Tag Archives: Trade

DB Returns to Ranting About Soy Beans, with a pro tip for economic advisers

Yes, the results of the midterm elections were mostly satisfying — large and copious  thanks to all those who phone banked, precinct walked, and otherwise worked to make those results possible — No, there weren’t any major networks (or even minor ones) discussing trade policy as a factor in those election results, and rightly so because trade policy wasn’t a big deal.  Why should it be?  It’s not like anyone pays much attention, and that includes the so-called “business channels.”  About as close as we’re likely to get to any explication is yet another interview conducted by some major urban news outlet with yet another white rural voter who inexplicably votes for “Buzz Windrip” in the White House while ignoring the trade policy that’s wiping out rural agricultural profits.

Type in “stock market” and Google will return 384,000,000 results in less than .30 seconds. Type in “commodity futures trading” and get 27,900,000 results in the same time period.  Which one has more impact on our daily lives?  Right! The one with the smaller numbers, likely because the advertisers who pay the freight for what passes for business news are interested in the stock market, their stock prices, their competitor’s stock prices, their 90 day stock performance… we get it… the advertisers want stock market information and want us to pay attention to their stock market information, so that’s what we’ll all get — and we’d get it 24/7/365 were it not for commercials about skillets which can be beaten with sledge hammers, devices to remove facial hair, and pills and potions to restore attributes few people had in the first place.  But, we digress.

Those commodities futures trading markets are important.  There are four major functions of these markets: pricing; hedging; speculating; and organizing.  Let’s look at the hedging function first:

Merchants, farmers and international firms use the futures exchanges to hedge future transactions. When a farmer plants his crop of wheat, for example, he does not know what the price will be at harvest time. To remove the risk of price changes, he sells wheat futures contracts at planting time. When he sells his crop a few months later, he buys back the futures contacts. If wheat prices have fallen, he is protected because the futures contracts he buys at harvest cost less than the ones he sold at planting. An importing firm can use financial futures contracts in the same manner to lock in a price for the goods it will be importing later in the year.

This concept doesn’t require a degree in finance to comprehend. Sell futures contracts to protect himself from a price drop at harvest and our soy bean farmer can stay in business.  Actually, the farmer usually isn’t dealing with the futures but we can bet our last soy bean the grain elevator operators are. They’re paying very close attention.  NPR explains, “They’ll use futures contracts to manage sales and get good deals throughout the year, allowing them to pay farmers a more consistent price and protect them from big drops.”  Farmers benefit from a “more consistent price” and “protection from big drops.”  Anyone doubt those of us who buy the stuff related to soy beans (everything from soy sauce to animal feed to consumer products)  benefit from consistent prices?

“Manufacturers of both industrial and consumer products use soybean oil and meal to replace petroleum and other volatile or hazardous ingredients, as well as increase product performance. The versatility of U.S. soybean components makes product applications remarkably wide-ranging, including rubber, fiber, coatings, solvents, plastics, lubricants and adhesives.” [UnitedSB.org]

Again, no finance degree is necessary to understand that a consistent price is beneficial for manufacturers in a wide range of consumer products.  Consistent prices in a more stable market mean more predictable manufacturing costs, and more predictable business decisions.  IF there’s a market.  If there’s a market for the soy beans. If someone would decide (preferably before December 10, 2018) to fix the mess created by the administration’s silly tariff flap with the Chinese.

December 10 is the day the CFTC is scheduled to make a decision on the storage rate for soy beans — thus far it’s climbing because we’re about out of storage space — because major purchasers like China aren’t buying soy beans — and storage space is scarce and becoming more expensive —  remember Economics 101 or high school  “General Business?”  The result of current policy is a nose dive in soy bean prices.

The USDA is forecasting that soybean-planted acreage will drop by 6.6 million acres to 82.5 million in 2019. The American Farm Bureau Federation notes that “if realized, this would be the third-largest acreage decline of all time and the largest year-over-year decline in soybean plantings since … 2007.

“The decline in soybean acreage is anticipated given the slow pace of soybean exports, the dramatic decline in Chinese purchases, expectations for a nearly billion-bushel-l?carryout and projections for decade-low soybean marketing year average prices.”

Negotiations are still underway between the Trump administration and the Chinese government over trade issues. However, the U.S. government has emphasized that it is committed to getting things back to normal for soybean farmers. According to Bloomberg, “Any trade pact would also address the resumption of soybean sales specifically, since that was targeted in the trade war.”

“Committed to getting things back to normal?”  How about if Buzz and Company hadn’t launched the stupid trade war in the first place? There were other ways to press the intellectual property issues and trade questions with the Chinese without using a policy version of a meat ax.  However, the ham handed, ham fisted, and ham headed administration acted as “normal” i.e. acting first, without a full and measured consideration of the ramifications, and being surprised at the unintended consequences of its actions.  So, we’ve lost 98% of our soy bean sales to China.  Our storage facilities are filling up, and costing more; while the Chinese are signing contracts with the Brazilians for more beans.

Pro Tip for the economic advisers to the President — draw him a picture of a soy bean on a white dry-marker board, put his face on it, and then erase 98% of the picture until he gets the idea we’ve lost sales, and revenue, and a major component of our national agricultural statistics.  We could try this, but I don’t really hold out much hope he’ll do much more than blame the problem on a slow walking group of immigrant mothers and children from Honduras who have Hillary Clinton’s emails in their back packs, and whose 300 pound sons are at home in their bedrooms in San Pedro Sula hacking into DNC servers.   But, hey, it’s worth a try to amuse Buzz on a rainy day when he can’t play golf, with some colorful charts and pictures of himself as a soy bean if we could manage to get his attention long enough to do something about the trade/tariff stupidity?

Comments Off on DB Returns to Ranting About Soy Beans, with a pro tip for economic advisers

Filed under Economy, Politics

Hanging Hats on Thin Reeds: Trump and his Nevada Allies

I have to wonder: Do Laxalt, Heller, and Duncan really want to hang their hats on the thin reeds comprising the current GOP position in regard to Trump and his appointees?  Really?  Does a candidate for any office, a governorship, a Senate seat, a position as State Attorney General, want to stand side by side with:

A party leader who had no compunction about railing against a Gold Star family? Please, save the dignity and worthiness of your military service and question whether it’s appropriate to fund raise with, or welcome the endorsement of, a person who disparages a Gold Star family.  Save your rhetoric about serving veterans, about supporting our troops, about believing in the strength and character of our military until such time as it’s possible to square the criticism of a Gold Star family with those words and phrases. Actions speak louder than words, but words do matter.  The words from the standard bearer of the GOP have not aligned with true support for the members of the military, their families, and our veterans.

A party leader who disparages women who voice objections to sexual assault as “inebriated” and “all messed up.”  That, sir, is exactly when it is not appropriate for any young man to take advantage.  Real men don’t press themselves upon an unwilling woman when she is vulnerable; a real man takes her home safely.  Infantile, self-centered, and belligerent men take advantage; real men take care and caution.

A party leader who never seems to have a plan in mind.  “We’ll see what happens,” is not a strategy.  For anything.  We’ll see what happens when we slap high tariffs on Chinese goods? Ask the soy bean farmers…the almond growers…the car manufacturers?  Ask the South Koreans who now look to China and Japan for guidance with their relations with North Korea rather than the United States?  We’ll see what happens when we take ourselves out of the Paris Climate Accords, which were drafted with US demands specifically in mind.  We’ll see what happens when we unilaterally try to disengage from diplomacy with Iran.  Enter the Russians, the Germans, the French, the British. When does the American Century end and we become irrelevant? Did it happen during the UN General Assembly speech when attendees laughed at a point in the address not intended to be a punch line?

A party leader who will not divulge his tax returns nor provide specific information about his business dealings.  A party leader whose airline went broke, who managed to bankrupt his casino business? Who has been through multiple bankruptcies, each shaving his creditors to the core?  Who borrowed money from highly questionable sources when legitimate banks and banking institutions wanted to see the back of him? Who is indebted to heaven knows who for heaven only knows what amounts, under heaven only knows what conditions?  Is this the standard bearer for the party of fiscal responsibility?

A party leader whose high level officials are almost routinely under investigation for misappropriating taxpayer funds for office adornments, upscale travel, personal benefit, and family expenses?  The revolving door in this administration is wafting taxpayer funds around like so much litter on a windswept city street.

A party leader whose thoughts on immigrants and immigration are racist.  Who else would even remotely consider separating children from their parents as an act of “deterrence” to prevent others from believing America to be the City on the Hill? Who else would think no one would care if babies and toddlers were kept in cages? Who else would think it was up to the ACLU to find ways to reunite parents and children? Who else would plunder funds from the Coast Guard, from Cancer Research, and from FEMA to build detention camps reminiscent of Manzanar? Who else would say there were some “very fine people on both sides,” when one side was composed of Neo-Nazis?

Who else would fly the banner suggesting that adolescent boys of color should be perceived and treated as it they were adults (and shot accordingly) while white adolescent boys are to be forgiven their trespasses (and sexual assaults) because boys will be boys?  Who else would find it easy to insult and defame African American women who dare criticize him?

Thus, it’s appropriate to ask Senator Heller, Adam Laxalt, and AG hopeful Duncan– WHY are you standing by, standing with, and standing in silence, as your party leader leads you into the morass of short term gains (his own) and long term losses (ours)?  Why?

Are your tax cuts really worth all that much to you?

Comments Off on Hanging Hats on Thin Reeds: Trump and his Nevada Allies

Filed under Nevada politics, Politics

Distributive Bargaining, or How Not To Make Friends and Influence People

Okay, we know that our baby boy in the White House isn’t exactly one to pore over reports, briefs, and academic papers, but his behavior in several realms is beginning to attract notice from those who do — especially people who muse about such things as distributive bargaining.  This first drew publicity back in August 2017 when experts were dismayed at his use of distributive bargaining in inappropriate settings. [HuffPo] Harken back to the early days of baby boy’s dealings with Mexico and Australia, over The Wall and refugees.

“Nobody wants to feel taken. Effective negotiators recognize that once we understand each other’s underlying interests, we can truly invent options for mutual gain,” said Shapiro, who wrote the book Negotiating the Nonnegotiable: How to Resolve Your Most Emotionally Charged Conflicts. “These leaders behind closed doors need to feel comfortable sharing information with one another so they can start figuring out options that address each of their constituency’s interests.”

Mexico didn’t want to feel “taken” by The Wall, nor did Australia want to be “taken” by being strong armed into breaking a U.S-Australian deal on refugees.  Unfortunately, baby boy’s negotiation style fits into the classic distributive bargaining definition:

‘The ultimate aim, under distributive bargaining approach, is not to come to a win-win kind of situation but that one side wins as much they can. Both parties will try to get the maximum share from the asset or resource which needs to be distributed.”[EconTimes]

Nothing creates instant impasse quite so well as setting out intractable positions and demanding one side accept terms which are in essence a loss in order to appease the more bellicose of the two bargainers. Baby boy is the more bellicose of the bargainers.  At this point, it’s relevant to address the difference between distributive bargaining and integrated bargaining.

In distributive bargaining the Big Point is the Walk Away Position.  That would be the point at which I would walk away from the car dealership if the make, model, and price of the vehicle in question wasn’t what comported with my financial situation and personal needs.  After all there are other dealerships, and I can safely ignore my other competitors.  If I were to consider my competition I’d want to engage in integrative bargaining, also sometimes called productive bargaining.

 “In integrative bargaining, each party works at understanding what the other really needs out of the negotiation. This, in turn, depends on being able to question the other party about their interests, or otherwise discover what they really are (i.e. it is possible for one party to lead into this process even if the other party initially is not cooperative). In integrative bargaining, parties will tend to avoid taking arbitrary “positions,” while still being assertive about their needs. This approach is clearly distinguishable from “distributive” or “positional” bargaining, in which the usual sequence is for one party to start unrealistically “high” and the other to start low, with successive offers narrowing the difference — without either party really understanding what the other seeks to achieve.” [BICK]

While we could say distributive bargaining is product driven, we could assert that integrated bargaining is process driven.  This is a bit too simplistic, but then our baby boy on Pennsylvania Avenue isn’t all that interested in complicated, nuanced, matters, so let’s keep it simple for him.

Much integrated bargaining was done during the negotiating process for the Trans Pacific Partnership — which had its problems, however being intractable and simplistic wasn’t one.  The bargaining also assumed there were not one but several layers and levels of interests involved.  The US wanted to get a handle on Chinese statutes on intellectual property rights. The Chinese were interested in involvement in a regional trade scheme.  The US was interested in Chinese purchases of US debt, thus keeping interest rates under control.  The Japanese were interested in securing their interests in the Pacific region with both the US and the Chinese, and with the Australians.  The Australians were (are) interested in securing markets for goods and services while maintaining strong diplomatic ties to western Europe and the United States.  And so on.  There were 12 nations in on the negotiations.  So, baby boy blew it up.  [BBC] See also: WaPo April 2017.

On the third day of his presidency, Trump signs an executive order withdrawing the United States from the Trans-Pacific Partnership. “Everyone knows what that means right? We’ve been talking about this for a long time,” Trump says as he signs the order. “Great thing for the American worker, what we just did.”  [WaPo]

Not. So. Fast.  First, on July 14, 2017 those 11 other nations which had been involved in the integrated bargaining over the TPP terms signed an agreement without the US.  They get what they wanted…we get to twiddle our thumbs?  And we’ve still not come to any agreement with the Chinese about their handling of intellectual property rights.  Punditty types on my television set are wringing hands and clutching pearls as the US and China descend into trade/tariff war territory — “but but but what about the intellectual property rights — the real issue between the two countries? — they moan into their microphones. What about it?

When Baby Boy shifted US bargaining from integrated to distributive negotiations he shaved off the need to consider the needs of our competitors and our interest in dealing with the issues on a multi-layered basis, and went straight for the Winner Takes All distributive bargaining model. So, if we’re wondering what’s going wrong in regard to our trade relations with our two largest markets, Canada and Mexico, and our problems with China, and our issues with the European Union… look no further than Baby Boy and his one size fits nothing distributive bargaining model.


More information at:

Economic Times, Definition of Distributive Bargaining.  Beyond Intractability, Distributive Bargaining. University of Colorado-Boulder, Distributive Bargaining.  Harvard PON Distributive Bargaining Strategies.  Small Business Chronicle, Distributive and Integrative Bargaining.

 

Comments Off on Distributive Bargaining, or How Not To Make Friends and Influence People

Filed under Economy, Politics