22
MAR
2018

In the Headlines – March 30th, 2018

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China May Target U.S. Agriculture in Response to Tariffs

China is preparing to hit back at trade offensives from Washington with tariffs aimed at the President’s support base, including levies targeting U.S. agricultural exports from Farm Belt states, according to people familiar with the matter. The plans are part of a strategy that has taken shape in recent weeks as China seeks to avert tariffs by warning of possible repercussions and offering incentives to the U.S., including better access to China’s markets, especially in the financial sector. China’s President Xi Jinping has taken this carrot-and-stick approach in an effort to avoid a trade war, these people said. “Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making.

The White House plans to announce punitive measures against China, including tariffs on at least $30 billion in imports. Those are in addition to the steel and aluminum tariffs taking effect in the next few days. In response, China is likely to target U.S. exports of soybeans, sorghum and live hogs, according to the people with knowledge of the matter. The U.S. is among the top suppliers of these products to China, which imports around a third of soybeans that the U.S. produces, data from the two countries show. Any duties to be levied by China on those products would depend on how broad-based the U.S. tariffs are on Chinese imports, and plans could change based on what the Trump administration proposes.

Plans for the retaliatory measures were laid out at a meeting last month convened by China’s Commerce Ministry with Chinese importers of U.S. farm products, including China National Cereals, Oils and Foodstuffs Corp., a state-owned food-processing giant. These measures were prepared in anticipation of the administration’s moves. At the meeting, Commerce Ministry officials sought the companies’ views on the effects of scaling back U.S. agricultural imports, the people said. Since then the companies have been lining up alternatives sources—for soybeans, for instance, countries including Brazil, Argentina and Poland. The potential retaliation is apparently calibrated to hit states that helped elect the President in 2016. At the same time, China plans to extend an olive branch to the U.S., which has been calling for better access to China’s markets. The opening could include scrapping foreign-ownership limits on Chinese brokerages and insurers.

U.S. and other Western officials have often treated Beijing’s market-opening pronouncements with skepticism, saying hurdles have risen despite similar pledges in the past. Early last year, for example, it promised U.S. credit-card companies “full and prompt” access to China, but so far none has been given a green light. Liu He, Mr. Xi’s top economic deputy, laid out a series of market-opening steps to senior U.S. officials in Washington this month, including Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer, according to people with knowledge of the event. The administration officials countered with a far-reaching proposal, the people said, for China to eliminate subsidies for state firms and take other measures to reduce the U.S. trade deficit and level the playing field for American companies. Beijing has continued to offer incentives. Recently, the People’s Bank of China said foreign companies would be allowed into China’s fast-growing market for electronic-payment services—but did not make clear whether they would be allowed to do so without a Chinese joint-venture partner.
Administration officials say its measures are an answer to China’s policy of requiring U.S. businesses to transfer technology to Chinese partners. The administration also contends that Beijing improperly subsidizes companies in strategic areas such as semiconductors to help them overtake U.S. rivals. China rejects those claims. “China places a high priority on protecting intellectual-property rights and improving its business operating environment,” the Commerce Ministry told The Wall Street Journal.

China has other measures besides agricultural tariffs in its arsenal, including diverting large orders for aircraft and other goods away from U.S. manufacturers and slowing the wheels of bureaucracy in approving operating licenses, or even targeting U.S. companies with antitrust investigations. “It’s almost obligatory for the government to respond in a somewhat defiant fashion,” said Frank Lavin, a former undersecretary for international trade at the U.S. Department of Commerce who now consults on China’s e-commerce market.

While China says it wants to avoid a trade war, U.S. companies operating in China are bracing. One law firm is advising clients to check their supply chains in preparation for possible higher costs and disruptions. Some government-affairs specialists for U.S. companies here said they have gone on a charm offensive with Chinese bureaucrats. “The language we have to repeatedly tell them: how we love this country and how this market is so important to us,” one government-affairs official at a U.S. manufacturer said. Timothy Stratford, a former assistant U.S. trade representative, said the current trade environment could prompt U.S. companies to reconsider the long-term importance of the Chinese market. “Gradually we may feel compelled to diversify until China is not as big a part of our business plans anymore,” said Mr. Stratford, now an attorney at Covington & Burling LLP in Beijing. “These are some really strategic questions that companies are going to have to start thinking about.”

Citations

  1. http://on.wsj.com/2pu08e0 – Wall Street Journal
  2. http://cnb.cx/2G5vxKD – CNBC

Newly Revived KB Toys Prepares to Fill the Void Left by Toys R Us

As Toys R Us, the largest toy store chain in America, prepares to close up shop, an old rival could be reborn to take its place. Strategic Marks, a company that specializes in reviving dead brands, has a plan to give new life to the KB Toys name.

According to CNN Money, Strategic Marks purchased the KB Toys brand from Bain Capital in 2016. Bain, along with Kohlberg Kravis Roberts and Vornado Realty Trust, invested $1.3 billion in a $6.6 billion leveraged buyout in 2005, which took Toys R Us private. Toys R Us had purchased the rights to the KB Toys name in 2009, the same year that company went bankrupt.
Strategic Marks is now in the process of reviving the brand, and those plans have now been accelerated in light of Toys R Us’ struggles, according to CEO Ellia Kassoff. KB Toys, he says, could be back as soon as the end of this year. Kassoff initially announced his plans in a LinkedIn post with the headline: “WE’RE GOING TO SAVE THE TOY INDUSTRY!” In a follow-up LinkedIn post Kassoff wrote, “Now, with the closing of Toys R Us so quickly, it caught us by surprise so we’ve spent the last few days with our team and leaders in the toy industry to figure out how we can accelerate the project.”

KB Toys’ return will begin with 1,000 pop-up stores for Black Friday and the holiday shopping season, with permanent mall stores potentially following after that. Kassoff says he has already spoken with companies that specialize in pop-up-style holiday stores. He said that e-commerce would also be a big part of the play, but he has not elaborated on those plans specifically. “Many of you asked what our plans will be and all we can say is we spent the last six months working on a sustainable model to bring back KB Toys the right way so it can compete with not only the big box stores but online as well,” Kassoff said on LinkedIn. “With KB Toys, we had to also look at why they initially failed and to make sure those mistakes won’t be made again.”
Support from the toy industry has been “overwhelming,” Kassoff said in the second LinkedIn post. Toy makers have reportedly been worried about the ramifications of losing a large nationwide buyer in Toys R Us, which accounted for between 20% and 40% of revenue for some brands. Apart from sales coming directly from the chain, these toy brands would also be losing more than 700 showrooms around the US and Canada if all of Toys R Us stores were to close.

“The largest toy manufacturers are extremely excited that we’re coming back and one—very large—said they will do whatever they can do to make sure we’re successful,” Kassoff said in an email to Business Insider. CNN Money reported that Kassoff has spoken with Hasbro, Mattel, and as many as 200 smaller toy manufacturers. Some of these smaller toy makers are in trouble, and according to Reuters, the Toys R Us liquidation plan could spell their doom.

Strategic Marks routinely purchases nostalgia-filled brand names and rights or revives abandoned trademarks, attempting to spin them out into new businesses. One of its most high-profile revivals was Hydrox, an Oreo-like cookie brand that actually beat Nabisco’s version to the market in 1908. Strategic Marks relaunched the cookie in 2015.

Citations

  1. http://read.bi/2HRiBbN – Business Insider
  2. http://cnnmon.ie/2prhLfg – CNN Money

The Good News Is . . .

Good News

  • A composite index of leading economic indicators posted gains that exceeded expectations in February. The index is used to forecast global economic trends and take a pulse on the U.S. economy. The Conference Board’s Leading Economic Index rose 0.6% to 108.7, marking the fourth straight month of gains for the composite index. The measure, which takes into account 10 key metrics of economic movement, jumped 0.8% to 108.1 in January, which followed a gain of 0.7% in December.
  • FedEx Corp., a global provider of transportation, e-commerce and business services, reported earnings of $3.72 per share, an increase of 8.4% over year-earlier earnings of $2.30 per share. The firm’s earnings topped the consensus estimate of analysts by $0.61. The company reported revenues of $16.5 billion, an increase of 10.0%. Management attributed the results to strong growth in its freight and ground business segments, as well as the positive impact from recent federal tax cuts.
  • Salesforce announced an agreement to buy MuleSoft in an enterprise technology merger valued at $6.5 billion. Under the terms of the deal, Salesforce will pay $44.89 per share for MuleSoft, with each MuleSoft shareholders receiving $36 in cash and 0.0711 shares of Salesforce common stock. MuleSoft makes a platform that helps Fortune 500 companies integrate disparate software applications, data, and devices. Salesforce CEO Marc Benioff said in a statement that the merger will help Salesforce users unite data across different cloud products. This is particularly important for Salesforce, which tends to work with a company across enterprise systems. As it builds out its artificial intelligence and machine learning layer, which it has branded as Einstein, it needs access to data across the company.

Citations

    1. https://bit.ly/1fLVlWY – The Conference Board
    2. http://cnb.cx/2lwnm3s – CNBC
    3. https://bit.ly/2ugwH4u – FedEx Corp.
    4. http://tcrn.ch/2DI8Bz9 – TechCrunch.com

Planning Tips

Guide to Understanding a Simple Will vs. a Living Trust

You have worked hard to build your savings and you want to pass your estate down to your heirs. If you are not careful, this process can go painfully wrong. Fees, taxes and legal costs can set you back, and it is possible that your heirs will not receive what you had intended. Fortunately, this can be avoided. For many people, a living trust will present a faster and more affordable option than a will. There are numerous advantages to a living trust, with the most important being avoiding probate. However, this does not undervalue its other advantages, which include avoiding assets moving in an unintended direction. Below is a brief guide to understanding the differences between a simple will and a living trust. Be sure to consult your financial advisor to determine if a living trust is appropriate for your situation.

Basic Difference between a Will and a Living Trust – Here is the easiest way to remember the difference between a will and a living trust. A will directs the disposition of your assets after death, while a living trust becomes valid while you are alive. For many years, a will has been the popular choice. In reality, a will may not be the best option for many people. A will involves the probate process, which comes with unnecessary costs. When you use a living trust, the upfront costs are higher, but no probate is required, which makes it a more affordable option overall. There is one exception. Some states offer expedited and simplified probate if the estate is under a specific dollar threshold. That number depends on the state. Aside from that exception, you should strongly consider a living trust as opposed to a will.

Basic Living Trust Advantages – A living trust becomes valid immediately after you execute documents and your property is transferred into that trust. Then it is up to you to manage those assets. If you are an investor, then you can look at it as a form of active management versus passive management, only in this case, active management is more affordable. In addition to affordability, which stems from avoiding the probate process, a living trust will allow you to control what happens to your assets during and after death. Also, unlike a will, a living trust is not public record. Furthermore, you can use a living trust regardless of the size of your estate. Other pluses of a living trust include federal and state tax advantages, a better chance of withstanding the estate being contested and the ability to determine when a small child, grandchild or special-needs dependent will be able to have access to the trust. A living trust is a much faster and easier process than a will, and it is more specific than power of attorney on a will. As long as the trust is funded, the freezing of assets will not be allowed. Be sure to have all assets titled in your trust name. That includes certificates of deposit (CDs), stocks, bonds, mutual funds, real estate, businesses, etc. This will help you avoid probate. More than one person has failed to place assets in the trust, with the result being that upon their death, it was useless because it held no money.

Beneficiaries – Do you have a child from a previous marriage that you would like to treat as a beneficiary? If so, it would be wise to consider a living trust. With a simple will, your spouse could end up with control of your assets, which could then lead to those assets going elsewhere, including to their children from a previous marriage, or even a new spouse. Your children can be in charge of their own shares. As a trustee, your children can invest however they see fit. They will also have the option of taking out money from the estate for living expenses. And they can use it to help pay for their own child’s education. Your child’s inheritance will be protected not only from creditors, but bankruptcy as well. If you were to choose a will, the above options would not be available.

Retirement Funds – Be sure to hire an experienced attorney. Not only should that help you avoid the above scenario, but it should help you determine who receives your individual retirement account (IRA), 401(k) or life insurance. The recipient of your retirement accounts and life insurance policy is based on the beneficiary on the account of the policy, not the name on your will or trust. A specially designed trust can help you avoid this situation.

Other Aspects to Consider about Living Trusts – Avoiding probate is the biggest advantage, but as you already know based on the information above, it is not the only one. There are other things you should know about a living trust prior to making any important decisions:

• A living trust is revocable while you’re alive, but irrevocable when you’re dead. (See also: Establishing a Revocable Living Trust.)
• There are three parts to a living trust: creator, trustee (manages assets), beneficiary. Strongly consider naming yourself a trustee for control over assets.
• A living trust can be used as a substitute for power of attorney.
• You can determine when assets are passed on to a beneficiary; it does not need to be immediately upon your death.
• A disgruntled heir has the ability to challenge a trust (a disgruntled heir can also challenge a will).
• You can fund a living trust at your desired pace.
• Always hire an attorney to prepare a living trust and avoid online “living trust kits.”
• The average living trust will cost a few thousand dollars to set up.

Citations

    1. https://bit.ly/2Gfcd0U – AARP
    2. https://bit.ly/2wl42rK – TheBalance.com
    3. https://bit.ly/2ugIxMm – Investopedia
    4. https://bit.ly/2zoqJ2B – Nolo.com
    5. https://bit.ly/2G0100V – Forbes
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