The trade war between the United States and China continued this week with its latest salvo – a move that comes amid a heated race for the White House.
On Tuesday, US President Joe Biden announced tariff hikes on imports of various Chinese goods, worth $18bn.
Lithium-ion batteries make up $13bn of the total imports, while certain steel and aluminium products, as well as items like medical gloves and syringes, accounted for the remaining $5bn.
Experts say tariffs on these products will likely have limited effects on consumer goods prices and economic growth. The greater gain, they say, may lie at the ballot box, as Biden jockeys for a second term in the White House.
“These tariffs are very much on the margins, and the impacts on the economy will be a rounding error,” Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.
While the tariffs do not change much for the US economy, it is still “good politics to do this”, especially during an election year, Yaros added.
Projecting strength
The US is set to hold a presidential vote in November, and Biden is expected to face his predecessor, former Republican President Donald Trump, in a tightly fought race.
Trump has long sought to project a tough-man image, particularly in foreign policy and the economy, while framing his Democratic rival as “weak”. Biden, however, has sought to deflect that criticism by imposing policies that, in some cases, build on Trump’s.
A January paper (PDF) from the National Bureau of Economic Research suggests that tariffs can pay political dividends, even if they do not translate into “substantial job gains”.
The paper looked at the period from 2018 to 2019, when Trump slapped stiff tariffs on China and other countries, targeting products like aluminium, washing machines and solar panels.
It found that residents in US regions that were more exposed to import tariffs became less likely to identify as Democrats and more likely to vote Republican.
The report concluded that voters “responded favourably” to the tariffs “despite their economic cost”, which came in the form of retaliatory tariffs from China.
“Tariffs are good politics, even though the economics don’t work,” Yaros said.
Appealing to the Rust Belt
Biden and Trump are in a neck-and-neck race, with some polls showing the Republican candidate edging out the incumbent in key swing states.
A poll this week found that former US President Donald Trump had an advantage in a few pivotal states over President Biden [File: Brendan McDermid and Elizabeth Frantz/Reuters]
A poll this week from the New York Times, Siena College and the Philadelphia Inquirer, for instance, found that Trump had an advantage in pivotal states like Arizona, Nevada and Georgia.
Biden appeared in one of those states, Pennsylvania, last month to announce his intention to triple tariffs on Chinese steel. Pennsylvania is part of the Rust Belt, a region historically known for manufacturing, and the state itself is famed for steel production.
Brad Setser, a senior fellow at the Council on Foreign Relations, said Biden has also sought to protect other US industries, like its burgeoning electric vehicle (EV) sector.
His new trade rules will ensure that the US cannot directly import EVs made in China, Setser explained.
He added that China has built a competitive EV industry on the back of deep government subsidies and could flood the global and US markets with cheap cars if it was not for such measures.
“China, with its significant auto needs, provided a lot of subsidies to its EV industry that has led to this strength,” said Setser.
“It needs to recognise that the US and Europe will use some of these techniques [of subsidies and tariffs] to build their own industries. It’s unrealistic for China to object to other countries doing the same thing.”
Protecting the American auto industry will also help Biden in the polls. The sector is historically centred in Michigan, another key battleground state where Biden has recently faced backlash.
Michigan is the birthplace of the “uncommitted” movement, which encouraged Democrats to withhold their votes from Biden during the primaries and cast ballots for the “uncommitted” option instead.
The protest was seen as a part of a broader, largely progressive backlash to Biden’s unwavering support for Israel’s war in Gaza.
Looking ahead to November
However, the experts who spoke to Al Jazeera questioned whether Biden’s newly announced tariffs would move the needle at election time.
The US imported $427bn in goods from China in 2023, but it only exported $148bn to the country in return, according to the US Census Bureau.
That trade gap has persisted for decades and become an ever more sensitive subject in Washington, particularly as China competes with the US to be the world’s largest economy.
While the trans-Pacific trade has benefitted both countries – providing cheap goods to American consumers and a large market to Chinese manufacturers – it remains a contentious issue, especially at election time, because of a history of US manufacturing jobs moving overseas.
US politicians have also raised concerns over privacy, as Chinese technology enters the North American market.
Although China has promised retaliation for the latest round of tariffs, experts say it will likely be symbolic as the US tariffs themselves are very targeted.
“We don’t assume the retaliation will be anything disruptive,” said Yaros. “They’re not going to up the ante. That’s not been their MO [modus operandi] in the past when the US has imposed tariffs.”
President Joe Biden has slapped major new tariffs on Chinese electric vehicles, advanced batteries, solar cells, steel, aluminium and medical equipment, taking potshots at Donald Trump along the way as he embraced a strategy that’s increasing friction between the world’s two largest economies.
The Democratic president said on Tuesday that Chinese government subsidies ensure the nation’s companies do not have to turn a profit, giving them an unfair advantage in global trade.
“American workers can outwork and outcompete anyone as long as the competition is fair,” Biden said in the White House Rose Garden. “But for too long, it hasn’t been fair. For years, the Chinese government has poured state money into Chinese companies … it’s not competition, it’s cheating.”
China immediately promised retaliation. Its Ministry of Commerce said Beijing was opposed to the tariff hikes by the United States and would take measures to defend its interests.
Biden will keep tariffs put in place by his Republican predecessor Donald Trump while ratcheting up others, including a quadrupling of EV duties to more than 100 percent and doubling the duties on semiconductor tariffs to 50 percent.
The new measures affect $18bn in imported Chinese goods including steel and aluminium, semiconductors, electric vehicles, critical minerals, solar cells and cranes, the White House said. The EV figure, while headline-grabbing, may have more political than practical impact in the US, which imports very few Chinese EVs.
The US imported $427bn in goods from China in 2023 and exported $148bn to the world’s number-two economy, according to the US Census Bureau, a trade gap that has persisted for decades and become an ever more sensitive subject in Washington.
US Trade Representative Katherine Tai said the revised tariffs were justified because China was stealing US intellectual property. But Tai recommended tariff exclusions for hundreds of industrial machinery import categories from China, including 19 for solar product manufacturing equipment.
The tariffs come in the middle of a heated campaign between Biden and Trump, his Republican predecessor, to show who’s tougher on China.
Asked to respond to Trump’s comments that China was eating the US’s lunch, Biden said of his rival, “He’s been feeding them a long time.” The Democrat said Trump had failed to crack down on Chinese trade abuses as he had pledged he would do during his presidency.
Karoline Leavitt, the Trump campaign’s press secretary, called the new tariffs a “weak and futile attempt” to distract from Biden’s own support for EVs in the United States, which Trump says will lead to layoffs at car factories.
Administration officials said their measures are combined with domestic investment in key industries and unlikely to worsen a bout of inflation that has already angered US voters.
Trade tariff
Biden has struggled to convince voters of the efficacy of his economic policies despite a backdrop of low unemployment and above-trend economic growth. A Reuters/Ipsos poll last month showed Trump had a seven percentage-point edge over Biden on the economy.
China’s BYD overtook Tesla as the biggest seller of electric vehicles [File: VCG/VCG via Getty Images]
Analysts have warned that a trade tiff could raise costs for EVs overall, hurting Biden’s climate goals and his aim to create manufacturing jobs.
Biden has said he wants to win this era of competition with China but not to launch a trade war. He has worked in recent months to ease tensions in one-on-one talks with Chinese President Xi Jinping.
Both 2024 US presidential candidates have departed from the free-trade consensus that once reigned in Washington, a period capped by China’s joining the World Trade Organization in 2001. Trump’s broader imposition of tariffs during his 2017-2021 presidency kicked off a tariff war with China.
As part of the long-awaited tariff update, Biden will increase tariffs this year from 25 percent to 100 percent on EVs, bringing total duties to 102.5 percent, from 7.5 percent to 25 percent on lithium-ion EV batteries and other battery parts and from 25 percent to 50 percent on photovoltaic cells used to make solar panels. Some critical minerals will have their tariffs raised from nothing to 25 percent.
More tariffs will follow in 2025 and 2026 on semiconductors, as well as lithium-ion batteries that are not used in electric vehicles, graphite and permanent magnets, as well as rubber medical and surgical gloves.
A number of lawmakers have called for massive hikes on Chinese vehicle tariffs or an outright ban over data privacy concerns. There are relatively few Chinese-made light-duty vehicles being imported now.
The United Auto Workers, a politically important union that endorsed Biden, said the tariff moves would ensure that “the transition to electric vehicles is a just transition.”
Changpeng Zhao, the former chief executive of Binance, was sentenced on Tuesday to four months in prison after pleading guilty to violating US money-laundering laws at the world’s largest cryptocurrency exchange.
The sentence was imposed by United States District Judge Richard Jones in Seattle, who rejected prosecutors’ request that the 47-year-old Zhao serve a three-year term.
Once considered the most powerful person in the cryptocurrency industry, Zhao, known as “CZ,” is the second major crypto boss to be sentenced to prison after Sam Bankman-Fried. In March, Bankman-Fried received 25 years behind bars for stealing eight billion dollars from customers of his now-bankrupt FTX exchange.
Zhao pleaded guilty in November to one count of failing to take required anti-money-laundering measures and stepped down as Binance agreed to pay $4.3bn to settle related allegations.
US officials said Zhao deliberately looked the other way as people conducted transactions that supported child sex abuse, the illegal drug trade and “terrorism”.
“I failed here,” Zhao said before US District Judge Richard A Jones issued the sentence. “I deeply regret my failure, and I am sorry.”
“I believe the first step of taking responsibility is to fully recognise the mistakes. Here I failed to implement an adequate anti-money-laundering program … I realise now the seriousness of that mistake”, he said.
Prosecutors had told the judge a tough sentence would send a clear signal to other would-be criminals.
“We are not suggesting that Mr. Zhao is Sam Bankman-Fried or that he is a monster,” prosecutor Kevin Mosley said. But Zhao’s conduct, he said, “wasn’t a mistake. This wasn’t a regulatory ‘oops.’”
The three-year prison term prosecutors sought was more than twice the guideline range for the crime. If he did not receive time in custody for the offence, no one would, rendering the law toothless, they argued.
Zhao had been free on a $175m bond, and agreed not to appeal any sentence within federal guidelines. Zhao also paid $50m to the Commodity Futures Trading Commission.
Trades in violation of US sanctions
Binance allowed more than 1.5 million virtual currency trades, totalling nearly $900m, that violated US sanctions, including ones involving Hamas’s Qassam Brigades, al-Qaeda and Iran.
“He made a business decision that violating US law was the best way to attract users, build his company, and line his pockets,” the US Department of Justice wrote in a sentencing memorandum filed last week.
Zhao’s lawyers insisted he should receive no prison time at all, citing his willingness to come from the United Arab Emirates, where he and his family live, to the US to plead guilty, despite the UAE’s lack of an extradition treaty with the US.
No one has ever been sentenced to prison time for similar violations of the Bank Secrecy Act, defence lawyers Mark Bartlett and William Burck told the judge Tuesday, and Zhao began making changes to make Binance a model of compliance with banking transparency regulations before stepping down.
“There is no excuse for my failure to establish the necessary compliance controls at Binance,” Zhao wrote in a letter to the court. “I wish I could change that part of Binance’s story. But under my direction, Binance has now implemented the most stringent anti-money laundering controls of any non-US exchange, and those controls have been in place since 2022.”
Prosecutors said no one had ever violated the Bank Secrecy Act to the extent Zhao did.
“He says in hindsight he should have done a better job,” Justice Department lawyer Kevin Mosley told the court. “This wasn’t a mistake. When Mr Zhao violated the BSA he was well aware of the requirements.”
Zhao knew that Binance was required to institute anti-money-laundering protocols, but instead directed the company to disguise customers’ locations in the US to avoid complying with US law, prosecutors said.
Several other crypto moguls are also in the crosshairs of US authorities after the collapse of cryptocurrency prices in 2022 exposed fraud and misconduct across the industry.
The weakness of the Japanese yen is in the spotlight again after its latest tumble in value.
On Monday, the currency sank to 160.17 against the US dollar, its lowest since April 1990.
The yen recovered to 155.01 per dollar later in the day, prompting speculation that Japanese authorities had intervened to prop up the value of the currency.
The yen weakened slightly again on Tuesday, but held onto most of the previous day’s gain.
Why is the yen falling?
The value of a country’s currency rises and falls relative to currencies elsewhere in line with the laws of supply and demand.
At the moment, investors are being driven to offload the yen due to a yawning gulf in interest rates between Japan and the United States.
While the US Federal Reserve’s benchmark interest rate is currently set at 5.25-5.50 percent, the Bank of Japan’s (BOJ’s) equivalent rate is just 0-0.1 percent.
“The main driver is the rate differential between the US and Japan,” Min Joo Kang, senior economist for South Korea and Japan at ING, told Al Jazeera.
“Also, market expectations rapidly changed on the Fed’s monetary policy.”
The gap in interest rates reflects the very different inflation environments in the US and Japan. While Japan has struggled to get prices and wages to rise after decades of economic stagnation, the US has been battling to bring prices down amid robust economic growth.
For investors, higher interest rates in the US mean an opportunity to make much higher returns on investments, such as government bonds, in that country than they can in Japan.
The more investors sell the yen, the more it declines in value – encouraging investors to keep selling in a self-perpetuating cycle.
Is this a new phenomenon?
Actually, it is part of a longstanding trend.
While the yen’s decline has been especially severe of late, the currency has been on a continual slide since early 2021.
Over the last three years, the yen has lost more than one-third of its value.
The currency is now back to where it was following the collapse of a huge asset bubble in the early 1990s.
While other countries have raised interest rates to tame inflation that spiked during the COVID-19 pandemic, Japan has maintained rock-bottom borrowing costs in an effort to shake the economy out of a prolonged stagnation known as “the lost decades”.
Although the BOJ last month hiked the benchmark rate for the first time in 17 years, Asia’s second-largest economy is still an outlier globally.
Why does it matter that the yen is so weak?
A weak currency is a mixed bag for the economy.
Japan’s weakening yen has helped boost exporters’ profits by making their products cheaper to buyers overseas.
The slide has also encouraged a record influx of foreign tourists – there were 3.1 million visitors to the country in March alone – whose spending helps support local businesses.
But the yen’s slump has sharply raised the cost of imports, particularly food and fuel, putting a strain on household budgets.
The advantage of a falling yen for exporters has also been dampened by the fact that many large Japanese companies carry out a significant portion of their operations overseas.
What can Japan do about it?
Japanese officials have repeatedly expressed concern about the yen’s excessive depreciation and indicated they are prepared to intervene if necessary.
Authorities can pull on two main levers: buying up the yen or raising interest rates.
On Monday, the sudden surge in the yen’s value prompted speculation that authorities had stepped into the currency markets to arrest its slide, which would be the first such intervention since late 2022.
Japanese authorities have not confirmed intervening in the market and official figures that would reveal whether they did so will not be available until late May.
Still, momentum appears to be against any substantial strengthening of the yen in the foreseeable future.
During its intervention in 2022, Japanese authorities spent more than $60bn of its foreign exchange reserves to prop up the yen – only to see it continue its slide.
Meanwhile, the large gap between Japanese interest rates and those elsewhere is likely to persist for some time.
While BOJ Governor Kazuo Ueda has indicated that the central bank could raise rates if inflation picks up, price growth has slowed in recent months.
On Friday, the BOJ held interest rates steady, bolstering expectations that its ultra-loose policy is here to stay.
Meanwhile, the US Fed’s recent signals have dampened expectations that significant interest rate cuts are on the cards this year amid persistently stubborn inflation.
ING’s Kang said she expects the yen’s weakness to continue over the coming months.
“We believe that forex intervention by the Japanese authorities only can slow down the depreciation pace, but cannot change the direction of the currency move,” she said.
“To change the course of the yen’s path, either the BOJ should suddenly strengthen its hawkish voices – we believe this is not likely – or the Fed should give a more clear sign of rate cuts. This also not likely in the near term.”
TikTok owner ByteDance would prefer shutting down its loss-making app rather than sell it if the Chinese company exhausts all legal options to fight legislation to ban the platform from app stores in the United States, Reuters reported citing four sources.
The algorithms TikTok relies on for its operations are deemed core to ByteDance overall operations, which would make a sale of the app with algorithms highly unlikely, the sources, who are close to the parent, said on Thursday.
TikTok accounts for a small share of ByteDance’s total revenues and daily active users, so the parent would rather have the app shut down in the US in a worst-case scenario than sell it to a potential American buyer, they said.
A shutdown would have limited impact on ByteDance’s business while the company would not have to give up its core algorithm, said the sources, who declined to be named as they were not authorised to speak to the media.
ByteDance declined to comment.
It said late on Thursday in a statement posted on Toutiao, a media platform it owns, that it had no plan to sell TikTok, in response to an article by tech platform The Information saying ByteDance is exploring scenarios for selling TikTok’s US business without the algorithm that recommends videos to TikTok users.
In response to Reuters request for comment, a TikTok spokeswoman referred to ByteDance’s statement posted on Toutiao.
TikTok’s CEO Shou Zi Chew said on Wednesday the social media company expects to win a legal challenge to block legislation signed into law by President Joe Biden that he said would ban its popular short video app used by 170 million Americans.
The bill, passed overwhelmingly but the US Senate on Tuesday, is driven by widespread worries among US lawmakers that China could access Americans’ data or use the app for surveillance.
Biden’s signing sets a January 19 deadline for a sale – one day before his term is poised to expire – but he could extend the deadline by three months if he determines privately owned ByteDance is making progress.
ByteDance does not publicly disclose its financial performance or the financial details of any of its units. The company continues to make most of its money in China, mainly from its other apps such as Douyin, the Chinese equivalent of TikTok, separate sources have said.
The US accounted for about 25 percent of TikTok overall revenues last year, said a separate source with direct knowledge.
ByteDance’s 2023 revenues rose to nearly $120bn in 2023 from $80bn in 2022, said two of the four sources. TikTok’s daily active users in the US is also just about 5 percent of ByteDance’s DAUs worldwide, said one of the sources.
Algorithms not for sale
TikTok shares the same core algorithms with ByteDance domestic apps like short video platform Douyin, three of the sources said. Its algorithms are considered better than ByteDance rivals such as Tencent and Xiaohongshu, said one of them.
It would be impossible to divest TikTok with its algorithms as their intellectual property licence is registered under ByteDance in China and thus difficult to disentangle from the parent company, said the source.
ByteDance also would not agree to sell one of its most valuable assets – its “secret source” – to rivals, said the four sources, referring to the TikTok algorithm.
In 2020, the Trump administration sought to ban TikTok and Chinese-owned WeChat but was blocked by the courts. The short-form video app has since faced partial and attempted bans in the United States and other countries.
China indicated it would be likely to reject a forced divestment of the TikTok app during a US congressional hearing in March last year.
“China will firmly oppose it [the forced sale of Tiktok],” said a spokeswoman for the Ministry of Commerce at a news conference in Beijing in late March in 2023.
“The sale or divestiture of TikTok involves technology export and must go through administrative licensing procedures in accordance with Chinese laws and regulations.”
China in 2020 unveiled the Export Control Law and the final text extended the definition of “controlled items” from prior drafts. According to state media, the amendment ensures that the exports of algorithms, source codes and similar data are subject to an approval process.
Excluding algorithms, TikTok’s main assets include user data and product operations and management, said two of the people.
ByteDance, backed by Sequoia Capital, Susquehanna International Group, KKR & Co and General Atlantic among others, was valued at $268bn in December when it offered to buy back approximately $5bn worth of shares from investors, Reuters reported at the time.
Wednesday’s “disappointing” inflation data in the United States showed a jump from February, dampening expectations of an interest rate cut and raising concerns that inflation could remain stubbornly high.
The data has implications not just for the US Federal Reserve, which sets interest rates, but also for the candidates in the upcoming presidential election.
The core consumer price index (CPI), which excludes volatile food and energy costs, increased 0.4 percent in March from the previous month, according to government data released on Wednesday.
The year-over-year rate was unchanged at 3.8 percent. With food and fuel included, inflation is at 3.5 percent, up from 3.2 percent in February.
While inflation is much lower than the 40-year high of 9.1 percent reached in June 2021, when consumers went on a shopping spree with government cheques handed out during the COVID-19 pandemic, it is still well above the US central bank’s target of 2 percent.
The Fed has been on an interest-rate-hiking spree since March 2022, raising the benchmark overnight interest rate from near zero to the current 5.25 percent to 5.5 percent range, where it has been since July.
While that has helped dampen inflation, Wednesday’s data shows the fight is far from over.
“The 0.4 percent m/m gain in the March core CPI was a disappointment, as it surprised to the upside relative to our and consensus expectations for a 0.3 percent increase. This isn’t going to sit well with the Federal Reserve and may push more policymakers to favour two rate cuts this year, rather than three,” Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.
The latest inflation data as well as last week’s jobs data – which showed the US economy added some 300,000 jobs last month, well above the expected 200,000 or fewer – has sparked some chatter that with such a strong economy, there might be no rate cuts at all in 2024, said Matt Colyar, economist at Moody’s Analytics.
“Inflation is moderating but happening more slowly than we anticipated,” Colyar told Al Jazeera, adding that the situation is making Fed Chairman Jerome Powell’s “unenviable job that much more unenviable with general elections in November”.
The last meeting before the elections is in mid-September, and Powell has indicated that the Fed is in no rush to cut rates.
“Monetary policy is an inexact science and takes time to take effect. But it’s a psychological effect – that first cut, it comes with the message that we’ve won the battle against inflation. It complicates things so close to the elections,” he said.
But those are also signs of a “strong economy” and that typically favours the incumbent, Colyar said.
“It’s the story of a really sturdy and resilient economy,” he said.
‘Singular focus on price’
While that may be good news on paper, voters still perceive the cost of living as too high.
“Wages are rising faster than inflation for a year now,” Yaros said. “Yet what people are looking at is prices – prices are 20 percent above where they were when [Joe] Biden was inaugurated [as president in January 2020], and that focus on price levels is what’s hurting the mood and Biden.”
While the latest inflation data shows that people are still consuming at a healthy rate, the average American feels poorer today because prices are higher.
“And people look at prices in isolation and not that their wages have also gone up,” Yaros said.
There is a “singular focus on price”, he said.
That’s also because “inflation is cumulative and it piles up”, said Dan North, senior economist at Allianz Trade.
For instance, he said, while wages are around 15 percent higher than where they were in January 2021, food is 21 percent more expensive, housing 31 percent and petrol 41 percent.
On Tuesday, the National Federation of Independent Business (NFIB) said its Small Business Optimism Index fell 0.9 points to 88.5 last month, the lowest level since December 2012. It was the 27th straight month the index was below the 50-year average of 98.
One-quarter of small business owners reported that inflation was their single biggest concern, up two percentage points from February. The percentage of businesses raising their average prices rose seven points.
“People still remember that it used to cost $40 for them and their spouse to get dinner at their favourite restaurant and now it’s $62. You don’t remember the pay raises you’ve gotten along the way,” Colyar said.
All of this is bound to play into the election and be an important deciding factor for which candidate – Biden or opponent Donald Trump – gets votes.
Yaros noted that people tend to hate high inflation much more than high unemployment.
“Inflation affects everyone while unemployment affects only a small section of the society,” he said.
All eyes will be on Friday’s US unemployment numbers to see how many jobs were added in March and whether the unemployment rate continues to stay in its historically low range or if it is time for the alarm bells to start ringing.
Job growth in the United States has continued at a steady clip in the months since the early days of the COVID-19 pandemic, when businesses came to a sudden stop.
“In the aftermath of the pandemic as things started to pick back up, there was a real struggle to find people to work and companies had to raise how much you paid to get people,” said Matt Colyar, an economist at Moody’s Analytics.
There are a number of factors behind that, including restrictions on the number of foreigners entering the country during the COVID-19 pandemic and baby boomers dropping out of the workforce for fear of the pandemic, creating nearly a shortage of some two million workers aged 55 and older.
As business ground to a halt as a result of the pandemic, nearly 22 million jobs were lost. A lot of the hiring since then has been about refilling those roles, said Dan North, senior economist at Allianz Trade, adding: “It’s not like those jobs went away.”
Since the start of the pandemic, the US economy has lost 21,888,000 jobs and has added 27,387,000, according to Allianz Trade data. “You could argue that the economy has created only 5,499,000 new jobs,” said North.
But jobs are being created, nonetheless. While employment fell by 243,000 jobs in December 2020, following seven consecutive months of increases, the labour market has consistently added jobs each month since then, taking the US economy on a 38-month streak of monthly job gains.
If payroll employment is shown to have risen in March in Friday’s monthly jobs report, which is released at 8:30am local (12:30 GMT), then it will be a 39-month streak.
Healthcare and state sector driving jobs
While jobs in the leisure and hospitality sectors are still catching up to pre-pandemic levels, two sectors that are driving job growth are healthcare and state and local government, experts said.
“Healthcare in the US has always been under-supplied in terms of labour so a strong growth in that sector is a good thing,” said Bernard Yaros, lead US economist at Oxford Economics. “Our hospitals and health clinics should be fully staffed, especially given an ageing population.”
Hiring for government jobs is still focused on filling jobs that were lost during the pandemic, said Yaros. That sector was a late starter because of the government’s inability to match private sector salaries in order to attract talent, he said. But now that hiring is slowing down in the private sector, jobs in the state sector have seen solid growth, he added.
A lot of the hiring is also being driven by a rebound in immigration since 2023 – both legal and undocumented – that has allowed the economy to continue adding more than 200,000 jobs a month, said Yaros.
“When there’s an increase in labour supply through immigration, it allows for strong growth. But that doesn’t lead to inflation because you have more people looking for work so employers don’t have to raise wages [as much] to attract workers”, Yaros said.
However, hiring in most other sectors remains volatile and mixed, he added.
‘Starting to see some disruption’
“Underneath the shiny headlines, we are starting to see some disruption,” said North.
On Tuesday, the Job Openings and Labor Turnover Survey, or JOLTS report, from the US Department of Labor showed there were 1.36 vacancies for every unemployed person in February, down from 1.43 in January. The decline indicates a rise in unemployment.
According to the data, layoffs reached 1.7 million in February, up from 1.6 million in January. Job openings are down 11 percent year-on-year and job quits – the number of workers resigning from their jobs, likely for better opportunities, said North – have returned to pre-COVID levels, indicating that wage increases will not be as fast-paced or high as they have been.
Unemployment numbers, while still at historic lows, are slowly starting to creep up, hitting 3.9 percent last month, up from 3.7 percent for each of the three months prior.
While the unemployment rate has been below 4 percent for just over two years in a row – the longest such stretch since the late 1960s – the mood is starting to change. In a March consumer confidence survey by The Conference Board, consumers said that jobs are harder to get and that they expect their incomes to decrease over the next six months.
The question now is if, or when, unemployment numbers will break through 4 percent.
“If it goes up to 4.1 percent next month, everyone will start talking about the Sahm rule,” said North, referring to former Federal Reserve economist Claudia Sahm, who invented a measure that examines how fast the unemployment rate is rising to determine if it is an indication of a recession.
While most economists agree that the chances of the US economy slipping into a recession have receded, a rise in the unemployment rate will slow down economic growth.
All of this feeds into decisions that the Fed will have to take on whether to cut interest rates, and how quickly. The benchmark overnight interest rate is in the 5.25 percent to 5.5 percent range, where it has been since July to curb a 40-year high inflation spike. While inflation has come down since then and is hovering around 3.2 percent as of the end of February, the latest data available, that’s still higher than the Fed target of 2 percent.
In such a scenario, a robust job market – and a healthy spending ability alongside – will have the Fed looking for signs of a rise in inflation, delaying interest cuts.
But a slowdown in hiring – and a rise in unemployment, ultimately – could bring the prospect of interest rate cuts. The data on Friday will offer some clues.
Keerthi Subramanian, a shop clerk in South London, earns 10.42 pounds ($13.15) an hour. From Monday that will go up by 1.02 pounds ($1.29) to 11.44 pounds ($14.44) as a new United Kingdom minimum wage kicks in. That is not much help, she says.
“At just over 10 pounds, I wasn’t earning enough. Everything from energy to food prices and rent have gone up in recent years,” Subramanian told Al Jazeera.
While the new legal minimum wage, also known as the National Living Wage (NLW), represents a 9.8 percent increase from previous levels – the highest single boost since 2001 – it is still insufficient for Subramanian. “All my charges have increased since COVID,” she said.
The boost to the NLW, worth 1,800 pounds ($2,271) a year for full-time workers, will benefit 2.7 million people, according to an estimate from the Department for Business and Trade.
The move is part of a 2019 Conservative Party pledge to raise the NLW to two-thirds of average earnings. In 2022, the OECD estimated that the UK’s minimum wage was equivalent to 58 percent of the median wage.
The Conservatives, who have been in power since 2010, rebranded the statutory minimum wage as the NLW in 2015. Initially, it only applied to Britons over the age of 25. Since then, the age limit for those earning the NLW was lowered to 23.
Now, eligibility will be extended to 21-year-olds. Minimum wage rates for younger workers will also increase, with those aged between 18-20 receiving an uplift of 1.11 pounds ($1.40) an hour. For those aged 16-17, pay will rise by 1.12 ($1.41).
The independent Low Pay Commission – a body set up to advise ministers on the minimum wage – produces NLW recommendations every year. This hike represents an acceptance, in full, of last year’s proposal.
Speaking last November, the UK’s Treasury Secretary Jeremy Hunt said that today’s wage boost “will end low-pay in this country,” and that, “the national living wage has helped halve the number of people on low pay since 2010, making sure work always pays.”
The move has been welcomed by trade unions. But many feel the NLW needs to rise by more to keep up with inflation.
Afzal Rahman, a policy officer for the Trade Union Congress told Al Jazeera, “Don’t get me wrong, today’s move was badly needed.”
“But we can’t lose sight of the bigger picture. We’re calling for a minimum wage of 15 pounds ($18.93) as soon as possible,” he said, stressing that average pay packets have flatlined in real terms over the past 15 years by failing to keep up with consumer prices.
Central bank considerations
Last year, real wage growth was high by historical standards. Adjusted for inflation, British workers experienced a 1.4 percent rise in their annual pay packets. But this was largely due to falling inflation. Consumer prices fell from a peak of 11.1 percent in October 2022 to 3.4 percent this February, owing mainly to declining energy prices. In addition, the Bank of England’s (BoE) monetary tightening campaign has let steam out of the economy.
And while price pressures have eased, inflation remains 1.4 percentage points above the BoE’s target of 2 percent. In turn, the new NLW will keep policymakers on their toes for signs that pay growth could feed a new round of inflation.
“Central bank officials are concerned that raising the NLW could have knock-on effects, as employers seek to compensate staff higher up their pay scales,” said Edward Allenby, a UK analyst at Oxford Economics.
“Still, the latest trends in inflation have been positive. And while the BoE will be monitoring price effects from the new minimum wage, we think that overall inflation will continue to fall,” he said.
Allenby also noted that just 5 percent of the UK’s workforce was paid the NLW in 2023. “Taking everything into account, we expect the BoE to press ahead with lower interest rates this summer despite the higher wage floor,” he said.
Real living wage
Distinct from the NLW is the real living wage. Set by the Living Wage Foundation, a charity, at 12 pounds ($15.14) per hour nationally and 13.15 pounds ($16.59) in London, the real living wage is indexed to living expenses. Employers can choose to pay it on a voluntary basis.
In total, 14,000 employers are committed to paying the real living wage. According to Gail Irvine, a policy manager at the Living Wage Foundation, that means there are 3.7 million people – or 13 percent of the UK’s total workforce – paid below 12 pounds per hour.
“The real living wage is about trying to create a fairer society. In Britain, we’ve got a long way to go,” she said. The UK’s Gini coefficient, which measures wage inequality, tallies at 35, near its 2007 peak, higher than any EU country except Latvia and Lithuania.
A Gini score of zero would represent total equality, where income is shared evenly among all households. The higher the score, the greater the income inequality. For context, the UK’s Gini coefficient was 25.3 in 1979.
Away from headline measures, the Equality Trust, a charity, estimated that the top 10 percent of UK earners saw their share of national income rise by 23 percent from 1980-2020. Over the same period, the UK’s total income allocated to the bottom 50 percent fell by 7 percent.
At the highest end of the income spectrum, chief executive pay for FTSE 100 companies, the largest firms on the London Stock Exchange, was 130 times that of their average employee in 2020.
“Clearly, the benefits of national income growth have disproportionately benefitted high earners in recent decades,” said Irvine. “And that’s a big problem, because as most people’s real wages have stagnated or fallen, house prices have gone up.”
She pointed out that, “incomes have risen slower than rent and mortgages for most people, who have to spend more and more on accommodation. The new NLW is welcome, but the lift is too low relative to wider cost pressures, and especially since COVID.”
Last month, Treasury Secretary Hunt hinted that the UK’s next general election will be held in October. Conservatives are currently trailing the opposition Labour Party by 27 percentage points.
Keerthi, the South London shop assistant, will wait to see how the new minimum wage affects her lifestyle before the elections. “If the Conservatives can’t bring down costs, especially rent, I think they’ll be in trouble.”
S&P 500 rises 0.9 percent as major players including Apple and Tesla see gains.
The US stock market has hit a record high after a string of downbeat trading sessions.
All three leading stock indexes rose on Wednesday, ending a three-day lull.
The S&P 500, which tracks the performance of 500 of the largest US companies, finished up 0.9 percent on Wednesday, surpassing last week’s record.
The rise leaves the benchmark index up more than 10 percent so far in 2024.
The Dow Jones Industrial Average and Nasdaq Composite rose 1.22 percent and 0.51 percent, respectively.
Among the big corporate players, Apple and Tesla climbed 2.12 percent and 1.22 percent, respectively, while semiconductor company Nvidia Corp declined 2.5 percent.
Pharmaceutical giant Merck climbed 5 percent after announcing that the US Food and Drug Administration had approved its drug Winrevair to treat pulmonary arterial hypertension.
Cruise line Carnival rose 1 percent after the company raised key earnings and revenue projections and revised its costs downward.
Cintas, an office supplies company, surged 8.2 percent after reporting a better-than-expected profit for the latest quarter.
Trump Media & Technology Group, former US President Donald Trump’s social media company, rose 14.2 percent, continuing its rally after surging 16 percent in its market debut the previous day.
Investors are anticipating the release of key US economic data this week, including updated figures on jobless claims, gross domestic product and consumer sentiment.
In the past few months, the media sector in the United States has gone through one of its worst rounds of layoffs in decades, with some voices within the sector even asking if journalism is a viable career path despite surging subscriptions at publications like The New York Times.
Most recently, outlets like Vice and the sports blog Deadspin were decimated in a massive round of job cuts. Vice ended its online publication, and Deadspin laid off its entire editorial team.
These are the latest in a slew of headcount reductions at countless newsrooms around the US over the past decade at the hands of wealthy owners. The latter overwhelming have the backing of some of the biggest private equity and wealth management firms in the US like Apollo Global Management, Fortress Investment Group and Alden Capital, to name a few. These institutions are also called shadow banks.
A surge in private equity investments in media, experts said, has led to decisions that benefit investors but not always the companies and their employees, similar to the 2008 housing crisis and private equity’s ability to flourish during that time.
While the media business is in the spotlight now, it is a microcosm of a bigger challenge across the US economy. What makes it stand out is that it’s been a long and high-profile battle.
One such moment came with tech’s control (overwhelmingly led by Meta, then Facebook) in 2018 over audience traffic, which made newspapers, magazines and news portals beholden to the algorithmic choices of social media giants like Facebook and Twitter, which ultimately hurt the sector.
That was an optimal entry point for private equity to get a stronger foothold in the media business.
“Media companies were struggling at the time but not nearly enough as the journalism community was led to believe,” explained Margot Susca, the author of How Private Investment Funds Helped Destroy American Newspapers and Undermine Democracy.
“Funds use these market conditions to justify the gutting of these American institutions,” said Susca, who is also a professor of journalism at American University in Washington, DC.
‘Liquidating the entire industry for profit’
Like in the housing market, financial institutions capitalised on someone else’s misfortune to make money from it. In the 2008 recession, it was lenders and big investment banks ranging from Lehman Brothers to Washington Mutual, a move that ultimately led to their collapse.
The key is real estate. In the housing crisis, banks seized foreclosed homes for pennies on the dollar after homeowners defaulted on subprime mortgages.
In the case of the media sector, shadow banks are going after physical newsrooms and selling them. For instance, in 2018, Gannett sold the headquarters of the Asheville Citizen Times to Twenty Lakes Holdings, a real-estate affiliate of Alden Capital. Gannett sold the building for $3.2m. Alden then sold it to developers for $5.3m.
A comparable move happened at Vice last year. Only months after Fortress Investment Group acquired the publication, it left its office in Brooklyn, New York.
There’s a lot of real estate at shadow banks’ disposal. Private equity, hedge funds and other comparable firms control roughly half of all daily newspapers in the US.
“The problem with the news media sector is not its viability. The problem with the news media sector are these locust funds that are liquidating the entire industry for profit,” Susca said.
But where do shadow banks go once physical assets like real estate have been liquidated?
They squeeze out revenue where they can for as long as they can. That often means cutting staff.
G/O Media, formerly known as Gizmodo Media Group, sold off Deadspin, its sports blog. The new owner, Lineup Publishing, said it would not bring over any existing editorial staffers even though it aimed to “be reverential to Deadspin’s unique voice”, G/O CEO Jim Spanfeller said in an email to employees.
Great Hill Partners acquired the media brand in 2019 and drastically shifted Deadspin’s editorial vision. The publication was a sports-centric one that also housed vibrant cultural commentary on a variety of topics. At the direction of the new owner, the publication was directed to “stick to sports”. The announcement led to mass resignations.
This week, G/O Media sold two more publications from its portfolio — The AV Club and The Takeout.
G/O is not in a financially dire position, according to Spanfeller, who told Axios this year, “We’re not strapped for cash.”
Unionised staff at US publishing company Conde Nast walk the picket line during a 24-hour walkout amid layoff announcements in New York City in January [File: Angela Weiss/AFP]
According to the Writers Guild of America East, which includes various unions representing editorial staff from multiple media firms, Great Hill Partners made an estimated $44m in revenue in 2023. The guild suggests that Great Hill Partners has enough money to make decisions that do not undermine the financial security of its staffers.
When Spanfeller was appointed in 2019, the private equity firm said he was a significant investor in the company but did not disclose the specifics of the financial agreement. Spanfeller’s appointment came directly from the firm suggesting that it intended to oversee day-to-day editorial operations across G/O’s portfolio.
Great Hill Partners did not respond to Al Jazeera’s request for comment.
G/O is the latest in a string of companies laying off workers in the last few months alone.
Last month, Engadget, a brand owned by Yahoo, had a series of layoffs including of high-profile editors. It came amid a reported refocus on traffic growth. But how can you drive more traffic with high-quality reporting with fewer people to make the product?
Meanwhile, Apollo Global Management, which now owns Yahoo, is doing very well. The asset management firm’s stock is up nearly 250 percent over a roughly five-year period – 80 percent this past year alone. The firm acquired Yahoo in 2021 and also has a significant stake in several other large media companies, including Gannett, which owns hundreds of newspapers around the US, including USA Today, the fifth largest. In 2019, Apollo provided $1.8bn to finance the acquisition of the newspaper giant and merge it with GateHouse Media.
‘Layoffs were the core strategy’
Once Gannett’s acquisition of GateHouse was complete, it scrapped hundreds of jobs immediately. In 2022, the newspaper group slashed roughly 600 more jobs in two rounds of cuts in August and November.
Apollo also acquired both Northwest Broadcasting and Cox Media Group, which included 54 radio stations, and 33 TV stations.
“After funds became owners, layoffs were the core strategy to try to maximise revenue. [These are] firms that just had profit as the sole motivation,” Susca said. “Layoffs are the stark reality of hedge fund ownership and private equity investment.”
Historically, private equity firm involvement has led to layoffs – an average of 4.4 percent of job losses in two years as well as a 1.7 percent decrease in pay, according to a study from the University of Chicago.
That is what happened at Cox Media Group. Almost immediately after its acquisition, talent from local TV and radio stations across the country was laid off.
Apollo Management did not respond to Al Jazeera’s request for comment.
New York-based Alden Capital operates a similar job-cutting strategy and is one of the most infamous hedge funds in the sector for decimating a number of newspapers around the country.
In 2020, Vanity Fair referred to the firm as the “grim reaper of American newspapers”.
Vanity Fair’s stern critique is because of the massive slate of layoffs at the papers Alden Capital owns, including the Denver Post, even as one of the company’s executives said “advertising revenue has been significantly better”, according to reporting from Bloomberg in 2018.
Alden bought Tribune Publishing and gutted many of its newsrooms. At the time, Tribune was profitable, but Alden still moved forward to strip down its papers to make more profits.
Alden often pushed to beef up subscriptions even after shedding physical assets like office space and social assets like its people, which, Tim Franklin, senior associate dean at Northwestern University Medill School of Journalism, suggests is a losing strategy.
“It’s like charging for 16 ounces of Coca-Cola and putting it in a 12-ounce bottle. You’re giving people less and then expecting people to pay. The problem is that you end up in this doom loop. You’re getting less digital subscription revenue because you are providing less content, so then you make cuts and then you see even less revenue and you make more cuts. It’s this never-ending cycle of rinse and repeat,” Franklin said.
Alden Capital did not respond to Al Jazeera’s request for comment.
Doomed to failure
Shadow banks and big banks have made risky investments and hoped they would work out financially.
They sold the idea that someone could very well make payments on a subprime mortgage. Now, the idea is that a media company can create quality reporting on a shoestring budget and a fraction of its headcount. But those are unrealistic expectations and doomed for failure.
During the 2008 housing crisis, big banks essentially created an insurance plan for themselves: sell the debt and make money off the interest. Now private equity is employing a comparable strategy for media.
In the housing crisis, the banks bundled the mortgage loans in a package and sold them to the bond market to random investors. The banks had protections. If a lender defaults, they sell the debt on the secondary market for a profit. The strategy was to bet on the homeowners who were most likely not going to be able to afford the mortgage payments. But ultimately, that backfired, and the resultant housing crisis has been well documented.
“The only people there [who] were able to buy homes at the point could do so with cash or with Wall Street financing because that cash was still flowing,” said Aaron Glantz, author of Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream.
“Private equity is not depending on that credit system,” Glatz added.
NBC and MSNBC laid off employees [File: Justin Lane/EPA]
In either situation, the protections afforded investors were not passed down to homeowners in 2008 or writers, editors, on-air talent and others in the media industry now.
While some savings and lending banks failed and were the recipients of massive bailouts, shadow banks flourished. Generally speaking, these companies make money during times of economic vulnerability, leading to an even more challenging situation for average people.
In the wake of the 2008 financial crisis, funds were largely criticised for buying up distressed housing across New York City and forcing out longtime residents – a move that brought rent-stabilised properties to market rate, which ultimately allowed them to drive up prices on their buildings and raise the value of the buildings around them.
“They’re reliant on cash that is just sitting around ready to be spent or credit lines that they can get from banks like JPMorgan Chase or they can leverage other assets. They own so many other assets,” Glatz said.
One of those assets over the past decade is a growing number of media companies.
But even then, it poses the question: If all these media companies are struggling, why are their executives so wealthy?
Behind a number of these mass layoffs are uber-wealthy executives. That’s the case for Business Insider, The Washington Post and Vice, just to name a few.
In January, Business Insider, owned by the German media giant Axel Springer, laid off 8 percent of its workforce. Axel Springer, however, is doing well financially. Its CEO, Mathias Doepfner, has a net worth of $1.2bn.
Executives on both the editorial and business side at the short-lived outlet The Messenger raked in close to million-dollar salaries. Meanwhile, editorial staffers launched a crowdfunding campaign to make ends meet because the outlet did not give them any severance packages.
NBC and MSNBC laid off 75 people this year. Brian Roberts, the CEO of NBC’s parent company, Comcast, raked in more than $32m in 2022.
Despite the recent layoffs, the network hired former Republican National Committee Chairwoman Ronna McDaniel as a contributor. Hiring McDaniel was met with swift backlash from high-profile talent across the news organisation and the NBC News Guild, the union representing journalists across the network.
The union in particular pointed out that McDaniel – who was known for helping to enable former President Donald Trump’s baseless claims that the 2020 presidential election was rigged – was hired after the company laid off more than a dozen unionised journalists. Amid the backlash, NBC cut its ties with McDaniel.
NBC is just the latest major network to make job cuts. At CBS, despite its high viewership during American football’s Super Bowl, parent company Paramount laid off staffers the following day at CBS News. Meanwhile, CEO Bob Bakish made $32m in 2022.
In November, Conde Nast laid off 5 percent of its workforce. The Newhouse family, which leads Advance Publications, the parent company of the magazine giant, has a net worth of $24.1bn, according to Forbes.
Vice Media, which was once valued at close to $6bn, has since filed for bankruptcy and ended publishing on its website [File: Eric Thayer/Getty Images/AFP]
In recent weeks, Vice laid off hundreds of employees and ended publishing on its website. It has been plagued with a nearly endless series of layoffs in the past few years. Prior to filing for Chapter 11 bankruptcy last year, the media company paid its executives roughly $11m – even though its executives were notoriously known for mismanagement.
Yet they were bailed out. Amid the Chapter 11 filing, Fortress Investment Group acquired Vice – a company that was once valued at $5.7bn – for $225m. Executives left with hefty paycheques while staffers were left jobless with little notice.
Fortress did not respond to Al Jazeera’s request for comment.
The Washington Post eliminated 240 jobs, yet it is owned by Jeff Bezos, the founder of Amazon, who is worth more than $200bn, according to the Bloomberg Billionaires Index, making him the second-richest person in the world.
In 2021, Brown, alongside Senators Tammy Baldwin and Elizabeth Warren, introduced the Stop Wall Street Looting Act, which would have reformed the private equity industry.
The bill never made it past committee, so it never had a vote in the full Senate.
Experts believe that Washington has not done nearly enough to curb the power of private equity.
“You have a government system, a regulatory, legislative system that has basically failed at every turn to stop the growth of these hedge funds,” Susca said. “And private equity firms in the journalism market, to me, is an institutional failure.”
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies.
This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
Cookie
Duration
Description
cookielawinfo-checkbox-analytics
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checkbox-functional
11 months
The cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checkbox-necessary
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-others
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-performance
11 months
This cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy
11 months
The cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
