The real problem with the American auto industry

Auto sales are close to a record high in the United States, yet the American auto industry is in the midst of a massive upheaval. Automakers are reckoning with an unsustainable status quo: They have too many factories that make cars Americans don’t want anymore. That’s why GM (GM) is closing four US plants and … Continue reading “The real problem with the American auto industry”

Auto sales are close to a record high in the United States, yet the American auto industry is in the midst of a massive upheaval.

Automakers are reckoning with an unsustainable status quo: They have too many factories that make cars Americans don’t want anymore. That’s why GM (GM) is closing four US plants and Ford (F) is in the process of a major reorganization. American auto plants have a capacity to make 3 million more cars, SUVs and trucks than they can sell.

    Auto plant building spree

    One major reason for the excess capacity is foreign automakers’ three-decades-long building spree of new auto plants.Read MoreForeign automakers operate 19 auto assembly plants in the United States, and that number continues to grow. Volvo opened a plant earlier this year. Toyota and Mazda are jointly building a new plant in Alabama. BMW is in the process of expanding its plant in South Carolina, already its largest factory in the world, and it is considering adding an engine plant in the United States, too.The plants reduce foreign automakers’ shipping costs and delivery times to American customers. They also lower the risk of fluctuating foreign exchange rates. And they helped double foreign automakers’ share of the American market over the past 30 years — more than half of the vehicles sold in the United States are now made by foreign automakers.The market share gain for those foreign brands has come at the expense of American automakers. In 1988, when Toyota opened its Kentucky plant that started the building boom, GM, Ford and Chrysler controlled 74% of the US market. Today, those three account for only 44% of the market.Half of GM’s 12 assembly lines are operating below 80% capacity, generally the break-even point for a plant’s profitability. “Everyone has some unused capacity,” said Kristin Dziczek, vice president of industry, labor and economics at the Center for Auto Research. “The biggest chunk of it is at GM.”

    SUVs are suddenly popular

    Consumers’ changing tastes have also contributed to the supply glut.The relatively sudden shift in car buyers’ preferences from traditional sedans to SUVs and trucks has left some of the plants building cars with way more capacity than they need to satisfy demand. Some SUV plants are actually straining for capacity. Some auto plants have changed from cars to SUVs or trucks. Ford took a plant that had made the Ford Focus and put it to use building the new Ranger pickup. Ford is also is cutting 1,150 jobs at some underutilized plants and shifting most of the workers to plants building SUVs. Chrysler is reportedly planning to take a closed engine plant in Detroit and reopen it to build the Jeep Cherokee. But shifting a plant from cars to trucks is an expensive process. The growing popularity of SUVs isn’t enough to fill all of the unused capacity at car-making plants. And it will take some time for electric cars and self-driving vehicles to pick up the slack.That’s why GM is planning to close plants and Ford is cutting shifts and jobs at one of its few remaining American plants that makes cars.

    Auto sales are slipping

    Fiat Chrysler to open a plant in Detroit to build a new Jeep, report saysAuto sales had been rising in essentially a straight line from 2010 through 2016, lifting sales by more than two-thirds. But Americans aren’t buying quite as many vehicles as they had been. US auto sales fell 5% last year. Sales through September of this year were marginally higher, but even if they eek out a narrow gain this year, it won’t get back to 2016’s record. “Everyone was growing,” said Jeff Schuster, analyst with LMC Automotive. “You were refilling the plant. Back to 2016 you were pretty much fully utilized. Now you’ve pulled back from that and you start to squeeze a little more. You add in the acceleration of the shift to crossovers and SUVs, you end up with things like GM.”If the economy starts to slow, those sales are likely to fall even further.


    Another issue is vehicle imports to the United States. President Trump and some lawmakers in Congress were quick to blame imports from Europe and Asia and American automakers’ plants in Mexico for the problem with GM closing US plants.Imports are a source of competition for US plants — but not its largest source. The majority of cars sold in the United States are made in the United States.

      Foreign automakers built a combined 5.2 million vehicles in the United States last year. That’s about a million more vehicles than came into the country from Mexican and Canadian plants combined — and nearly twice as many vehicles as were imported from Asia to the US last year. That’s more than four times as many as all the imports from Europe.Most of the vehicles coming from Asia and Europe are car models, not SUVs. So as Americans cut back their purchases of cars, they’re likely to cut back on some of the overseas imports coming to the United States.

Nearly half of US CFOs fear a 2019 recession

America’s finance chiefs fear the economic expansion is nearly over.

Almost half (48.6%) of US chief financial officers believe the United States will be in recession by the end of next year, according to the Duke University/CFO Global Business Outlook survey released on Wednesday. And 82% of CFOs surveyed by Duke believe that a recession will begin by the end of 2020.

    “The end is near for the near-decade-long burst of global economic growth,” Duke finance professor John Graham said in a statement. The CFO survey’s pessimism about 2019 will raise eyebrows because mainstream economists are still projecting steady, albeit slower, growth next year.Read MoreWall Street has begun to sniff out an economic slowdown, evidenced by the wave of selling and extreme volatility infecting the stock market. The S&P 500, down 8%, is on track for its worst quarter since 2011. Banks, which are especially exposed to economic trouble, have plummeted. Some economists are getting more worried, but few are calling for an imminent recession.”That’s a surprisingly high number, maybe even shockingly high,” Ameriprise chief economist Russell Price told CNN Business of the Duke survey. “I’m not worried about a recession in 2019 unless it comes about due to a man-made situation.”Price said that the US economy is strong enough to avoid a recession next year unless the Federal Reserve makes a mistake by aggressively raising interest rates or the US-China trade war “deteriorates substantially.”

    Trade war, hiring worries

    The Duke survey, taken on December 7 and featuring CFOs from 212 US companies, signaled finance chiefs are pessimistic about corporate earnings. CFOs are calling for 4.5% earnings growth over the next 12 months, down from nearly 13% as of September. Capital spending, hiring and revenue estimates were all downgraded.After hitting an all-time high in the third quarter, US CFO optimism about the economy declined in this quarter’s Duke survey. Not surprisingly, executives are nervous about America’s workforce. The percentage of CFOs reporting difficulty hiring and retaining qualified employees rose to an all-time high. (The Duke CFO survey began in 1996.)Companies were split on the impact of the trade situation. Half indicated trade conditions and tariffs will hurt them, while half expect the environment will help.

    ‘Signs of cooling’

    Mainstream economists say the odds of a 2019 recession have gone up, though they don’t see it as the base case. Last week, S&P Global Ratings warned “signs of cooling could be emerging” in the US economy. The credit ratings firm raised its odds of a recession in the next 12 months to a range of 15% to 20%, up from 10% to 15% in August. “This cycle is either in — or fast approaching — its latter stages,” S&P said.JPMorgan Chase estimates that the odds of a 2019 recession, based on a combination of economic data and market signals, has climbed to 36%, up from 25% at the end of September. The economic expansion that began in June 2009 is the second-longest in American history. If it stays alive until July 2019 it would surpass the 1991-2001 boom as the longest expansion on record.

    ‘Ominous’ yield curve

    The outlook for 2020 looks more precarious. Just 18% of the CFOs polled by Duke believe the United States will avoid a recession prior to the end of 2020.”All of the ingredients are in place,” Duke professor Campbell Harvey said in the report. He pointed to elevated market volatility, the impact of “growth-reducing protectionism,” and the “ominous” flattening of the yield curve.The yield curve is one of Wall Street’s most reliable fortunetellers. The gap between the two-year and 10-year Treasury yields is getting uncomfortably close to inverting. That occurs when short-term rates are higher than long-term ones. Inversion has occurred prior to every US recession over the past 50 years.No matter when the next recession strikes, Corporate America could have a debt problem. Egged on by low interest rates, US companies have taken on tons of debt over the past decade.

      Former Federal Reserve chief Janet Yellen told New York Times columnist Paul Krugman on Monday that “quite high” levels of corporate debt are “a danger,” according to CNBC.””High levels of corporate leverage could prolong the downturn and lead to lots of bankruptcies,” Yellen said.

Rolls-Royce is stockpiling parts as Brexit chaos threatens ‘national crisis’

Businesses are sending a clear message to UK politicians: Stop messing around.

Companies and industry groups in Britain issued strident warnings against further political turmoil Wednesday after a challenge to Prime Minister Theresa May’s leadership threatened to tip the country into crisis over how and when Brexit will happen.Underscoring the high stakes for business, a major UK manufacturing firm confirmed it has activated contingency plans. Airplane engine maker Rolls-Royce (RYCEY) said that it has begun stockpiling parts to help minimize the damage from a disorderly Brexit.

    There are only 107 days to go before Britain is scheduled to leave the European Union, but parliament remains deeply divided on how to break with Britain’s biggest trading partner.May has failed to secure support for the divorce deal she negotiated with Brussels, and now faces a rebellion from within her own party. A vote later on Wednesday will determine whether she can continue as prime minister.Read More”The utter dismay amongst businesses watching events in Westminster cannot be exaggerated,” Adam Marshall, director general of the British Chambers of Commerce, said in a statement.”Our firms are worried, investors around the world are baffled and disappointed, and markets are showing serious strain as this political saga goes on and on,” he added.Brexit is holding back innovation at European carmakersCompanies across the country have already taken steps to prepare for Brexit. Big banks including Deutsche Bank (DB), Goldman Sachs (GS) and Citi (C) have moved parts of their business out of the United Kingdom. Panasonic (PCRFY) said in August that it would move its European headquarters to Amsterdam. Other firms have opened offices in the European Union to ensure they can continue to do business. And German engineering group Schaeffler (SCFLF) said it was going to close two plants in the United Kingdom because of the uncertainty.

    Fears over ‘no deal’

    The most worrying scenario for business is one where Britain crashes out of the European Union without a deal, leading to new trade barriers.Aerospace giant Airbus (EADSY) has said it could be forced to quit the country if there’s no deal on EU trading arrangements. Carmakers such as Nissan (NSANY), BMW (BMWYY) and Jaguar Land Rover are also heavily exposed. Mike Cherry, chairman of the Federation of Small Businesses, said that confidence among the group’s members has fallen to its lowest level since the financial crisis. “We don’t know what economic environment we’ll be operating within in only 100 days’ time … that makes planning ahead impossible,” he said, adding that firms are “crying out for some certainty about the future.”

    Economic consequences

    The deepening confusion over Brexit comes at a terrible time for the British economy. Data from the Office for National Statistics show the UK economy grew just 0.1% in October compared to the previous month. Industrial production fell 0.6% and manufacturing slumped 0.9%. The UK government says its Brexit deal will hurt the economyTrading conditions are likely to worsen when Britain leaves the European Union on March 29.

      The UK government’s own analysis shows the economy will take a hit from any kind of Brexit. Crashing out without a deal would sink the UK economy into recession. “Investment plans have been paused for two and a half years,” said Dave Spicer, dean of the Business School at the University of Salford. “Unless a deal is agreed quickly, the country risks sliding towards a national crisis.”

India’s hasty central bank appointment is a risky move

India has raced to appoint a former senior government official as new head of its central bank, stoking fears about political meddling as clouds gather over the economy.

Barely 24 hours after Urjit Patel quit as governor of the Reserve Bank of India, the government appointed former finance ministry official Shaktikanta Das as his successor.Patel’s sudden resignation followed a rift between the central bank and Prime Minister Narendra Modi’s government, which was reportedly leaning on him to do more to boost the economy months before an election.

    Modi is seeking a second term in office in elections due early next year, but a slowdown in growth has raised questions about his handling of the economy. Growth slumped from 8.2% to 7.1% in the quarter ended September, and India’s currency, the rupee, has fallen around 12% against the US dollar this year, hitting record lows.The rupee fell following Patel’s resignation on Monday, and dropped again on news of Das’ appointment.Read More

    Investors rattled

    It was the second time a central bank chief had stepped down in less than three years, and investors are concerned the RBI is being pressured to relax its fight against inflation and India’s mountain of bad debt. One of Patel’s deputies warned in October that government meddling in the bank’s decisions could prove “catastrophic.””With Das at the helm, the RBI is likely to offer much less resistance to the government’s demands, bolstering near-term economic growth at the cost of reducing investors’ confidence in the independence of the RBI as an institution,” wrote Sasha Riser-Kositsky, senior South Asia analyst at the Eurasia Group, in a research note. The speed of the appointment has also raised eyebrows and will suggest “that he was handpicked beforehand,” Pronab Sen, India’s former chief statistician and country director for the International Growth Centre, told CNN Business. “The haste with which it has been done is going to give rise to suspicions,” Sen said, adding that Das will now be under enormous pressure to prove himself. “That’s not a good way for him to start,” he said. “It’s not good for the country.” Patel, by contrast, was appointed two months after the resignation of his predecessor, Raghuram Rajan. He stepped down prematurely in 2016 over disagreements with the Modi government. Das, until he retired in May last year, was part of that government.

    Cash ban controversy

    As secretary of economic affairs, Das played an important role in implementing Modi’s controversial ban on most of the country’s cash in November 2016. That decision shocked India’s economy, slamming the brakes on growth and bringing many sectors to a grinding halt. Das is still advising the Indian government, and was one of its envoys to the G20 summit in Argentina this month.

      Sen says Das’ government experience doesn’t necessarily mean he will bow to Modi’s wishes. But his new role should be clear from the outset.”As RBI governor, his [duty] should be the independence and integrity of the RBI.”

Reserve Bank of India governor Urjit Patel resigns

India just lost its second central bank chief in less than three years.

Urjit Patel, the governor of the Reserve Bank of India, announced Monday that he was stepping down from his post, effective immediately. Patel’s term was due to expire in September 2019. “On account of personal reasons, I have decided to step down from my current position,” Patel said in a statement. “It has been my privilege and honor to serve in the Reserve Bank of India.”

    Patel’s resignation comes just weeks after senior RBI officials warned the government of Prime Minister Narendra Modi against threatening the bank’s autonomy. Tensions between the two burst into the open last month, with reports that the government had activated a rare power that allows it to issue directives to the RBI. Read MoreAlthough Patel cited personal reasons for his sudden departure, some analysts said the spat with the government was the most likely explanation. Mark Williams, chief Asia economist at Capital Economics, said there “can be little doubt” that the central banker had resigned over “the insistence of the government that it set policy in areas that the RBI believed were its remit.””Patel’s departure suggests that he no longer feels able to withstand the government pressure,” added Williams.Patel’s resignation statement on Monday did not mention the government. “The support and hard work of RBI staff, officers and management has been the proximate driver of the Bank’s considerable accomplishments in recent years,” he said. The loss of the central banker comes at a tricky time for the Modi government, which faces multiple economic challenges as it heads into crucial elections early next year. India's economy just suffered a sharp slowdownIndia’s economic growth slumped sharply in the quarter ended September, falling to 7.1% from 8.2%. Its currency, the rupee, has fallen around 12% against the US dollar in 2018. It dropped more than 2% on Monday, with most of the losses coming after Patel’s announcement.Modi showered praise on Patel following his resignation, calling him “an economist of a very high calibre” and a “thorough professional with impeccable integrity” in a statement on Twitter. “He steered the banking system from chaos to order and ensured discipline. Under his leadership, the RBI brought financial stability,” added Modi.But Patel’s decision to step down will raise questions about the central bank’s independence, considering his predecessor also resigned before the end of his term.

      Raghuram Rajan, often referred to as India’s “rock star” central banker, resigned in 2016 over disagreements with the Modi government. In comments to Reuters following Patel’s resignation, Rajan said the development is “something all Indians should be concerned about.”

GM workers will have job options — but they may not be as good

Losing a job is never good news. But for the 14,000 General Motors workers in line for layoffs in the coming months, the timing couldn’t be better.

The US economy is currently experiencing its lowest unemployment rate in almost 50 years. The manufacturing industry in particular has been saying it’s desperate to find workers, with 484,000 job openings in September, just off an all-time high the month before. “Access to talent is our greatest challenge,” says Sandy Baruah, president and CEO of the Detroit Regional Chamber of Commerce.

    GM announced this week that it would close five plants and cut 15% of its salaried workforce as it shifts production away from sedans and into other vehicle types. Two of the plants slated for closure are in the Detroit area, and one is across the border in Ontario, Canada. “Those people in auto jobs will be able to find work in the auto-related industry in this region, I think, without much problem,” Baruah said.Read MoreThe 8,000 white-collar workers who are expected to lose their positions will also have plenty of options outside the auto industry, especially if they’re willing to move. Technical engineers or managers of any type won’t require much retraining in order to fill in-demand positions. “White-collar skills are pretty general skills that are needed in most labor markets,” says Andrew Weaver, an assistant professor of labor and employment relations at the University of Illinois. “If you’re a clerk or an accountant for GM, you could go be a clerk or accountant for a life insurance company.” .m-infographic–1543439868975 { background: url(// no-repeat 0 0 transparent; margin-bottom: 30px; padding-top: 170.66666666666669%; width: 100%; -moz-background-size: cover; -o-background-size: cover; -webkit-background-size: cover; background-size: cover; } @media (min-width: 640px) { .m-infographic–1543439868975{ background-image: url(//; padding-top: 56.282051282051285%; } } @media (min-width: 1120px) { .m-infographic–1543439868975{ background-image: url(//; padding-top: 56.282051282051285%; } } <!– However, that doesn’t mean finding the next job will be easy — especially one as good as the unionized shop-floor positions at GM. With hourly wage rates of between $28 and $41 depending on experience, plus yearly profit-sharing checks, excellent health care plans, pensions and other perks like discounts on vehicles and tuition assistance, positions like those offered by GM and the other Detroit automakers are now rare in America for workers, especially those without college degrees. General Motors has said that hourly workers will have the option of transferring to other plants. The company declined to share exactly how many openings there are currently, but said “lots” of positions are available in Flint, Michigan and Arlington, Texas — moves that come with bonuses to help with relocation costs, as well as the right for workers to return to their home plants if jobs come back. The cuts at GM are tough. The company's future without them would be even tougherNanette Donithan, 54, says she has to try to keep her GM job.Over her 20 years at the Lordstown, Ohio, plant, Donithan was able to raise two kids as a single mother and buy a house. Now, she’s about to be a grandmother, and has her own 84-year-old mother to take care of. But she’s still put in for a transfer at nearly every other GM plant, even though leaving her family would be devastating. “I’ll do what I have to do to finish my career, because I can’t just move on,” Donithan says. “I could go out and do what the rest of society does and work two or three jobs. Even if you do get through trade school, you’ll only make $12 or $13 an hour.” The United Auto Workers union is still negotiating with the company about the possibility of bringing new products to plants at Hamtramck, outside Detroit, and Lordstown, which may save them from closure. The effort echoes comments President Donald Trump made last year at a rally in Youngstown, where he told the crowd he’d bring jobs to the area.”Don’t move, don’t sell your house,” he said at the time. “We’re going to get those jobs coming back.”Some workers may not have a choice. Many permanent employees across the auto industry have been replaced by temporary workers employed by staffing firms, which aren’t unionized and offer fewer benefits. While manufacturing wages are accelerating, the labor crunch isn’t driving employers to offer the kinds of relocation incentives to line workers that might be available to sought-after workers like software engineers or data scientists. Hourly GM workers will get supplemental unemployment insurance through the union, giving them time to figure out their next move, said Kristin Dziczek, vice president at the Center for Automotive Research.”Nobody pays what GM pays in most of these local labor markets,” Dziczek said. “That prospect that there may be future employment, while they’re on layoff, may keep some of these workers hopeful that they come back to GM.” 'We are the magic wand,' former GM worker of 40 years tells TrumpAlthough the manufacturing sector discharges about 100,000 people per month across the country, dumping several thousand people at once in a single town inherently makes it harder for everyone to find new jobs without moving. The 1,400 people being let go from the plant at Lordstown, in particular, may have a harder time because two previous shifts have been cut over the past two years. And the layoffs won’t stop with GM itself. A wave of cuts will follow at the assembly plant’s suppliers, whose workers don’t usually don’t have the protections of a union contract. The Youngstown metropolitan area has lost more than 27,000 manufacturing jobs since 2000, flooding the market with job-seekers. Workers with more seniority typically stay on the longest, so those who are being let go now are likely to be in the later stages of their careers. That creates a double whammy of discrimination, says Susan Houseman, vice president at the Upjohn Institute for Employment Research. “There’s certainly widespread discrimination against older workers, and workers who’ve been a part of a union,” Houseman says. “The concern is that they expect to earn more, and they’ll be less productive because they’ll resent earning less.” Yet to Burt Cene, director of the Workforce Development Board that services the Mahoning Valley, says it feels different from the disappearance of the steel industry from the region in the 70s and 80s. He was a union leader then, and remembers that many people held out hope for the steel plants to fire back up again — but they never did.

      “When that went away, it took almost everything with it,” Cene says. He thinks laid-off auto workers have a better shot of maintaining their middle class lives than the steelworkers of 30 years ago. The region has more jobs in health care and education now, if assembly line workers are willing to go back to school.”The economy’s a lot better than it was during the 70s,” Cene says. “Even for retraining, I think there’s a lot of good opportunities.”

India’s economy just suffered a sharp slowdown

India’s economy has downshifted from warp speed.

Gross domestic product expanded 7.1% in the quarter ended September, according to official data. That’s a big step down from 8.2% growth in the previous quarter.The slowdown was sharper than analysts had expected. But the reduced rate still places India ahead of China — which grew at 6.5% over the same period — as the world’s fastest-growing major economy.

    India’s economic performance is being closely watched as next year’s general election looms into view. Prime Minister Narendra Modi won office in 2014 after a campaign in which he promised to boost India’s economy and create millions of jobs. China's economy is growing at its slowest pace since the financial crisisShilan Shah, an economist at Capital Economics, cautioned that India’s GDP statistics are not always the most reliable. But he said recent data on industrial production and vehicles sales also indicated weaker growth.Read MoreStill, the torrid pace of expansion in the previous quarter would have been difficult to maintain. Shah said he expects growth to remain at healthy levels.”The economy should continue to expand rapidly over the coming months, supported by looser fiscal policy ahead of next year’s general election,” he said. Pranjul Bhandari, chief India economist at HSBC, said that growth was likely to remain above 7% for the next few quarters, a pace that can be sustained “without stoking macroeconomic instability.”India’s economy should be helped this quarter by a recent plunge in oil prices and a stronger rupee. Some of the biggest pressures on the Indian economy have eased in recent weeks.

      A 35% drop in oil prices since early October has helped India, which is one of the world’s top energy importers. The rupee, which hit a series of record lows against the dollar this year, strengthened more than 5% in the past month. Shah said that India’s central bank, which held off on raising interest rates last month after two hikes earlier this year, will likely keep them unchanged again when it meets next week.

Trump is winning on trade — Don’t let the ‘experts’ fool you

All of the so-called policy “experts” in Washington, D.C. throw up their hands every time President Trump announces a new round of tariffs. They issue dire warnings about how his stance will undercut our economy. But his hardball tactics are working.

The United States has hemorrhaged middle-class manufacturing jobs for more than a generation thanks to feckless policymakers in Washington who have refused to punish countries and companies that abuse our trade rules. President Trump is reversing that trend by calling out serial violators of international trade law and imposing real penalties to prevent continued abuse.

The new trade deal between the U.S., Mexico and Canada, which is set to be signed on Friday, is President Trump’s hallmark achievement on trade and illustrates the effectiveness of his strategy. By ripping up a legacy trade deal that his predecessor threatened to dismantle (but never actually touched), the president won major concessions from two of our top trading partners, who would have continued benefiting from a one-sided relationship if they hadn’t been forced to negotiate.

The United States-Mexico-Canada Agreement (USMCA) updates the 24-year-old North American Free Trade Agreement (NAFTA) in a way that fundamentally re-balances the trade relationship between the three countries. The deal will benefit American workers across countless industries, including farmers and ranchers who will gain improved access to the Canadian and Mexican markets. Congress should ratify it without delay.

President Trump understands how senseless it is to keep following the old playbook. He campaigned on a pledge to change how the U.S. does business with its trade partners and has followed through on that pledge since taking office.

Once USMCA is finalized and American industries and workers are protected by equitable terms, the president will have another opportunity to boost domestic manufacturing and agriculture by revisiting tariffs on steel and aluminum produced in Canada and Mexico. Doing so would improve the economy by relieving some of the strains on industries that depend on aluminum and steel imports from either country.

The administration can also help alleviate financial pressure on other American businesses that were the victims of retaliation by both countries. For example, Mexico slapped a 20 percent tariff on pork exports from the U.S., hurting American pig farmers who are critical to our agricultural economy. Canada and Mexico have already pledged to withdraw their retaliatory tariffs if the U.S. adds them back to the list of tariff-exempt countries.

The overarching objective of President Trump’s trade fights is to force China to the negotiating table. By improving the terms of other trade relationships, the president is strengthening his leverage for the showdown with China.

That is why it is important to make sure we have deals in place that bring our supply chains back from China to the West. Thus, reexamining tariffs for steel and aluminum produced in Canada and Mexico will ultimately be an important step towards a more fair and balanced trade relationship with China.

Most of the policy wonks who criticize President Trump simply do not understand leverage. For years, they championed the benefits of free trade, arguing that strict adherence to the rules and a consistent message would help us preserve our perch as the world’s top economy.

What they didn’t realize is that other countries were gaming those rules to take advantage of our workers, by producing goods at artificially low prices that American rivals could never match. This resulted in a hollowed-out American industrial class.

President Trump understands how senseless it is to keep following the old playbook. He campaigned on a pledge to change how the U.S. does business with its trade partners and has followed through on that pledge since taking office.

He knows we need to ignore the old rules and start to outsmart the bullies. That is the only way American workers can compete with countries that have been abusing our trade laws.

The ultimate sign of President Trump’s success on trade is that many of his skeptics are starting to embrace his worldview. Even former Treasury Secretary Hank Paulson is rethinking the U.S. approach to China. Others are sure to follow.

President Trump is winning. So is America. His critics may not see that, but that doesn’t matter, because voters do.

Steven Cheung previously served as special assistant to the president and director of strategic response at the White House. Prior to the White House, he worked on the Donald J. Trump  for President campaign as its director of rapid response. Follow him on Twitter at @CaliforniaPanda

US trade deficit rises despite Trump’s tariffs

President Donald Trump’s tariffs were supposed to shrink America’s trade deficit, but it has instead grown for five straight months and is on track to hit a record high before the end of the year.

The monthly goods deficit grew by $1 billion in October, according to a US Census report released Wednesday. The Census report is one of the first measures of trade released since Trump imposed his biggest round of tariffs in September on $200 billion of Chinese goods. It put a 10% tax on goods ranging from luggage to bikes and baseball gloves. Trump has threatened to increase the rate to 25% on January 1.

    The duties make it more expensive for US importers to buy those items, but Americans bought more goods from abroad in October than they did the month before. The figure may reflect stockpiling by American importers ahead of an additional hike in tariffs set to take effect in January, as well as strong consumer spending.”There is some anecdotal evidence that US importers are likely pulling forward orders to get ahead of additional tariffs on Chinese goods, which could be one of the factors driving imports higher in recent months,” said Pooja Sriram, an economist at Barclays. Read MoreLast year’s federal tax cuts have also put more money back into Americans’ pockets, lifting demand for imports even if they’re more expensive. “We believe that domestic demand is likely to be sufficiently robust so as to keep imports elevated even after any additional tariffs,” Sriram said. Additional data due out next week on trade of both goods and services is expected to show a 10-year high in the overall trade deficit, said Ian Shepherdson, chief economist at Pantheon Macroeconomics.That’s the opposite of what Trump wants to achieve.The president has pledged to reduce America’s trade deficit by pursuing new trade agreements with countries he argues are engaging in unfair trade policies, especially China. He’s put tariffs on $250 billion of Chinese-made goods this year in an effort to make US-made products more attractive to consumers. “It’s been such a terrible one-way street with China,” Trump told the Wall Street Journal in an interview Monday. Trump and Chinese President Xi Jinping are set to meet Saturday evening for a formal dinner on the sidelines of the G20 meeting in Argentina. It is their only scheduled meeting before the end of the year.Trump tests his dealmaking powers in trade showdown with XiWhite House economic adviser Larry Kudlow on Tuesday dangled the possibility of a “breakthrough” at the dinner. But Trump escalated tensions earlier in the week, when he repeated a threat to put tariffs on the remaining Chinese goods if a deal can’t be reached. The Trump administration argues that China is engaging in unfair trade practices, including intellectual property theft and forced technology transfers. But the Chinese say Trump’s unilateral tariffs are bullying. American businesses and lawmakers on both sides of the aisle agree that the China trade issues should be addressed — but not everyone believes that tariffs are the right way. Some manufacturers and retailers say the duties could lead to job losses and higher prices for consumers.”It would be hard to argue that (China) has behaved fairly in its trade practices,” said Florida Democratic Rep. Stephanie Murphy this week at an S&P Global event in New York. “But I think doing it in a multilateral way would have been a better approach,” she said. Trump has also imposed tariffs on foreign steel and aluminum this year, in the interest of national security. US steel producers have welcomed the taxes, as they’ve seen prices for their own products go up. Steel Dynamics, an American producer, announced this week that they would be building a new steel mill in the southwest region of the country, creating 600 new jobs.

      “Steel jobs are coming back to America, just like I predicted,” Trump tweeted Wednesday. But American manufacturers that use steel, including automakers, have argued that the tariffs have made the cost of domestic production more expensive.

Ikea has a plan to fix the pollution crisis in India’s cities

Ikea has come up with a plan to help some of the world’s most polluted cities breathe easier.

The global furniture giant will start making products out of agricultural waste in India, meaning farmers no longer have to burn it. The initiative, called “Better Air Now,” will provide Indian farmers with a use for unwanted rice straw, which is often burned. Smoke from the fires is one of the major contributors to northern India’s pollution crisis.

    Ikea, which opened its first stores in India earlier this year, plans to buy the straw and turn it into a renewable source for Ikea products. The company’s ambition is “to create a model for how to reduce air pollution that could be replicated in other mega cities,” it said in a statement on Thursday.The Swedish company said its first product prototypes based on rice straw will be ready by the end of 2018. It hopes to start selling them in India by 2020 before offering them in other markets. Read MoreThe program will kick off in the areas around India’s capital New Delhi — one of the world’s most polluted cities — before being extended to other parts of the country and eventually to Ikea’s global markets. Ikea is working with Indian state and local governments, NGOs and companies to help take the initiative forward. Crop burning is one of the biggest sources of pollution in northern India. Every year, farmers set fire to millions of tons of crop residue to clear fields for the next season, releasing huge amounts of harmful air particles into the environment.As much as 33% of New Delhi’s overall pollution earlier this month came from crop burning in surrounding states, according to a report by India’s System of Air Quality and Weather Forecasting and Research. Pollution in India is believed to be responsible for as many as one million deaths a year.Data from the World Health Organization released in May gave India the unenviable distinction of having nine of the world’s 10 most polluted cities.

      New Delhi’s air is so polluted that residents could live as much as nine years longer if the city met WHO standards, the Energy Policy Institute at the University of Chicago estimated in a study last year.Ikea has taken other steps to increase sustainability in recent months, including a global ban on single-use plastic at its stores earlier this year.