Walmart acquiring Shopify is no longer a laughable idea

As competition between Walmart and Amazon intensifies, the acquisition of Shopify’s merchant marketplace, may be the boost that the Walton family’s juggernaut needs to move ahead.

In May this year, Amazon published its small business impact report in which it disclosed that there are 20,000 small and medium sized businesses that make a million dollars or more in sales on its platform

Amazon boasts about 5 million third-party sellers on its marketplace today, with an estimated 100,000 sellers hopping onboard every month.

At 100,000 sellers a month over the next 5 years, there could be an estimated 11 Million sellers on Amazon’s marketplace by 2023.

E-commerce intelligence firm Marketplace Pulse estimates Amazon’s Gross Merchandise Volume or GMV for 2018 at $280B, set to triple over a 5-year period, concluding that the marketplace contribution to Amazon’s GMV would surpass 70% by 2023.

Combined with Prime and FBA, this high-level picture sounds like Amazon can afford to not worry about its marketplace. But an uneasy trend seems to simmer within its 5 million cohort. Looking at Feedvisor’s survey of Amazon marketplace merchants from 2017 and 2018 and some interesting trends surface. 

Marketplace merchants are looking to keep their advertising costs low and are worried about rising fees one the Seattle-based company’s e-commerce platform. They’re also concerned about competition coming from Amazon as it continues to launch its own brands. Indeed, 60% of merchants told Feedvisor in 2017 that they planned to diversify to other channels. Walmart emerged as the most preferred channel, followed very closely by Shopify and eBay. 

About 10% of those surveyed in 2017 was making a million dollars or more in annual sales. A year on, this figure is up by 90% to 19%. One can tell where these first-time millionaires are heading when we see that Walmart today supports 9% more Amazon merchants than it did in 2017.

In its pursuit for parity with Amazon, Walmart has clearly overtaken eBay in merchant preference. The latter supports 12% fewer Amazon merchants today than it did in 2017 and is closely trailed by Shopify and Jet.com.

Shopify is one of Canada’s biggest tech success stories.

Can Walmart afford to be conservative?

Walmart’s marketplace has 18,000 sellers, 36% of whom make at least $2 Million in sales – all of whom sell on Amazon!

With its e-commerce business struggling to see gains since 2016 when it acquired Jet.com, Walmart has recently been making the waves with its string of partnerships and acquisitions. In May, it announced that it was partnering with Postmates and Doordash for expanding its last mile delivery of online grocery.

In what seemed to be a rebuttal to Amazon’s private label push, Walmart acquired Bonobos, Shoebuy, Modcloth, and Moosejaw. It also announced in May that it was adding 4 fashion brands to its kitty.

While it continues to be hard-fisted about who sells on its marketplace, a trend seems to be emerging wherein Walmart is not just competing with Amazon but is also striving to bring reputed retail brands under its banner and attempting to re-shape consumer perception of it being low-price and inexpensive.

Walmart may be second in line to Amazon but it has its cons. Its process to qualify a third-party seller is more stringent. Sellers need to request an invitation to join and must fulfill certain quality requirements pertaining to product mix, price point, and fulfillment.

Unable to differentiate among millions of sellers on Amazon and faced with rigorous screening from Walmart, the best bet for Amazon’s third-party sellers to diversify seems to be to set up their own store.

They can either create their own website or set up a store on an e-commerce platform like Magento or Shopify .

Shopify – The network is bigger than the software

Shopify, the e-commerce platform for small and medium-sized businesses isn’t too far behind eBay and Walmart in merchant preference.

A seller can set up her own store on Shopify’s basic version for as little as $29 a month. It also has a premium version for a $2000 monthly fee called Shopify Plus aimed at Enterprise-level sellers and wholesalers. An estimated 3600 merchants have already bought into Shopify Plus and among them are popular logos such as Tesla, Kylie Cosmetics, and Budweiser.

Shopify has an estimated 600,000 merchants on its e-commerce platform and has seen its merchant base grow annually in excess of 100% since 2014.

What particularly makes Shopify attractive – and gives it an upper hand over marketplaces like Walmart – is its third-party network of developers, photographers, digital marketers and designers that merchants can leverage for their business. Shopify today is a more turnkey platform than Walmart! Of all digital commerce revenues in 2017 – totaling $2.3 trillion, Shopify sellers’ GMV was 1% worth $26 billion, which shows just how important Shopify is next to Walmart.

Analysts are betting big for the next 10 years despite its recent volatility in stock price.

Around the same time when Amazon published its small business impact report, Shopify announced that it would open a brick-and-mortar store in the US by the end of summer this year to provide in-person advice and consulting services to its customers.

Such a showroom would also provide Shopify the opportunity to cross-sell its hardware products to merchants who are looking to go brick-and-mortar.

For these reasons, Shopify will continue to attract more merchants and will become more important in the days to come and as it does, it will get noticed by the big players – Amazon & Walmart.

Shopify and Amazon share history

Shopify partnered with Amazon in 2015 as its preferred migration partner for webstore merchants. Many Shopify merchants already sell on Amazon; they have the option to use Amazon’s FBA and Payment gateway. And more than 50% of Shopify’s 3600 odd ‘Plus’ merchants sell on Amazon as opposed to less than 1% who sell on Walmart.

Clearly, the preference for Walmart.com is abysmal among Shopify merchants.

At a market cap of $17B, Shopify can be acquired by Amazon without much hassle. While this may not be on Amazon’s cards considering the call it took 4 years ago to shut its webstore business and the ease with which it gets inbound interest from the long tail e-commerce companies (which forms 90% of the independent e-commerce companies base), Walmart should start figuring in Shopify into its strategic plans.

When your competition is Amazon, nothing is enough

In its SEC filings for the fiscal year ended January 2018, Walmart said that it is looking to increase investments in grocery and technology. Much of Walmart’s moves in these spaces continue to come across as reactive responses to Amazon.

  • Recently, in its overseas battle against Amazon, Walmart acquired a 77% stake in India’s ‘Flipkart’ for $16B.
  • In what could be seen as a long overdue answer to AWS, it revealed its own cloud network
  • It has also kickstarted efforts to take on Amazon Go. With FBA and Prime seeming invincible, Walmart will never be able to catch up to the giant. But, it can prove to be a serious rival if it decides to acquire Shopify.

(Photo by Joe Raedle/Getty Images)

Why Shopify?

The non-Amazon destination

Today, eBay has more Amazon merchants on its platform than Walmart does. However, Walmart is picking up pace and is evidently becoming more attractive.

Between 2017 and 2018, the percentage of Amazon sellers on eBay reduced from 65% to 52%. At the same time, Walmart and Jet.com combined saw an increase from 17% to 25%.

Given 2018’s stats, if Shopify were to become Walmart-owned, about 42% of Amazon’s sellers today, would be selling via either Walmart, Jet or Shopify. This would bring the difference between eBay and Walmart (Jet & Shopify included) down to 10%, in turn narrowing the competition gap between Walmart and Amazon.

Interestingly, there were rumors in 2017 that eBay was planning to acquire Shopify. The stocks reacted positively but there were no signs that eBay was interested in such an acquisition.

The perfect complement

The fundamental difference between Walmart and Shopify is that the former is a marketplace while the latter is an e-commerce platform.

It is hard for a seller with no distinct brand identity to differentiate herself on a marketplace unlike on a platform. As revenue channels, they are both necessary for a merchant’s omnichannel strategy.

While Amazon will rule the roost in the marketplace arena for a long time to come, merchants should start betting on Shopify. This acquisition will be an opportunity for Walmart to write its story in a market that Amazon tried and quit.

Shopify does not get you shoppers and Walmart does not get you the support services. As a combined entity, their value proposition becomes very compelling.

The apparent weakness is an actual strength

Shopify is not without faults. As with all e-commerce platforms, the majority of their e-commerce merchants are long-tail with little to no revenue. But critics including Andrew Left of Citron Research fail to understand that long-tail is sort of a deal pipeline to identify sellers who are likely to grow and contribute significantly to the revenue.

A study of Shopify’s marketplace will validate their claim that the merchants are there for the value of a ‘one-stop platform and extended services’ and not just for Facebook data of their shoppers.

As Brian Stoffel put it in his article, “The moat is strong and growing, even as recent protests have tested the company”.

Shopify’s long-tail merchant base isn’t a weakness. It’s the pipeline that Walmart should value. It could be Walmart’s answer to Amazon’s merchant acquisition spree.

The neighborhood store is actually a Shopify Store

Shopify is an e-commerce platform provider but that’s no reason to dismiss it as a competitive threat to Walmart. Both target merchants and both are focused on making them sell online albeit differently.

Walmart handpicks merchants. Shopify doesn’t.

Walmart is a legacy brand and has a perception problem in the market. Shopify is a born millennial, like Jet.

Walmart is competing with Amazon on multiple fronts. Amazon closed its webstore business and switched to an integration with Shopify!

Walmart has no equivalent to FBA. Shopify’s merchants can opt to have their merchandise fulfilled by Amazon.

Brett Andress of KeyBanc Capital Markets drives home the importance of Shopify – “Emerging brands on Shopify are getting larger, and more established brands are gravitating to Shopify to be more nimble”.

While Walmart continues to shop for private label brands in a bid to throw a new spin on its brand identity, it needs to look a few yards away. There are 600,000 of them. Either Walmart could hope for them to come list on its marketplace someday or make itself the very technology that powers their business.

Shopify is known for its ability to attract e-commerce merchants. Its tools – like the name generator, domain name generator, to name a few – are subtle retention hacks to get intending sellers hooked onto its platform. Should a seller decide to sell her business, Shopify has an exchange on which she can list her store for sale. On the partner front, developers, marketers, designers have helped create many success stories, while writing their own. Overall, it seems like the stickiness is here to stay.

With e-Commerce still 12% of global retail trade and with an expected growth rate of 47% over the next 3 years, Shopify is well positioned to capture a lot of the e-commerce upside. The neighborhood grocer is now more likely to open on Shopify or sell on Amazon than at the neighborhood. This is also why it makes sense for Walmart to acquire one of the two default portals of entry into e-commerce.

To compete with Amazon, it needs to make moves that shift the ground beneath the foot and Shopify acquisition could be one of those bets still open.

Can Walmart afford it?

The retail analysts’ consensus is that Walmart needs to expand its e-commerce base, as the default for the younger demographic shopper is still Amazon. Walmart’s marketplace strategy, so far, hasn’t been about becoming that default.

Shopify is a credible option to expand its e-commerce base. Shopify was recently chided by activist investors like Andrew Left for being over-reliant on the top 10% of the merchant base.

There are about 4500 e-commerce companies with 100M+ revenue out there and Shopify’s entry into the enterprise commerce market is a reactionary response to the inherent weakness in its own business model (of over-reliance on mid-market and longtail e-commerce companies). The problem for Shopify and to an equal extent Magento, BigCommerce, WooCommerce, and PrestaShop is that the enterprise e-commerce is the territory of Hybris, Demandware, NetSuite etc.

The tough phase for Shopify would be when its mid-market cash cow customers migrate to Hybris or WebSphere or Demandware. It has to backfill from its growing long tail unless it competes head-on with IBM, Adobe, Oracle NetSuite, Demandware or Hybris. This is one of the reasons Magento aligned with Adobe.

The problem for Walmart in making this acquisition though is Wall Street’s view that it’s a mature business with steady returns. Amazon, on the other hand, continues to treat e-commerce as a business which is in its Day 1.

You could observe the pressures Walmart has had in the past. It took Walmart over 2 years to finally pull the lever on the Flipkart deal, which is going to drain billions from its cash reserves (notwithstanding the revolving credit of $5B it has raised to fund the deal).

With the current market cap of $17B, Shopify isn’t pocket change. But for reasons mentioned above, Shopify’s growth will be tested. Expanding GMV of existing merchants is easier than conquering the enterprise market, especially if it aligns with Walmart.

Walmart’s cash reserves are under $10B making it a relatively expensive pursuit likely needing a leveraged buyout and the market isn’t new to such deals. Amazon, on the other hand, has $265B to deploy, but it’s a buy that it doesn’t need. And that sums up Walmart’s predicament as a challenger to Amazon.

‘I’m not thrilled’: Trump blasts Fed’s rate hikes, trespassing on central bank’s independence

President Donald Trump criticized the Federal Reserve’s interest-rate increases, breaking with more than two decades of White House tradition of avoiding comments on monetary policy out of respect for the independence of the U.S. central bank.

“I’m not thrilled” the Fed is raising borrowing costs and potentially slowing the economy, he said in an interview with CNBC broadcast Thursday. “I don’t like all of this work that we’re putting into the economy and then I see rates going up.”

The dollar relinquished gains from earlier in the day and Treasury yields dropped following the president’s remarks.

The Fed has raised interest rates five times since Trump took office in January 2017, with two of those coming this year under Chairman Jerome Powell, the president’s pick to replace Janet Yellen. In the interview, Trump called Powell a “very good man.”

Powell addressed Congress earlier this week and told lawmakers that “for now — the best way forward is to keep gradually raising the federal funds rate.” Fed officials have penciled in two more hikes this year.

Fed spokeswoman Michelle Smith declined to comment. Powell last week told American Public Media’s “Marketplace” program that the Fed has “a long tradition here of conducting policy in a particular way, and that way is independent of all political concerns.”

It wasn’t the first time in history the Fed has faced pressure from a U.S. president. But the past three administrations under Bill Clinton, George W. Bush and Barack Obama have refrained from publicly commenting on policy decisions.

Erdogan’s Pressure

Most developed-world central banks are given a degree of independence from governments so monetary policy doesn’t succumb to the whims of politicians. In emerging markets such as Turkey, the government of President Recep Tayyip Erdogan has felt no such restraint.

It’s long been speculated that the taboo of commenting on U.S. monetary policy could change under Trump, who slammed the Fed during his election campaign and has demonstrated repeatedly his willingness to flout the conventions and sensibilities of establishment Washington.

While it’s been many years, the White House has also been known to exert other forms of pressure. In December 1965, Lyndon Johnson famously summoned Fed Chairman William McChesney Martin to his ranch in Stonewall, Texas, to confront him over Martin’s decision to lift rates. Martin held his ground.

The same couldn’t be said for Arthur Burns under Richard Nixon. Oval Office tapes later revealed that Nixon demanded Burns goose the economy with low rates ahead of the 1972 election. When Burns didn’t immediately cooperate, the White House planted a false story in the press that Burns was seeking a big pay raise, according to a book by Nixon speech writer William Safire. Eventually Burns relented, aiding Nixon but also helping to feed runaway inflation that dogged the U.S. economy for nearly a decade.

The last known example of U.S. presidential strong-arming came when George H. W. Bush was fighting for re-election. Bush’s White House pushed Alan Greenspan behind the scenes on rates and openly called on the Fed to lower its benchmark in June 1992. Greenspan did lower rates 13 times over 1991-92, but slowed the pace of cuts in the latter year, much to the White House’s annoyance.

–With assistance from Jeanna Smialek and Benjamin Purvis.

Bloomberg.com

Malta paves the way for a decentralized stock exchange

Malta AKA “Blockchain Island” has been making waves lately in the world of cryptocurrency and governance. Their latest move involves the crypto exchange Binance and the ICO builders at Neufund.

The plan is simple: Neufund will help MSX, the Malta Stock Exchange’s skunkworks, create tokenized securities. Binance has agreed to carry these securities on its own exchange, essentially creating a straight path to regulated tokens via the already regulated Malta Stock Exchange. In short, this enables Malta to become the first country to be able to offer tokens alongside traditional equities as well as an easy way to go public in multiple ways including via ICO.

The plan is still in the pilot stage. This year they will begin “the public offering of tokenized equity on Neufund’s primary market which may later be tradable on Binance and other crypto exchanges pending regulatory and listing approvals” said Neufund CEO Zoe Adamovicz.

“We are thrilled to announce the partnerships with Malta Stock Exchange and Binance, that will ensure high liquidity to equity tokens issued on Neufund. It is the first time in history, that security tokens can be offered and traded in a legally binding way. The upcoming pilot project will allow us to test the market’s reaction and realize the overall project idea in an environment with minimized risk.” said Adamovicz.

“We are delighted to welcome Neufund as our key partner in building a Blockchain-based exchange that is fully integrated with established financial markets. With the upcoming pilot project we become a worldwide pioneer in digital finance,” said Joseph Portelli, chairman of the Malta Stock Exchange.

This move is interesting in that it offers a parallel track to companies wishing to go public via token sales. While even the terminology isn’t completely hashed out in regards to the future of these systems, having a spot like Malta lead in the matter of token sales selling alongside equities is a solid decision. Malta is increasingly becoming the testbed for these sorts of experiments and, even if this is not yet a real project, it could create a turnkey solution for ICO launches on the island.

Alibaba boosts its offline reach with $2B+ investment in outdoor digital marketing firm

Alibaba is investing big bucks into offline distribution. The Chinese e-commerce giant has forked out $2.23 billion in exchange for a sizeable piece of Focus Media, a Shanghai-based company that operates outdoor digital advertising screens across China, Singapore and Hong Kong, according to a U.S. filing.

The deal itself is broken up into a few pieces. Alibaba itself is paying $1.43 billion for a 6.62 percent share of Focus Media, which is listed in Shanghai, It is also spending $504.7 million to buy 10 percent of an entity (managed by Focus Media founder and chairman Jason Nanchun Jiang) which controls 23.34 percent of Focus Media.

In addition, an Alibaba-aligned fund called ‘New Retail Strategic Opportunities’ is buying 1.37 percent of Focus Media, while Alibaba itself is planning to exercise an option to buy five percent more of the business over the next twelve months. That additional transaction will add another $1 billion or so to the total investment, dependent, of course, on Focus Media’s stock price.

That’s quite a mouthful but the objective of the deal is simpler to grok: Alibaba already has a formidable online channel to interact with consumers and now it is expanding what it can do offline.

Focus Media currently claims to reach 200 million middle-class consumers across 300 Chinese cities via its outdoor advertising platform, which includes digital screens in streets, in subways and in elevators. The company plans to grow that to 500 million people across 500 cities, and that ties into Alibaba’s online-to-offline strategy, which it also calls ‘New Retail.’

That has seen the company buy up expensive stakes in offline retail businesses with the goal of marrying the benefits of online shopping — such as quick delivery, easy to find products and easy payment — with the customer experience of brick and mortar stores, like in-person customer service and try-before-you-buy.

It isn’t hard to imagine a scenario in which a consumer sees a product advertised via Focus Media with the option to buy it, or arrange to see it in a store, simply by scanning a QR code. (Lest you forgot, QR codes are huge in China and a very key component in online/offline shopping.)

Beyond the New Retail push, the distribution provided by Focus Media offers sellers on Alibaba’s e-commerce platform an alternative avenue through which to reach potential customers, particularly within China’s growing middle class.

Will people reject being bombarded with ads on their commute or downtime, especially when they could just open an app on their phone? Alibaba likely isn’t keen to take the risk, and given the vast amount of cash it is sitting on this deal isn’t going to be a huge risk.

‘Everything is now fair game’: Canada unlikely to be spared from U.S. uranium protections

The United States Department of Commerce has launched an investigation to determine if uranium imports threaten national security, raising questions about whether Canadian producers will be exempted from any potential trade restrictions.

The investigation, which opens a new front in U.S. President Donald Trump’s “America First” trade campaign, “will canvass the entire uranium sector from the mining industry through enrichment, defense, and industrial consumption,” the commerce department said.

“Our production of uranium necessary for military and electric power has dropped from 49 per cent of our consumption to five per cent,” said commerce secretary Wilbur Ross. U.S. uranium production fell to 2.4 million pounds in 2017, down 61 per cent over the last decade, according to the U.S. Energy Information Administration.

U.S. uranium producers Energy Fuels Inc. and Ur-Energy Inc. filed a petition in January requesting an investigation under section 232 of the 1962 Trade Expansion Act – the same provision used to justify tariffs of 25 per cent on steel and 10 per cent on aluminum imports from countries including Canada, Mexico and Europe.

The U.S. firms have requested that 25 per cent of the U.S. uranium market — roughly 12 million pounds — be protected for American miners, saying they have struggled to compete with state-owned “subsidized” firms in countries including Russia and Kazakhstan.

Though its unclear how U.S. mines could ramp up sufficient production in the near term to accommodate that gap, analysts don’t anticipate any special exemption for Canadian suppliers. U.S. reactors burn roughly 50 million pounds of uranium each year, with Canada and Kazakhstan each supplying roughly 25 per cent of that amount.

“We had previously considered that Canadian material would be exempt from any Section 232 tariffs and that any action would be mainly targeted at Kazakh and Russian material,” RBC economist Andrew Wong wrote in a note to investors.

“However, given that Canadian steel and aluminum were not exempt from Section 232 and trade tensions between U.S./Canada have risen, we are not entirely confident that Canadian material would be exempt or considered as ‘domestic’ material.”

Though U.S. producers have complained about subsidized competition, their production costs tend to be high, making it harder to cope with prices that have plunged from more than US$70 a pound to less than $20 per pound after the 2011 Fukushima Daiichi nuclear disaster, said Colin Healey, a mining industry analyst with Haywood Securities Inc.

The disaster prompted Japan to shut down all of its 50 nuclear reactors, putting a sizeable dent in global demand. Though Japan has since brought just nine reactors back online, uranium suppliers nevertheless ramped up production in anticipation of a stronger revival – leading to an oversupply problem that further depressed prices, Healey said.

Prices have since bumped up to about $23 a pound following production cuts at leading producers KazAtomProm in Kazakhstan and Cameco Corp. in Canada. Canadian suppliers would likely take the same approach, cutting back on production, if tariffs or quotas are imposed, Healey said.

Canada must be exempted from a U.S. investigation, and excluded from any potential tariffs or quotas, said Ken Neumann, Canadian Director of United Steelworkers, which represents workers in the uranium mining and processing sectors in Western Canada and Ontario.

“Targeting Canada’s uranium industry would be absurd and would suggest a deliberate escalation by the Trump administration – for its own political purposes – of a trade war with America’s closest ally,” he said in a statement.

U.S. uranium producers gained on Wednesday, with Energy Fuels Inc. surging as much as 14 per cent and Uranium Energy Corp. climbing 9.1 per cent, while Canadian producer Cameco Corp. fell 1.5 per cent, underscoring the divergence in sentiment. Cameco is set to report its second-quarter earnings on July 26.

Congress would likely have an easier time supporting restrictions on uranium imports – given their use as nuclear power plant fuel — than it did backing measures on steel and aluminum, said Benjamin Tal, deputy chief economist at CIBC World Markets.

“When it was aluminum you could question whether it can be justified as a national security risk, but with uranium, I think it’s much easier,” said Tal. “The bigger significance of this to me is what it signifies: that everything is now fair game. If you are the CEO of any company in any industry you don’t know when they’ll find something, some twist to introduce 232 to your industry.”

• Email: npowell@nationalpost.com | Twitter:

The front-line fighters of the financial crisis are getting nervous about the next one

Federal Reserve policy makers appear confident that they have the weapons they’ll need to fight the next financial crisis. Some of their predecessors on the front lines are not so sure.

Ben Bernanke, Timothy Geithner and Henry Paulson all voiced varying degrees of concern about America’s ability to combat another financial meltdown 10 years after they played prominent roles battling the last one.

While agreeing that the banking system is a lot stronger than it was back then, they saw some weak spots in the country’s crisis-fighting arsenal that didn’t exist a decade ago. The trio also decried the nation’s ballooning budget deficits in a joint briefing with reporters.

“We’ve got better defences against the more mild, typical sets of shocks that happen to economies and financial systems but in the extreme crisis probably less degree of freedom, more constraints than would be ideal,” former Treasury Secretary and New York Federal Reserve Bank President Geithner said.

The U.S. instituted a raft of reforms after the last crisis drove the economy into its worst recession since the Great Depression. Some were designed to fortify the country’s biggest banks and make it easier to shut them down so they wouldn’t have to be rescued by the government if they ran into trouble.

Others though limited the discretionary power of the Fed, the Treasury and the Federal Deposit Insurance Corp. to provide financial institutions with support as lawmakers responded to a public backlash against bailouts and Wall Street.

Fed Vice Chairman for Supervision Randal Quarles acknowledged in April that the tools available to regulators in an emergency had changed. But he told a conference in Washington, “I wouldn’t be too negative about our ability to respond in the future.”

His boss, Fed Chairman Jerome Powell, has voiced confidence in the government’s ability to shut down a failing financial institution in a crisis without having to sink money in it, telling lawmakers in November that no bank is too big to fail.

Geithner, who is president of private equity firm Warburg Pincus LLC, argued that the emergency powers that proved so essential a decade ago are “somewhat weaker” today.

Congressional Limits

Former Treasury Secretary Paulson agreed, pointing in particular to the limits that Congress placed on the FDIC and the Treasury’s Exchange Stabilization Fund.

“There is some concern there,” said former Fed Chairman Bernanke, who is now a distinguished fellow at the Brookings Institution in Washington, though he also noted that regulators are now more attuned to potential systemic risks.

The former Fed chief, who was nominated by George W. Bush and given a second term by Barack Obama, criticized the deficit-ballooning tax cuts and spending increases agreed to by President Donald Trump and Congress as ill-timed. Bernanke noted that they come as the country is at or near full employment. He also voiced concern about the longer-term consequences of rapidly rising government debt.

“If we don’t act, that is the most certain fiscal or economic crisis we will have,” said Paulson, who chairs his own institute in Chicago. “It will slowly strangle us.”

The enlarged deficits and debt also mean that the government has less room to pump up demand than it did during the last crisis, when Obama pushed through a massive stimulus package, Geithner said.

Publicly-held federal debt now stands at 77 per cent of gross domestic product, double what it was in 2007.

The Fed, too, has less scope to act as interest rates are lower, Geithner said. The central bank’s benchmark rate target is now 1.75 to 2 per cent. It was 5.25 per cent in July 2007.

Bernanke though noted that the U.S. central bank is better positioned to respond than other advanced economies. The European Central Bank, for instance, has a benchmark interest rate of zero.

The former Fed chairman said the U.S. had made “a lot of progress” toward being able to resolve failing financial institutions without having to bail them out.

Paulson basically agreed, with one big proviso. In the midst of a crisis, policy makers may have to provide temporary support so that a collapsing institution can be liquidated over time — even if that proves politically difficult to do.

“It’s nice to have this authority but somebody has got to be prepared to use it and use it in controversial ways,” he said.

Asked if policy makers and politicians would be able to set aside their differences to tackle any future turmoil given the toxic atmosphere in Washington, Paulson replied that the answer is “unknowable.”

But, he added, “it’s the right question to ask.”

Bloomberg.com

Trump says he’s ‘getting closer’ to reaching a bilateral trade deal with Mexico

U.S. President Donald Trump said he may prioritize a bilateral trade deal with Mexico over Canada and that he’s building a good rapport with Mexican President-elect Andres Manuel Lopez Obrador.

The U.S. and Mexico are “getting closer” to reaching a trade deal, and the administration may advance separate talks with Canada later, Trump told reporters at the start of a cabinet meeting in Washington on Wednesday. The president added that he and newly elected Lopez Obrador are “doing great.”

The Mexican peso reversed Wednesday’s losses and advanced to a session high of 18.8264 per dollar after Trump’s comments.

Trump said earlier this year he may break up talks for a new North American Free Trade Agreement into separate tracks with Canada and Mexico. The three countries have failed to nail down a deal to revamp the pact over almost a year of talks, with wide differences remaining over key issues like auto-content rules and a sunset clause.

Top Trump administration officials visited Mexico City last week to meet the current and incoming administrations, providing the first chance for Lopez Obrador to set a tone for U.S.-Mexico ties after the July 1 election. The visitors included Secretary of State Michael Pompeo, Treasury Secretary Steve Mnuchin, Secretary of Homeland Security Kirstjen Nielsen and White House senior adviser Jared Kushner. Lopez Obrador takes office Dec. 1.

White House economic adviser Larry Kudlow on Wednesday said that there’s been “good progress” in talks with Mexico, which are paving a “promising avenue.” He declined to elaborate on specific issues. “We’re having very productive talks with Mexico,” Kudlow said at the CNBC Institutional Investor Delivering Alpha conference in New York on Wednesday.

–With assistance from Jenny Leonard.

Bloomberg.com

Breaking down trade barriers between provinces an urgent priority, Chamber of Commerce tells premiers

Canada’s provincial premiers should cut red tape on trade at home and maintain solidarity with Prime Minister Justin Trudeau in the face of U.S. “protectionist attacks,” the head of a major business group says.

With premiers beginning a meeting Wednesday, Chamber of Commerce President Perrin Beatty is urging them to make it easier to do business and break down stubborn trade barriers between provinces that hurt growth.

“The competitiveness of Canadian businesses is eroding,” Beatty wrote in a letter to the incoming chairman of the premiers’ group, New Brunswick Premier Brian Gallant. “The issue has become even more urgent as a result of U.S. tax and regulatory reforms and of the attack on our trading relationship with our largest customer.”

Given the uncertainty over U.S. trade policy, trading within Canada is more important than ever, Beatty wrote. “Barriers to the free flow of goods and services between provinces are self-inflicted wounds that penalize consumers, make our businesses less competitive and undermine economic growth,” he said, adding too little has changed despite the adoption of an internal Canadian Free Trade Agreement that kicked in last year.

It’s a message that Trudeau himself echoed. “You can understand it’s kind of frustrating, not just for Canadians but for me, to see continued barriers to internal trade in Canada,” the prime minister told reporters Tuesday in Nova Scotia. To demonstrate the merits of trade, “we need to do a better job of doing it here in Canada.”

Bloomberg.com