Week in Review

May 28, 2018

Global Roundup

German exports drop most since 2012 as trade damps growth. German exports fell the most in more than five years at the start of 2018, holding back growth in Europe’s largest economy. (HSN)

Turkish lira still volatile as central bank moves on corporate forex. Turkey’s lira wobbled in volatile trade on May 25, as investors attempted to gauge prospects for another increase in interest rates two days after an emergency hike by monetary authorities struggling to stabilize the currency. (Reuters)

Taiwan is running out of friends fast as China turns the screws tighter. Taiwan’s loss of a second diplomatic ally in less than a month suggests China’s efforts to isolate the island are accelerating. (Business Mirror)

The U.S. overtakes Hong Kong to rank first among world's most-competitive economies. The U.S. has leapfrogged Singapore and Hong Kong to top IMD’s latest World Competitiveness Rankings. The top five most competitive economies in the world remain the same since 2016, but their order has changed. With the U.S. at the top, Hong Kong has dropped one spot to second and Singapore remains third (EconoTimes)

Dodd-Frank easing may be long-term negative for U.S. banks. Congressional passage of financial reform legislation easing the Dodd-Frank Act (DFA) for smaller and custodial banks is not likely to be a near-term ratings issue but could be negative for some banks' credit profiles over the long term, if it results in significantly reduced capital levels. (Fitch)

Trump readies to slap tariffs on imported automobiles. The Trump administration on May 23 launched a national security investigation into car and truck imports that could lead to new U.S. tariffs similar to those imposed on imported steel and aluminum in March. (EurActiv)

Singapore posts solid growth to start 2018 amid global risks. Singapore’s economy remained on solid footing in the first quarter, with the government expressing more certainty of a steady pace in 2018 as global trade risks and tightening financial conditions allow for a patient monetary policy. (Business Mirror)

Are you prepared for GDPR? If your work involves personal data, you probably already know the European Union’s (EU) General Data Protection Regulation (GDPR) enforcement date was May 25. While penalties for noncompliance can be stiff, the sky may not be falling just yet. (Risk Management Monitor)

What it’s like to use the web in Europe after the arrival of GDPR. The European Union’s General Data Protection Regulation (GDPR) came into effect May 25, and the web will never be the same, in Europe at least. (Quartz)

Sorting through GDPR: What to watch after May 25. May 25 was an important day. The shroud of uncertainty surrounding the General Data Protection Regulation implementation on that date smacks of Y2K thrill. What is in store for us in a post-GDPR world? (Lawfare)

Understanding the NAFTA Rules of Origin. The North American Free Trade Agreement (NAFTA) was created to ensure that goods traded among Canada, Mexico and the United States receive preferential tariff treatment. The NAFTA grants benefits and reduces tariffs only on goods that qualify under the NAFTA Rules of Origin. (International Trade Blog)

New FinCEN rules just made KYC even tougher. It’s estimated that it now takes two to six months for new domestic and international bank accounts to be set up due to know-your-customer (KYC) requirements. This holds up business transactions, M&A and cross-border trade. And guess what, treasurers? It’s about to get worse, thanks to a new rule by the Financial Crimes Enforcement Network (FinCEN). (AFP)

Where will a trade war be fought? The numbers used to discuss the U.S. trade deficit with China obscure where value is added to products and only really count where the product last made a transformation. This is a problem for U.S. subsidiaries in China. (Global Trade Magazine)

SWIFT: A quarter of all cross-border payments now over gpi. SWIFT announced May 25 that just 15 months after the service launched, 25% of all SWIFT cross-border payment traffic is being sent over the global payments innovation (gpi). (TMI)

Round five for President Bouteflika? Despite serious health problems, Algeria’s President Abdelaziz Bouteflika may stand for a fifth term in office, leaving many to question if the country’s political elite are bereft of a feasible transition plan. (Global Risk Insights)

U.S. launches criminal probe into Bitcoin price manipulation. The Justice Department has opened a criminal probe into whether traders are manipulating the price of Bitcoin and other digital currencies, dramatically ratcheting up U.S. scrutiny of red-hot markets that critics say are

Not So Fast—Congress Balks at China Trade Deal

Chris Kuehl, Ph.D.

Watching the U.S. deal with China has been akin to watching a tennis match with endless volleying—back and forth, back and forth. One minute the U.S. is all but declaring war on China and promising to block everything China has even thought of selling to the U.S. The next minute the restrictions are off the table and China has more access than before.

It has been nearly impossible to determine what the strategy is toward China. It is somewhat clearer when trying to determine what the U.S. wants from China in grand terms, but specifics are hard to come by. The top three demands that have been made on China thus far include: (1) help on controlling North Korea, (2) an increase in the amount that China buys from the U.S. as a way to address the deficit that exists between the two, and (3) protection in China for those U.S. companies that do business there. They want more enforcement of intellectual protection and counterfeiting laws and security from Chinese attempts to steal their technology.

It is hard to determine whether there has been much progress on any of these fronts. The proposed summit between President Donald Trump and North Korea’s Kim Jong-un is falling apart as almost every analyst had predicted it would. This is a tactic the North Koreans have tried many times in the past. Rarely has the Western world bit so hard on the possibility, however. Usually, the U.S. offered a meeting with perhaps the secretary of state or some congressional delegation as opposed to risking a snub of the president. If China was to play a role in this, it is hard to determine what it was supposed to be. Trump has attacked China and asserts it scotched the meeting, but it seems that China had been encouraging the meeting. It is not clear what the Chinese were supposed to have done to push Kim. He seems to have backed away due to statements from the U.S. that indicated more interest in a regime change than some kind of negotiated settlement.

The far bigger issue has been trade, just as it has been for the last 20 or 30 years. China has become “manufacturer to the world,” and the U.S. has played a huge role in that process. It has been the American consumer that made China what it is today. If there is a culprit as far as trade deficits are concerned, it is the U.S.—China is not delivering goods to the U.S. at gun point.

The U.S. is not forced to buy what China makes. U.S. consumers want to because it is far less expensive than buying U.S. goods. China has low-cost production advantages that the U.S. would not want to match. It doesn’t want people paid as poorly as those in China, and it doesn’t want the unregulated world of pollution, workplace danger and unsafe goods China can produce.

The U.S. is now faced with balancing that continued consumer demand with a desire not to run massive trade deficits with China. That is why the latest trade conversation has shifted away from blocking Chinese exports toward getting China to buy more from the U.S. The stated goal of the Trump team has been to get China to buy an additional $200 billion a year from the U.S. China has balked at that amount but has pledged to buy more food and more industrial equipment as well as more services. Right now, the U.S. has a healthy surplus when it comes to services because the Chinese buy far more of this from the U.S. than it sells.

Now comes the part that has raised the ire of Congress. The most consistent complaint registered by U.S. companies doing business in China is that they are constantly under attack by those that would steal their technology or engage in blatant counterfeiting. This includes everything from high tech to designer handbags and bootleg movies. China has been very uncooperative on this front—Congress has not been impressed by its efforts. This has been the prime reason members of the Senate have objected to Trump’s deal with the Chinese telecom company ZTE. There has been a litany of disputes over how this company handles U.S. technology. The fear is that it is getting a pass from Trump.

The overall sense is that President Trump has no real strategy other than to cut deals. Thus, there is tremendous uncertainty over the whole process. One day the tariffs are going to be imposed, and the next they are off the table only to appear later again. This makes any sort of business planning next to impossible. It may be good negotiation protocol to keep the adversary guessing, but in this case, the majority of the guessing is being done by the U.S. business community and consumer.

Political Risk in Latin America: Back to the Future?

Coface

Latin America has experienced a difficult period since 2014. The slump in commodity prices has impacted activity via several channels (such as lower investments, export revenues and a tighter public budget).

After two years of recession, the region’s GDP growth finally rebounded in 2017 by an estimated 1.1% year-on-year (YOY) and is expected to gain further traction in 2018 (growth forecast: 2.4% YOY). However, this optimistic outlook is linked to favorable global trends rather than domestic merits.

Although a still-gradual tightening monetary cycle in advanced economies (especially in the United States), as well as a soft deceleration in China and the resulting improvement in commodity prices, has aided Latin America, the poor political environment has stained the region’s image in the eyes of much-needed foreign investors—particularly with the multiple political and governmental corruption scandals since 2014.

Political risk has always weighed negatively on Latin America’s economic prospects. The region has a notable track record of being led by dictatorial political systems and populist governments, which has led countries in the region to experience repeated episodes of hyperinflation and public debt crisis to the detriment of long-term sustainable economic development.

Although terrorism is not a main concern for Latin America and (with the exception of Mexico) the largest economies in the region are generally less at risk of conflict, the political risk associated with social tensions is much higher. Poor social fundamentals, weak corruption perception outcomes and a relatively high homicide rate—consequences of decades of both weak growth and inefficient social and economic policies that have created high levels of inequality—undermine the region’s perspectives.

In this context, political risk will continue to represent a major concern for Latin America in 2018. Amid the general dissatisfaction with the traditional political class, several countries will elect their next president this year, including Colombia (May), Mexico (July) and Brazil (October). Hence, the risk of political uncertainties affecting the economic environment is increasing, especially in Brazil and Mexico.

B2B Payments eInvoice Use Rises in Vietnam Ahead of Mandate

In Vietnam, eInvoice use is on the rise: The number of firms in the country using eInvoices has skyrocketed from 800 in 2016 to more than 9,000 today. Overall, Vietnamese firms have created more than 600 million eInvoices, VietNamNews reported.

Even so, that number is relatively small compared to the more than half-a-million companies in the country. While the country’s General Department of Taxation (GDT) currently allows companies to use either eInvoices or paper invoices, that will soon change: With the exception of small firms, all Vietnamese organizations will have to use eInvoices by 2019. Through the use of eInvoices, the GDT says companies can save time and money while reducing fraud and administrative work. In all, the agency estimated that firms could save about $44 million if they change over from paper invoices to eInvoices.

The news comes as the U.S. government readies for its own eInvoice mandate, meaning that the 19 million invoices government agencies pay every year will have to be electronic by the end of fiscal year 2018. At present, about 12 million of those invoices (40%) are received in the form of paper.

In a “U.S. Adoption of Electronic Invoicing: Challenges and Opportunities” report released by the Federal Reserve Bank of Minneapolis in 2016, government officials noted the role eInvoicing plays in the broader effort to improve the U.S. payments system as outlined in its “Strategies for Improving the U.S. Payment System” report.

Analysis of the benefits of eInvoicing included in the report points to cost-savings, boosted efficiency and faster payments to suppliers, among other upsides.

“E-Invoicing is an important part of an efficient financial supply chain, optimizing the end-to-end process of B2B transactions, as it links the internal processes of enterprises to payment systems,” the Fed has stated. “As a result, eInvoicing is a vital component of the overall goal of making the end-to-end process (procure-to-pay and order-to-cash) more efficient.”

Reprinted with permission from PYMNTS.com.

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations