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In the 'Star Wars' Economy, One Thing Doesn't Pay – Financial Post

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By Adam Minter

(Bloomberg Opinion) — Junk is surprisingly pervasive in “Star Wars,” playing an understated role in nearly every film in the series. In “The Phantom Menace,” we meet young Anakin Skywalker, the future Darth Vader, working at a small electronics scrap yard and repair shop. In “A New Hope,” Luke Skywalker’s uncle buys R2-D2 and C-3PO from a group of Jawas, a species that drive massive, sand-crawling junk trucks. The recently released “Rise of Skywalker” is largely a coming-of-age story for Rey, the last of the Jedi, who spent her youth scavenging electronic scrap on Jakku, a remote outer planet.As a third-generation descendent of earthbound scrap-metal recyclers, I’ve subjected myself to repeated “Star Wars” viewings (even of the bad films), partly just to spot all the junkyard tidbits. Over the years, I’ve developed a theory or two about the waste and recycling economy in the series, and enjoyed sharing it with (primarily) other junkyard descendants. But in 2018, I realized there might be a larger audience for these insights.That year, China — for decades the world’s biggest importer of recyclables — started imposing stringent restrictions on what recycled stuff it would still accept from overseas. In the aftermath, prices for recyclables dropped steeply, raising costs and reducing profits for businesses around the world.Alas, “Star Wars” doesn’t offer any advice on how to find new markets for used plastic detergent jugs. And no, Rey can’t conjure the Force to boost the price of used cardboard boxes. But if you watch the films carefully, they have a good story to tell about turning waste into something that people might want — and, even better, buy.The “Star Wars” universe generates tons of trash, much of it recyclable. Yet for all the scrap yards and scavengers, you see very little actual recycling. Mostly, the metal, plastic and paper seems to get tossed out with the trash. My favorite example occurs in “The Empire Strikes Back.” At a crucial moment, an Imperial star destroyer dumps stadium-sized chunks of metallic garbage into space before jumping to hyperspace (this, according to Han Solo, is Imperial protocol). From an earthbound perspective, this is commercial suicide: Metals are the world’s most recyclable materials, and even villains know there’s money to be made in selling them.But a similar pattern repeats throughout the series. In “The Force Awakens,” early scenes on Jakku are dominated by the wreckage of an immense star destroyer. It’s reminiscent of the huge seagoing vessels that are run onto the beaches of India, Bangladesh, and Pakistan, then disassembled by hand and recycled in a matter of months — down to the individual screws. Crash a star destroyer in Alang, India, one of the world’s hubs for beaching and recycling ships, and pieces of it will be on sale in local markets by lunchtime.The reason for this seemingly irrational behavior is that the “Star Wars” universe doesn’t suffer from a scarcity of resources. There are dozens of mining outposts mentioned in the series, and there always seems to be another planet waiting to be exploited. In a galaxy that enjoys such surpluses, recycling won’t save much money. And the Empire, with its massive spending on planet-destroying weapons like the Death Star, doesn’t seem overly concerned about the environment.So what, then, is the business model that supports so many junkyards and scavengers? Rey, the Jawas, and everyone else who scavenges in the series recognize that there’s more value in a working gadget or spare part than in the raw materials that constitute them. The value is in the energy, engineering and manufacturing required to make the stuff. So, for example, that crashed star destroyer on Jakku isn’t stripped for metal; instead, we see Rey risk her life to scavenge it for reusable components that she can sell. Characters from Chewbacca to Luke Skywalker later demand her recovered parts for the devices and ships that they’ve learned to repair on their own.That business model wouldn’t work for plastic recyclers here on Earth. But the so-called e-waste industry — a category that includes everything from used smartphones to server racks — is rapidly diversifying into business models that look very similar to those practiced by Rey and the Jawas. At a time when recycling markets are depressed, these businesses need a new revenue stream. So rather than trying to recover raw materials that aren’t financially attractive at the moment, they’re seeking out whole gadgets and the parts within them.Robin Ingenthron, the head of Good Point Recycling, tells me that his company was making about $60 a week selling gadgets for reuse out of its scrap pile in 2015. As commodity prices fell, he reoriented the business to extract parts from old televisions and better identify the reusable gadgets already on offer. Today, sales of reusable stuff account for more than $50,000 a month, and around a third of the company’s revenue. Sims Recycling Solutions Inc., one of the world’s biggest electronics recyclers, has steadily shifted away from its traditional shred-and-recycle model to incorporate more reuse and refurbishment in recent years. Others are going even deeper, recovering specific chips from motherboards for reuse.This might come as a surprise to earthly environmentalists. But in the “Star Wars” universe, it’s the way business has always been done. In this respect, at least, the series may offer a model that works just as well here as it does in a galaxy far, far away.

To contact the author of this story: Adam Minter at aminter@bloomberg.net

Bloomberg.com

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Economy

Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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