DOES WALMART KNOW USA TRADE POLICY IS ABOUT TO GO PROTECTIONIST?

After a long hiatus from bloggersphere I felt a timely need to push out a post on a topic that seems to be gaining momentum. I covered in a previous post here http://carneycapitalmanagement.blogspot.com/2014/03/central-banks-gold-accumulation-first.html the fact I believed that the leaders of the world economic powers were working toward a “hidden solution”. It was simply absurd, in my opinion back then, to believe that the system in its current form would or could survive.

 

My suggestion was that the huge acquisition of Gold by the central banks of nations such as China and Russia was the first step toward a new system. Less than a week ago that prediction took one giant leap towards reality as the BRICS nations signalled their interest in pursuing their own miniature trading bloc version of the IMF.

 

This is designed to put pressure on the current system that sets its roots with the World Bank and the International Monetary Fund (IMF) front and centre. It seems the BRICS nations, China and Russia in particular have grown increasingly frustrated at their representation at the IMF and the World Bank both of which are dominated politically by the USA.

 

Here  http://www.aljazeera.com/indepth/opinion/2014/07/brics-bank-beijing-consensus-201472183428811634.html  is a great article that sets the tone and presents the case that transition and change is gaining momentum.

 

I am surprised and alarmed at the complete lack of coverage this is getting in the news given that this move has major implications for the global economy and also possibly world security and stability. The move by the BRICS nations is a direct challenge to the current status quo and although it is but the first step, the step is a monumental one.

 

As I look back and re-examine my post on gold accumulation mentioned earlier in this entry I also see much of the turmoil and tensions escalating. I see Russia and the USA in the most volatile of relations positions since the cold war. China now stands with Russia in this new trade and BRICS institutional deal. If that is not frightening enough then turn to the Ukraine and the Middle East, Egypt, Thailand, protests escalating in just about every corner of the globe, even in Australia.

 

The world is like one giant tinder bundle waiting for the spark and ignition, deteriorating relationships amongst leaders of economic and nuclear powers and within sovereign nations, people protesting and rallying with some internally combusting.

 

There is no doubt that the currency wars and economic wars are being waged, but are we now about to see a return to the old protectionism days? Is the world transitioning and following the historical flow of economic crisis, currency wars, trade wars then finally real wars?

 

Before anyone dismisses my call on protectionism, trade wars as alarmist or contrarian I beg you to read further and perhaps take off that panglossian piece of eyewear you call your glasses because they are clearly distorting your vision.

 

Protectionism and trade wars are brewing behind the scenes, we are seeing the little hints as the major players move their chess pieces around the board looking for a check mate. The recent BRICS move may have caught the USA by surprise a little, but it seems they have responded with new deadlines on Ukraine and are now questioning Russia’s  involvement in that conflict. There have been more economic SANCTIONS, yes SANCTIONS. Can you see them now you took the set of panglossians off?

 

Sanctions are trade restrictions, the beginnings of a trade war perhaps? Is Russia concerned? Perhaps a little less now that China has united with them on this new BRICS deal making it a financial powerhouse group as well as a nuclear and military juggernaut.

 

It was brought to my attention by a close friend here in the USA that Walmart had been on a “Buy American Program” drive that was initiated in 2013. As my readers likely know, err hmmm, I am not a cynic, cough cough. I believe Walmart when they say they want to bring the jobs back to the USA and that they have a deep care and love for the American people. Here is a WSJ article that generated this blog.

 

 Have a read  http://online.wsj.com/articles/the-hard-business-of-restarting-u-s-factories-1405629782

 

If you detected the cynicism– ometer exploding off the charts you are right because when all is said and done, actions speak louder than words. For years Walmart has built a business on the back of the China production line, box after box, TV after TV. It has shipped the jobs overseas, exploited China and contributed to the decline in USA manufacturing jobs that have now been replaced by forklift drivers and dispatch personnel.

Indeed nearly everything comes in a flat pack, easy to load in and out of a container, space conservationists! Now we are to believe Walmart has had a change of heart, that in the face of declining sales they want to revamp production locally and support American jobs. Is your level of cynicism rising yet?

Let me go on. Walmart wants to make TV’s here in the USA, all the components too. It wants to take advantage of the HIGHER costs of production in the USA. Walmart has never really cared about prices have they, what is their slogan again? Walmart everyday LOW PRICES!

Maybe they want to change it to “Everyday HIGH prices” just to support American jobs. Perhaps the next step will be to join in the fight to raise the minimum wage here in the USA also. The higher the price the more the new slogan will fit.

If you are not convinced this “Buy American” drive does not pass the smell test you likely have a blocked nose or missed out when god handed out your senses.

Walmart has lead the decline in manufacturing here in the USA. They have had a neutral stance at best on the minimum wage debate and hold huge power with politicians and are the largest single employer of minimum or close to minimum wage earners in the USA.

The key to the article is not in what Walmart said, but in what the newly anointed manufacturer for Walmart said. The punchline lies here “Tariffs are an unforeseen problem. When Element planned the factory, it expected Congress to extend an exemption from a 4.5% tariff on television panels, but that didn't happen” and  "There are only so many places where I can absorb 4.5% in a very margin-oriented business," Mr. O'Shaughnessy says. "Right now, we're eating it."

It seems that the USA policy lead out of Washington maybe signalling a shift away from import tariff exemptions on Chinese imported components. I note that in the Wall St Journal that published the Walmart piece has also provided another two articles supporting this tariff policy shift. These articles can be read here http://online.wsj.com/articles/shoemaking-gets-a-foot-in-the-door-in-the-u-s-1405294724  and here http://online.wsj.com/articles/just-whose-job-is-it-to-train-workers-1405554382  covering the shift inwards to training people in the USA and c ompleting a trifecta of articles inside of 2 weeks.

 If this is the case, then Walmart has moved to shore up an alternative supply chain locally to protect itself from them protectionism policies that may be right ahead. Walmart has built its gargantuan business model around the China production growth story. If tariffs and sanctions were to render their current competitive advantage null and void, they need a new one, in this case it is hidden in their message "Buy American".

 

If you read the signs, take off the panglossians, pick up on the scent and join the dots you may find yourself drawing the same conclusion that I have. Walmart and its “Buy American” push is a disingenuous pitch, hidden and motivated by self interest, to a confused public that have been deserting the company en masse.