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An Update on the U.S.–China Phase One Trade Deal

A Liberty Street Economics post from last summer by Matthew Higgins and Thomas Klitgaard contained an assessment of the Phase One trade agreement between the United States and China. The authors of that note found that, depending on how successfully the..

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A Liberty Street Economics post from last summer by Matthew Higgins and Thomas Klitgaard contained an assessment of the Phase One trade agreement between the United States and China. The authors of that note found that, depending on how successfully the deal was implemented, the impact on U.S. economic growth could have been substantially larger than originally foreseen by many of its critics, as a result of the fact that the pandemic had depressed the U.S. economy far below its potential growth path. Here we take another look at these considerations with the benefit of an additional year’s worth of trade data and a much different economic environment in the United States.

Is China Meeting Its Phase One Trade Commitments?

The Phase One trade agreement that was signed in January 2020 included specific targets for Chinese purchases of agriculture, manufactured goods, energy, and service exports from the United States (these were laid out in Chapter 6 and Annex 6.1 of the agreement). These commitments were extremely ambitious: The agreement specified numerical targets for increases in U.S. goods and services exports to China, relative to a 2017 baseline, of $77 billion in 2020 and $123 billion in 2021. The 2021 target was 82 percent greater than the baseline level in 2017, and about double the level of 2019, just prior to the signing of the agreement.

The U.S.’s exports of goods to China fell precipitously over the course of the trade conflict, ultimately contracting by 35 percent as of February of last year, but since then have shown a strong recovery. From that low point, exports to China had grown by nearly 70 percent as of June. So, is China meeting its purchase targets? As suggested in the table below, the short answer is “no.”

Merchandise Trade Has Substantially Missed Targets That Were Set Under the Phase One Trade Deal

U.S. exports to China
(Billions of U.S. dollars) TargetTarget
2017 (Baseline)201820192020 (Actual)2021
(12m rolling sum as of July)
20202021
Total goods targeted 95857893114159193
  Manufactures 67 67 605665 99111
  Agricultural 21 10 15 2736 33 40
  Energy 8 8 4 1014 26 42
Total goods not targeted* 35 35 29 3135 33 33
Services** 55 57 57 40 36 68 80
Total goods and services185177163165184260306
Source: U.S. Census Bureau
* “Not targeted” 2020 and 2021 projections assume constant 2017-2019 average level.
**Services column for 2021 shows seasonally adjusted data for Q1 and Q2 at an annual rate.

Even so, some of the details show more positive developments. The category closest to meeting the targets is agriculture, in which exports to China are booming and have well surpassed 2017 levels and approximately doubled from 2019. In this area China fell within 80 percent of the 2020 target and appears on track to perform similarly this year. These exports have benefited from higher agriculture prices as well as strong demand for feed from China’s livestock industry, which is recovering from a devastating swine flu epidemic in 2019.

Progress under manufactured goods, energy, and services has been modest at best, however. Manufactured goods exports to China remain below 2017 levels and currently are running at somewhat over half of the 2021 target. (The figures in the table include certain aircraft products that were not included in the post from last year). Energy exports have nearly doubled from their 2017 level, helped by sharply higher prices, but ended 2020 about 60 percent below target and are currently about two-thirds below the 2021 target. Finally, service exports have simply collapsed, with the most recent data in the first half of 2021 (at an annual rate) one-third below the 2017 level and less than one-half of the 2021 target.

The chart below put these figures into a longer time perspective. The left panel shows that U.S. exports to China of manufactured and energy goods are little changed from historical levels: the rebound that began last year has basically been making up ground that was lost during the trade conflict. By contrast, agricultural goods have rebounded to well-above historical norms. At this point it remains too early to know whether these gains will be sustained, however. The right panel of the chart compares total goods exports to China that are targeted in the Phase One agreement with the same set of goods to the rest of the world except for China (which are not subject to any targets). The goods to China experienced a significant decline during the trade conflict that was not mirrored in the rest of the world data. Now, both sets of data have recovered strongly, with China’s growth faster thanks to strong agriculture exports, but the level of U.S. exports for both sets of data remain below the pre-trade conflict trend lines.

U.S. Exports of Specified Goods Have Increased, But Are Well Below Target

Source: U.S/ Census Bureau.

What Has Been the Impact on the U.S. Merchandise Trade Balance?

A broad goal of the Phase One agreement was to reduce the U.S. merchandise trade deficit. As many analysts had foreseen, imposition of tariffs against China and other countries, as well as the purchase commitments in the Phase One deal, had little durable effect on the U.S.’s trade deficit. As shown in the red line in the chart below, the U.S.’s trade deficit with the world increased notwithstanding the many tariffs that were imposed on China and other countries. Even with China itself, the impact on the trade balance was not large. As shown in the dotted blue line in the chart below, the reported deficit with China did shrink somewhat. But that decline was exaggerated as a result of underreporting of U.S. import data to avoid import tariffs (perhaps as much as $55 billion). After making an adjustment for this underreporting of imports, the decrease in the trade deficit was quite small, and it had already surpassed 2018 levels by this June.

The U.S. Trade Deficit Increased During Trade Conflict

Sources: Authors’ calculations, China Customs, U.S. Customs.

Reconsidering the Phase One Deal in Light of the U.S. Recovery 

So, with this data as background, what should we make of the Phase One deal? The authors of last summer’s blog argued that, because the United States was operating so far below its growth potential as a result of the pandemic, an exogenous increase in demand from China would likely have a larger impact than most economists had expected when the agreement was signed.

How do these arguments hold up now? The authors of the previous post discussed the issues of trade creation versus trade diversion and commodity market feedbacks: There would be no effect on U.S. growth if the “extra” exports to China were simply offset by decreased exports to other countries or by lower sales into the U.S. market, which could induce increased imports from other countries. The benefit to U.S. commodity producers would also be dampened if Chinese demand of U.S. energy products induced increases in supply from other producers, which would lower prices.

Thus far such factors do not appear evident in the data. Although it is true that exports to China have grown faster than to the rest of the world, most U.S. trade partners have been slow to recover from the pandemic, and this is probably the main reason exports of covered goods have been rather more subdued than to China. Moreover, commodity prices have risen substantially to the benefit of U.S. commodity exporters. Finally, increases in exports to China probably have been too small thus far to induce trade diversion or commodity supply effects. In fact, agriculture exports to China of major producers in Latin America are doing well, albeit not growing as strongly as the United States.

However, U.S. economic conditions have changed quite dramatically over the past year in ways that suggest that the growth multiplier from increased Chinese demand may be much lower than what the previous Liberty Street post proposed. The “multiplier” refers to the extra amount that GDP may increase in response to an initial increase in demand, incorporating secondary responses on both the demand- and supply-sides of the economy. Both theory and empirical evidence indicate that multipliers can be considerably greater than one during recessions (around 1.5 to 2.0) than during expansions (less than 0.5). For a point of reference, the incremental demand implied by China’s 2021 goods and service purchase commitments totaled 0.6 percent of  U.S. GDP. 

During the depths of the pandemic there were strong reasons to believe that this multiplier would be considerably higher than one. However, the economic picture is much different now. GDP growth is strong, inflation is rising, and employment is recovering, all boosted by expansionary fiscal and monetary policies. Moreover, financial markets and professional forecasters are already debating the timing and extent of an eventual shift to less accommodative economic policies. Against such a backdrop, it no longer seems likely that China’s purchase commitments—even if they were met—would have a GDP multiplier greater than one (and probably considerably less).

So, if the economic impact of the purchase commitments is not likely to be large, is the Phase One agreement unimportant? We argue that it would be a mistake to simply dismiss the agreement.

The Phase One agreement covered a range of substantive issues in Chapters 1 through 5 that deserve more attention than the purchase targets in Chapter 6. These included enhanced protections for intellectual property and technology transfer; removal of non-tariff barriers and other unfair trade practices in agriculture and financial services; and greater flexibility and transparency in China’s exchange rate regime, all with the intent to level the playing field between China and its trading partners. The set of concerns reflected in these chapters are particularly salient given the large and arguably growing role of the Chinese government in ownership and control of the country’s economy and financial system (for example, as outlined in the most recent 14th Five-Year Plan). Against this backdrop the U.S. economy could experience considerable long-term benefits from close enforcement of commitments under the first five chapters of the agreement.

Hunter L. Clark is an assistant vice president in the Federal Reserve Bank of New York’s Research and Statistics Group.

How to cite this post:
Hunter L. Clark, “An Update on the U.S. – China Phase One Trade Deal,” Federal Reserve Bank of New York Liberty Street Economics, October 6, 2021, https://libertystreeteconomics.newyorkfed.org/2021/10/an-update-on-the-us-china-phase-one-trade-deal.html.


Disclaimer
The views expressed in this post are those of the author and do not necessarily reflect the position of the Federal Reserve Bank of New York or the Federal Reserve System. Any errors or omissions are the responsibility of the authors.

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Bolsonaro Indicted By Brazilian Police For Falsifying Covid-19 Vaccine Records

Bolsonaro Indicted By Brazilian Police For Falsifying Covid-19 Vaccine Records

Federal police in Brazil have indicted former President Jair…

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Bolsonaro Indicted By Brazilian Police For Falsifying Covid-19 Vaccine Records

Federal police in Brazil have indicted former President Jair Bolsonaro for falsifying his Covid-19 vaccine card in order to travel to the United States and elsewhere during the pandemic.

Federal prosecutors will review the indictment and decide whether to pursue the case - which would be the first time the former president has faced criminal charges.

According to the indictment, Bolsonaro ordered a top deputy to obtain falsified Covid-19 vaccine records of himself and his 13-year-old daughter in late 2022, right before he flew to Florida for a three-month stay following his election loss.

Brazilian police are also waiting to hear back from the US DOJ on whether Bolsonaro used said cards to enter the United States, which would open him up to further criminal charges, the NY Times reports.

Bolsonaro has repeatedly claimed not to have received the Covid-19 vaccine, but denies any involvement in a plan to falsify his vaccination records. A previous investigation by Brazil's comptroller general concluded that Bolsonaro's vaccination records were false.

The records show that Bolsonaro, a COVID-19 skeptic who publicly opposed the vaccine, received a dose of the immunizer in a public healthcare center in Sao Paulo in July 2021. [ZH: hilarious, Reuters calling the vaccine an 'immunizer.']

The investigation concluded, however, that the former president had left the city the previous day and didn't leave Brasilia until three days later, according to a statement.

The nurse listed in the records as having applied the vaccine on Bolsonaro denied doing so and was no longer working at the center. The listed vaccine lot was also not available on that date, the comptroller general's office said. -Reuters

"It's a selective investigation. I'm calm, I don't owe anything," Bolsonaro told Reuters. "The world knows that I didn't take the vaccine."

During the pandemic, Bolsonaro panned the vaccine - and instead insisted on alternative treatments such as Ivermectin, which has antiviral properties against Covid-19. For this, he was investigated by Brazil's congress, which recommended that the former president be charged with "crimes against humanity," among other things, for his actions during the pandemic.

In May, Brazilian police raided Bolsonaro's home, confiscating his cell phone and arresting one of his closest aides and two of his security cards in connection to the vaccine record investigation.

Brazil's electoral court ruled that Bolsonaro can't run for public office until 2030 after he suggested that the country's voting system was rigged. For that, he has to sit out the 2026 election.

Tyler Durden Tue, 03/19/2024 - 11:00

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This gambling tech stock is future-proofing the world’s casinos

Supported by the universal thrill of a quick payout and the need for leisure, gambling stocks make a compelling case for long-term returns.
The post This…

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Supported by the universal human thrill of a quick payout, and the need for leisure and entertainment to bring enjoyment to adult life, casinos will remain essential spaces for people to dream and play for the foreseeable future, making gambling stocks a prospective space to look for long-term returns.

According to Research and Markets, the global casino industry was valued at US$157.5 billion in 2022, and it will grow to US$224.1 billion by 2030 at a compound annual growth rate of 4.5 per cent. This trend includes:

Approximately 100 million gamblers in the United States, who generated US$66.5 billion in revenue in 2023, a 10 per cent gain from 2022, which itself was a record year A little fewer than 20 million gamblers in Canada, who generated about C$15 billion in revenue in 2023 A global addressable market of thousands of casinos, and more than 4.2 billion people who gamble at least once every year, according to a 2016 study by Casino.org

The main challenge with attracting these billions through casino doors is they sway heavily toward middle age. The mean age of U.S. casino visitors has hovered around 50 for the past decade, with a similar trend across the world, forcing casinos to attract younger, tech-savvy customers, many with less gambling experience, to continue growing profits for their stakeholders over the long term.

Investors seeking exposure to a leadership position in building the bridge between casinos and the next generation of gamblers should evaluate Jackpot Digital (TSXV:JJ). The Vancouver-based company is a manufacturer of dealerless electronic table games that deliver immersive experiences tailored to the digital age, while earning casinos attractive returns on investment.

The gambling technology stock benefits from no direct competition in the dealerless poker space, with orders spanning North America, Europe, Asia, Africa and the Caribbean, a long-established presence with major cruise ship brands, such as Carnival, Princess Cruises and Holland America, and a growing land-based presence with orders or ongoing installations across 12 U.S. states. Its highlight partnership to date is a master services agreement with Penn Entertainment, the country’s largest regional gaming operator with 43 properties across 20 states.

Jackpot Digital’s differentiated technology and well-rounded management team are at the heart of its success in landing several blue-chip casino gaming companies as customers.

Jackpot Blitz

The gambling technology stock’s flagship product, Jackpot Blitz, is a dealerless poker table featuring three of the world’s most popular variations – Texas Hold’ em, Omaha, and Five-Card-Omaha – brought to life through slick 4k graphics on a 75-inch touchscreen, and offered in three formats – pot-limit, no-limit and fixed-limit – designed to attract a diversity of revenue from casual to experienced players.

Spokesperson and NFL championship-winning coach Jimmy Johnson explains the benefits of the Jackpot Blitz. Source: Jackpot Digital.

The table also comes equipped with house-banked mini-games, including blackjack, baccarat and video poker, as well as side bets on the main poker game, such as Bet the Flop, all of which keep players engaged and entertained between, and even during, poker hands. The stunning Jackpot Blitz machine also offers multi-venue “Bad Beat” jackpot functionality, allowing casinos to offer a “Poker Powerball” with massive Jackpots, further enhancing the attractiveness of Jackpot Blitz to new players.

It’s by striking a balance between the needs of the modern gambler, and efficiency and profitability that in-person operators couldn’t hope to match – unless they ordered the machine for themselves – that Jackpot Digital has earned itself the top spot in dealerless poker.

Player benefits

When a veteran or novice gambler takes a seat at the Jackpot Blitz, his or her experience begins with an easy-to-use interface, laid out in a modern and stylish design, programmed to respond to hand gestures that bring real casino play into the digital age, including card bending and chip jingling.

Source: Jackpot Digital.

The table’s intuitive controls, combined with instant payouts and its dealerless nature, translate into faster game play, which maximizes playing time and player excitement, while minimizing human error and the intimidation new gamblers might feel about approaching an analog poker table. The gambling technology stock’s in-house development team is also constantly working on new games to keep content fresh, with a special focus on bringing international games and regional versions of poker to casino audiences in Asia, South America and the Indian subcontinent.

As hands are laid down and pots pile up, players can also track game stats in real time, which inform future strategy and enhance the thrill of the moment with an added element of competition.

Operator benefits

From an operator’s perspective, a floor of automated gaming tables can meaningfully and instantly reduce casino staff expenditures and management pain points, while avoiding wage inflation, labour shortages and supply costs.

The Blitz is no slouch on revenue either, dealing more hands per hour, resulting in higher revenue and higher profitability, which is further enhanced by onboard side bets and mini-games that can be played while players are engaged in a poker hand.

The Jackpot Blitz’s economics are attractive to operators thanks to its ability to accommodate non-stop play, while monetizing downtime through side games and bets. While a human dealer must spend time shuffling, interacting with players, and consulting with colleagues, the Jackpot Blitz can accept wagers 100 per cent of the time, making sure gamblers get the action they came for and operators see a return on their investment.

Source: Jackpot Digital.

Beyond gaming revenue, casinos are further incentivized to onboard the Jackpot Blitz because of its fully customizable advertising functions, including logos, card backs, chips and felt colors, all of which bolster casino culture and enable the pursuit of revenue from third-party advertising partners.

The Blitz ties its value proposition together by generating automatic reports – including demographics and consumer behaviour through a rewards card system – and plugging directly into most back-end management systems, saving casinos the hassle of manual tracking, while also minimizing tampering, money-laundering and theft through the use of isolated servers.

Whether it’s streamlining the player experience or putting automation at the service of operators’ bottom lines, Jackpot Digital’s flagship product is positioned to create value, and plenty of it.

Jackpot Digital’s path to profitability

After existing as an exclusively cruise-ship-based operation since 2015, Jackpot Digital suffered a steep decline in revenue during the COVID pandemic, falling from C$2.18 million in 2019 to C$0.42 million in 2021.

Management quickly pivoted in the face of uncertainty, redesigning the Blitz to execute on a land-based expansion strategy – backed by Gaming Labs International certification in fall 2023 – which is bringing about a successful turnaround after the re-emergence of the casino business. Revenue more than tripled to C$1.43 million in 2022, and reached C$1.57 million through three quarters of 2023, with the company expecting to ramp up significant recurring revenue after it installs several dozen machines currently in its backlog.

The Jackpot Blitz electronic gaming table in action. Source: Jackpot Digital.

The first installation of land-ready Jackpot Blitz machines is now completed at the Jackson Rancheria Casino in California, as the company announced today. The three-machine installation marks a new era of growth for the company, having announced 25 Blitz deals since November 2021 (slide 12), with many more across Canada and the United States in the works, in addition to a strong pipeline in Asia and Europe.

“Jackpot Digital could be a profitable company right now if it only focused on care and maintenance of the revenues it currently generates. But that’s not why we’re here,” Mathieu McDonald, Vice President of Corporate Development at Jackpot Digital, said in a recent interview with Stockhouse. “We intend to scale up to many multiples of the tables we have out right now, with the potential for up to 2,000 tables over the next three to five years.”

According to McDonald, the company is fielding three to five inquiries per week about the Blitz from casinos around the world that recognize the machines’ first-mover advantage in dealerless poker and potential expansion into other games in need of automation.

Jackpot Digital’s ambitious plan of action is supported by a management team of proven gambling, finance, advertising and legal professionals, many of which have been serving Jackpot stakeholders for more than two decades.

A long-tenured management team

The management team behind Jackpot Digital is led by Jake Kalpakian, who has served as president and chief executive officer since 1999, including under the gambling technology stock’s former incarnation as Las Vegas From Home.com Entertainment Inc. Kalpakian brings more than 30 years of experience managing small-cap publicly listed companies, granting him a steady hand when it comes to maneuvering through the volatility of the economic cycle.

Kalpakian’s efforts are supported by three directors whose well-rounded expertise positions Jackpot Digital for long-term sustainable growth:

Gregory T. McFarlane, a director at Jackpot Digital since 1999, previously ran an independent advertising firm and holds a degree in mathematics from the University of Toronto. McFarlane is also a co-founder of the popular Control Your Cash personal finance website. Chief financial officer Neil Spellman, a director at the company since 2002, boasts an almost two-decade track record as vice president at Wall Street firm Smith Barney, where he developed a multi-industry understanding of the journey to profitability. Finally, Alan Artunian, a director since 2017, currently serves as CEO of Nice Guy Holdings, a corporate and legal consulting company advising clients across a diversity of sectors.

Guided by a strategic management team, and benefiting from a macro-trend toward casino automation, Jackpot Digital is on course to ride a wave of millions of gamblers looking for an elegant, tech-informed alternative to traditional in-person play.

A multi-bagger opportunity

The Jackpot Digital opportunity sets up savvy investors who recognize the soundness of the company’s value proposition. The tremendous risk/reward value of Jackpot Digital gives investors the opportunity to ride the macro-trend toward casino automation, as deals for the Blitz keep pouring in, the company adds games to its portfolio, and the global casino industry adds hundreds of billions in revenue through this decade.

Join the discussion: Find out what everybody’s saying about this gambling technology stock on the Jackpot Digital Bullboard.

This is sponsored content issued on behalf of Jackpot Digital, please see full disclaimer here.

The post This gambling tech stock is future-proofing the world’s casinos appeared first on The Market Online Canada.

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Gates-backed PhIII study tuberculosis vaccine study gets underway

A large study of an experimental vaccine for the world’s biggest infectious disease has finally kicked off in South Africa.
The Bill & Melinda Gates…

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A large study of an experimental vaccine for the world’s biggest infectious disease has finally kicked off in South Africa.

The Bill & Melinda Gates Medical Research Institute (MRI) will test a tuberculosis vaccine’s ability to prevent latent infections from causing potentially deadly lung disease. Last summer the nonprofit said it would foot $400 million of the estimated $550 million cost of running the 20,000-person Phase III trial.

It’s a pivotal moment for a vaccine whose origins date back 25 years when scientists identified two proteins that triggered strong immunity to the bacterium that causes tuberculosis. A fusion of those proteins, paired with the tree bark-derived adjuvant that helps power GSK’s shingles shot, comprise the so-called M72 vaccine.

Thomas Scriba

After decades of failures in the field, the vaccine impressed scientists in 2018 when GSK found that it was 54% efficacious at preventing lung disease in a 3,600-person Phase IIb study.

But the Big Pharma decided that a full-blown trial was too expensive to conduct on its own. Gates MRI stepped in to license the vaccine in early 2020, right before the Covid pandemic shifted global vaccine priorities towards the coronavirus, further stalling the tuberculosis shot.

“There’s been frustration that it’s taken so long to get this trial up and running,” Thomas Scriba, deputy director of immunology for the South African Tuberculosis Vaccine Initiative, told Endpoints News last summer.

At last, the vaccine is getting a chance to prove itself in a bigger study. If successful, it could lead to the first new shot for tuberculosis in over a century.

Emilio Emini, CEO of the Gates MRI, told Endpoints that the initial results may come in roughly four to six years. “Hopefully this will galvanize a refocus on TB,” he said. “It’s been ignored for many, many years. We can’t ignore it anymore.”

A substantial impact

Even though an existing vaccine helps protect babies and children against severe tuberculosis, the bacterium responsible for the disease still causes roughly 10 million new cases and 500,000 deaths each year.

Emilio Emini

By vaccinating adolescents and adults who test positive for infections but don’t have symptoms of lung disease, the Gates MRI hopes the shot will help prevent mild infections from becoming severe ones, curtail transmission of the bug, which is predominantly driven by people with lung disease, and reduce deaths.

“The impact would be substantial,” Emini said. But he cautioned that the biology behind mild and severe diseases is still mysterious. “The reality is that no one really knows what keeps it under control.”

The study, which will take place at 60 sites across seven countries, will include some people who are not infected with tuberculosis to ensure that the vaccine is safe in that broader population.

“Having to pre-test everybody is not going to make the vaccine easy to deliver,” Emini said. If the vaccine is ultimately approved, it will likely be used in targeted communities with high tuberculosis, rather than across a whole country, he added. “In practice, you would immunize everybody in those populations.”

Emini described the Gates MRI’s rights to the vaccine as “close to a worldwide license.” GSK retained rights to commercialize the vaccine in certain countries but declined to specify which ones.

A spokesperson for GSK said that the company “has around 30 assets under development specifically for global health … none of which are expected to generate significant return on investment.”

“It is not sustainable or practical in the longer term for GSK to deliver all of these alone. So we continue to work on M72, but in partnership with others,” the spokesperson added.

If the shot works, Emini said that the Gates MRI will sublicense it to a manufacturer that will be responsible for making and marketing the vaccine. The details are still being worked out, he noted.

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