Safety Net Protects Canadian Automakers From Possible Retaliatory US Tariffs

Canadian suppliers worried about retaliatory tariffs from the U.S. can breathe a sigh of relief, at least those working in the automotive industry. Tariffs on U.S. steel imports have raised costs across the sector; however, according to Reuters, Canadian government customs provisions are in place that could “reduce or refund import duties” to companies in the country as long as suppliers use the material in export products.

Following the U.S. administration’s decision in June to impose steel and aluminum tariffs on our neighbors to the north, Canada retaliated with its own tariffs on $12.8 billion worth of U.S. goods. On July 16, Reuters reported Canadian automotive supply contracts for raw materials and parts fall under these programs, which stand to help those operating in the country, including General Motors, Ford, Fiat Chrysler, Toyota and Honda.

Trade Lawyer Jesse Goldman, of Borden Ladner Gervais, said in the article that retaliation would “very significantly and very quickly” hurt Canada’s automotive sector.

“Some 85% of vehicles built in Canada in 2016 were exported,” the article added, “meaning duty relief programs could refund roughly 85% of retaliatory tariffs paid by automakers.” The only concern standing in the way of such benefits is the possibility of additional U.S. tariffs on Canadian-made vehicles because the rebate programs do not cover finished products.

To apply, a company must submit an individual application that details how it uses its imports, John Boscariol, of McCarthy Tetrault’s international trade and investment law group, told Reuters.

-Andrew Michaels, editorial associate

US Import Prices Down, Not Sustainable for Future


The price of U.S. imports saw the largest drop in two years as of June—but this drop is not likely to last after tariffs on foreign goods are imposed.

Import prices jumped by 0.9% in May, while June saw a sharp decrease of 0.4%, a dip that comes close only to the drop in February 2016, according to the Labor Department. Imported food saw a significant fall, coming in at a 2.6% decrease. The last time food fell this low was in February 2012. Petroleum also shook the market, falling 0.8% after a sharp 7.4% increase in May. Crude oil prices in general dropped in June as well.

However, these drops are not sustainable, according to a recent article in Reuters. The current presidential administration has imposed tariffs on imported lumber, steel and aluminum, which will inevitably raise the prices for July. The U.S. government has also called for 25% duties on $34 billion of Chinese imports. Previously, the president threatened 10% tariffs on $200 billion of Chinese goods.

“Odds are that the tariffs will begin to boost import prices,” said Ryan Sweet, a senior economist at Moody’s Analytics in West Chester, Pennsylvania, in an interview with Reuters. “The inflationary impact of the steel and aluminum tariffs has been modest, partly because a number of countries initially were exempt, but that has changed.”

—Christie Citranglo, editorial associate

‘Imminent, Serious’ Inflation on the Horizon

Inflation is becoming increasingly problematic for U.S. producers. Unanticipated gains in June’s Producer Price Index (PPI), released July 11, have economists predicting rising costs for manufacturing and construction material in connection to the U.S. administration’s tariffs on various imports.


According to Reuters, the PPI reached an annual increase of 3.4% in June after last month’s 0.3% gain, becoming the most substantial annual increase since the 3.1% seen in November 2011. Economists predicted the PPI would increase 0.2%. As previously reported by news outlets, the Federal Reserve is still expected to increase interests rates twice before the end of 2018.


U.S. tariffs have caught the attention of China, the European Union, Canada and Mexico, all of which have retaliated with their own tariffs in recent months. President Donald Trump’s 25% tariffs on $34 billion of Chinese imports, and threats of more, is creating tight times for U.S. manufacturing and construction due to significant price increases in steel, aluminum and softwood lumber as well as iron and steel mill products.


“Since the PPI covers the price of domestically produced goods, these gains represent U.S. producers raising prices behind the tariff wall or the impact of higher input costs,” Chief Economist John Ryding, of New York-based RDQ Economics, said in the Reuters article. “We expect these price pressures will flow through into higher core inflation at the consumer level as the year unfolds.”


NACM Economist Chris Kuehl, Ph.D., suggested the low inflation seen in the past decade might soon come to an end due in part to the rising prices of commodities and key services. The U.S. government’s tariffs are making this threat “more imminent and serious,” he noted.


“The tariffs on steel and aluminum triggered the metal producers to boost prices by around 40%,” Kuehl said. “The threats of a trade war have further added to the problem as this will make imports costlier. The full impact of this move has not yet been felt, but those days are coming and soon.”


-Andrew Michaels, editorial associate

Survey Shows Tax Reform Likely Will Not Increase Spending

Even with a tax reform passed by the Trump administration, corporate spending will likely not see an increase, according to a report from the Association for Financial Professionals (AFP). Forty percent of the 640 corporate treasury and finance executives surveyed do not expect their spending to change in the near future.

 

Even though 60% said they will increase spending, this spending comes in the form of paying down debt and pulling foreign cash back into the U.S., not buying more goods. AFP President and Chief Executive Officer Jim Kaitz said in a statement these companies are acting cautiously with their money, waiting for the right moment to spend the saved money.

 

Conversely, State Street Global Advisors’ Senior Managing Director and Global Head of Cash Business Yeng Felipe Butler said in a separate statement businesses are holding off on spending because of rising fears surrounding the U.S. economy’s growth.

 

A majority of the survey respondents—59%— do not anticipate seeing changes in short-term investments for their firms; only 10% anticipated a change. The findings in this survey match that of another survey by AFP released in May, titled Corporate Cash Indicators Report.

 

—Christie Citranglo, editorial associate

NACM's Graduate School of Credit and Financial Management Kicks Off

NACM's Graduate School of Credit and Financial Management (GSCFM) is underway, with first- and second-year students diving into intensive courses. Instructors Wanda Borges, Esq.; Susan Fee, M.Ed. L.P.C.; Charles Mulford, Ph.D., CPA; and William J. Russell, JD, kicked off the first three days of classes.

During the demanding, 10-day-long program, students participate in advanced-level, executive education courses. The credit professionals in these courses enhance their knowledge of the industry, polishing skills—directly and indirectly related to credit.

Mulford's Financial Reporting and Analysis tackles financial statements in the realm of making credit decisions, crunching numbers and digesting the challenges within data. Borges, taking on the legal side, approaches commercial litigation and creditor's rights in bankruptcies. And, between the complexities of financial analysis, instructors Fee and Russell teach just outside of the realm of credit, educating students on public speaking and negotiating, respectively.

"I've learned a lot. Charles is smart, and he's been able to break down these complex topics beautifully," said Nicole Leier, CICP, lead credit and collections analyst for Twitter and first-year student at GSCFM. "Just three days in, and I know I've already taken away so many new and helpful skills."

—Christie Citranglo, editorial associate

Dated Payroll Tech Hinders Key Performance Indicators

Tracking key performance indicators (KPI) can give credit managers an idea of how business is doing and provide guidelines for improvement. However, analyses are only as good as the tools used to complete them, and according to a new joint survey, using dated technology will hinder performance. Nearly 1,000 professionals across several industries participated in the survey. 

On May 21, the American Payroll Association and payment software company Kronos released the Evolution of Payroll Technology Survey that found one-third of employers from small-, mid- and enterprise-sized organizations (SMEs) use decade-old payment technology. Instead, only 11% of respondents said they use “modern solutions” released within the last year. 

“[Some companies’ current technology] was deployed around the same time the world was being introduced to Apple’s iPhone for the very first time in 2007,” the study noted. “The findings suggest outdated, manual processes and legacy payroll solutions limit a payroll department’s ability to track and report KPIs and hinder their ability to keep up with today’s speed of modern business.” 

Respondents from companies that track KPIs reported that up-to-date technology is equipped to measure crucial business elements, including the impact of manual/voided/stopped payments, payment errors as a percent of total payroll payments as well as total processing time per pay cycle. However, payroll professionals are looking toward the future and sharing what they expect from the “next solution.

 The majority of respondents said they seek on-demand reporting and analytics (87%), followed by seamless integration with time and labor management to improve data quality (81%). The ability to track multiple worker classifications, such as seasonal and temporary employees, was also on 76% of respondents’ wish list. 

“Organizations that proactively invest in new payroll tools that deliver in-depth analytics and an engaging employee experience will unlock yet another door for improved performance,” Kronos’ Payroll Practice Group Senior Director Malysa O’Connor said in a press release.

-Andrew Michaels, editorial associate

US Small Businesses Expect Revenue Growth, More Hiring in 2018

Access to financing hasn’t been a problem for small businesses in the U.S., according to a Federal Reserve annual survey, which found 72% of respondents expecting revenue growth this year. Results of the online questionnaire were released on May 22 with responses from nearly 8,200 companies during the latter half of 2017.

On Tuesday, Reuters reported the survey’s findings of increased profitability and confidence among the country’s small businesses in 2017 as well as easier access to financing. In addition to revenue growth, more businesses also anticipate hiring more employees in 2018 compared to last year’s survey. There was a slight decline in firms that wanted to expand.

“Fewer firms felt the need to seek outside financing, with only 40% looking for outside funding, down from 45% last year,” Reuters noted. “Of the 64% of small businesses that reported trouble paying operating costs, buying inventory or making debt payments, two-thirds relied on an owner or investor’s personal funds.”

The survey concluded that the majority of struggling firms were those with less than $100,000 in revenue—these were the same firms that chose not to apply for a loan or other credit for fear of being turned down. However, financing was approved for 46% of firms that applied, up 6% from the previous survey.

-Andrew Michaels, editorial associate

US Rate Hikes Could Impact Asia-Pacific Banks

U.S. economists tend to keep their ears to the ground when the Fed hints at foreseeable rate hikes, but the country’s latest monetary tightening outlook is also catching the attention of Asia-Pacific banks that could face repercussions in foreign funding. On May 17, Fitch Ratings stated it anticipates the Fed fund rate to reach 3.25% by the end of 2019—a possibility that could make Asia-Pacific banks “more vulnerable.”

According to the Fitch report, banks in the Asia-Pacific region have managed to handle U.S. rate hikes in the past, notably when the rate increased substantially from 1% to 5.25% between 2004 and 2006. However, there’s higher market dependence this time around, which could affect the feedthrough to Asia-Pacific banks in regards to U.S. dollar interest rates, foreign-exchange movements and local interest rates.

“Most banking systems have some vulnerability to market risk, although those appear to be limited” to financial centers in Hong Kong, Singapore, Mongolia and Sri Lanka, Fitch noted. “Higher U.S. rates could also feed through to local interest rate rises, which would most likely affect credit risks in most markets,” including China, Vietnam and India.

Back on the home front, NACM Economist Chris Kuehl, Ph.D., said the Fed’s May minutes weren’t particularly controversial, seemingly arriving at a consensus that there will be two more rate hikes this year, likely in June and September.

“There is less certainty about what happens next because there are some who are advocating for a slow pace and others who think a December hike should be on the table,” Kuehl said. “Most also agree that rates will continue to rise into 2019 at about the same pace as this year.”

-Andrew Michaels, editorial associate

Agile Businesses See Benefits From Tech Adoption

Keeping up with today’s technological advancements isn’t an easy feat, especially in the workplace where new tech requires a new routine. As small businesses learn to adapt, a new study found that outside pressure to become technologically savvy may do more harm than good.

In a collaborative global study, growth partnership company Frost & Sullivan and software company Pegasystems released Why Business Agility Matters in May, questioning small businesses’ readiness to incorporate technology, such as advanced software or IT collaboration, into their work environment. The study, conducted in August 2017, surveyed about 440 senior executives in several fields, including financial services and insurance, telecommunications and high technology, public sector and government, and retail. More than half of the respondents worked for companies with revenue under $500 million.

Respondents were filed into three categories: adopters, planners and nonadopters. The survey defined adopters as businesses that embraced agility, while planners worked toward business agility and nonadopters had no plans to do so. Agile businesses—those that welcomed technology voluntarily—experienced more customer satisfaction, product quality and business and IT collaboration.

“Over 80% of strategic adopters rate overall customer satisfaction and quality of customer experience higher than their industry counterparts,” the study stated. “This group is also empowered to maintain competitive advantage in their industry with the speedy launch of new products, services and innovation.”

Readiness, speed, transparency, dynamism and aversion were key traits of agile businesses. When businesses lack executive sponsorship or have insufficient support, the likelihood of becoming agile is quite slim, respondents noted. A lack of experience and cost-to-reward ratio were also linked to nonadopters.

-Andrew Michaels, editorial associate

Mexican Corporates Credit Implications Depend on NAFTA Outcome

Amid the ongoing North American Free Trade Agreement (NAFTA) negotiations, Mexican corporates are finding ways to adapt to the current economic climate. So far, credit impacts are minimal but could take a negative turn if NAFTA talks end with its discontinuation.

According to a Fitch Ratings report on May 16, corporates have spent the past decade distributing capital through acquisitions—an effort that protects their credit quality and proved effective last year. NAFTA negotiations began in 2017 at a time when borrowing was “robust” but “competitive” in Mexico. If NAFTA dwindles, Fitch said, the sectors most at risk are retail, real estate, transportation and energy.

“The effect on individual issuers, however, will vary on factors, including what portion of their production facilities are overseas, particularly those that are in the U.S., and the effectiveness of their debt and cash flow currency hedging,” Fitch noted.

NACM Economist Chris Kuehl, Ph.D., said some kind of NAFTA deal is close, citing four possible outcomes for the agreement between the U.S., Canada and Mexico. The first “quick but partial” option would focus on the automotive sector, while the second option would include extending the deadline beyond May 17 into late summer. Kuehl described the third option as a continuation of “hyperbole and drama.”

A “total rewrite” is yet another option but probably the least likely since it’s not supported by Canada or Mexico, he said.

“It has been the stated goal of the Trump administration that a new deal be in place by the end of the year and there needs to be time for Congress to get in the game,” Kuehl said. “The odds right now seem to favor option two, with the assertion that deals on automotive and agriculture be promulgated.”

-Andrew Michaels, editorial associate