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CHINA DUMPS STEEL
A vendor waits for customers at a steel pipe shop in Hefei, Anhui province, in this file photo taken February 25, 2010. China has agreed to scrap controversial export subsidies on a range of products from steel and aluminum to agriculture and textiles, U.S. Trade Representative Michael Froman said on Thursday. REUTERS/Stringer/Files
Donald Trump wasn’t in the Washington hearing room Wednesday, but the testimony in front of U.S. Trade Representative Michael Froman could have been taken from one of the presidential candidate’s stump speeches: a steady drumbeat of accusations that China and other countries have violated global trade agreements and dumped steel, aluminum and industrial products in the U.S., causing thousands of American job losses and pushing U.S. manufacturers to the wall.
The two days of testimony at the International Trade Commission (ITC) office underlined that Trump, who has mobilized a sizeable following among irate blue collar workers and their families, actually gets something right about China: that Beijing has used free trade to export illegally government-subsidized manufactured goods to the United States, upending major industries. Similar charges against China are now also roiling the steel industry in Europe.Economists often point out that U.S. consumers benefit from the cheap imports in the form of less expensive cars and other products made with cheap imported steel. But critics say China’s state companies now produce so many exports that they dominate the global market, set de facto market prices and use things like free government electricity and state loans that never have to be repaid to force global competitors out of business.Thomas Gibson, president of the American Iron and Steel Institute, said steel exports by China and other nations have “severely impacted” American industry, forcing the closure of major domestic production facilities and the loss of 13,500 jobs in the industry since January 2015.
“The overcapacity crisis plaguing the global steel industry is largely a result of foreign government interventionist policies and practices,” Gibson told the panel. “China for decades has directly subsidized its steel industry and Chinese provincial governments continue to prevent obsolete capacity from closing. And this Chinese model of government intervention is now being emulated in other countries as well.”
Supplying half the world’s steel
While a number of other countries, including Brazil, Russia, South Korea and India, have also been accused of dumping steel in the U.S. market, it quickly became clear that China’s exports are the main cause of global concern about disruption in the steel industry and is the primary target for demands for action. With an explosion of steel-making capacity over the last 15 years, China is now home to half of the global supply of steel and the principal source of the world’s overcapacity,” said Froman, who is President Obama’s main trade negotiator. While he didn’t name China specifically, Froman said “many governments” have provided subsidies to expand their capacity and without considering the “adverse trade effects.” Froman said Thursday that China was dropping some export subsidies on a range of products, but it’s unclear how steel prices would be affected. Industry leaders said they were skeptical about a major change.Although the U.S. and China don’t have a bilateral free trade agreement, China joined the World Trade Organization in 2001, agreeing to abide by the WTO’s rules against government subsidies for domestic industries that hurt other countries’ trade. Trump has accused China of manipulating its currency, the yuan, to increase exports, but most experts say he’s wrong on that front. The Chinese government has actually allowed its currency to appreciate substantially against the dollar recently, so currency manipulation isn’t considered a serious issue.
“Compared to the yuan, which is not an issue, steel is a real issue, because China treats their state-owned enterprises as different than everything else,” says Derek Scissors, a China expert at the right-leaning American Enterprise Institute, who published a paper Wednesday on how to fix U.S.-China trade and investment. “They are dumping steel not just in the U.S., but around the world. These non-commercial entities are distorting the global economy and that is a legitimate target for U.S. sanction.”China exported 92 million metric tons of its total 822 million tons of steel production in 2014, According to the World Steel Association. U.S. Steel estimates that China produces 425 million tons of “excess capacity,” or more than it can use domestically, each year and is flogged overseas. The excess is likely to increase this year because China’s domestic economy is cooling sharply. China’s exports were more than the entire 89 million metric tons of steel produced by the U.S. steel industry, which registered a 10% decline in output last year, according to Froman. He said the Obama administration has brought 11 complaints against China before the WTO about its trade practices and 149 anti-dumping actions against Beijing and other governments, which resulted in a number of punitive tariffs, including one on steel from China in March.While tariffs have reduced imports of Chinese steel in the last year, John Packard, publisher of Steel Market Update, which analyzes industry trends, said the concern now was that China’s market share is so large that its producers set the world price. These are often so low that American firms have difficulty competing.
“If the Chinese were to sell hot roll steel for $400 a ton and the U.S. market is at $500 a ton, what happens is the U.S. ultimately has to compete with those prices as do other foreign suppliers,” Packard said.
Trump is right on China’s steel
Where Trump is right is on the extent to which China subsidizes state-owned steel mills and has used trade to expand its steel industry. In 1990, China produced just 66 million tons of steel, about 8% of today’s production. Because many enterprises are owned by regional and state governments, the primary objective appears to be to employ as many people as possible, not to make a profit. Usha Haley, a management professor at West Virginia University, has spent more than five years in China researching state subsidies. She reckons that China’s steel industry loses between $9 billion and $10 billion every year.“The bulk of Chinese companies we looked at are inefficient, small, have no technological advantage and labor represents a small part of their costs,” Haley said. “Their prices are routinely about a third less than U.S. companies and there is no other explanation for this other than subsidies.”Among the subsidies she said she and her co-researcher discovered were free electricity to steel plants, loans from government agencies that have no repayment term, gifts of state land on which to build or expand factories, relaxation of pollution rules to allow firms to use less expensive materials, and subsidized purchases of commodities.
Haley noted that steelmaking is not particularly labor intensive so China’s abundant labor force really doesn’t contribute significantly to lower prices, as it does for things like making iPhones and T-shirts, where labor is a major component of costs.China also has no particular natural resources in iron ore or coking coal, two of the key ingredients in steel manufacturing. So Chinese firms must import these items from Brazil and Australia, process them and ship the finished product halfway around the world. Yet their prices are much cheaper than U.S. producers, which get their raw materials only a couple of hundred miles from home.“Things like free electricity provided by the government accounted for 88% of the profits of listed steel companies in China last year,” Haley said.The U.S. is not the only place being affected by cheap imports of steel. India’s Tata Steel announced that it was putting’s its U.K. operations, which have lost $5 billion, up for sale and might close them if no acceptable buyer is found, threatening 15,000 jobs.In February, ArcelorMittal Steel (MT), the world’s largest steel company, stunned investors by announcing an $8 billion annual loss after a 20% decline in sales. “Although demand in our core markets remained strong, prices deteriorated significantly during the year as a result of excess capacity in China,” CEO Lakshmi N. Mittal said at the time
At Facebook’s F8 developer conference this week, CEO Mark Zuckerberg made it clear that the social network is going all in on artificial intelligence.“We can all make faster progress together.” The most prominent new way Facebook is applying this: interactive bots inside Facebook Messenger that will answer your questions and offer goods and services. In separate talks, Zuckerberg and Facebook’s VP of Messenger, David Marcus, raved about using Messenger to get CNN news updates from a bot, shopping deals from a bot, and weather reports from a bot. They painted the addition of interactive chat bots as a bold new frontier.But if you ask the folks at weather app Poncho, which was one of Facebook’s “launch partners” for the new Messenger Platform and was lucky enough to be used as a prime example on stage, there is a way of looking at Facebook’s bot bonanza simply as an embrace of behavior that users already exhibit.
“Bots have been around for a long time, and usually with a negative cloud around them,” says Sam Mandel, CEO of Poncho. “But a bot is just a way to interact on a platform, and we think it’s the way most people already want to interact with services. Conversational interface is the classic, human way of finding information, and in a way, we’re just now bringing that to mobile devices. And mobile is the only format that really matters now, it’s clear.”
Mandel makes a good point: For all the buzz around Facebook’s push into bots, the technology isn’t new, and Facebook isn’t the first to use it. In February, to name one example, the Atlantic Media-owned news site Quartz launched a news app that earned plaudits for its interface. The app greets users (“good afternoon”) and offers up a news story; you can either tap an emoji (or sometimes a word-prompt like “tell me more”) to continue reading it, or, “anything else?” to get a different story. The experience makes getting the news interactive, and even a little amusing. And it’s an example of how chat bots can be personalized to feel like they’re really responding to you.
That has been the idea of Poncho since its inception two years ago—it sends you weather updates via email or text message, from Poncho the Weather Cat, a bot in the guise of a friendly feline character. But Facebook Messenger may be the very best use for the service yet, so the company is going all in.
Ask Poncho for the weather, and he’ll tell you the temperature and conditions in your area—simple enough. But he can get chattier: “Are you sensitive to pollen? Do you have fancy hair? Should I send you pollen or frizz alerts?” he asked me in our first interaction. When I tapped yes to the pollen alerts (spring allergies) he pushed again on the hair: “And how’s your hair? Shall I send you frizz alerts?” He’s really interested in my hair. (I declined the frizz alerts, thanks.) When I wanted to know specifically if I’ll need an umbrella later today, Poncho needed a few nudges to understand the question. But he will eventually get better at answering questions asked in a colloquial manner, Mandel says.
Mandel tells Yahoo Finance he expects Facebook Messenger to quickly become the primary use case for Poncho. “We’re not giving up on other platforms,” he says, “but my expectation is that certainly over the next year or so the conversation option will become the most important. I think the right way to see what Facebook is doing is that users have already moved to these messaging platforms, and so we need to go there too. And I think eventually brands all have to figure out how to get their message across on these platforms.”
Ron Gutman, CEO of HealthTap, another launch partner that already has an active bot in Facebook Messenger, echoes a similar notion. “Text is the primary way everyone communicates now. You do almost everything through messages.” He doesn’t just mean services that are overtly for messaging, like iMessage or WhatsApp, but any platform on which communication happens through instantaneous text, which is almost every social tech tool nowadays. It’s Twitter, Snapchat, WeChat, Weibo, Path, Peach, and others. It’s also traditional search, like Google and Yahoo. Users type a message and expect an instant reply. Hence the HealthTap bot, which answers medical questions live inside Messenger, and can connect you with a doctor on live video, if you need it.
Of course, Facebook is now offering sponsored messages, too, which means that while brands rush to build bots for the platform, advertisers are also drooling. It’s all an effort to come to consumers where they already are, behaviorally—that is, living in instant text—rather than make them come to a new app or platform. Right now, 900 million people use the Messenger app regularly; Facebook wants that figure to approach the 1.5 billion that use Facebook itself each month.
Its embrace of bots isn’t prescient or predictive—it’s a reaction to what’s already happening. But make no mistake: it’s a big deal, and could herald a new normal in social tech. “We think the transition to conversational interfaces will be the biggest transition we’ve seen since the transition from static web pages to streams, like Twitter,” says Mandel. “The goal is to take the content to where users are, seamlessly.”
APRIL NEWS LETTER
ANDROID PHONE MORE SECURE THAN EVER
Google is investing more every year in Android's security team both in terms of people and computational resources, Ludwig said. Through Google's Vulnerability Rewards Program, for example, Android paid security researchers and hackers more than $200,000 to fix more than 100 vulnerabilities.The challenge lies in the sophistication of today's security attacks."I don't think threats are getting worse," Ludwig said. "I think the attacks are getting more sophisticated, but the defenses are probably moving even faster than the attacks, in the mobile space at any rate. "
Google does face its share of critics, who say that Android devices are less secure than iPhones because Apple (AAPL) controls the hardware, software and services. By contrast, Google counts on hardware partners such as Samsung and HTC, which embed varying degrees of security.The issue is attracting more attention because of the recent battle between Apple and the FBI over whether the iPhone maker is bound to help law enforcement crack into a device as part of a terrorist investigation.Ludwig argued that, far from being a limitation, Google's openness is an advantage."I don't think there's any single [security] team that is the most effective team in the world," he said, adding that having many different teams and companies working on security across Android is a strength. "Ultimately, that kind of open ecosystem is what makes people safe.
IRS REFUND FRAUDS
FACEBOOK EMBRACES ARTIFICIAL INTELLIGENCE
Do you own a small business or run a tax-exempt organization with fewer than 25 full-time equivalent employees? If you do, the Small Business Health Care Tax Credit can help you provide insurance to your employees. You may be able to save on your taxes if you paid for at least half of their health insurance premiums. Here are seven tax tips about this credit:
1. Maximum Credit. The maximum credit is 50 percent of premiums paid by small business employers. The maximum credit is 35 percent of premiums paid by small tax-exempt employers, such as charities.
2. Number of Employees. You must have fewer than 25 full-time employees, or a combination of full-time and part-time employees. For example, two half-time employees equal one full-time employee for purposes of the credit.
3. Average Annual Wages. For 2015, the average annual wages of your employees must have been less than $52,000. The IRS will adjust this amount for inflation each year.
4. Half the Premiums. You must have paid a uniform percentage, at least 50%, of the cost of premiums for all enrolled employees.
5. Qualified Health Plan. Generally, you must have purchased a qualified health plan from a Small Business Health Options Program, or SHOP, Marketplace. There are limited exceptions to this requirement.
6. Two Year Limit. As of 2014, an eligible employer may claim the credit only for two consecutive taxable years.
7. Tax Forms to Use. Employers use Form 8941, Credit for Small Employer Health Insurance Premiums, to calculate the credit. Small businesses employers claim the credit on the annual income tax return. Small tax-exempt employers claim it on Form 990-T, Exempt Organization Business Income Tax Return.
If you are a small business employer and the credit is more than your tax liability for the year, you can carry the unused credit back or forward to other tax years. If you are a small tax-exempt employer, the credit is refundable, so even if you have no taxable income you may receive a refund (so long as it does not exceed your income tax withholding and Medicare tax liability for the year).
Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.
The Small Business Health Care Tax Credit: Seven Tax Tips for Employers
GOLDMAN SACHS CUTTING COSTS
Goldman Sachs Group Inc. is embarking on its biggest cost-cutting push in years as it tries to weather a slump in trading and dealmaking, according to two people with knowledge of the effort.The firm, already expected to report a steep drop in expenses for the first quarter, recently began dismissing more support staff and is increasingly rejecting bankers’ spending on airfare, hotels and entertainment unless it directly serves clients, the people said. For example, the company cut technology workers in London this week, one person said, and some employees in Europe aren’t being permitted to take once-routine trips to other offices in the region, said another. Additional cuts are likely.Chief Executive Officer Lloyd Blankfein, 61, is trying to ride out a years-long bond-trading slump that’s being compounded by market swings and stiffer regulations -- challenges that have forced many competitors to scale back. He already has adjusted his workforce, relying more on junior bankers, moving support staff to cheaper locations and investing in technology to improve productivity.“They are getting even leaner,” said Chris Wheeler, analyst at Atlantic Equities LLP in London who has an overweight rating on the bank’s shares. “They have also reduced traders in the business as the electronification of the business increases and as they see credit, rates and commodities follow equities and foreign-exchange onto electronic platforms.”
The question is whether his efforts will be enough to satisfy investors when the bank reports quarterly results Tuesday. Betsy Graseck, a Morgan Stanley analyst, estimates Goldman Sachs will say operating expenses declined 29 percent to $4.76 billion -- the lowest for the start of a fiscal year in a decade. Still, that’s not as steep as the 37 percent drop in revenue that analysts anticipate.At a conference in February, Blankfein reassured investors that he’s keeping an “eagle eye” on expenses and that the firm had more flexibility to reduce them. “We can do a lot more on the cost side if we have to,” he said. “We can always do more. I mean, necessity really is the mother of invention in this case, especially when you have to deliver a return.”Cost reductions may also come from deferring projects, choosing not to fill open positions and spending less on printing pitch books or brochures, another person said, asking not to be identified discussing internal deliberations.Ultimately, the latest push to reduce expenses probably will amount to the biggest since 2011, or possibly even earlier, the people said. In July of that year, the bank announced an initiative to trim more than $1 billion in costs including compensation, a plan that entailed cutting 1,000 jobs. By year-end, expenses had dropped 14 percent from the previous year.
The company held operating expenses below $23 billion for four years before they rose 13 percent to $25 billion in 2015. Litigation and regulatory costs drove the increase.JPMorgan Chase & Co. and Bank of America Corp., which reported first-quarter results this week, countered their own revenue declines with cost cuts that went deeper than analysts expected. “There’s a lot more to do,” Bank of America CEO Brian Moynihan told analysts Thursday of his focus on expenses.
Goldman Sachs’s senior employees haven’t been immune this year. More than a half-dozen partners have left since the end of 2015, though it’s not unusual for departures to increase in a year in which a new class is named. The company is scheduled to promote another cohort to that top rank later this year, a nod to its history as a private partnership.Blankfein’s reliance on junior bankers has helped contain costs. From 2012 through last year, the number of partners and managing directors decreased 2 percent, while the ranks of analysts, associates and vice presidents increased 17 percent, Blankfein said in the February presentation. Even as its workforce grew 11 percent, the company cut $270 million in compensation, the presentation shows.Goldman Sachs is particularly focused on improving results in its securities division, which houses the sales and trading units, the people said. The New York-based firm already decided to cut its fixed-income business deeper than a typical annual push to eliminate underperformers, a person briefed on the matter said last month. Typically, the firm eliminates about 5 percent of its total staff to make way for new hires.Still, in areas where the firm sees potential for growth, it has added staff. And the latest cuts don’t appear to be as broad as those made during and immediately after the financial crisis.
In 2008 and 2009, Jon Winkelried, who shared the title of president and chief operating officer with Gary Cohn, led efforts that eliminated more than 10 percent of the company’s personnel. By the end of 2009, the workforce shrank to 32,500. By the end of last year, the firm had 36,800
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The Treasury Department has an Inspector General for Tax Administration (TIGTA), a watchdog post that tracks the IRS and tax system. It has released a report on how the IRS did during the tax filing season from January 1 to mid-April of 2016. There is no question that the IRS has had big challenges. And this year’s filing season was complicated by many tax laws that were passed unexpectedly at the end of 2015. Many of these laws were retroactive to the beginning of 2015, so they had to be included in tax filing considerations.
Some of the IRS statistics are pretty impressive, too. Until you get to the part about how the IRS detects inside jobs from AWOL employees. Plainly, the IRS was processing millions of returns. However, some of the fraud statistics are pretty staggering, and not all of them are going in the right direction. Although it is clear that the IRS is trying to stem the tide, it is one of near tidal wave proportions. The IRS continues to expand its efforts to detect tax refund fraud. As of March 5, 2016, the report says, the IRS had identified 42,148 tax returns with $227 million claimed in fraudulent refunds.
IRS Commissioner John Koskinen holds up a $100 bill while explaining the efficiency of the IRS during a luncheon at the National Press Club March 24, 2016 in Washington, DC. (Photo credit: BRENDAN SMIALOWSKI/AFP/Getty Images)
What’s more, the IRS prevented the issuance of $180.6 million (79.6%) in fraudulent refunds. The IRS also identified 20,224 potentially fraudulent tax returns filed by prisoners. As of February 29, 2016, the IRS had identified and confirmed 31,578 fraudulent tax returns. The IRS prevented the issuance of $193.8 million in fraudulent tax refunds as a result of its identity-theft filters. These are positive accomplishments, to be sure. And the IRS is trying to identify fraudulent refund claims before they are accepted into the processing system.
This kind of advance warning system enabled the IRS to identify approximately 35,000 fraudulent e-filed tax returns and 741 paper tax returns as of February 29, 2016. The IRS identified and confirmed 31,578 fraudulent tax returns involving identity theft as of February 29, 2016, and identified 20,224 prisoner tax returns for screening as of March 5, 2016.
The IRS also continues to expand filters the IRS uses to detect identity theft refund fraud. The filters increased from 11 in 2012 to 183 filters in 2016. Tax returns identified by these filters are held during processing until the IRS can verify the taxpayers’ identities. As of December 31, 2015, the IRS reported that it had identified and confirmed more than one million fraudulent tax returns and prevented the issuance of nearly $6.8 billion in fraudulent tax refunds as a result of the identity theft filters.
In another process, some tax returns identified as suspect are held from processing until the IRS can verify the taxpayer’s identity. As of December 31, 2015, the IRS reported that it identified 835,183 tax returns claiming approximately $4.3 billion in potentially fraudulent tax refunds. The IRS is also limiting to three the number of direct deposit refunds that can be sent to a single bank account. The IRS converts subsequent direct deposit refund requests to a specific account to a paper refund check, and mails the check to the taxpayer’s address of record.
However, not all tax refund fraud and identity theft comes from outside the IRS. In fact, the report says that there is an insider threat posed by some IRS employees. They may be able to use their official positions and access to IRS information for their own ends. One of the most significant recent cases involved an IRS employee who had access to IRS data and who stole the IRS information of hundreds of taxpayers. Then, the IRS employee used the stolen information to try to obtain between $550,000 and $1.5 million in fraudulent refunds
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