President Donald Trump intensified pressure Thursday on China to reach a trade deal by saying that beginning Sept. 1, he will impose 10% tariffs on the remaining $300 billion in Chinese imports he hasn’t already taxed. The move immediately sent stock prices sinking.
The president has already imposed 25% tariffs on $250 billion in Chinese products, and Beijing has retaliated by taxing $110 billion in U.S. goods.
U.S. consumers are likely to feel the pain if Trump proceeds with the new tariffs. Trump’s earlier tariffs had been designed to minimize the impact on ordinary Americans by focusing on industrial goods. The new tariffs will hit a vast range of consumer products from cellphones to silk scarves.
The president’s action came as a surprise, just as U.S. and Chinese negotiators were concluding a 12th round of what the White House called “constructive” trade talks in Shanghai. The negotiations ended Wednesday without any sign of a deal but are scheduled to resume next month in Washington.
The Dow Jones Industrial Average, which had been up nearly 300 points earlier, was down nearly 200 points soon after Trump’s tweets announcing the new tariffs.
Trump has long said he was preparing to tax the $300 billion in additional Chinese tariffs. But he suspended the threat after meeting with President Xi Jinping in Osaka, Japan, in June.
It isn’t clear when American consumers are likely to feel the impact of the additional tariffs, but higher prices could show up in stores this fall.
“Attention all Target & Wal-Mart shoppers … the price on the goods you buy ahead of the holidays are going up due to trade policy,” tweeted Joseph Brusuelas, chief economist at the consultancy RSM.
Trump also tweeted that “we look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!”
The president blamed China for not following through on stopping the sale of fentanyl to the United States or purchasing large quantities of farm goods such as soybeans.
The world’s two biggest economies are locked in a trade war over U.S. allegations that Beijing uses predatory tactics — including stealing trade secrets and forcing foreign companies to hand over technology — in a drive to overtake American technological dominance.
Talks had broken down in May after the United States accused the Chinese of reneging on earlier commitments.
“Unfortunately, these talks are not getting any easier,” said Wendy Cutler, a former U.S. trade negotiator who is now vice president at the Asia Society Policy Institute. “I don’t expect the Chinese to sit by … The combination of these latest tariffs, with Chinese counter retaliation, is going to take a heavy toll on US consumers, workers, farmers, and businesses.”
The effects of Trump’s trade war were a factor in the Federal Reserve’s decision Wednesday to cut interest rates in an otherwise healthy economy. Chairman Jerome Powell pointed repeatedly to the uncertainty caused by Trump’s pursuit of trade wars on multiple fronts as a reason for the rate cut.
Sarah Bloom Raskin, a former Fed board member, and other economists have warned that the rate cut could embolden Trump to escalate trade battles because the president may feel confident that the Fed will then respond with additional rate cuts.
President Donald Trump’s declaration of victory Monday in reaching a preliminary deal with Mexico to replace the North American Free Trade Agreement raised at least as many questions as it answered.
Can Canada, the third member country in NAFTA and America’s No. 2 trading partner, be coaxed or coerced into a new pact?
If not, is it even legal — or politically feasible — for Trump to reach a replacement trade deal with Mexico alone?
And will the changes being negotiated to the 24-year-old NAFTA threaten the operations of American and foreign companies that have built sophisticated supply chains that span the three countries?
“There are still a lot of questions left to be answered,” said Peter MacKay, a former Canadian minister of justice, defense and foreign affairs who is now a partner at the law firm Baker McKenzie.
Trump was quick to proclaim the agreement a triumph, pointing to Monday’s surge in the stock market, which was fueled in part by the apparent breakthrough with Mexico.
“We just signed a trade agreement with Mexico, and it’s a terrific agreement for everybody,” the president declared. “It’s an agreement that a lot of people said couldn’t be done.”
Trump suggested that he might leave Canada out of a new agreement. He said he wanted to call the revamped trade pact “the United States-Mexico Trade Agreement” because, in his view, NAFTA has earned a reputation for being harmful to American workers.
But first, he said, he would give Canada a chance to get back in — “if they’d like to negotiate fairly.” To intensify the pressure on Ottawa to agree to his terms, the president threatened to impose new taxes on Canadian auto imports.
Talking to reporters, the top White House economic adviser, Larry Kudlow, urged Canada to “come to the table.”
“Let’s make a great deal like we just made with Mexico,” Kudlow said. “If not, the USA may have to take action.”
Canada’s NAFTA negotiator, Foreign Minister Chrystia Freeland, is cutting short a trip to Europe to fly to Washington on Tuesday to try to restart talks.
“We will only sign a new NAFTA that is good for Canada and good for the middle class,” said Adam Austen, a spokesman for Freeland, saying that “Canada’s signature is required.”
MacKay added, “There is still a great deal of uncertainty — trepidation, nervousness, a feeling that we are on the outside looking in.”
Critics denounced the prospect of cutting Canada out a North American trade pact, in part because of the risks it could pose for companies involved in international trade. Many manufacturers have built vital supply systems that depend on freely crossing all three NAFTA borders.
Noting the “massive amount of movement of goods between the three countries and the integration of operations,” Jay Timmons, president of that National Association of Manufacturers, said “it is imperative that a trilateral agreement be inked.”
Trump has frequently condemned the 24-year-old NAFTA trade pact as a job-killing “disaster” for American workers. NAFTA reduced most trade barriers between the three countries. The president and other critics say the pact encouraged U.S. manufacturers to move south of the border to exploit low-wage Mexican labor.
The preliminary deal with Mexico might bring more manufacturing to the United States. Yet it is far from final. Even after being formally signed, it would have be ratified by lawmakers in each country.
The U.S. Congress wouldn’t vote on it until next year — after November midterm elections that could end Republican control of the House of Representatives. But initially, it looks like at least a tentative public-relations victory for Trump, the week after his former campaign manager was convicted on financial crimes and his former personal attorney implicated him in hush money payments to two women who say they had affairs with Trump.
Before the administration began negotiating a new NAFTA a year ago, it had notified Congress that it was beginning talks with Canada and Mexico. So Monday’s announcement raises the question: Is the administration authorized to reach a deal with only one of those countries?
A senior administration official, who briefed reporters on condition of anonymity, said yes: The administration can tell Congress it had reached a deal with Mexico — and that Canada is welcome to join.
But other analysts said the answer wasn’t clear: “It’s a question that has never been tested,” said Lori Wallach, director of the left-leaning Public Citizen’s Global Trade Watch.
Even a key Trump ally, Rep. Kevin Brady, the Texas Republican who is chairman of the House Ways and Means Committee, expressed caution about Monday’s apparent breakthrough. Brady said he looked forward “to carefully analyzing the details and consulting in the weeks ahead to determine whether the new proposal meets the trade priorities set out by Congress.”
And the No. 2 Senate Republican, John Cornyn of Texas, while hailing Monday’s news as a “positive step,” said Canada needs to be party to a final deal.
“A trilateral agreement is the best path forward,” Cornyn said, adding that millions of jobs were at stake.
There are political reasons to keep Canada inside the regional bloc:
“Mexico will have a difficult time selling ‘Trump’s deal’ back home if Canada does not think it is a good deal,” said Daniel Ujczo, a trade attorney with Dickinson Wright PLLC. “It will appear that Mexico caved.”
Indeed, Mexico has said it wants Canada included in any new deal to replace NAFTA.
“We are very interested in this being an agreement of three countries,” said President-elect Andres Manuel Lopez Observador. At the same time, Foreign Minister Luis Videgaray told reporters that “Mexico will have a free trade agreement regardless of the outcome” of U.S.-Canada negotiations.
The Office of the U.S. Trade Representative said Mexico had agreed to ensure that 75 percent of automotive content be produced within the trade bloc (up from a current 62.5 percent) to receive duty-free benefits and that 40 percent to 45 percent be made by workers earning at least $16 an hour. Those changes are meant to encourage more auto production in the United States.
For months, the talks were held up by the Trump administration’s insistence on a “sunset clause”: A renegotiated NAFTA would end after five years unless all three countries agreed to continue it. Mexico and Canada considered that proposal a deal-killer.
On Monday, the Trump administration and Mexico announced a compromise on that divisive issue: An overhauled NAFTA would remain in force for 16 years. After six years, the countries would review the agreement and decide whether it needed to be updated or changed. They then would either agree to a new 16-year deal or the pact would expire.
Gillies reported from Toronto. Josh Boak, Jill Colvin and Darlene Superville in Washington and Peter Orsi and Mark Stevenson in Mexico City contributed to this report.
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President-elect Donald Trump has vowed to name China a currency manipulator on his first day in the White House.
There’s only one problem – it’s not true anymore. China, the world’s second-biggest economy behind the United States, hasn’t been pushing down its currency to benefit Chinese exporters in years. And even if it were, the law targeting manipulators requires the U.S. spend a year negotiating a solution before it can retaliate.
Trump spent much of the campaign blaming China’s for America’s economic woes. And it’s true that the U.S-China trade relationship is lopsided. China sells a lot more to the United States than it buys. The resulting trade deficit in goods amounted to a staggering $289 billion through the first 10 months of 2016.
WHAT DOES CURRENCY HAVE TO DO WITH THE TRADE GAP?
When China’s currency, the yuan, falls against the U.S. dollar, Chinese products become cheaper in the U.S. market and American products become more costly in China.
So the U.S. Treasury Department monitors China for signs it is manipulating the yuan lower. Treasury has guidelines for putting countries on its currency blacklist. They must, for example, have spent the equivalent of 2 percent of their economic output over a year buying foreign currencies in an attempt to drive those currencies up and their own currencies down.
Treasury hasn’t declared China a currency manipulator since 1994.
WHAT WOULD HAPPEN IF THE US DECLARED CHINA A CURRENCY MANIPULATOR?
Probably not much, at least initially.
If Treasury designates China a currency manipulator under a 2015 law, it is supposed to spend a year trying to resolve the problem through negotiations.
Should those talks fail, the U.S. can take a number of small steps in retaliation, including stopping the U.S. Overseas Private Investment Corp., a government development agency, from financing any programs in China. Trouble is, the United States already suspended OPIC operations in China years ago — to punish Beijing in the aftermath of the bloody 1989 crackdown in Tiananmen Square.
So naming China a currency manipulator is mostly “just a jaw-boning exercise,” said Amanda DeBusk, chair of the international trade department at the law firm of Hughes Hubbard & Reed and a former Commerce Department official. “There’s no immediate consequence.”
IS CHINA GUILITY OF USING CURRENCY TO HELP ITS EXPORTERS?
Not lately. In fact, for the past couple of years it’s been intervening in markets to prop up the yuan, not push it lower.
For years, China pretty clearly manipulated its currency to gain an advantage over global competitors. It bought foreign currencies, the U.S. dollar in particular, to push them higher against the yuan. As it did, it accumulated vast foreign currency reserves — nearly $4 trillion worth by mid-2014.
But now the Chinese economy is slowing, and Chinese companies and individuals have begun to invest more heavily outside the country. As their money leaves China, it puts downward pressure on the yuan.
The yuan has dropped nearly 7 percent against the dollar so far this year. The Chinese government has responded by draining its foreign exchange reserves to buy yuan, hoping to slow the currency’s fall. China’s reserves have dropped by $279 billion this year to $3.05 trillion.
If Beijing stepped back and let market forces determine the yuan’s level, it likely would fall even faster, giving Chinese exporters even more of a competitive edge.
So Beijing is doing the opposite of what Trump says it’s doing. Cornell University economist Eswar Prasad earlier this month called Trump’s plans to name China a currency manipulator “unmoored from reality.”
“The whole discussion is ironic,” said David Dollar, senior fellow at the Brookings Institution and a former official at the World Bank and U.S. Treasury Department. “It’s out of date.”
COULD TRUMP DO ANYTHING ON HIS OWN?
Gary Hufbauer, an expert on trade law at the Peterson Institute for International Economics, notes that as president, Trump could nonetheless escalate any dispute over the currency on his own. Over the years, Congress has ceded the president broad authority to impose trade sanctions. Trump has threatened to slap a 45 percent tax, or tariff, on Chinese imports to punish it for unfair trade practices, including alleged currency manipulation.
Brookings’ Dollar said China likely would bring a case to the World Trade Organization “against any protectionist measures that are a violation of U.S. commitments to the WTO,” which oversees the rules of global commerce and rules on trade disputes.
Some trade analysts wonder if Trump is using the tariff threat as a negotiating tool to win concessions from China.
Whatever the U.S. motive, China has a consistent record of retaliating against trade sanctions. When the Obama administration slapped tariffs on Chinese tire imports in 2009, for instance, China lashed back by imposing a tax on U.S. chicken parts.
China’s Global Times newspaper, published by the ruling Communist Party’s People’s Daily, has already speculated that “China will take a tit-for-tat approach” if Trump’s tariffs are enacted. The paper suggested that Beijing might limit sales of Apple iPhones and Boeing jetliners in China.
“The Chinese are predictable and reliable,” DeBusk said. “If they get punched, they punch back.”
Follow Paul Wiseman on Twitter at https://twitter.com/PaulWisemanAP
Donald Trump vows to bring back the millions of American jobs lost to China and other foreign competitors if voters put him in the White House.
Economists say he wouldn’t stand a chance: Trump’s boundless self-confidence is no match for the global economic forces that took those jobs away.
Since the beginning of 2000, the U.S. economy has lost 5 million manufacturing jobs. A study published last year by the National Bureau of Economic Research found that between 2 million and 2.4 million jobs were lost to competition from China from 1999 to 2011.
Announcing his presidential bid June 16, Trump declared: “I’ll bring back our jobs from China, from Mexico, from Japan, from so many places. I’ll bring back our jobs, and I’ll bring back our money.”
Economists were unimpressed. “It’s completely implausible,” says former Federal Reserve Vice Chairman Alan Blinder, a Princeton University economist who has studied the offshoring of American jobs.
Companies shifted low-skill jobs to China in the 2000s because American workers couldn’t compete with Chinese workers earning around $1 an hour. Now China itself is losing low-wage manufacturing jobs to poorer countries such as Bangladesh and Vietnam.
If America tried to block foreign-made products and make everything at home, prices would skyrocket and foreign countries would likely retaliate by blocking U.S. goods from their countries. “You can’t turn back the clock,” Blinder says.
But there’s an even bigger problem for those who want to restore U.S. manufacturing employment (now 12.3 million) to its 1979 peak of 19.6 million: Technology has taken many of those jobs for good. Today’s high-tech factories employ a fraction of the workers they used to. General Motors, for example, employed 600,000 in the 1970s. It has 216,000 now — and sells more cars than ever.
“No matter who becomes president,” says economist David Autor of the Massachusetts Institute of Technology, “I cannot foresee a scenario where 5 million additional manufacturing jobs … reappear in the U.S. in the decades ahead.”
That’s especially true with U.S. unemployment at a seven-year low 5.3 percent, a rate close to what economists consider full employment.
“If you took all the jobs we outsourced and brought them back, you’d have negative unemployment,” says Harold Sirkin, senior partner at the Boston Consulting Group and an expert on manufacturing competitiveness worldwide. “We’d have to bring in people from other countries to do the work.”
Trump, author of “The Art of the Deal,” says he could have protected American jobs by negotiating smarter trade agreements with U.S. competitors. “When was the last time anybody saw us beating, let’s say, China in a trade deal?” Trump said in June. “They kill us. I beat China all the time. All the time.”
But economists say trade deals — for all the political heat they generate — play only a modest role in job creation. “Better trade deals are unlikely to be a panacea,” says Eswar Prasad, professor of trade policy at Cornell University.
Prasad says U.S. policymakers should focus more on investing in things that will improve America’s competitiveness over the long haul — schools, roads and airports, for example. And Blinder says the U.S. should do more to retrain American workers who lose their jobs to foreign competition.
Companies often decide where to locate factories and hire people on factors that can change: labor costs, energy bills, transportation expenses, proximity to customers.
Currently, several of those factors favor the United States over China. The fracking boom has cut energy costs for U.S.-based factories. Chinese wages have soared, while American wages have been flat. In parts of America, land is cheaper than in China.
So some American companies already are bringing jobs back, and some Chinese companies are investing in plants in America. Last year, for example, Chinese glassmaker Fuyao Glass Industry Group Co. announced plans to take over an abandoned GM plant in Moraine, Ohio, near Dayton, and create 800 jobs.
The Reshoring Initiative, which encourages companies to bring operations back to America, says the number of manufacturing jobs created in the United States by returning American companies and foreign investors exceeded those lost to offshoring last year by 10,000 — modest, to be sure, but a big change from the massive job outflows of the 1990s and 2000s.
Trump declared: “I will be the greatest jobs president that God ever created. I tell you that.”
But Daniel Rosen, partner at the New York economic research firm Rhodium Group, says: “Global direct investment — including from China, Mexico and Japan — is already flowing into the United States, not due to God’s political leanings but because the U.S. economy is open both to those who would invest here and those who would decide to move abroad.”
Hardware Sales Inc. of Bellingham, Washington, does about 25 percent of its online business outside the United States. But going global can be frustrating. Overzealous Australian customs inspectors sometimes confiscate perfectly legal knives. Canada imposes duties that can double the cost of a hammer.
And then there’s the paperwork required to export:
“I don’t like to have an employee go through 2,000 pages of rules to ship a drill,” says Steve Douge, director of e-commerce for Hardware Sales, which sells over eBay, Amazon and its own website.
A solution may be coming.
The United States is negotiating an ambitious trade agreement with 11 other Pacific Rim countries that’s meant to ease barriers to fast-growing Asia-Pacific markets and streamline customs rules that can bedevil exporters like Hardware Sales.
Yet the Trans-Pacific Partnership, or TPP, is also stirring opposition. Critics say it will destroy U.S. jobs, allow multinational corporations to sidestep laws they don’t like and let drug companies use stricter patent protections to drive drug prices beyond the reach of patients in poor countries.
Trade, of course cuts two ways. Take Pete Kappelman, a Wisconsin dairy farmer who supplies milk for Land of Lakes’ cheddar cheese. He’d welcome easier access to Japan and Canada. Yet Kappelman also fears lower-cost competition from New Zealand.
The trade accord is one of the few things President Barack Obama and Republican leaders in Congress seem to agree on. Visiting Tokyo last month, Rep. Paul Ryan, the Wisconsin Republican who leads the House Ways and Means Committee, predicted that Congress would vote this spring to empower the president to negotiate trade deals like TPP and send them to Congress for an up-or-down vote — no nitpicking allowed.
The 12 countries involved have been negotiating this week in Hawaii and appear to be moving toward a deal.
“We are very much in the endgame,” U.S. Trade Rep. Michael Froman says.
Some questions and answers:
— WHAT WOULD THE DEAL DO?
The TPP would erase most tariffs and other barriers to trade and investment among the United States, Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. Combined, these countries supply 40 percent of the world’s economic output.
The deal would also clarify and standardize trade rules, thereby making it easier for companies such as Hardware Sales to sell goods and services in the Pacific Rim.
— WAIT. WHERE’S CHINA?
China, the world’s No. 2 economy, is conspicuously missing. In fact, the trade deal reflects Washington’s attempts to counter Chinese influence in the Pacific Rim. China, for its part, is trying to round up countries, including TPP prospects Brunei, Malaysia, Singapore and Vietnam, for its own Asia-Pacific trade bloc. Rival U.S. and Chinese negotiating teams sometimes pass each other on their way in and out of government offices in the region.
Still, it’s possible China could eventually join the TPP.
— WOULD THIS BE BETTER THAN PREVIOUS DEALS LIKE NAFTA?
TPP is being negotiated in the shadow of 1994’s North American Free Trade Agreement. NAFTA, a deal with Mexico and Canada, failed to deliver the big job gains its supporters had predicted. And it’s blamed by critics for the loss of many U.S. manufacturing jobs. In his State of the Union address in January, Obama conceded that “past trade deals haven’t always lived up to the hype.”
Administration officials insist that TPP would improve upon the agreements that preceded it. They say it will, for example, include stronger measures to block countries from gaining a competitive edge by weakening environmental and labor rules.
Some environmental groups say they’re enthusiastic. Oceana, a nonprofit dedicated to protecting oceans, supports TPP provisions that would reduce government fishing subsidies that encourage unsustainable overfishing.
— SO WHAT’S THE CASE AGAINST IT?
Critics, led by major trade unions, complain that the deal is being negotiated in secret and that it favors multinational corporations over workers and consumers.
The administration counters that any deal would require private negotiations before the final proposal goes public and faces approval from Congress. It says it’s briefed members of Congress or their staffs hundreds of times on the deal and allowed lawmakers to view the work in progress.
Critics are troubled, in part, because they say the deal so far:
— Does nothing about countries like Japan that give their exporters an edge by devaluing their currencies to make their goods cheaper on world markets. Such unfair competition could cost American jobs, critics say.
— Would let companies challenge government laws and regulations on the ground that they inhibit trade. The cases would be decided by private tribunals, a system that critics say bypasses democratic accountability.
The Swedish power company Vattenfall, for instance, appealed to a trade tribunal in 2012 when Germany decided to phase out nuclear power after the 2011 Fukushima nuclear meltdown in Japan.
Supporters of the Pacific trade deal argue that such concerns are overblown. Gary Hufbauer, senior fellow at the Peterson Institute for International Economics, notes that business appeals have been upheld in only 29 percent of cases. In the United States, he says, companies have never won.
— Strengthens patent protections that could bar cheaper generic drugs from reaching patients in poor countries. Researchers from George Washington University and three Australian universities predicted that TPP could reduce, from 83,000 to 37,000, the number of Vietnamese HIV patients with access to antiretroviral medicines.
The reason: By blocking some low-priced alternatives, they calculated, the trade accord would drive the annual cost of the medicines to as high as $501 — nearly quadruple today’s $127.
Supporters of TPP note that the agreement is still being worked out. They say it will likely include provisions to help Vietnam, the poorest of the TPP countries, maintain access to lower-cost medicines, at least for a while.
— SO WOULD TPP LIKELY CREATE OR KILL U.S. JOBS?
Probably neither. The jobs created by greater access to Asia-Pacific markets would likely be offset by U.S. jobs lost to increased competition. And the deal would increase U.S. incomes only $77 billion a year — 0.4 percent — by 2025, according to calculations by Peter Petri, professor of international finance at Brandeis University.
“The numbers won’t knock your socks off,” Petri says.
For one thing, trade isn’t so vital to the U.S. economy: Exports account for just less than 14 percent of U.S. economic activity, one of the lowest shares among major nations. For another, the United States already has free trade agreements with six of the TPP countries. So the effects of another deal would be limited.
Still, jobs created by expanded export opportunities pay up to 18 percent more than the average job does. Moreover, economists say, intensified competition would make companies in the United States and its Pacific Rim trading partners more efficient by compelling them to focus on what they do best.
— WILL CONGRESS COMPLY?
Maybe. The politics of trade are complicated. If TPP is going to happen, Obama will probably have to persuade Congress to give him the so-called “fast-track” authority: The president would send the deal to Congress for an up-or-down vote with no amendments allowed. Without that presidential power, lawmakers could pick the deal to death — a risk that might discourage other countries from agreeing to TPP in the first place.
Though Republican leaders like Ryan have signaled their support for fast track and TPP, tea party Republicans have been reluctant to cede any power to Obama. They’ve formed an odd-bedfellows alliance with pro-union Democrats who oppose TPP.
AP Writers Charles Babington and Martin Crutsinger contributed to this report.
Freighters once carried Cuban nickel and limestone to the port of New Orleans and North Dakota beans to Havana. Cuban families ate bowls of American rice, while U.S. tourists flocked to casinos and nightclubs in Havana.
The United States’ commercial ties with Cuba were broken 54 years ago after Fidel Castro took over. Now U.S.-Cuba trade is poised to resume: President Barack Obama on Wednesday announced plans to re-establish diplomat relations with Havana, and economic ties are expected to follow.
Among those eager for access to a Cuban market cut off by an economic embargo are U.S. farmers, travel companies, energy producers and importers of rum and cigars.
“We’ve been positioning ourselves for this day for many years,” says Erik Herzfeld, co-portfolio manager of the Herzfeld Caribbean Basin fund, which has been investing in “the cruise lines, infrastructure (companies), any company that we think will eventually have a role in Cuba.” The fund rose $1.97, or 28.9 percent, to $8.78 on Wednesday.
Gary Hufbauer and Barbara Kotschwar of the Peterson Institute for International Economics estimate that exports of U.S. goods to Cuba could reach $4.3 billion a year, compared to less than $360 million last year. And Cuban merchandise imports to the U.S. could go to $5.8 billion a year from nothing now.
Congress will still have to act to lift economic sanctions against Cuba. But by loosening restrictions on travel and permitting travelers to use U.S. credit and debit cards in Cuba, among other things, Obama may have started a process that can’t be reversed.
“It’s like putting toothpaste back in the tube,” says Kirby Jones, a consultant who has pushed for U.S.-Cuba trade ties. “People are going to get used to travel, used to doing business, used to sending remittances. You can’t stop it.
Not everyone supports the change in U.S. policy. Victor Benitez, longtime general manager of a car dealership north of Miami, says he would not return to the country he fled with his family in 1969 — at least not until it became a democracy. “I’m proud to be an American,” he said. “I’m sorry I cannot say I’m Cuban even though in my heart I feel very Cuban.”
But many U.S. businesses are already perking up at the prospect of regaining access to Cuba.
RICE AND BEANS
Before the Cuban revolution, U.S. farmers did big business with Cuba, exporting beans, rice and other commodities. The U.S. now exports limited amounts of farm products.
“It’s an enormous rice market,” says Dwight Roberts, CEO of the U.S. Rice Producers Association. Roberts believes Cubans eventually could import the 400,000 tons of U.S. rice they consumed before Castro’s Communist revolution.
REPLACING CUBA’S JUNKERS
Detroit automakers would seem to have an opportunity to replace the 1950s’ American jalopies that now rattle down Cuban streets, but they weren’t saying much Wednesday. “We’re encouraged by the announcements today, and we’ll evaluate the opportunities,” says General Motors spokesman Pat Morrissey, without further comment.
For the first time in decades, Cuba’s government this year allowed residents to purchase cars from state-run dealerships without a special permit. But sales went nowhere as potential buyers were put off by high prices.
FAST FOOD AND FITNESS
The hamburger chain Fatburger began discussing franchises with potential business partners in Cuba more than four years ago, says Andy Wiederhorn, CEO of the Los Angeles-based company. Once Fatburger gets U.S. government approval, it could take six months to a year to open the first franchises. Wiederhorn’s initial goal is six to 12 stores.
“The economy will be our biggest challenge,” says Wiederhorn, whose company has restaurants in 32 countries. “The purchasing power of the consumer is very limited.”
Gym operator Anytime Fitness is considering soon laying the groundwork for a Cuban franchise. The company, which has more than 700 locations outside the U.S., will first need a Cuban business partner. Then it must introduce the idea of fitness to Cuban consumers. “There’s not the awareness of the importance of regular exercise, and certainly not in a gym environment,” says John Kersh, head of international development.
Mortimer Singer, CEO of Marvin Traub Associates, a retail consultancy that helped bring Bloomingdale’s to Dubai, says he will be encouraging his clients to pursue opportunities in Cuba. He notes that fast food franchises and mass stores will be the first to open in Cuba, a repeat of what happened in other emerging markets. But he believes department stores will follow.
“It will start with the mass market and trickle up,” he notes. But Singer believes business will still face restrictions in the early years, and finding a business partner will be challenging.
Currently, a player who defects from Cuba has to obtain a license from the U.S. Treasury Department before he can sign with a Major League Baseball team. That hasn’t stopped Cuban ballplayers: Outfielder Rusney Castillo and the Boston Red Sox agreed in August to a $72.5 million, seven-year contract.
Smugglers have preferred to help Cuban players age 23 or older defect, because they have been able to sign more lucrative contracts. If the trade embargo is lifted and Cuban residents are allowed to sign with MLB teams, there could be more young Cuban players in the U.S. Dominican players, for example, often sign at age 16.
But the MLB has said it wants to start an international draft in 2017. That could limit the amount teams are willing to spend on Cuban free agents.
Obama says Cubans should have access to “technology that has empowered individuals around the globe.” About 27 percent of Cuba’s population has access to the Internet, according to Internet Live Stats, which uses information from the International Telecommunication Union, the United Nations and the World Bank to estimate the world’s Internet users. That puts the country behind countries such as Iran and Kenya but ahead of Syria and Sudan, for example.
“This could be huge, a really transformative change,” said Daniel Castro, a senior analyst for the Information Technology and Innovation Foundation, a Washington, D.C. think tank.
Doug Madory, director of Internet Analysis at Dyn Research, thinks Cuba should auction off telecommunications licenses to global companies. He acknowledges that would require a “tremendous mind shift” on the part of the Cuban government.
SEARCHING FOR OIL
The waters off the island’s northern coast are believed to contain oil. But international oil companies have been reluctant to explore for there for fear of angering the United States. The Spanish oil company Repsol drilled off shore in 2012 but did not find oil and gave up.
Sarah Ladislaw, director of the energy and national security program at the Center for Strategic and International Studies, says promising drilling locations remain. “There is lots more exploration people want to do,” she says.
“It’s the beginning,” says Teo Babun, a Miami consultant.
AP Business Writers Anne D’Innocenzio, Jonathan Fahey, Barbara Ortutay, Ron Blum and Steve Rothwell in New York, Michael Liedtke in San Francisco and Tom Krisher in Detroit contributed to this report.
Record-low interest rates will be around for at least a few more months, the Federal Reserve made clear Wednesday.
Enjoy the easy money while it lasts.
By mid-2015, economists expect the Fed to abandon a nearly 6-year-old policy of keeping short-term rates at record lows. Those rates have helped support the economy, cheered the stock market and shrunk mortgage rates. A Fed rate increase could potentially reverse those trends.
Mortgages could cost more. So could car loans. Investors could get squeezed.
“Borrowers should see the writing on the wall,” said Greg McBride, chief financial analyst at Bankrate.com. “Interest rates are eventually going to go up. They should pay down variable-rate debt and keep an eye on that adjustable-rate mortgage. They don’t want to be caught flat-footed.”
Investors, in particular, might recall that mere speculation about the end of the Fed’s stimulus shook global financial markets in May 2013. In coming months, as the prospect of higher rates nears, traders might once again dump stocks and bonds and send prices tumbling.
Higher yields on bank accounts and CDs could provide some modest relief for savers and retirees who have struggled for years to get by on meager interest income. But any gains they receive could be diminished by the likelihood that inflation will be higher once the economy is strong enough for the Fed to end its ultra-low rate policy.
Still, on Wednesday, Fed policymakers once again decided: Not yet.
The central bank said it intends to keep its benchmark rate near zero as long as inflation remains under control, until it sees consistent gains in wage growth, long-term unemployment and other gauges of the job market.
The Fed retained language signaling its plans to keep short-term rates low “for a considerable time” after it ends its monthly bond purchases after its next meeting in October.
The decision sent the Dow Jones industrial to a record high. The Dow closed up about 25 points to its 16th record high this year.
“What we heard from the Fed today is really what investors like to hear,” McBride said. “The stimulus isn’t going to go away overnight.”
In its statement, the Fed said it will make another $10 billion cut in the pace of its Treasury and mortgage bond purchases, which have been intended to keep long-term borrowing rates low.
“In the Fed’s mind, the economy still has work to do, but it’s improving,” said Mike Arone, an investment strategist with State Street Global Advisors.
The Fed also clarified the process by which it will eventually unwind its low-rate policies. The Fed said it would first raise its key short-term rate before it stops reinvesting its bond holdings, which have driven the Fed’s balance sheet to a record of nearly $4.5 trillion.
The central bank also issued updated forecasts for growth, inflation and interest rates. The median short-term rate supported by Fed policymakers at the end of 2015 is now 1.38 percent, up from 1.13 percent at its June meeting. This suggested pressure from some Fed officials for a faster rate increase than the Fed’s statement implied.
The Fed also expects slower growth this year and next than in its last projections issued in June. It predicts that the economy will grow about 2.1 percent this year, down from its June forecast of roughly 2.2 percent. That reduction likely reflects the sharp contraction in the first quarter of this year. The economy has rebounded solidly since then.
On the eve of the Fed’s meeting this week, the financial world had been on high alert for whether the Fed would reiterate that it expects to keep its key short-term rate near zero for a “considerable time” after the bond buying ends.
With job growth solid, manufacturing and construction growing and unemployment at a near-normal 6.1 percent, many analysts had suggested that the Fed was edging closer to a rate increase to prevent a rising economy from igniting inflation.
The number of U.S. job openings is near its highest level in 13 years. Layoffs have dwindled. And consumer confidence has reached its highest point in nearly seven years.
Despite the signs of a stronger economy, most economists think the first increase in the Fed’s short-term rate won’t occur until mid-2015.
The Fed’s new statement retained language stating that a range of labor market indicators “suggests there remains significant underutilization of labor resources.”
Meeting with reporters after the Fed meeting, Chair Janet Yellen said she still thought the job market has yet to fully recover.
“There are still too many people who want jobs but cannot find them, too many who are working part time but would prefer full-time work and too many who are not searching for a job but would be if the labor market were stronger,” Yellen said.
The Fed made only minor changes to its previous statement in its assessment of the economy. The statement was approved on an 8-2 vote.
The dissents came from Charles Plosser, president of the Fed’s Philadelphia regional bank, who had dissented at the last meeting, and Richard Fisher, president of the Dallas regional Fed bank. Both are viewed as “hawks” — Fed officials who are most concerned about the threat of inflation and believe the Fed should be moving more quickly to raise rates.
Asked at her news conference whether she had concerns about the dissents, Yellen noted that the committee had approved the policy statement by “an overwhelming majority, and I don’t consider the level of dissent to be surprising or very abnormal.”
In response to another question, Yellen said it could take until the end of the decade to shrink the Fed’s investment holdings to more normal levels.
Before its policy announcement Wednesday afternoon, the Fed had received good news on inflation with a report that consumer prices fell by a seasonally adjusted 0.2 percent in August, the first monthly drop in prices in 16 months.
In August, U.S. employers added just 142,000 jobs, well below the 212,000 average of the previous 12 months. The slowdown was seen as likely temporary.
But some analysts said it underscored that the economic outlook might remain too hazy for the Fed to signal an earlier-than-expected rate hike.
AP Economics Writers Christopher S. Rugaber and Josh Boak contributed to this report.