Page 12 - The Economist Asia January 2018

The Economist January 27th 2018
12 Leaders
2 of more than 20%, commonplace during the go-go years, they far to loosen the shackles, the capital-intensity of businesses
would be doingsomethingwrong(see page 59). like FICCwill still weigh on returns. And asbond markets grad-
Goldman has changed much less since the crisis. James ually become electronic, banks’ margins will shrink, just as
Gorman, Morgan Stanley’s chief executive, made his way in they have in equity markets. Goldman itself openly acknowl-
wealth management; by contrast, Goldman’s boss, Lloyd edges the need to change.
Blankfein, cut his teeth as a trader, and it shows. Goldman’s
business is lumpier and more volatile. It is more dependent The boring companies
than Morgan Stanley on its fixed-income, currencies and com- All ofwhich makesMorgan Stanley’sovertakingmanoeuvre a
modities (FICC) franchise. For a firm that sells itself on reading parable forthe industry. Lesson one is that, despite what bank-
markets better than anyone else, that bet has hurt its reputa- ers like to argue, it is possible to make a reasonable return in a
tion aswell asitsbottom line. Revenue from FICC in the fourth more regulated environment. Lesson two is that dullness can
quarter of 2017 fell more precipitously, year on year, at Gold- be a selling-point. Investment banks used to promise share-
man than at its peers; for last year as a whole, revenue was not holders outsize returns as the trade-off for their peculiar mix-
much more than a fifth ofwhat it was in 2009. ture ofvolatility and opacity; that bargain looks much less ap-
The fixed-income business could yet revive, especially ifin- petising today. Lesson three is that power on Wall Street has
terest rates rise and markets become more volatile (see Button- tilted away from traders and high-octane clients like hedge
wood). Regulators in America are planning to streamline the funds towards a more prosaic cast of characters: brokers, pas-
Volckerrule, a post-crisisban on banksusingtheirown money sive asset managers, corporate treasurers and well-off individ-
to trade. But the chances of the trading floors recovering past uals. Investmentbankscan still make decentreturns. Butnotif
glories are vanishingly thin. Because regulators will go only so they play by the same old rules. 7

Trade tariffs
Duties call

The Trump administration’s trade restrictions are more damaging than theyappear
N TRADE, President Do- support up to 23,000 fewer jobs because ofthem. Meanwhile,
Onald Trump has launched as if to underline the irony, the two companies that asked for
lots of investigations, with- protection are unlikely to be saved.
drawn from one deal (see Ban- And do not forget that the tariffs may harm American in-
yan) and started the renegotia- dustry more broadly. Restricting markets for imports tends to
tion of another. But this week is spark retaliation that restricts markets for exports—especially
the first time he has put up a big when, as with these latest tariffs, they affect everyone. China,
new barrier. On January 22nd supposedly the focus of American ire, produces 60% of the
he approved broad and punitive duties, of up to 30% on im- world’s solar cells and is responsible for 21% of America’s im-
ports ofsolarpanels and up to 50% on imports ofwashingma- ports. But South Korea will also be hit, and its government is
chines. His backers say that the measure, which affects around poised to dispute America’s action at the World Trade Organi-
$10bn of imports, will protect American workers. His critics sation. Othercasualties include Mexico, Canada and the Euro-
clingto the hope thatthe damage will be mild. Both are wrong. pean Union.
Start with the claims made by the administration. Workers
are also consumers, and Mr Trump’s actions will whackthem. President, not precedent
Tariffs raise prices and dull competition. Whirlpool Corpora- Critics of this week’s tariffs draw solace from the fact that Mr
tion, the washing-machine maker which asked for the duties, Trump’s actions were broadly in line with the steer from the
knowsasmuch. When, in 2006, itmerged with Maytag, a rival, United States International Trade Commission, a quasi-judi-
it quelled concerns about its high market share by pointing to cial review body, and in both cases were weaker than the peti-
competition from abroad. One study found that clothes-dryer tionershad originallyrequested. Theypointout, too, thatoccu-
prices rose by 14% after the merger. For washing machines, pants of the Oval Office have resorted to global “safeguard”
where importcompetition wasfiercer, priceswere unchanged. tariffs on 19 previous occasions.
Even if American wallets are pinched, surely American ThatMrTrump hasstayed within the rulesissmall comfort:
jobs are safer? Whirlpool is creating 200 new posts. Samsung they give him enormous scope to poison world trade. And it
and LG, two South Korean washing-machine makers, are would be wrong to skate over the differences between his ad-
ramping up their American production. But their deals were ministration and its predecessors. The last time this particular
hatched before Mr Trump came into office, spurred in part by safeguard was applied was in 2002. It is especially belligerent.
the logic ofmakingheavy machines close to customers. Past presidents remained wary of hurting American consum-
The solar industry is a clearer case. It has about 260,000 ers, and mindful ofinternational repercussions. Mr Trump, by
workers, a mere 2,000 of whom were making solar cells and contrast, seems to hold a steadfast belief that protectionism
panelsatthe end of2016. The governmentreckonsthatthe fast- works. His rhetoric—and now his actions—invite aggrieved pe-
est-growing occupation over the next ten years will be that of titioners to apply for help. The logic of his stance on trade is to
solarinstaller. The SolarEnergyIndustriesAssociation, a body use tariffs not sparingly, but repeatedly and aggressively. Mr
thatisenraged bythe newtariffs, reckonsthatthe industry will Trump is now open forbusiness, just not the healthy sort. 7