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Is the US-Brazil mini deal worth it?

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Hello from Washington, where we’re now just a couple of weeks out from the 2020 presidential election and Joe Biden and Donald Trump are gearing up for their final televised debate on Thursday evening. We’ll be watching the showdown for any good trade nuggets.

In trade news for this week, we’ve had the latest Trump administration mini deal, this time with Brazil — but as our main piece today highlights, further progress will be tricky. The chart of the day looks at the sharp rise in global sovereign debt, and our person in the news is deputy White House chief of staff Christopher Liddell.

Don’t forget to click here if you’d like to receive Trade Secrets every Monday to Thursday. And we want to hear from you. Send any thoughts to trade.secrets@ft.com or email me at aime.williams@ft.com.

Mini deals, maxi displeasure

Mini trade deals — small, piecemeal agreements that stop short of covering everything and anything — have been a hallmark of the Trump administration’s trade policy. 

The US-China deal was a mini deal, as was the US-Japan deal, and the proposed US-EU deal would have been one too (and might still be, should Biden win and pick up the mini-deal mantle). 

This week we’ve seen the latest one, between the US and Brazil, although compared with weightier deals such as US-China and US-Japan, it’s more of a micro deal. That hasn’t stopped it grabbing headlines calling it “a trade deal”, though, but in reality it’s thin. It includes a few small things, like an anti-corruption pledge and an “agreement on good regulatory practices”.

The big thing that it doesn’t touch, because no mini deal can, is tariffs. To alter tariffs or quotas, the US administration must seek approval from Congress. The US has a trade surplus with Brazil, but it faces high tariffs — Brazil has traditionally been a relatively protectionist nation. According to the World Trade Organization, US imports to Brazil face an average tariff of 13.4 per cent, while Brazilian imports to the US face 3.4 per cent.

Even if the US did negotiate a lowering of tariffs, any sort of deal with Brazil would not be a huge economic win for the US — the amount of trade between the two countries is much smaller than the trade between the US and Mexico, say, despite Brazil having a much larger economy. In 2019, the US exported more than $43bn in goods and services to Brazil, and imported $31bn.

Brazil, too, is bound by the Mercosur, the common market trade arrangement it has with Argentina, Paraguay and Uruguay. If Brazil wanted to do a full bilateral trade agreement on its own and not as part of Mercosur, it would first have to change Mercosur’s rules.

So what’s the point? It’s largely a diplomatic engagement driven by political affinities. Brazil’s president Jair Bolsonaro isn’t known as “the Trump of the tropics” for nothing. One of the new generation of conservative leaders sweeping aside the leftists of old in Latin America, he has long courted Trump, showering him with flattery and even imitating many of his playbook lines on the likes of “fake news”. The Trump administration sees Brazil as sympathetic to its values.

But there is a problem here, which is that Trump has just perversely made Brazil’s hopes of a proper trade deal with the US more distant by enraging Congressional Democrats. Earlier this year, influential trade-minded Dems on Capitol Hill wrote a strongly worded letter to US trade representative Robert Lighthizer warning that they would not tolerate a full trade deal with Brazil’s Bolsonaro, citing the “reprehensible rhetoric and actions” of his government, including “its complete disregard for basic human rights, the need to protect the Amazon rainforest, the rights and dignity of workers, and a record of anti-competitive economic practices”.

Influential US lawmakers have cited destruction of the Amazon rainforest among the reasons for opposing a full trade deal with Brazil © Ueslei Marcelino/Reuters

There is a second issue that irks both Democrats and Republicans (although the latter group will only grumble in private) — the increasing use of the mini deal to circumvent Congress, which is supposed to have control over commerce with foreign nations. 

Speaking on Tuesday morning, Lighthizer acknowledged that there was no support for a proper trade deal with Brazil among House Democrats, but said the administration would keep pushing ahead anyway and do as much as could be done short of a full trade deal.

Predictably, Richie Neal, the Democratic chairman of the powerful House ways and means committee (which has the power to block trade deals) issued a furious statement in response to USTR’s announcement of the Brazil development, accusing the administration of passing over Congress “to reward an administration that lacks respect for basic human rights, the environment and its own workers”. “In what may be the eleventh hour of the Trump Administration, USTR has flouted Congress to undermine the United States’ values and standing in the world,” he wrote. 

Annoying Congress this much over foreign relations is one thing when at stake is a lucrative arms deal to Saudi Arabia (for example), but it’s another to enrage lawmakers over a marginal agreement that does nothing much economically for the US.

Lighthizer knows that elected lawmakers are opposed to the development of economic ties between the US and Brazil, but as in other areas, administration officials are moving forwards with presidential desire as the legitimising force — even in areas where Congress is supposed to hold power.

It might well backfire. Mini deals can only go so far. And with what could be his last mini deal, Trump has probably made it much harder for Brazil and the US to ever get a full trade deal, involving the shifting of tariffs. Although Brazil is hardly at the top of the list of countries the US would like new trade agreements with, there is now likely to be more scrutiny and bad feeling about anything put before a disgruntled US Congress.

Charted waters

Covid-19 has left many patients with debilitating symptoms after the initial infection has cleared, an occurrence known as “long Covid”, but what is true of health is likely to be true of the economy as well, writes Martin Wolf. The pandemic is likely to give the world not just a deep recession, but years of debility. However, the policy response to handling this prolonged period of crisis will raise public deficits and debt substantially. Advanced economies are in a weaker position.

Chart showing that sovereign debt has reached historic levels: general government debt as a % of GDP

Person in the news

Christopher Liddell is the US’s nominee for the position of OECD secretary-general © Mandel Ngan/AFP via Getty

Who is it?

Christopher Liddell, deputy White House chief of staff

Why is he in the news?

The Trump administration on Tuesday confirmed that Liddell would be the US’s nominee for the position of OECD secretary-general, having trailed the announcement earlier in the summer. Liddell previously held high-level positions at General Motors and Microsoft.

Members of the OECD are mired in talks over how to fairly tax big tech companies. The US is threatening to impose tariffs on several countries if they come up with their own digital services taxes, but has also previously walked away from talks.

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Emerging Markets

Ebay to sell South Korea unit for $3.1bn as local rivals target Coupang

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Ebay is set to sell its South Korea business to a local consortium for $3.1bn, according to people with knowledge of the matter, as rivals seek to turn up the heat on SoftBank-backed Coupang in the world’s fourth-largest ecommerce market.

The consortium, which consists of South Korea’s biggest bricks-and-mortar retailer E-Mart and internet group Naver, plans to buy an 80 per cent stake in eBay Korea for Won3.5tn ($3.1bn) with the US company retaining the remainder, said the people.

The purchase could help the consortium to overtake fast-growing Coupang, which raised $4.6bn in an initial public offering in New York in March to become the biggest player in South Korea’s highly competitive ecommerce market. Japanese technology group SoftBank is a large investor in Coupang.

Ebay Korea was the country’s third-largest ecommerce company with a 13 per cent market share last year, according to research group Euromonitor. Its three platforms — Gmarket, Auction and G9 — recorded Won20tn in transactions last year, data from Meritz Securities showed.

Euromonitor has forecast that South Korea’s ecommerce market will grow by 11 per cent this year to $116bn. But it is a fragmented market of more than a dozen players, with Coupang and Naver controlling 19 per cent and 14 per cent shares in terms of transaction volume, respectively.

South Korea is one of the world’s largest and fastest-growing ecommerce markets, driven by its tech-savvy population, high-speed internet infrastructure and densely populated environment. Ecommerce accounted for 35.8 per cent of the retail market last year, compared with 28.6 per cent in 2019, Euromonitor data showed.

E-Mart plans to fund the deal with Won3tn of asset-backed loans with the remainder paid by its cash holdings, while Naver will contribute Won100bn, according to an industry official close to the situation.

“Despite the funding structure, E-Mart needs Naver to make up for its weak online networks,” said the official.

Conglomerate Lotte Group and E-Mart were the final bidders for eBay Korea. Both have struggled to catch up with Coupang, which is investing heavily in logistics to boost its delivery times. Coupang almost doubled its revenues last year to $12bn as more consumers shifted to online shopping during the Covid-19 pandemic.

“Both Lotte and E-Mart were eager to take over eBay’s operations but E-Mart offered about Won500bn more,” added the industry official.

Naver is one of Korea’s most popular internet portals and more than 40 per cent of eBay Korea’s customers access it via the former’s search engine.

Shinsegae, E-Mart’s parent company, and Naver partnered in March by swapping stakes in each other worth Won250bn.

Ebay Korea declined to comment. E-Mart said in a regulatory filing that it was in talks with eBay but a sale had not been finalised. Naver said in a separate filing that the deal had not been concluded.



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ByteDance revenues more than doubled in 2020 to $34.3bn

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ByteDance increased its revenues 111 per cent last year to $34bn and had 1.9bn monthly users across its apps at the end of the year, said its incoming chief executive Liang Rubo on Thursday, according to people familiar with the matter.

The owner of the short-video apps TikTok and Douyin recorded a surge in users as coronavirus lockdowns across the world left people searching for more entertainment online. Douyin, the Chinese sister app to TikTok, was ByteDance’s largest driver of revenue and has become a destination for shoppers looking to buy products from livestreaming presenters.

Facebook, the world’s biggest social media group, reported 2.85bn monthly users as of March 31.

ByteDance recorded an annual gross profit of $19bn but a net loss of $45bn for the year because of non-cash items including share-based compensation and fair-value changes of its shares, and heavy investment in new businesses, the people said. The company had 110,000 employees at the end of they year.

The financials were first reported by the Wall Street Journal and Chinese media.

Its chief rival in China, Kuaishou, reported a net loss of $15.4bn on $8.5bn in revenue last year — four times less than ByteDance — and 481m monthly users during the period. Kuaishou is trading in Hong Kong at a market capitalisation of HK$801bn ($103bn), while ByteDance has yet to reveal its plans for an initial public offering.

ByteDance raised about $5bn in December at a $180bn valuation, according to people familiar with the matter. The Beijing-based company is the world’s most valuable start-up, according to CB Insights. 

Liang made his first all-hands staff meeting speech on Thursday after he began the transition to chief executive last month, following founder Zhang Yiming’s announcement that he would step down at the end of the year. Zhang said he wanted to focus on innovation and “longer-term initiatives”.

Liang, a ByteDance co-founder who staff regard as Zhang’s loyal right-hand man, was previously head of human resources. Even after a six-month handover period, staff said they expected him to not make big changes and to continue taking direction from Zhang.

As Beijing increases its scrutiny of tech giants, several high-profile founders and chiefs have stepped back this year. Colin Huang stepped down as chair of ecommerce platform Pinduoduo in March, days after Eric Jing resigned as chief of Ant Group.

Liang told employees he was disclosing the financial figures as part of a drive for greater transparency at the company.



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Coronavirus latest: Royal Caribbean delays inaugural sailing of ship due to Covid cases

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Monique Roffey in London with a poster of her novel ‘The Mermaid of Black Conch’
Monique Roffey in London with a poster of her novel ‘The Mermaid of Black Conch’, which is published in paperback this month by Vintage © Monique Roffey

In April 2020, as coronavirus spread around the world, Monique Roffey published her seventh book.

She went with UK-based Peepal Tree Press, a small Caribbean-focused independent company, to publish The Mermaid of Black Conch after the majors rejected her fantastical tale of a mermaid from another era.

“Indie published me in the eye of the storm,” Roffey says. “I did everything I could to get it noticed.”

The Trinidadian-born author crowdfunded £4,500 for a publicist for her novel but as the healthcare crisis took hold she feared her mermaid tale would slide by unnoticed.

She was struggling to pay the rent while the Covid-19 crisis cancelled book tours and festivals.

“Covid was potentially disastrous for my book,” she says. “It was in danger of falling into the Covid chasm.”

But then the lyrical tale of loneliness, love and otherness caught the attention of the literary world and judges applauded it. In January, the novel won the prestigious £30,000 Costa book award, with judges calling it “extraordinary”, “captivating” and “full of mythic energy and unforgettable characters”.

And, bingo, suddenly everyone wanted to read about the mermaid Aycayia, says Roffey, who (full disclosure) attended the same school in the outskirts of Port-of-Spain as I did. 

The story has sold about 60,000 copies in print and online and this month it is published in paperback format by Vintage. For two consecutive weeks this year the novel topped The Times bestseller list. Film rights could well be next.

“Against all the odds, I have done well during Covid,” Roffey says from her home in London. “In 20 years of writing, with many ups and downs, I have seen nothing quite like this.”

Her novel of fantasy and folklore tapped into a desire for reading and imagination during the dark days of coronavirus-induced lockdowns. Roffey joined many authors pivoting online with book launches and literary festivals, which meant she gained global readers.

“In 2020, the nation turned to books for comfort, escapism and relaxation,” says the Publishers Association, the UK’s trade organisation that serves book and journal publishers. “Reading triumphed, with adults and children alike reading more during lockdown than before.”

Income from fiction rose 16 per cent last year to £688m, while the total for consumer publications rose 7 per cent in the UK to £2.1bn, the UK trade body says. 

“Basically a book, which was roundly ignored, rejected, published in the first Covid wave and that nobody registered,” was relaunched, Roffey says.

From nobody wanting the book, suddenly billboards of its cover are cropping up around town, she adds.

This is the sixth article in a series for the blog that explores the effects of the pandemic on people and businesses around the world



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