Category: Business news

  • Personal views on Donald Trump’s proposed tariffs

    2 November 2024:

    I recently read the report of the American “Consumer Technology Association” (CTA). The CTA is ‘kind of a big deal’; it is a trade association representing the $297 billion US consumer technology industry.

    A copy of the CTA’s report is linked here.

    The logic underpinning Trump’s policy is that by imposing tariffs on imported goods, American companies would stop importing and start manufacturing domestically.

    Companies like Apple, for example, are going to be “incentivised” to close their factories in Asia and build factories on US soil, for the domestic production of their devices, because the burden of the tariffs will mean that Apple is better off doing so.

    It is noteworthy that whilst Trump did impose tariffs during his first term, they were arguably modest and covered only certain goods. Contrast this with the new proposed tariffs; they are eyewatering (including a 60% tariff on Chinese goods) and cover pretty well everything.

    So, is Trump’s plan going to succeed?

    I am incredibly sceptical; I think it’s more likely to destabilise the US (and Global) economy and cause rampant inflation and unemployment.

    This is because economic principles tell us that any tariffs which the US imposes will be passed on to US consumers. This means that the cost of basic goods will skyrocket. This, in turn, will cause less spending by consumers (and worsen the average consumer’s basic standard of living).

    Not to mention, factories take a long time to build!

    What of the cost in human capital, too? Doubtful companies like Apple will ever return manufacturing to US soil, yet with reduced consumer spending, they will no doubt be incentivised to exploit cheaper human labour to further reduce prices and increase consumption.

    And then you’ve got Elon Musk as Trump’s proposed appointment for the proposed “Department of Government Efficiency” (or DOGE, like the meme and cryptocurrency that Musk promotes).

    Alarm bells are ringing!

  • Beware: Construction Contracts and Ipso Facto Insolvency Reforms

    1 July 2018:

    Where a contractor, such as a builder or sub-contractor, suffers from an event of insolvency or is actually insolvent, most standard building contracts currently grant a principal, such as an owner or head-contractor, “ipso facto” rights, such as the rights to suspend building works, call upon and enforce any security given by the contractor, and terminate the building contract.

    Insolvency reforms to take effect on 1 July 2018 will instead prevent the enforcement of ipso facto rights, to provide opportunities for insolvent companies to restructure.

    The reforms will affect a range of commercial contracts, not just construction contracts.

    The policy intent of the reforms is to maintain the continuity of a contractor’s business and the value of the business, to provide a better potential for the contractor’s business to be restructured, for example, by “trading out” of insolvency.

    The enforcement of ipso facto rights will be stayed where a right arises because a company has an administrator appointed, a managing controller is appointed to the whole or substantially the whole of the company’s assets, or a scheme of arrangement is made or announced.

    Exceptions or proposed exceptions include rights under “set-off” and “step-in” clauses and exceptions to permit a party to enforce certain rights with the consent of an administrator, receiver, scheme administrator, or the Court.

    The reforms will only apply to contracts entered into after 30 June 2018. The reforms will not apply to contracts entered into before 1 July 2018, including amendments to contracts where the underlying contract was formed before 1 July 2018.

    The result of the reforms is that principals may need to be more risk averse when doing business, including as to whom they contract with, how they exercise their contractual rights, and which contracts they utilise.

    If a principal were to purport, for example, to terminate a contract utilising a stayed right, the purported termination could open the principal up to a raft of problems, including contractual repudiation and breach of contract, termination for repudiation, and, or, a claim for contractual damages.

    Therefore, principals will need to ensure that they do not fall afoul of the reforms by, for instance, purporting to terminate a contract in reliance upon a stayed right. Principals should also start reviewing existing contracts to ensure that the contracts do not fall afoul of the reforms by, for example, containing “self-executing” ipso facto clauses.

    You can read more on The Treasury’s website at www.treasury.gov.au