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Protecting American steel from imports makes no sense

AS AN example of all that is wrong with Donald Trump’s view of trade, the probe he has ordered into the steel industry is particularly hard to beat. If it results, as seems to be the plan, in blanket punitive tariffs slapped on steel imports, the consequences would be dire: the American economy would be hurt by a rise in the price of an essential material; it would invite retaliation that would cost American jobs, not save them; and the underlying problem—massive global steel overcapacity—would persist.

For Trumpists, steel is an emblem of their country’s descent from greatness. Ever since the 1960s, when production peaked at 168m tonnes a year, the industry has been in decline. Today it makes half as much as 50 years ago and employs just a third of the workers. Steelmakers have long blamed foreign rivals for their woes and lobbied hard for protection. So Mr Trump is not the first president to try to shield the industry from foreign competition. In the 1980s Ronald Reagan signed a series of agreements to limit imports. In 2002 George W. Bush imposed tariffs of up to 30%. Back then the bogeymen were steelmakers in Europe and Japan; now it is China, where a glut of steel has squashed prices.

Cheap steel, however, is a boon to many producers as well as to consumers. Higher prices would hit firms that use the metal, such as carmakers. Mr Bush’s…Continue reading

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Exchange-traded funds become too specialised

THERE comes a time when every financial innovation is taken a bit too far—when, in television terms, it “jumps the shark” and sacrifices plausibility in search of popularity. That may have happened in the exchange-traded fund (ETF) industry. The latest ETF to be launched is a fund that invests in the shares of ETF providers.

The notion has a certain logic. The ETF industry has been growing fast, thanks to its ability to offer investors a diversified portfolio at low cost. The assets under management in these funds passed $3trn last year, up from $715bn in 2008. Some investors might well want to take advantage of that rapid expansion.

But by no stretch of the imagination would this be a well-diversified portfolio; it would be a focused bet on the financial sector. And many of the companies in the portfolio, such as BlackRock, a huge fund manager, and NASDAQ, a stock exchange, are involved in a lot more than just ETFs. Even if the ETF industry keeps growing, the bet could still go wrong.

The new fund (with the catchy title of the ETF Industry Exposure and Financial Services ETF) is just the latest example of the industry’s drive to specialisation. The…Continue reading

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The threat of war can bring much-needed investment

PONDER the dire state of infrastructure in America and some other advanced economies, and their governments’ fecklessness boggles the mind. Time was when they were able to make badly needed investments; the roads and the universities were a priority. What changed? Not for nothing do pundits cite the hustling governments of China and Singapore as evidence that liberal democracies are no longer fit for purpose. But democracy is not the problem; rather, governments may lack motivation in what is, despite appearances, an unusually peaceful world.

War is hell; the less of it the better. Yet it has also been a near-constant feature of human history, and a constant stimulus to political evolution. Defence is a textbook example of a public good. Security benefits all residents of a country, and cannot be denied to citizens who prefer not to pay for it. There is little incentive for private forces to provide defence—unless by doing so they can take over the right to extract compensation from the society they protect. Throughout history, the legitimate government is the one that can best defend its people.

As populations have grown and technology has advanced, the job of…Continue reading

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Credit Suisse unveils another change of course

EUROPE’S most troubled big banks may at last be on the road to recovery. Not only is economic growth perking up; uncomfortable decisions, put off too long, are also being taken. In recent months UniCredit, Italy’s largest lender, has written down bad debt by €8.1bn ($8.7bn) and tapped shareholders for €13bn. Deutsche Bank, Germany’s biggest, has raised €8bn in equity and decided to keep a retail business it had hoped to sell. On April 27th it reported first-quarter net income of €575m, up from €236m a year earlier, although revenue fell.

Like Deutsche, Credit Suisse is freer to make plans after a recent settlement with American authorities over mis-selling mortgage-backed securities before the financial crisis. On April 26th Switzerland’s second-biggest bank reported first-quarter net income of SFr596m ($594m), far better than forecast, reversing a SFr302m loss a year before. Along with most of Wall Street, which published earnings earlier in the month, and Deutsche it benefited from a good quarter for fixed-income trading. It expects to wind up a unit in which it has dumped unwanted assets by the end of 2018, a year ahead of schedule.

Credit…Continue reading

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The market in Initial Coin Offerings risks becoming a bubble

WOULD you care to invest in Gnosis, a prediction market where users can bet on outcomes of events such as elections? Or in ZrCoin, a project to produce zirconium dioxide, used to make heat-resistant alloys? How about an “immersive reality experience” called “Back to Earth”?

These are just three of a new wave of what are called Initial Coin Offerings (ICOs). Nearly $250m has already been invested in such offerings, of which $107m alone has flowed in this year, according to Smith+Crown, a research firm. But it was in April that ICOs, or “token sales”, as insiders prefer to call them, really took off. On April 24th Gnosis collected more than $12m in under 15 minutes, valuing the project, in theory, at nearly $300m.

ICO “coins” are essentially digital coupons, tokens issued on an indelible distributed ledger, or blockchain, of the kind that underpins bitcoin, a crypto-currency. That means they can easily be traded, although unlike shares they do not confer ownership rights. Instead, they often serve as the currency for the project they finance: to pay users for a correct prediction, as does Gnosis; or for the content users contribute. Investors hope that…Continue reading

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Steven Mnuchin gets started on tax reform but there is more to do

OF THE things that investors and bosses have come to like about Donald Trump, the most important is his promise to redraw America’s knackered corporate-tax system. On April 26th Steven Mnuchin, the treasury secretary, laid out a guide for reform. After weeks of anticipation, Wall Street will be relieved. The thrust of the plan is just what business folk want—a simpler system, with lower bills. But whether it helps the wider economy and ordinary citizens remains to be seen. And Mr Trump will have to push the reforms through a bitterly divided Congress.

The actual tax rate America’s businesses pay in aggregate, of 20-25%, is much lower than the high, headline federal tax rate, of 35%. But in the home of free enterprise the taxman’s treatment of business is a muddle. There are three distortions. First, the treatment of overseas profits. Unlike most countries America taxes them when they are remitted back home, at high rates. The result is that American firms refuse to repatriate all their earnings, and collectively stash some $1trn of cash abroad.

The second distortion is that loopholes encourage firms to change their legal status from ordinary…Continue reading

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French business relishes the prospect of President Macron

THE likely election of Emmanuel Macron as France’s president, in a run-off vote on May 7th, has corporate leaders in a state of high anticipation. French politicians with business experience rarely prosper. It is nearly half a century since Georges Pompidou won office in 1969 on the back of a private-sector career partly at Rothschild, an investment bank. The sitting president, François Hollande, roused voters in 2012 by declaring that his “true enemy” was the world of finance. Mr Macron’s own stint at Rothschild, advising on mergers from 2008 to 2012, included handling a $12bn acquisition of a unit of Pfizer, a pharma firm, by Nestlé, a consumer-goods giant.

Markets rose and bond yields fell after Mr Macron won the first round on April 23rd. His second-round opponent, Marine Le Pen of the far right, dismays business—one investor admits re-registering his firm as European rather than French, the better to shift headquarters were she to win. But Mr Macron is favourite.

A chief of a big firm headquartered in Paris speaks of new optimism for France’s economy if Mr Macron wins. Business indicators are improving; measures of corporate confidence in…Continue reading

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Patanjali, an Indian consumer-goods giant

EXECUTIVES at firms selling consumer staples like to think of themselves as “marketing gurus”. But how many could actually contort themselves into the lotus position, let alone attempt a headstand? Such feats are nothing for the top brass at Patanjali, an Indian purveyor of toothpaste, cooking oil, herbal concoctions and much else. Fronted by a bona fide guru, the firm’s marketing strategy—play up the benefits of natural products, then paint foreign multinationals as latter-day imperialists—delivers over $1bn in annual sales, up tenfold in four years. Having dismissed the firm as a fad, the likes of Colgate-Palmolive and Unilever are emulating it.

Baba Ramdev (pictured), an ascetic yogi who is the public face of the brand, makes for an unconventional capitalist symbol. But with Acharya Balkrishna, a devotee of his who serves as the firm’s boss and majority-owner, he has built a consumer-goods powerhouse that is vying with the business-school graduates at the multinationals. Starting out two decades ago as an apothecary of traditional Ayurvedic potions, Patanjali has expanded into personal care, home products, packaged food and more. Mr Ramdev’s beard and saffron…Continue reading

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The boss of LafargeHolcim resigns over a scandal in Syria

KEEPING cool in the heat of war is not easy. That might help explain why LafargeHolcim, a French-Swiss cement-maker, blundered so badly while running operations in Syria as fighting raged. On April 24th the firm said that its chief executive, Eric Olsen, will go, a casualty of a growing scandal over its activities in the country.

The board of the world’s biggest cement producer stated only last month that Mr Olsen was not responsible for, nor aware of, wrongdoing by the firm in Syria. But public pressure has been increasing, notably after Jean-Luc Mélenchon, a left-wing candidate in France’s presidential election, attacked the firm and its “damned cement” in a television debate on April 4th. François Fillon, a pro-business rival, agreed the firm should be punished if allegations against it proved to be true.

At issue is the activity of Lafarge before the firm’s merger with its Swiss rival, Holcim, in 2015. In 2010 Lafarge had built a cement factory of 240 workers for $680m near Kobane, a north Syrian town. Operations there continued until 2014, long after the violence began in 2011. The firm evacuated foreigners in 2012; local workers fled in…Continue reading

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A Form 10-K for America’s government

WHEN he was running Microsoft, Steve Ballmer was famous for his energy. In a legendary clip of a company meeting that has received almost a million hits on YouTube, he charges onto the stage and launches into his “monkey dance”, before roaring into a microphone: “I love this company!” Mr Ballmer stood down from the software giant in 2014 and has new outlets for his drive. One is the LA Clippers, a basketball team he bought for $2bn. The other could not be more different: a project to create a Form 10-K, a type of corporate report, for America’s dysfunctional government. That is more revolutionary than it sounds.

In most walks of life, 10-K denotes a long-distance run or a sum of money. In the investment world it refers to the report that American regulators force all listed companies to publish once a year. Investors have a near-religious reverence for 10-Ks. They are the global gold standard of corporate disclosure: 300 or so warts-and-all pages that contain a firm’s financial accounts and describe its objectives, conflicts of interests, governance, risks and flaws. Fund managers scour the documents to ensure that firms’ executives are not fibbing. Bosses study…Continue reading

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Technology firms and the office of the future

FROM the 62nd floor of Salesforce Tower, 920 feet above the ground, San Francisco’s monuments look piddling. The Bay Bridge, Coit Tower and Palace of Fine Arts are dwarfed by the steel-and-glass headquarters that will house the software company when it is completed later this year. Subtle it is not. Salesforce plans to put on a light show every night; its new building will be visible from up to 30 miles away.

It is not the only technology company erecting a shrine to itself. Apple’s employees have just begun moving into their new headquarters in Cupertino, some 70 kilometres away, which was conceived by the firm’s late founder, Steve Jobs. The four-storey, circular building looks like the dial of an iPod (or a doughnut) and is the same size as the Pentagon. At a price tag of around $5bn, it will be the most expensive corporate headquarters ever constructed. Apple applied all its product perfectionism to it: the guidelines for the wood used inside it reportedly ran to 30 pages.

Throughout San Francisco and Silicon Valley, cash-rich technology firms have built or are erecting bold, futuristic headquarters that convey their brands to employees and customers….Continue reading

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