Member Briefing September 27, 2023
Biden Joins U.A.W. on Picket Line in Michigan
President Joe Biden on Tuesday joined members of the United Auto Workers in Michigan on the picket line, a historic moment for a modern president. Biden, wearing a UAW hat, spoke into a bullhorn to the workers on the picket line recounting that “the fact of the matter is that you guys, UAW, you guys saved the automobile industry” during the late 2000s and early 2010s. Biden said the companies have recovered and are doing “incredibly well” now. Biden told the autoworkers marching that they “deserve the significant raise you need, and other benefits,” reiterating, “We saved them, it’s about time they step up for us.”
Presidents, including Biden himself, previously have declined to wade into union disputes to avoid the perception of taking sides on issues in which the negotiating parties are often engaged in litigation. The National Labor Relations Board, whose members are appointed by the president but expected to function independently, has 28 pending cases that were filed by the United Auto Workers. Despite Biden’s comments, Press Secretary Karin Jean-Pierre emphasized that Biden’s trip should not be seen as an endorsement of the UAW’s position in the negotiations.
War in Ukraine Headlines
Mexican Goods Worth $1 Billion Stuck at US Border Amid Migration Checks
Trade across the U.S.-Mexican border has been slowed over the past week as U.S. authorities have shut down crossings and imposed extra security checks amid an increase in migration, sparking concern in Mexico. About 8,000 trailers carrying an estimated $1 billion worth of goods have been stranded on the Mexican side over the past week, said Manuel Sotelo, president of the transport association of Ciudad Juarez, a major manufacturing hub across from El Paso, Texas.
U.S. border authorities suspended cargo processing at one of El Paso's international bridges last week to shift officers to process more migrant arrivals. Some 500 northbound trucks normally cross that bridge each day, though only 40% are carrying cargo into the United States, U.S. Customs and Border Protection said in response to a Reuters request for comment. It added that "suspending services there would have the least total impact on our trade partners."
Chip-Making Push in Germany Hits Bottleneck
Intel says it needs 3,000 people to staff the semiconductor factory it plans to build in eastern Germany by the end of the decade. This year, the local apprentice program for chip-making technicians is training two. The German government trumpeted Intel’s planned development as a game changer, backed by federal subsidies totaling 10 billion euros—equivalent to $10.59 billion—that would help the economy pivot toward new industry. The outlay is part of a European Union effort unveiled this summer to double the Continent’s share of global chip production to compete with established producers in Asia.
On the ground, however, this and similar projects face hurdles such as a shortage of skilled workers and an at-times Byzantine bureaucracy. High energy prices are one of the reasons Germany’s economy has stagnated since the end of last year and is expected to shrink this year. For Germany, which derives a bigger part of its gross domestic product from manufacturing than other countries on the Continent, expanding semiconductor production is essential to catching up technologically and increasing economic resilience.
COVID Update - Potential Link Found Between Merck Antiviral and Mutated COVID Strains
A new study published Monday links COVID-19 antiviral created by Merck with new mutations of the virus that have been sequenced around the world. Molnupiravir, known commercially as Lagevrio, is one of two COVID-19 antivirals authorized for treating coronavirus infections along with Paxlovid from Pfizer. The drug works by inducing mutations in the virus’s cells as it replicates, resulting in random mutations that are harmful to the virus and cuts down on its viral load.
Researchers from the U.K. and South Africa looked at available data from patients who were treated with molnupiravir and those who were not. Their findings confirmed the drug’s ability to cause high rates of mutations in the virus, and they noted that a “high proportion” of these mutations are likely to be hazardous to the virus. They also looked at sequenced COVID-19 genomes from global databases and narrowed down mutations that were only sequenced in 2022, after molnupiravir became available, and found that many of the sequences were consistent with mutations that were found in patients treated with the antiviral. The study put forward that molnupiravir may increase genomic diversity in the viral cells that survive the hazardous mutations brought on by the drug, expanding the variety from which SARS-CoV-2 can select from for future changes.
DiNapoli Discusses Potential Government Shutdown Impact, State's Budget Woes, Outmigration
According to state Comptroller Tom DiNapoli, there is no upside for New York if a federal government shutdown goes ahead. “I don’t see any silver lining in even one minute of a government shutdown,” he told Capital Tonight. He also predicts, that, depending on how long a shutdown continues, it could spell bad news for state and city agencies dealing with migrants. “The big issue on everybody’s mind is the migrant crisis. So, to the extent that there would be any other [federal] help in that regard, there’s a concern what impact would be there,” he said.
The other news that has budget watchdogs on alert is Gov. Kathy Hochul’s request to state agencies via her budget director to keep spending flat. There’s a $9 billion budget gap projected for next year and $13 billion gaps for each of the following two years. “The budget, $229 billion, the highest in history, was built on a premise that is not holding up,” DiNapoli said. While DiNapoli said he believes this year’s budget “will hold together," the state’s top fiscal watchdog also had a warning for both taxpayers and lawmakers, touching on the hot-button issue of outmigration. “We also have to deal with the issue of taxpayer migration, which is a whole other topic, but we have to face that there has been a net decrease in higher income New Yorkers,” he said.
A Closer Look at What Will Happen if Congress Can't Make a Deal to Fund the Federal Government. Is There a Better Name for it Than ‘Shutdown?’
The official term for what will happen this weekend, if Congress doesn’t pass some funding bills, is a lapse in appropriations. But we call it a government shutdown. The catch? “The government in many ways does not actually shut down,” said Matthew Lacombe, a political science professor at Case Western Reserve University. He pointed out that vital programs like Medicare, Social Security and the U.S. military continue operating. “Maybe a brownout would be a better descriptor,” said Lacombe. “The power is not totally off. It’s just scaled down and operating dysfunctionally.”
And which parts get scaled down depends on lots of different factors. “So there are some government programs that, even though they are generally funded through annual appropriations, they do have some spending authority that goes beyond those appropriations,” said Romina Boccia with the Cato Institute, a libertarian think tank in D.C. For example, she said, SNAP food benefits have the funding to continue through October. But WIC, a benefit for mothers and children, could face cuts immediately. And some programs are funded by their own fees, like certain visa programs. Boccia said maybe, we could call this a “partial government slow down”.
UAW Slams Ford for Halting Work on $3.5 Billion EV Battery Plant in Michigan
Ford Motor Co. on Monday said it stopped construction of its $3.5 billion electric vehicle battery plant in Marshall, Mich., a decision the UAW blasted as a "shameful, barely-veiled threat" to cut jobs amid tense contract negotiations. "We're pausing work and limiting spending on construction on the Marshall project until we're confident about our ability to competitively operate the plant," Ford spokesperson T.R. Reid told Automotive News on Monday. "We haven't made any final decision about the planned investment there."
The plant is slated to employ 2,500 workers and have the capacity to build 35 gigawatt-hours of lithium iron phosphate cells a year, which is enough to power about 400,000 EVs, Ford said. The automaker, which announced it would partner with CATL last July, said lithium iron phosphate chemistry will help it increase production of EVs and make them cheaper to build. Republican lawmakers later probed the deal, and Ford's partnership with the Chinese company, scrutinizing issues around American jobs, technology-sharing and links to forced labor. The company had previously characterized most of the concerns over its ties with a foreign company as inaccurate and stressed that CATL would not receive any subsidies.
New-Home Sales Drop Nearly 9% in August
Sales of newly built homes fell 8.7% in August from July to a seasonally adjusted annualized pace of 675,000 units, according to the U.S. Census Bureau. That is the slowest pace since March. Sales were still 5.8% higher than August 2022. The Census count is based on signed contracts during the month, and mortgage rates took a sharp jump higher. The average rate on the popular 30-year fixed loan ended July at 7.04%, according to Mortgage News Daily. By Aug. 22, it was at 7.48%.
“Very stretched affordability means demand will be unable to recover in the near term, causing new home sales to fall back from 675,000 annualized in August to 600,000 annualized by the end of the year,” wrote Imogen Pattison, assistant economist at Capital Economics. The median price of a newly built home sold in August was $430,300, a drop of 2% compared to August of last year. Homebuilders have been lowering prices as well as offering more incentives, such as buying down mortgage rates. They had slowed those incentives last spring, when rates went below 7%, but they are ramping them up again.
FTC and 17 States Sue Amazon on Antitrust Charges
In a sweeping complaint filed in federal court in Seattle on Tuesday, the FTC and attorneys general from 17 states accused Amazon of wielding its “monopoly power” to inflate prices, degrade quality for shoppers and unlawfully exclude rivals, thereby undermining competition. The agency laid out a two-pronged strategy by which Amazon “unlawfully maintains” its monopoly power. It pointed to so-called anti-discounting measures the company uses to punish sellers and deter other online retailers from offering lower, more competitive prices than Amazon, which translates to keeping prices higher for products across the internet, the FTC said.
Amazon also “effectively requires” that sellers use its “costly” fulfillment services in order to obtain the vaunted Prime badge for their products, the FTC said, which in turn makes it more expensive to do business on the platform. Sellers are paying $1 of every $2 to Amazon, FTC Chair Lina Khan told reporters at a briefing Tuesday. David Zapolsky, Amazon’s general counsel and senior vice president of global public policy, said in a statement that the FTC’s complaint is “wrong on the facts and the law.”
IRS Won’t Process New Employee Retention Credit (ERC) Tax Credit Claims in 2023
Due to an increase in ERC tax credit scams and fraud and to protect honest business owners, the IRS won't process new employee retention credit (ERC) claims for the foreseeable future. The immediate moratorium on new ERC claims processing was announced Thursday by IRS Commissioner Danny Werfel in response to concerns raised by tax professionals, the media, and the agency about scams surrounding the pandemic-era tax credit. "The IRS is increasingly alarmed about honest small business owners being scammed by unscrupulous actors, and we could no longer tolerate growing evidence of questionable claims pouring in," Commissioner Werfel said in a release. "The further we get from the pandemic, the further we see the good intentions of this important program abused,” Werfel added.
The employee retention credit program was designed to provide relief to businesses and tax-exempt organizations. Eligible businesses were shut down during the pandemic due to government orders, experienced a decline in gross receipts, or were recovering start-up businesses for the third and fourth quarters of 2021. The Council of Industry is pleased to work with the very reputable alliantgroup to help our members secure this and other tax credits.
IEA Says Route to Net Zero Requires More Cash and Less Politics
Record growth in clean energy technology, including solar panels and electric vehicles, means it is still possible to limit global warming to 1.5 degrees Celsius (2.7 degrees Fahrenheit), the International Energy Agency (IEA) said on Tuesday. But it also said the world would need need to invest nearly $4.5 trillion per year in the transition to cleaner energy from the start of the next decade, up from spending of $1.8 trillion expected in 2023.
The IEA pathway to net zero will also require an equitable transition, taking into account national circumstances and requiring advanced economies to reach net zero sooner than developing economies, the report said. Despite this year's extreme weather, politicians, mindful of the cost-of-living crisis and seeking re-election. have been backsliding on climate pledges. "Governments need to separate climate from geopolitics, given the scale of the challenge at hand," IEA Executive Director Fatih Birol said.
Lego Says Making Bricks From Recycled Bottles Produces More Carbon Than New Plastic
For years, the toymaker Lego has been trying to figure out how to make its plastic building blocks out of sustainable materials. It’s experimented with all kinds of things — Brazilian sugarcane, for instance, which worked, at least for some pieces. It also tried recycled plastic bottles, which … didn’t work. The company said Monday it’s abandoning an effort to make its bricks out of recycled PET, the plastic found in many of our bottles and food containers.
The reason? Lego said using recycled material did not reduce its carbon emissions. Both carbon budget and budget-budget come into play when companies consider whether to use recycled plastic. It takes energy to sort through recyclables — to find the usable plastic, then, to move it where it’s needed. And then, to actually recycle it. “There’s different types of recycling platforms for recycled polymers,” said Rachel Meidl, a fellow of energy and environment at Rice University’s Baker Institute. “And each one of those platforms and recycling technologies have different energy costs.” There are financial costs to all of this, too. Which make recycled plastics much more expensive than the brand new kind.
Global Trade Falls at Fastest Pace Since Pandemic. But is This the Bottom?
Before September 2022, locked-down Americans propped up with stimulus checks and PPP loans helped fuel an unprecedented consumer shopping spree that stiffened the sails of the world’s shipping companies and helped the US avert an economic disaster. But something shifted last September. Rising inflation and higher interest rates depressed household demand for cheap imported goods. Companies that had stockpiled parts and products on fear of the pandemic’s unknowns were caught with too much inventory, leading to a whiplash effect that depressed cargo flows through US ports.
It’s not just the US either. The CPB Netherlands Bureau for Economic Policy Analysis released figures on Monday showing its world trade volume index dropped in July to the lowest level in about two years, a steady decline from an all-time high set in September 2022. Now US shipping flows are returning to normal, and at least one shipping analyst is predicting that August 2023 “will be the last month of double-digit declines.” That’s when the top 10 largest US ports saw a 12.9% decrease in inbound shipping volume. Veteran shipping expert John McCown, noted that August 2021 marked the last meaningful increase in container volumes during the pandemic-era shipping boom.