Newsletter AIIS January 2015

Important Questions for 2016
Good questions are the necessary antecedent to knowledge, which is often considered the forerunner to wisdom. Good questions posed in a timely way typically inform sound business judgment. Affirming this point, Eric Schmidt, Chairman of Alphabet (Google)–which recently overtook Apple
as the world’s most valuable company–said “We run this company on questions, not answers.”

So with a nod to Eric Schmidt, and with deep appreciation for the long-observed nexus between steel trade, both imports and exports, and the vitality of the American economy, here are four questions regarding key issues I believe prudent participants in the steel supply chain should think carefully about in 2016:

1. Is Martin Wolf, the noted Associate Editor and Chief Economics Commentator for the Financial Times, correct in his recent, important, thought-provoking prediction that the global economy, which he describes as “addicted to credit bubbles,” is on the verge of a difficult adjustment, one that the United States will do nothing about? Mr. Wolf makes a compelling argument that this is so.

In support of his case, Mr. Wolf cites several factors. He argues that the global economic picture is far from healthy in large part due to the deteriorating performance of emerging economies, particularly the BRICS (Brazil, Russia, India, China, and South Africa). Of the five BRICS, Mr. Wolf notes that only India is experiencing a revival, while the other four are in significant trouble.
He points to the fact that China, the most important emerging economy, is undergoing market turmoil that has “reduced confidence in the competence of its [China’s] leadership”. Mr. Wolf adds that China’s problems “are not amenable to any quick fixes” because China’s economy is “extremely unbalanced, with incredibly high savings rates, wastefully high investment rates, and high debt.”

Looking more broadly at the developing economies, Mr. Wolf notes that another set of credit bubbles in these economies is “loudly popping,” which will “leave a legacy of financial shocks and, if mishandled, bad debt.”

Mr. Wolf comments that in addition to these problems, we are seeing slowing growth in international trade. “Globalization is losing dynamism,” he worries. And indeed this is a major concern. Last September, the World Trade Organization revised its 2015 forecast of global trade growth downward, from 3.3 percent previously to 2.8 percent. There are other significant concerns with respect to prospects for the global economy. Ratification of the recently completed Trans-Pacific Partnership (continued ).

AIIS-January-2016-Newsletter