Monday, May 15, 2017

Monday, May 15, Morning Global Market Roundup: Oil Surges 2.5 Percent, Soothes Cyber Nerves

By Patrick Graham
Reuters
May 15, 2017

A bounce in oil and other commodities prodded stock markets higher on Monday, cushioning the hit to sentiment from a successful missile test by North Korea and a cyber attack that locked 200,000 computers in more than 150 countries.

In Europe, another victory for Angela Merkel's conservatives in a regional election in Germany also helped share indices in London, Frankfurt and Madrid inch higher in early trade.

Saudi Arabia and Russia, the world's two top oil producers, said an output cut needed to be extended for a further nine months until March 2018 to rein in a global crude glut.

That drove a roughly 2.5 percent rise in oil prices, and spurred gains for copper and iron ore and in commodity-linked currencies including the Australian and Canadian dollars and Russia's rouble.

At a time when central bank policymakers are wondering if they have successfully got consumer prices moving upward again, oil has been rising steadily for two weeks and may again start to boost headline rates of inflation in the months ahead.

"This recovery in the oil and gas sector could well continue this morning on reports that Saudi Arabia and Russia have agreed to do 'whatever it takes' to keep a floor under oil," said Michael Hewson, chief market analyst with CMC Markets in London.

"(That) has prompted oil prices to extend last week’s gains."

The gains for European stocks were neither large nor across the board, however, with Paris shares drifting lower.

The past fortnight has seen the emergence of some broad concerns over the pace of economic growth in the United States and China, and U.S. data on Friday was read as weak.

As European bond markets got going on Monday, U.S. Treasury yields gained less from the oil bounce than their German equivalents.

"The shadow of Friday's softer U.S. CPI and retail sales data hangs over markets this morning," Societe Generale analyst Kit Juckes said in a note to clients.

"The inability of the dollar to gain more ... reflects the changing global landscape as recovery elsewhere drives rates and yields a bit higher. With a thin U.S. data calendar, there's not much to propel yields or the dollar back up."

Earlier, Asian stock markets shrugged off worries over the 'ransomware' cyber attack to reach a two-year high. Hong Kong shares gained 0.9 percent and their mainland equivalents 0.4 percent, after Beijing soothed market fears of tighter regulation saying bank risks were "completely controllable."


Article Link To Reuters:

More Disruptions Feared From Cyber Attack; Microsoft Slams Government Secrecy

By Dustin Volz and Eric Auchard 
Reuters
May 15, 2017

Officials across the globe scrambled over the weekend to catch the culprits behind a massive ransomware worm that disrupted operations at car factories, hospitals, shops and schools, while Microsoft on Sunday pinned blame on the U.S. government for not disclosing more software vulnerabilities.

Cyber security experts said the spread of the worm dubbed WannaCry - "ransomware" that locked up more than 200,000 computers in more than 150 countries - had slowed but that the respite might only be brief amid fears new versions of the worm will strike.

In a blog post on Sunday, Microsoft President Brad Smith appeared to tacitly acknowledge what researchers had already widely concluded: The ransomware attack leveraged a hacking tool, built by the U.S. National Security Agency, that leaked online in April.

"This is an emerging pattern in 2017," Smith wrote. "We have seen vulnerabilities stored by the CIA show up on WikiLeaks, and now this vulnerability stolen from the NSA has affected customers around the world."

He also poured fuel on a long-running debate over how government intelligence services should balance their desire to keep software flaws secret - in order to conduct espionage and cyber warfare - against sharing those flaws with technology companies to better secure the internet.

"This attack provides yet another example of why the stockpiling of vulnerabilities by governments is such a problem," Smith wrote. He added that governments around the world should "treat this attack as a wake-up call" and "consider the damage to civilians that comes from hoarding these vulnerabilities and the use of these exploits."

The NSA and White House did not immediately respond to requests for comment about the Microsoft statement.

Economic experts offered differing views on how much the attack, and associated computer outages, would cost businesses and governments.

The non-profit U.S. Cyber Consequences Unit research institute estimated that total losses would range in the hundreds of millions of dollars, but not exceed $1 billion.

Most victims were quickly able to recover infected systems with backups, said the group's chief economist, Scott Borg.

California-based cyber risk modeling firm Cyence put the total economic damage at $4 billion, citing costs associated with businesses interruption.

U.S. President Donald Trump on Friday night ordered his homeland security adviser, Tom Bossert, to convene an "emergency meeting" to assess the threat posed by the global attack, a senior administration official told Reuters.

Senior U.S. security officials held another meeting in the White House Situation Room on Saturday, and the FBI and the NSA were working to help mitigate damage and identify the perpetrators of the massive cyber attack, said the official, who spoke on condition of anonymity to discuss internal deliberations.

The investigations into the attack were in the early stages, however, and attribution for cyber attacks is notoriously difficult.

The original attack lost momentum late on Friday after a security researcher took control of a server connected to the outbreak, which crippled a feature that caused the malware to rapidly spread across infected networks.

Infected computers appear to largely be out-of-date devices that organizations deemed not worth the price of upgrading or, in some cases, machines involved in manufacturing or hospital functions that proved too difficult to patch without possibly disrupting crucial operations, security experts said.

Microsoft released patches last month and on Friday to fix a vulnerability that allowed the worm to spread across networks, a rare and powerful feature that caused infections to surge on Friday.

Code for exploiting that bug, which is known as "Eternal Blue," was released on the internet last month by a hacking group known as the Shadow Brokers.

The head of the European Union police agency said on Sunday the cyber assault hit 200,000 victims in at least 150 countries and that number would grow when people return to work on Monday.

Monday was expected to be a busy day, especially in Asia, which may not have seen the worst of the impact yet, as companies and organizations turned on their computers.

"Expect to hear a lot more about this tomorrow morning when users are back in their offices and might fall for phishing emails" or other as yet unconfirmed ways the worm may propagate, said Christian Karam, a Singapore-based security researcher.

The attack hit organizations of all sizes.

Renault said it halted manufacturing at plants in France and Romania to prevent the spread of ransomware.

Other victims include is a Nissan manufacturing plant in Sunderland, northeast England, hundreds of hospitals and clinics in the British National Health Service, German rail operator Deutsche Bahn and international shipper FedEx Corp

A Jakarta hospital said on Sunday that the cyber attack had infected 400 computers, disrupting the registration of patients and finding records.

Account addresses hard-coded into the malicious WannaCry virus appear to show the attackers had received just under $32,500 in anonymous bitcoin currency as of (1100 GMT) 7 a.m. EDT on Sunday, but that amount could rise as more victims rush to pay ransoms of $300 or more.

The threat receded over the weekend after a British-based researcher, who declined to give his name but tweets under the profile @MalwareTechBlog, said he stumbled on a way to at least temporarily limit the worm's spread by registering a web address to which he noticed the malware was trying to connect.

Security experts said his move bought precious time for organizations seeking to block the attacks.


Article Link To Reuters:

The Populist Wave Hasn't Crested Yet

Youth globally are still drawn to extremes.


By Mihir Sharma
The Bloomberg View
May 15, 2017

At a victory rally for France’s young new President Emmanuel Macron outside the Louvre last week, I was struck by the generational gap between the candidate and his most animated supporters. Most younger people in the crowd looked relieved but far from overjoyed; the most visibly enthusiastic among them were of West African or Arab descent. And when Macron took the stage and began to speak, it was the older heads in the crowd that nodded at his words.

I remember, in 2002, watching French students my age demonstrate against right-wing nationalist Jean-Marie Le Pen, father of this year’s losing candidate, Marine Le Pen: “Vote for the crook, not the fascist,” they chanted, intending to turn out in numbers to vote for the corruption-accused Jacques Chirac. Today, their equivalents chant “neither the banker nor the racist.” From “vote” to don’t -- in just 15 years.

Liberals worldwide seem to have concluded, with a collective sigh of relief, that Macron’s emphatic victory is a sign that the global “populist” wave has peaked, and that time is on their side. Such optimism is premature. The weakness of Macron’s appeal -- and strength of Le Pen’s -- among many young French voters is further evidence of a disquieting truth: In many parts of the world, the young may simply care less about liberal democratic values than they once did.

True, young Britons largely voted against the idea of leaving the European Union and American youth overwhelmingly rejected Donald Trump’s candidacy -- although he may have won because not enough of them cared enough to turn out against him. And there are specific reasons why French youth might be angry: Youth unemployment is notoriously high, for example.

But, like all “economic anxiety” explanations for a turn to radicalism, this one is incomplete. After all, while youth unemployment is at 23 percent today, it was only a few percentage points lower in 2002, when French youth enthusiastically turned out against Le Pen’s father.

The fact is, there's no reason to assume that younger, first-time voters will become a bulwark for liberal, centrist politics against a populist upsurge. A widely quoted paper last year by Roberto Foa and Yascha Mounk examined data from the World Values Survey and concluded:

"Back in 1995, for example, only 16 percent of Americans born in the 1970s (then in their late teens or early twenties) believed that democracy was a “bad” political system for their country. Twenty years later, the number of “antidemocrats” in this same generational cohort had increased by around 4 percentage points, to 20 percent. The next cohort -- comprising those born in the 1980s -- is even more antidemocratic: In 2011, 24 percent of U.S. millennials (then in their late teens or early twenties) considered democracy to be a “bad” or “very bad” way of running the country."


Survey results from the world’s largest democracy are no more comforting. New Delhi’s Centre for the Study of Developing Societies surveyed Indians between 15 and 34 last year and came out with some numbers that should depress liberals everywhere. A majority of those surveyed wanted to ban films that “hurt religious sentiments”; 24 percent would be unhappy living next to someone of African descent; 43 percent believed men were better leaders; only four percent married outside their caste. And, as it happened, about 60 percent said India needed “a strong leader who doesn't need to bother about winning elections.”

In fact, political scientists and survey-takers have been warning for some time that we shouldn’t assume that young voters will usher in a new age of social and political moderation. Some have pointed out that millennials are more extreme than previous generations; others found nearly a quarter of young French people thought only a revolution could fix things, up from seven percent in 1990. And, of course, as the Atlantic’s Derek Thompson has pointed out, 42 percent of young Americans surveyed by Pew said socialism was better than capitalism -- even though only 16 percent could define it.

Nationalism and grievance are not exclusive to the old. In fact, in many countries, older generations have lived through darker and more illiberal times, and are thus more likely to understand the dangers of giving in to the politics of grievance that give birth to populism. We must accept that younger people seeking to find a place for themselves in a world they feel doesn't recognize their desires are as likely, perhaps more, to sustain illiberal populism as their parents or older siblings.

Ultimately, the aura of inevitability that liberalism has chosen to surround itself with over the past few decades may be its worst enemy. Too many liberals will sit back after seeing a victory like Macron’s and believe that a natural order has been restored, not appreciating how many young people resent such smugness. Liberalism is not a default option; it has to be fought for, generation after generation. Perhaps this one more than most.


Article Link To The Bloomberg View:

China's Economy Loses Momentum As Policymakers Clamp Down On Debt Risks

By Kevin Yao
Reuters
May 15, 2017

China's growth took a step back in April after a surprisingly strong start to the year, as factory output to investment to retail sales all tapered off as authorities clamped down on debt risks in an effort to stave off a potentially damaging hit to the economy.

Waking up to the systemic threat posed by cheap credit-fueled stimulus since the 2008-9 global financial crisis, Beijing has continued to tighten the screws on speculative financing over the past several months.

Data on Monday highlighted the broad economic impact of these regulatory curbs, with below-forecast factory output in April and fixed-asset investment in the first four months of the year reinforcing evidence of a weakening manufacturing sector and slowing momentum in the world's second-biggest economy.

"If anything (the slowdown) is even faster than we expected," said Julian Evans-Pritchard at Capital Economics in Singapore in an interview before the data was released.

However, "we're still some way off from the economy weakening to the point where it will test the tolerance of policymakers...as the urgency to address some of these financial risk issues (is even greater)," he said.

Factory output was up 6.5 percent in April from a year earlier, down from 7.6 percent in March, and fixed-asset investment rose 8.9 percent in the first four months of the year, off the 9.2 percent pace in Jan-March.

Analysts polled by Reuters had predicted factory output would grow by 7.1 percent in April, and tipped fixed asset investment to rise 9.1 percent in Jan-April.

Output growth slowed on tumbling steel and iron ore prices amid concern over rising inventories after China's mills cranked out as much metal as possible to drive factory production to its highest since December 2014.

However, on a volume basis, steel output hit a record in April, data Monday showed, stoking worries of a growing glut as demand remains flat even as China says it is ahead of schedule on capacity reduction targets.

Fixed asset investment in the manufacturing sector also slowed over Jan-April, with growth of 4.9 percent down from 5.8 percent in the first quarter. Infrastructure spending, however, continued to grow over 23 percent year-on-year in the same period, supported by Beijing's Belt and Road initiative to expand investment links with Asia, Africa and Europe.

Property Cools

Analysts say Beijing is keen to ensure steady economic growth ahead of the 19th Communist Party Congress later in the year. Chinese leaders have pledged to shift the emphasis to addressing financial risks and asset bubbles which analysts say may pose a threat to the Asian economic giant if not handed well.

China's central bank has been guiding short-term interest rates higher to help contain debt perils, though it is treading cautiously to avoid hurting economic growth.

A red-hot property market, fueled by speculative investments, has been identified by analysts and policymakers as one of the biggest risks to growth.

Monday's data showed investment in property development picked up in April, although sales growth was significantly slower, suggesting investment in the sector remained robust even as intensified government controls to rein in the market began to take effect.

The area of property sold grew 7.7 percent year-on-year in April, the lowest since December 2015 and well short of the 14.7 percent increase in March.

Softer Consumption


Retail sales rose 10.7 percent in April from a year earlier, weaker than March's 10.9 percent gain as home appliances and automobile sales growth slowed from March.

At the same time, growth in the services sector slowed to 8.1 percent year-on-year, down from 8.3 percent growth in March and the slowest since December.

"Slowing domestic consumption growth and softer external demand appear to have driven the slowdown in China at the start of the second quarter," Capital Economics' Evans-Pritchard said in a note following the data release.

The country's first quarter economic growth came in at a faster-than-expected 6.9 percent, the quickest since 2015 on higher government infrastructure spending and a gravity-defying property boom.

China has cut its economic growth target to around 6.5 percent this year to give policymakers more room to push through painful reforms and contain financial risks after years of debt-fueled stimulus.

But with the ambitious new Silk Road global development initiative and the Xiong'an "satellite" capital plan, analysts don't expect China to stray too far from the investment-led growth model.

Indeed, Chinese President Xi Jinping's Xi on Sunday pledged an additional $124 billion for the Belt and Road initiative.

"Growth will continue to be underpinned by a strong infrastructure pipeline which also echoes the Belt and Road initiative and urbanization projects like Xiong'an," ANZ economists Raymond Yeung and Betty Wang wrote in a note.

"China seems to have returned to an investment-driven growth strategy."


Article Link To Reuters:

China Has Designs To Spread Money And Influence Across The World -- India Isn't Having It

By Nyshka Chandran
CNBC
May 15, 2017

India has repeatedly indirectly criticized one of China's flagship policy programs in a move that could worsen bilateral ties between the Asian heavyweights.

Over the weekend, Indian Prime Minister Narendra Modi rejected China's offer to participate in the ambitious "Belt and Road" global investment initiative, also known as "One Belt, One Road." Beijing had previously invited New Delhi to join the China-Pakistan Economic Corridor — a network of roads, railways and pipelines linking Pakistan's southern port of Gwadar to China's western Xinjiang province — which Chinese President Xi Jinping has deemed central to OBOR.

The crux of India's reluctance to the program is the fact that the $46 billion corridor will traverse Pakistan-occupied Kashmir, with officials declaring that the venture violated Indian sovereignty. Most of Kashmir has been divvied up between the two South Asian nations, but the Himalayan region still remains a hotly contested issue between New Delhi and Islamabad.

The corridor would "destroy any chance of a peaceful settlement of the Kashmir dispute," Samir Saran, vice president of the New Delhi-based Observer Research Foundation, said in a recent note. "In effect, Pakistan and China are suggesting that it is conceivable Kashmir can be segregated into separate units that merit unique economic, political and military engagement."

Beijing has said the project was strictly focused on economic cooperation and devoid of geopolitical issues, but in a strongly-worded statement on Saturday, New Delhi said it could not accept a project that ignored its core concerns on sovereignty.

It's not just the corridor, though: India has beef with the entire OBOR program.

The South Asian giant refused to send a delegation to a Chinese conference on the topic over the weekend, where Xi pledged $100 billion to finance projects. Saturday's statement also listed several concerns behind the venture, noting that any initiative promoting connectivity between countries must not create unsustainable debt burdens for communities. Indeed, the prospect of host countries struggling to pay back loans for infrastructure projects executed by Chinese companies has been one of the biggest criticisms of the program.

"New Delhi's objection is that OBOR is a unilateral, political and strategic initiative," said Dhruva Jaishankar, foreign policy fellow at Brookings India. "The concern is that unviable terms of loans will create debt burdens, which will then translate into political and military influence. This directly compromises Indian security given the nature of its relations with many of its neighbors."

Modi's tough attitude is indicative of India's nationalistic policy stance and has won him praise at home, but it could have economic consequences.

India is in dire need of capital to build up its power stations as well as connectivity between its highways, railways and airports, Victor Gao, chairman of the China Energy Security Institute, told CNBC on Monday. "This is exactly what OBOR can offer: resources to India."

"It will be wise for Indian leaders to think hard about OBOR and join as early as possible," he continued, noting that if New Delhi did not reconsider before OBOR gained momentum, "it may be too late for India to join."

But as Jaishankar pointed out, India hasn't missed out on Chinese money since the program was launched in 2013: "Chinese investment in India, including in infrastructure, has increased manifold over the past couple of years and is now in the billions of dollars."

What's Bothering India


It's not just Kashmir — there are a number of concerns behind New Delhi's reluctance to join OBOR at a time of strained India-China ties.

Beijing has repeatedly opposed New Delhi's bid to enter the 48-nation Nuclear Suppliers Group. Additionally, the mainland warned last month of serious damage to relations following an April visit by the Dalai Lama to Arunachal Pradesh — an Indian state that's also partly claimed by Beijing.

New Delhi and Beijing have a long history of territorial disputes; Aksai Chin is another source of contention in addition to Arunachal Pradesh. Located alongside the China-India border, that region is administered by China, but New Delhi says at least 38,000 square kilometers belong to India.

"India is concerned that OBOR disguises China's territorial ambitions, including strengthening its claims on parts of northeastern India that it claims as its own territory," explained Eswar Prasad, professor at Cornell University. More broadly, New Delhi is concerned about being encircled if Beijing does build strong relations with neighboring countries such as Pakistan and Myanmar, Prasad continued.

Chinese activities in Gilgit-Baltistan, an area administered by Pakistan but claimed by India, is another source of animosity. Over the weekend, Beijing and Islamabad signed a memorandum of understanding to construct and fund five dams along the Indus River, two of which are located in Gilgit-Baltistan.

"The optics of China funding projects in territory that Delhi deems to be disputed is likely to be seen as highly provocative in India," said Pratyush Rao, senior South Asia analyst at Control Risks. "The Modi government is likely to react by fast-tracking hydro-power projects in Indian-administered-Kashmir, that could in turn impact water flows downstream into Pakistan and trigger new water disputes."


Article Link To CNBC:

Here Are 3 Reasons Why Trump Drama Isn't Rattling The Bull Market

-- Major stock indexes have spent the past two weeks in a 0.8 percent range near their record highs despite the Comey firing and other possible threats to the Trump legislative agenda.
-- There are multiple reasons why the bull won't be rattled even as the DC drama continues, including that investors might be overplaying the Trump trade to begin with.
-- Stocks can do just fine during geopolitical drama, such as a 40 percent surge in the Dow in the year following the Battle of Midway in 1942.


CNBC
May 15, 2017

People are bothered that the markets are so unbothered by the political fuss and ferment in Washington.

As President Trump helps fuel conflict and alarm among political parties, other branches of government and the D.C. media, Wall Street is as calm and unhurried as it's been in decades. Amid the sudden firing of an FBI director and even warnings of a Constitutional crisis, the major stock indexes have spent the past two weeks in a vanishingly tight 0.8 percent range near their record highs.

The market's favorite trick is to act in confounding and counterintuitive ways, but this apparent disjunction has even some seasoned investment professionals scratching their heads and interrogating their financial models.

S&P 500, 1 Month:




Calling it "a worrisome disconnect," strategists at Goldman Sachs last week argued, "The juxtaposition of rising policy uncertainty vis a vis declining fear in risk assets raises cause for pause, in our view." They suggest the chances for business-boosting policy moves are waning as Washington bogs down, which could weaken business confidence, stall corporate merger activity and disappoint investors.

Perhaps there is an untenable disconnect, and maybe it will prove to be a concern for markets.

Yet there are a few possible explanations for why the S&P 500 has managed to hover quietly near its record high as the Washington drama thrums ever more loudly.

That's Not What Markets Do.


Financial markets don't routinely reprice according to shifts in the public mood or the relative effectiveness of leaders, they work to discount future corporate cash flows and interest rates.

The CBOE S&P 500 Volatility Index (VIX) - which everyone keeps accusing of blithe negligence for staying near all-time lows - is not a gauge of political dissension or executive malfeasance. It's a statistic derived from the prices investors are willing to pay, in real money, for options that protect against a market drop or surge in volatility over the next 30 days.

The histories of the bruising 1973-'74 bear market hardly even mention Watergate as a contributing factor. It was mostly about an expensive stock market blindsided by the Arab oil embargo, spiraling inflation and the Federal Reserve raising interest rates into a weakening economy.

In the middle of World War II, following the Battle of Midway in 1942, the Dow industrials surged 40 percent in a year even as the war news remained bad and the outcome unclear. During the Reagan-era Iran-Contra affair of the mid-'80s, stocks continued heading steeply higher. Same as during the Clinton-impeachment scandal of the '90s. After the 9/11/2001 attacks, the Dow fell a quick 7 percent then rallied by 20 percent the next three months.

Sure, if this were a skittish market beset by multiple challenges and looking for an excuse to pull back hard, the political headlines could easily serve the purpose. But that's not the current market, which is supported by lots of liquidity and cooperative fundamentals - for now.

Policy Magic Is Not Priced In.

I've argued for months that tax- and infrastructure-policy hopes have not been a key driver of stocks' strength since early this year. The Trump trade was a five-week burst of buying in some under-owned cyclical and financial sectors after the election, followed by a broader rebound pegged to global growth and an earnings rebound.

This seems clearer now as the market leadership has shifted to very large technology stocks and not the high tax-rate, domestic companies that would reap most from a corporate tax cut.

Granted, the hope for policy movement at some point is certainly part of the psychological backdrop among investors, who are giving this market the benefit of the doubt. If we were somehow told definitively that no stimulative tax or spending legislation will pass during this Congress, might it prompt an overdue market pullback? Plausible, sure. But that doesn't mean policy is an essential prop to the market just now.

Lindsey Bell, strategist at CFRA, notes that earnings forecasts for the full year are holding up unusually well. This provides fundamental cover for investors buying stocks at current expensive valuations.

Bell says: "The largest risk to the outlook resides in the third and fourth quarter estimates, as the consensus numbers haven't moved much. The market and analysts are seemingly pricing in lofty benefits from President Trump's potential policies on tax reform, infrastructure spending, repatriation and deregulation, preventing analysts from adjusting estimates further downward."

It's hard to prove. Maybe policy hopes are supporting analyst forecasts for now, or not. If so, perhaps the "worrisome disconnect," if that's what this is, will get tested in coming quarters.

Maybe The Market Is Responding To The DC Drama.


Investors and traders seem bereft of any conviction lately.

Trading volume last week in the huge S&P 500 Spyder ETF was 28 percent below average, the slow pace of a major-holiday week. Cash has been pulled from domestic stock funds over the past two weeks.

Maybe this is the investment community being wary and watchful of what the jarring political headlines might, or might not, mean for the economic agenda, consumer confidence and business spending?

And let's not forget that before Election Day 2016, it was common to celebrate how much the stock market benefited from Washington gridlock and policy paralysis. A state of enforced gridlock followed the 2012 election, and plenty of observers credited this with at least part of the market's 30 percent gain in 2013.

For sure, the market can't stay this placid for terribly long, and it certainly would be rattled by some political development or another - an ill-advised and impulsive military action, or the president's open defiance of Congress, say.

And perhaps this market would be jumpier if it were more driven by the heavy participation of individual investors rushing in and out of individual stocks, rather than index funds, asset-allocation models and quantitative strategies.

But it's not. And, so, for the moment, the market is not extrapolating recent political events out to some unknowable outcome that might or not matter for the economy - because that's really not what markets do.


Article Link To CNBC:

Lyft Partners With Waymo To Launch Self-Driving Car Pilots

Reuters
May 15, 2017

U.S. ride services company Lyft Inc and Alphabet Inc's (GOOGL.O) self-driving car unit Waymo have launched a self-driving vehicle partnership, bringing together two rivals to dominant ride-sharing service Uber Technologies Inc.[UBER.UL]

Lyft, the No. 2 U.S. ride service by ride volume, in a statement said a deal to launch self-driving pilots would accelerate its vision for transportation and Waymo, which is beginning tests of a self-driving car service in Phoenix, said the partnership would let its technology reach "more people, in more places".

Neither offered many details of the agreement, which was reported earlier by the New York Times.

The auto industry and technology companies are racing to develop self-driving technology, which they expect in a number of years will transform transportation, cutting costs of ride services and changing the way people buy and use cars.

Uber is the biggest U.S. ride service by volume and has been developing self-driving technology, which it sees as a key to its future, as it expands its ride service with human drivers.

Waymo has some of the most advanced self-driving vehicle technology and has been looking for partners, while Lyft offers ride services in about 300 U.S. cities.

Still, Lyft said the deal is non-exclusive and will allow it to continue a self-driving partnership with U.S. automaker General Motors Co (GM.N), which is a Lyft investor.

GM plans to deploy thousands of self-driving electric cars in test fleets partnering with Lyft beginning 2018, sources told Reuters in February.

Lyft is extremely early in its autonomous efforts. It has relied heavily on General Motors for any testing and doesn't have a program that rivals Uber's Advanced Technologies Group, a department in Uber dedicated to building self-driving technology.

Waymo and Uber are fighting in court over self-driving technology that Waymo says was stolen by a former employee who founded another company that Uber later acquired. Uber says it did not steal or use Waymo secrets.

Talks on the Waymo and Lyft collaboration between began last summer, a person familiar with the situation said.

Lyft raised $600 million at a $7.5 billion valuation last month.


Article Link To Reuters:

Fed Officials Test New Argument For Tightening: Protect The Poor

Discussion puts Fed in spotlight as inequality debate widens; Recent studies find contractionary policy often is regressive.


By Matthew Boesler
Bloomberg
May 15, 2017

To protect the poorest Americans, should central bankers raise interest rates faster?

At least one of them is making that argument. During a speech last month, Federal Reserve Bank of Kansas City President Esther George said she was “not as enthusiastic or encouraged as some when I see inflation moving higher” because “inflation is a tax and those least able to afford it generally suffer the most.”

She was referring in particular to rental inflation, which she said could continue rising if the Fed doesn’t take steps to tighten monetary conditions. And while the idea of inflation as a tax that hits the poor the hardest is not a new one, its role in the current debate over what to do with interest rates marks a bit of a twist from recent years.

Widening disparities in income and wealth have over the past several years permeated national politics and helped fuel the rise of populist movements around the developed world. Against this backdrop, there has been a growing body of research, some of it produced by economists at central banks, backing the idea that easier monetary policy tends to be more progressive.

That work, set against the notion that a stricter approach toward containing inflation has the best interests of the lowest-income members of society at heart, is thrusting Fed policy makers toward the center of a debate they usually like to leave to politicians. It’s becoming more contentious as Fed officials seek to declare victory on their goal of maximum employment even while the percentage of prime working-age Americans who currently have jobs is still nowhere close to the peaks of the previous two economic expansions.



George has, since taking the top job at the Kansas City Fed in 2011, been one of the U.S. central bank’s biggest internal critics of low interest rates, but she is not alone on the rate-setting Federal Open Market Committee when it comes to the idea that the Fed must be vigilant about price pressures in order to protect the poor.

Her FOMC colleague Patrick Harker, who became president of the Philadelphia Fed in 2015, argued for the same in January while talking to reporters after a speech in New Jersey, although he was not calling for action at that time.

This is an offshoot of the conventional wisdom shared by the current generation of central bankers around the world. Many economists remember a 1998 study by Christina and David Romer. It concluded that while expansionary monetary policy can reduce poverty in the short run by juicing economic growth, in the longer run everyone will benefit more from policies that aim for low and stable inflation because those measures improve the economy’s overall efficiency.

Although it is true that high inflation in itself can sometimes disadvantage the poor -- the idea is that wealthier people are able to more-easily diversify their savings into assets less susceptible to inflation -- it’s only a small part of the story when it comes to the implications for monetary policy, according to Olivier Coibion, an economics professor at the University of Texas in Austin.

In a recent study, Coibion and his co-authors found that over the period from 1980 to 2008, the inflation-as-regressive-tax argument was swamped by other benefits of accommodative monetary policy that pushed in the opposite direction, leading to a conclusion somewhat at odds with the Romers’ findings.



“Contractionary monetary policy systematically increases inequality in labor earnings, total income, consumption and total expenditures,” he and his co-authors wrote. One notable episode was the early 1980s tightening directed by then-Fed Chairman Paul Volcker, which in seeking to bring down high inflation ended in a severe recession and accounted for “much of the dynamics in inequality” in that decade.

Another recent study published by the Fed itself came to a similar conclusion, but went even further. For “a majority of households” in the study’s model of the economy, the benefits of a monetary policy strategy that focuses more on employment outweigh the associated costs that come in the form of higher and more volatile inflation.

As the Fed has begun raising rates over the past year and a half, there are signs that Fed Chair Janet Yellen may already be rethinking the central bank’s strict focus on inflation, according to John Silvia, the Charlotte, North Carolina-based chief economist at Wells Fargo Securities.

“She has already shifted away from having a very rigid 2 percent target,” said Silvia, who was one of Coibion’s co-authors.

The greater scope for rate cuts that would come from allowing higher inflation would let Fed officials help put people who lose their jobs in recessions back to work quicker.

For decades, there’s been widespread agreement in the economics profession on the overarching merits of price stability as a mandate for central banks. For the Fed, the long period of low and relatively stable inflation helped maintain support for insulation of interest-rate decisions from political pressures.

Ultimately, the Fed may decide to pursue a higher inflation target, but will avoid bringing distributional issues into their reasoning, said Peter Ireland, an economics professor at Boston College.

While some within the Fed have suggested such a course of action is worth thinking about, so far it’s not risen to the level of a serious near-term consideration for policy. Meanwhile, political economy considerations continue to loom large, according to James Galbraith, an economics professor at the University of Texas in Austin.



The biggest threat the Fed faces in Congress is from conservative politicians who have for several years criticized it for holding rates near zero and would like to pass legislation that would amount to greater scrutiny of its policy decisions.

“The argument for doing something about inflation almost always has a strong constituency among the very wealthy,” Galbraith said. “The current situation is one in which the pressure on the Fed is to raise interest rates, and the question is, would they engineer a soft landing by doing so? I think the answer to that is it’s not very likely.”


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Unusually Low Volatility Can Be Dangerous For Markets

Excessive stability breeds instability down the road.


By Mohamed A. El-Erian
The Bloomberg View
May 15, 2017

The smoother the road, the faster people are likely to drive. The faster they drive, the more excited they are about getting to their destination in good, if not record time; but, also, the greater the risk of an accident that could also harm other drivers, including those driving slower and more carefully.

That is an appropriate analogy for the way unusually low financial volatility influences positioning, asset allocation and market prospects. And it holds for both traders and investors.

The lower the market volatility, the less likely a trader is to be “stopped out” of a position by short-term price fluctuations. Under such circumstances, traders are enticed to put on on bigger positions and assume greater risks.

What is true for one trader is often true for firms as a whole. Moreover, the approach is often underpinned by formal volatility-driven models such as VAR, or value at risk, that give the appearance of structural robustness.

Patient long-term investors can also be influenced by unusually low volatility, whether they know it or not. Expected volatility is among the three major inputs that drive asset-allocation models, including the “policy portfolio” optimization approach used by quite a few foundations and endowments (the other two variables being expected returns and expected correlation). As the specifications of such expectations are often overly influenced by observations from recent history, the lower the volatility of an asset class, the more the optimizer will allocate funds to it.

All this is to say that the recent decline in both implied and actual measures of volatility, including a VIX that recently touched levels not seen since 1993, is likely to encourage even greater risk taking both tactically and strategically, including bigger allocations to stocks, high yield bonds and emerging market assets. And both, at least in the short-term, will contribute to damping market volatility further.

None of this would be particularly remarkable if the decline in volatility was not coinciding with notable fluidity in the global economy on account of economic, financial, geopolitical, institutional and political factors. From the North Korean nuclear threat and the rise of anti-establishment movements to allegations of Russian meddling in elections and yet-to-be properly explained behaviors of some economic variables (such as productivity, wages and inflation), among many other developments, the disconnect with the exceptionally low levels of volatility is attracting greater attention, though seemingly few portfolio adjustments as of now.

What makes the situation even more intriguing is that the main policy instrument that has been used in recent years to repress financial volatility, unconventional monetary policy, is itself in transition. The U.S. Federal Reserve has stopped its quantitative easing program and now seems intent on normalizing interest rates, including at least two possible hikes in the remainder of 2017. It is also considering a program for an outright reduction in the size of its balance sheet. Meanwhile, the long-awaited economic strengthening in Europe is placing pressure on the European Central Bank to be less accommodating, raising interesting questions about the sequence of its QE tapering, forward policy guidance and interest rate hikes. The Bank of England is seeing inflation rise to its highest level in some years.

Left unattended, all this could lead to some unpleasant market outcomes -- whose consequences would potentially impact excessive risk takers, with negative spillovers on those who have been more careful. Fortunately, there is an orderly economic and financial way to reconcile the disconnects, and without derailing the gradual normalization of monetary policy.

As detailed in earlier articles, this process involves politicians enabling other policy-making entities, which have tools better suited to the challenges at hand, to deliver on their economic governance responsibilities. By achieving higher and more inclusive growth, such an overdue policy response would enhance economic prospects, allow for genuine financial stability, lessen the political pressures on economic institutions (particularly central banks) and help render national politics less toxic.

But if the needed policy response continues to lag, this period of unusual market calm would end up as another data point in support of the “instability hypothesis” of the U.S. economist Hyman Minsky – that is, the simple yet powerful idea that excessive stability breeds unsettling instability down the road.


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4 Tips To Protect Yourself From Becoming A Ransomware Victim

Update your system and back up your files. Like, now!


By Mike Murphy
MarketWatch
May 15, 2017

A massive cyberattack has claimed more than 200,000 victims in at least 150 countries over the past few days, and officials say the situation will likely worsen.

The WannaCry ransomware — so called because it essentially holds a computer or network hostage unless a ransom is paid to unlock it — targeted Microsoft Corp.’s MSFT, -0.12% Windows computers, mostly at businesses and government organizations, and affected everything from hospitals in the U.K. to Fedex in the U.S. to gas-station cards in China. Experts worry the virus could spread again Monday, as Asian corporate networks go online and the hackers tweak their code to elude makeshift defenses.

But there are a few simple ways to avoid being the next ransomware victim:

1. Update, update, update.
If your computer runs Windows, make sure your operating system is updated. In March, Microsoft released a patch for the vulnerability that the ransomware worm targeted, so if you haven’t updated since then you may be at risk. The easiest thing to do is approve auto-updates, if your particular Windows system allows that. Otherwise, always approve Windows software updates so you’re running the most up-to-date, secure system.

2. Back up your data.
If you have your most important data saved on a separate system, then you won’t be at risk of losing all your photos and data files if you get infected. The best options are an external hard drive that you update regularly and is not connected to the internet, or a cloud-storage service, such as Google Drive, Apple iCloud or Microsoft OneCloud. While a cloud service could still be targeted, the odds are a multi-billion-dollar tech giant will have much better security than you do, and much better resources to respond quickly to an attack.

3. Be careful what you open.
Especially now, be wary of any unsolicited emails asking you to click on a link, or to download a file. If it looks weird, or the site is suspicious, don’t click it. Doing so could infect not only your computer, but whatever network you’re on — that’s how the virus spreads.

4. Use antivirus software.
While they’re not always guaranteed to catch every virus, this is literally the job they’re built for. Scans can block viruses from being downloaded, and prevent malware from being installed.

So what happens if you do get infected with ransomware? Probably nothing good. WannaCry is named that for a reason — it takes over your computer, encrypts your files and threatens to delete them unless you pay about $300.

You can try a decryption tool to unlock your data, but that won’t always work, and hackers will sometimes use such apps as bait to further infect your system (so if you download one, only get it from a trusted, official site). The other option is paying the hackers, however unsavory that may seem.


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Cybersecurity Stocks Rise After Global 'Ransomware' Attack

By Helen Reid and Danilo Masoni
Reuters
May 15, 2017

Cybersecurity stocks and tracker products rose at the European open on Monday after a global "ransomware" attack disrupted car factories, hospitals, shops and schools around the world.

A London-listed cybersecurity exchange-traded fund ISE (ISPY.L) whose holdings include software provider Cisco Systems (CSCO.O) and cybersecurity firms Fireeye (FEYE.O) and Symantec (SYMC.O) rose 0.9 percent at the open.

London-listed shares in cloud network security firm Sophos (SOPH.L), which also saw an upbeat target price raise at Deutsche Bank, jumped as much as 3.6 percent to a record high.

A cyber-attack in at least 150 countries spread across the globe on Friday, disrupting operations at firms including French carmaker Renault (RENA.PA).

Europe's police agency Europol said on Monday the attack had hit 200,000 in at least 150 countries.

French government cyber security agency ANSSI said Renault was not alone to be hit, and warned of other possible attacks soon.


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Oil Jumps As Saudi, Russia Take Lead And Extend Supply Cuts To March 2018

By Henning Gloystein 
Reuters
May 15, 2017

Oil prices jumped 2 percent on Monday after the energy ministers of the world's two biggest producers Saudi Arabia and Russia jointly said that a crude production cut would be extended from the middle of this year until March 2018.

Brent crude was at $51.88 per barrel, up $1.04, or 2.1 percent, from its last close at a level last seen in early May.

U.S. West Texas Intermediate (WTI) crude was at $48.85 per barrel, up $1.01, or 2.1 percent.

Saudi Energy Minister Khalid al-Falih and his Russian counterpart Alexander Novak said on Monday in Beijing that a joint deal to cut crude supplies would be extended from the middle of this year until the end of March 2018.

"We've come to conclusion that the agreement needs to be extended," the statement said.

"The two ministers agreed to do whatever it takes to achieve the desired goal of stabilizing the market and reducing commercial oil inventories to their 5-year average level," it added.

The Organization of the Petroleum Exporting Countries (OPEC), of which Saudi Arabia is the de-facto leader, and other producers led by Russia, pledged late last year to cut output by 1.8 million barrels per day (bpd) during the first half of 2017. OPEC-members agreed to cut 1.2 million bpd under the deal.

The extension will initially be on the same volume terms as before, although the ministers said they hoped other producers would join the efforts.

Russia and Saudi Arabia together produce about 20 million bpd of crude, equivalent to one-fifth of global consumption. Their clout in oil policy is seen ensuring that other producers who have so far participated in the cuts will also extend.

"Saudi and Russia are clearly working closely together. Saudi seems very determined to push oil prices higher by making this joint statement now," said Oystein Berentsen, managing director for oil trading company Strong Petroleum in Singapore.

OPEC is due to meet in Vienna, Austria, on May 25.

However, higher output from the United States, which did not participate in the agreement to cut supplies, has undermined the efforts by OPEC and Russia.

Thanks to a relentless rise in drilling activity, mostly from shale producers, U.S. oil output has shot up by more than 10 percent since mid-2016 to over 9.3 million bpd.

"With the U.S. rig count increasing for its 17th consecutive week, I think we can safely say that the crude oil battle is well and truly on," said Matt Stanley, a fuel broker at Freight Investor Services (FIS) in Dubai.

Financial traders have increased their stakes in the Brent and WTI markets as speculators are taking positions that either OPEC and Russia's effort to support prices will work out, or prices will drop again because of the surge in U.S. supply.

Open interest for Brent and WTI crude futures hit all-time records this month of over 2.5 million contracts open for front-month Brent, and over 2.3 million contracts open in front-month WTI.


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China Eyes U.S. Energy After Inking $20 Billion In Deals

CNPC chief says company seeking U.S. supply, LNG investments; Deals with Russia, Saudi to be signed in Beijing: CNPC’s Wang.


Bloomberg
May 15, 2017

China is setting its sights on U.S. energy as a growing reliance on imports forces it to look beyond traditional suppliers, according to the head of the country’s biggest oil and gas company.

China National Petroleum Corp. will import more crude oil and natural gas from the U.S. and will consider participating in America’s growing liquefied natural gas export industry, Chairman Wang Yilin said in an interview Sunday with Bloomberg TV on the sidelines of the Belt and Road Forum in Beijing. The energy giant will sign $20 billion in deals during the two-day event, a meeting of countries involved in China’s initiative to connect Europe, Asia and Africa through infrastructure and investment.

“The U.S. has very rich oil and gas resources, and as China pursues a diversification of its crude supply the U.S. will of course be one of the sources.” Wang said. “We will consider exploring cooperation in areas such as jointly developing liquefied natural gas facilities and gas transport.”

China’s growing use of U.S. energy is taking CNPC beyond the Belt and Road plan, which is President Xi Jinping’s cornerstone trade initiative. Wang’s comments follow a separate deal between China and the U.S. announced Thursday by President Donald Trump’s administration that welcomed the country engaging in long-term contracts with American LNG suppliers.

CNPC currently has more than 50 joint projects under way in 19 countries taking part in Belt and Road, according to Wang. In Central Asia and Russia, they’re mainly focused on natural gas, while in African and Middle Eastern nations the majority of projects concern oil.

Falling Production


The world’s biggest energy user is becoming more reliant on overseas crude supplies as production at home plummets after its state-run firms -- including CNPC’s listed unit PetroChina Co. -- cut spending to cope with the price crash. China has overtaken the U.S. as the world’s biggest oil importer, and emerged in February as the largest buyer of crude from the U.S., which has boosted exports thanks to the country’s shale oil boom.

Though China’s oil giants are raising combined spending for the first time in four years, that may not be enough to halt the drop in domestic crude output, especially as focus shifts toward natural gas, according to the International Energy Agency. Production in the first four months dropped 6.1 percent from the same period a year ago, extending the record pace of declines in 2016. Imports are up more than 12 percent during that period.

“We need to speed up our cooperation with resource countries to develop assets to meet China’s growing need for oil and gas,” Wang said. “By doing this, we can balance the higher reliance on imports with better use of foreign assets.”

PetroChina rose 0.2 percent to HK$5.32 as of the noon trading break in Hong Kong, compared with a 0.6 percent gain in the city’s benchmark Hang Seng Index.

Aramco, Gazprom

The $20 billion in deals to be signed during the Belt and Road Forum include Saudi Arabian Oil Co. taking a stake in the company’s Yunnan refinery, a $4 billion agreement for a natural gas processing plant in Azerbaijan with the State Oil Co. of Azerbaijan, gas storage and gas-fired power projects with Russia’s Gazprom PJSC and a geothermal project in Kenya, according to CNPC.

The agreement with the U.S. announced last week could pave the way for a second wave of investment in U.S. LNG terminals, according to Wood Mackenzie Ltd. American supplies accounted for almost 7 percent of China’s LNG imports in March, customs data show. The nine cargoes sent over the last year to China from Cheniere Energy Inc., the first U.S. exporter from the country’s lower 48 states, were sold on a so-called spot basis, rather than under long-term contracts, the consulting company said.


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U.S. Shale Oil Boom Is Actually ‘OPEC’s Friend’

Shale and OPEC together are taking on other oil producers, GS analyst says.


By Sara Sjolin
MarketWatch
May 15, 2017

From foes to friends?

U.S. shale oil producers have largely been portrayed as the nemesis of the Organization of the Petroleum Exporting Countries, but the cartel should actually be welcoming the ramp-up in production stateside, according to Goldman Sachs’s top commodities analyst.

After the initial slump in production following the 2014 oil crash, U.S. producers have slimmed down and are now competitive at prices in some cases below $30 a barrel. That’s lower than for many other oil producers, putting the U.S. and OPEC in a joint sweet spot to squeeze out other competitors in the current oil-price environment, said Jeffrey Currie, global head of commodities research at the firm.

“There’s a lot of talk out there that OPEC is out to get shale—that it’s the battle between shale and OPEC, with OPEC sitting at the bottom of the cost curve,” he said at the S&P Global Platts Crude Oil Summit in London last week. “It’s not true. Shale and OPEC are taking on the international oil [producers] that are sitting at the top [of the cost curve]. And the international oils have to get themselves in line with the rest of that cost base.”

Crude CLM7, +2.36% is currently trading around $49 a barrel, while Brent LCON7, +2.36% trades around $52.

U.S. oil production is up sharply in 2017, incentivized by higher oil prices after more than 20 OPEC and non-OPEC members in November last year agreed to collectively cut output in a bid to balance the oil market. That’s allowed U.S. producers to increase market share, while at the same time benefiting from the rise in prices.

With demand also surprising to the downside, U.S. oil inventories touched a record high earlier in 2017, helping to send prices below the levels seen before the OPEC deal in November.

That’s led to speculation OPEC could start defending its market share again to squeeze the U.S. producers. However, Currie said that’s the wrong way to look at it. In what he calls “The New Oil Order,” shale oil has emerged as the new dominant technology in the oil market, which gives it certain advantages.

“Once you have the dominant technology, you exploit. And that’s essentially where we are,” Currie said.

That means “shale is OPEC’s friend. It’s really only scalable around $50-$55 a barrel, which means [OPEC producers] have a lot of room in which they can grow production underneath that level,” he added.

Many OPEC producers have significantly lower production costs, so a steady oil price around $55 is still enough to generate generous profits for those countries. Goldman sees crude oil around $55 at the end of 2017 and Brent at $57.

What’s more, there are signs that demand has finally started to outstrip supply, which means inventories will quickly start to shrink. The U.S. Energy Information Administration on Wednesday, for example, said domestic crude supplies dropped by 5.2 million barrels last week, a much bigger drawdown than expected.

“Do I want to be long oil? The answer is absolutely yes, because we are going into a deficit market,” Currie said, adding that the supply shortage could be as much as 2 million barrels a day in July.

“This market is going into a deficit, with or without OPEC and all OPEC did was to pull forward something that was already going to happen,” he added.

Even so, Neil Atkinson, head of oil analysis at the International Energy Agency, said the supply deficit is likely to widen if OPEC extends its output accord at its closely watched meeting on May 25. Several cartel members—including OPEC kingpin Saudi Arabia—have already signaled that they are ready to extend to production quotas for at least another six months.

“If you were to take the IEA’s oil report and look at estimates of what OPEC might do—it might rollover the existing levels—and assume no changes to the demand and supply outlook, you will find that as we move to the second half of the year it is likely that the surplus in demand and supply will grow,” he said at the oil conference in London.


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Globalization’s Ill Effects Have Been Wildly Exaggerated

By Robert J. Samuelson 
The Washington Post
May 15, 2017

Globalization has gotten a bad rap. The Trump White House associates it with all manner of economic evil, especially job loss. The administration has made undoing the damage a central part of its economic strategy. This will almost certainly fail and disappoint, because globalization’s ill effects have been wildly exaggerated.

A new report shows why. It comes from the Peterson Institute for International Economics, a think tank. Granted, Peterson is widely known for its pro-trade views, so its support for globalization is no surprise. Still, it gives both sides of the story, and the numbers speak for themselves.

The report (“The Payoff to America from Globalization: A Fresh Look with a Focus on Costs to Workers” by Gary Clyde Hufbauer and Zhiyao “Lucy” Lu) makes three main points.

First, trade has contributed substantially to the rise of American living standards since World War II. The report estimates those gains at $2.1 trillion on an annual basis, which was about 11 percent of the $18.5 trillion economy in 2016. Put differently, slightly more than one-tenth of what we produce and consume comes from trade’s cumulative benefits.

We enjoy these benefits in many ways. Imports are often cheaper than U.S. products. Think clothes, shoes, consumer electronics. Trade especially aids lower-income households whose budgets are weighted toward manufactured products, where price declines have been steep. Foreign competition and technology also force U.S. firms to lower costs and improve reliability. Cars are an excellent example. Toyota has made GM vehicles better. Finally, exports create jobs and economies of scale for U.S. firms.

Second, the job loss caused by trade is modest in a labor market of 160 million workers. Recall: In recent years, the economy added about 200,000 jobs per month . By contrast, the Peterson study estimates that from 2001 to 2016, imports displaced 312,500 jobs per year . Even this overstates the impact, because it ignores exports. In the same years, they boosted jobs by 156,250 annually, offsetting half the job loss.

None of this means that job loss isn’t a serious problem. It obviously hurts some workers and communities. A Labor Department study of workers displaced from 2013 to 2015 found that only two-thirds were re-employed by early 2016. Of the re-employed, nearly half had wages lower than at their previous job. Still, trade is only a small part of overall job displacement, no more than 10 percent, says the study. Other causes include automation, technological obsolescence and recessions.

Third, the benefits from expanded trade significantly outweigh the costs from job displacement — lost wages and prolonged unemployment. Since 2003, benefits have exceeded costs by about 5-to-1, the study estimates. The ratio is about 50-to-1 since World War II. Large gains from trade liberalization — cutting tariffs and eliminating quotas — were easier to achieve in the first postwar decades, when protectionism was widespread.

Despite this, Hufbauer and Lu argue that more trade liberalization is possible and would raise living standards. Average global tariffs on manufactured goods are 5.6 percent. Services (say, architectural and legal services) are heavily protected. But more liberalization isn’t likely. Trump is doing the opposite. He withdrew from the Trans-Pacific Partnership negotiated by the Obama administration and slapped higher tariffs on Canadian lumber.

Economics and politics are at loggerheads. Trade’s economic benefits occur slowly over long periods. Gains in any one year are small and are spread among millions of consumers, who may not notice their good fortune. Support is diffuse. Meanwhile, as the late economist Mancur Olson pointed out, the pain of lost jobs is concentrated. The dis-employed workers, standing before their shuttered factories, command our sympathy. They put a human face on a cold and impersonal process.

Politically, globalization shifts blame abroad. Foreigners — their exports, subsidies, exchange rates or whatever — are the villains. We are the victims. Little wonder that Trump has found anti-globalization an irresistible pitch. So have many others. Yet this has created a dilemma for trade policy: What’s good politics is bad economics, and vice versa.

It is not that the United States has no legitimate trade gripes. China is the biggest problem, and Trump — like his predecessors — has yet to find a way to discipline its trade abuses. But this frustration should not indict the entire trading system. The fact that we have chronic trade deficits reflects the dollar’s role as the main global currency. The demand for the dollar props up its exchange rate, making U.S. exports costlier and U.S. imports cheaper.

We can’t roll back globalization’s trade effects, because the enabling technologies (containerization, fiber-optic cables, air freight and the Internet) cannot be repealed. But attempting the impossible could backfire. Protectionist policies by governments could reduce economic growth, because companies will delay new investments if they don’t know where and how they can sell.


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