in today. The Fed and Obama are both engaging in counterproductive policies that discourage hiring, especially hiring of full-time employees. Of course Obama will respond by asking for a raise in minimum wage (giving further incentives to businesses to seek ways to get rid of employees), and the Fed will vow to keep interest rates low (enabling companies to borrow money for next to nothing to do just that).  Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction. Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

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