Category Archives: Analysis

From China+1 to No Safe Haven: Tariffs and the Geography of Risk

August 31, 2025 By in Analysis
This entry is part 4 of 4 in the series Tariffs

For years, U.S. companies sought to hedge their supply chain exposure to China by pursuing a “China+1” strategy: diversifying production into countries like India, Mexico, and Canada. The logic was simple: if tariffs or politics made China risky, alternative partners could provide stability. But recent policy shifts show that diversification is no guarantee of safety. When tariffs follow firms from one geography to the next, the entire premise of supply chain resilience is called into question.

India: From Partner to Target

India has been positioned as the great beneficiary of China’s tariff troubles. U.S. imports from India doubled over the past decade with pharmaceuticals, communications equipment, and apparel leading the surge. The doubling of U.S. tariffs on Indian goods to 50% shows how quickly a diversification partner can become a target.

The official rationale was geopolitical: India’s continued purchase of Russian oil. The economic reality is that U.S. firms who moved production to India now face the same higher costs they sought to escape. Consumers pay more. Exporters face retaliation. Supply chain resilience turns into renewed vulnerability.

Complicating matters further, this week Xi Jinping rolled out the red carpet for both Vladimir Putin and Narendra Modi in Beijing. The summit was framed as a coordinated response to Trump’s tariff and foreign policy shocks. The symbolism was striking: India, once seen as the natural counterbalance to China in supply chain diversification, is now engaging more closely with Beijing.

If India and China find common cause in resisting U.S. tariffs, even while remaining rivals in other areas, the logic of “China+1” weakens. What was meant to be a hedge against Chinese political risk may no longer offer independence. Instead, diversification to India risks becoming exposure to a broader bloc of countries aligned against U.S. economic leverage. Continue reading →

Tariffs, Trade Deficits, and Prosperity Surpluses: Rethinking the U.S. Position in the Global Economy

August 25, 2025 By in Business Model Innovation, Frontier Markets, Strategy, Analysis
This entry is part 2 of 4 in the series Tariffs

Introduction

The debate over tariffs in the United States is often framed around trade imbalances. Successive administrations have argued that persistent deficits in goods — imports consistently exceeding exports — reflect unfair competition and a loss of industrial capacity. This framing positions America as a country being taken advantage of. Yet when the lens is widened beyond bilateral trade flows to the global distribution of income and production a different picture emerges. With only around 5% of the world’s population but roughly 25% of global GDP the United States enjoys a disproportionate share of prosperity. From that perspective the “problem” of trade deficits looks less like evidence of decline and more like a natural by-product of extraordinary privilege.

Tariffs as Fiscal Tools

Tariffs are a fiscal instrument. They raise government revenue by taxing imports, while simultaneously transferring wealth from importers and consumers to the state and, indirectly, to domestic producers who gain from reduced competition. This redistribution is visible and politically attractive. For example the recent U.S. tariff on Mexican tomatoes raised costs for consumers but promised relief for Florida growers.

Economically, however, tariffs act as a negative supply shock. By making imports more expensive they increase consumer prices, disrupt supply chains, and reduce efficiency. They may stimulate some investment in protected sectors but this is often inefficient investment, guided not by comparative advantage but by political shields. Continue reading →

Profit without Value

April 1, 2019 By in Analysis Tags: , ,

The debate of value creation versus value extraction is an important one when markets are developing and is a crucial driver of share prices. The danger, however, is that the impact on share prices is opposite to the impact on the value of the company. The result can be business destruction to the benefit of a single stakeholder.

What do we mean by value creation versus value extraction?

Value creation is developing the ability to keep producing value, e.g. building a productive asset.

Value extraction is monetizing, or liquidating, value, e.g. selling a productive asset.

Continue reading →

Why the cash flow statement matters

November 10, 2017 By in Finance, Analysis Tags: ,

Cash flow for me is the most important financial statement as it can corroborate or invalidate what I see on the income statement. In the last three weeks I’ve looked at the income statements, balance sheet statements, and the link between the two for various companies. Today I will use Shuaa’s Q3 2017 financials to show how the cash flow statement can provide insight into the more famous income statement.

Cash flow basics

A little refresher course in accounting first. Cash flow accounting as a measure of the performance of a company is flawed because it does not reflect the timing of transactions. For example, if a company is paid an annual subscription to provide a weekly magazine, then cash flow accounting would recognise a large income upfront and then the expense of publishing the weekly magazine is recognised about evenly across the year. This can make things look far better than they are. There are other situations where the opposite could happen, or where the effect is on the balance sheet, eg depreciation. Continue reading →

Earnings Quality vs Quantum of Earnings

October 21, 2017 By in Analysis Tags: , 5 Comments

The third quarter (Q3) is over and earnings season has begun as listed companies release their Q3 financials. We’ll take a deep look at these financials, starting with the heart of the economy – the banking sector. My main aim here is to look at the picture that the financials give and try to understand what might be going on in terms of a longer term trend. My focus is the quality of earnings and the direction that earnings are moving in.

I want to take a moment and clarify a few issues. I am looking at earnings and not at creditworthiness, which looks positive given the capital adequacy ratios of these banks. The second point is that I am selecting the larger banks that first released earnings, so selection is not based on financial performance. Indeed, the banks that released earnings first should be applauded for working to provide investors with important transparency and timely provision of information. Continue reading →

Fast asset growth can mask weak margins

September 8, 2017 By in Analysis Tags:

Growth for the sake of growth is the ideology of the cancer cell.

– Edward Abbey

A recent Financial Times (FT) article discussed the “great aviation disrupters of the 21st century” referring to Emirates, Etihad Airways and Qatar Airways. The article was analysing deteriorating performance amongst these three once high performing carriers. Of particular interest are two points: The first is that annual growth in scheduled seats for these carriers ranged from low to mid teens from 2012 to 2016 but that current schedules forecast 2% – 3% for the UAE carriers and an actual drop of 1% for Qatar Airways. The second interesting point is that the UAE carriers are reported to have a large negative impact on P/L. Qatar Airways apparently does not provide the same levels of transparency as the UAE carriers. Perhaps they would benefit from reading my articles on the value of transparency and corporate governance.

Why are these points interesting? Well, growth went from strong to about flat and yet somehow this hit P/L hard. If growth stops, then P/L should match that of the previous year. One argument that the FT article gives is that lower oil prices is impacting domestic outbound business. But this doesn’t explain things as lower oil prices reduce operational costs. Let’s look elsewhere for some insights. Continue reading →

Your health depends on a balanced healthcare playing field

September 4, 2017 By in Economy, Government, Analysis Tags: , , 1 Comment

It is my opinion that one of the greatest moves to support free market capitalism in the UAE is the cancellation for Abu Dhabi Thiqa insurance beneficiaries of the 20% co-pay for treatment at private healthcare facilities.  The 20% co-pay was introduced in June 2016 and at that time there was discussion on the effect on patients.  There was also, however, a massive impact to the economy, but I felt that at that time the personal and social issues should take precedence over the economy. I think that now might be a good time to review that impact of that decision with respect to the economy and the positive effects of the cancellation of the decision.

Why is the co-pay issue important? As a first pass, clearly applying a 20% co-pay to private hospitals would incentivise beneficiaries to choose public hospitals. Money isn’t the only issue for a patient in determining which healthcare facility to visit but in the absence of specialisation issues it is clear that money becomes one of the predominant deciding factors.

The consequence, of course, is material negative impact on the finances of these private hospitals. The effect was quickly felt at three long-term healthcare centres in the Emirate of Abu Dhabi who quickly had their co-pay requirements waived in January 2017,  and the quick government response allowed these institutions to continue providing important healthcare services.

The positive social impact is clear. But what is the positive economic impact? It is the strengthening of the healthcare sector, not because Thiqa is willing to pay for the full cost but because giving private institutions the same economic opportunities as public institutions allows them to not only thrive but to also take risks that only private companies take. Risks such as acquisitions that lead to consolidation in the health care sector and thereby a strengthening of the sector. Continue reading →

A case study on reporting and transparency of company results

September 1, 2017 By in Corporate Governance, Analysis Tags: ,

In April of this year I talked about  some of the puzzling moves at Shuaa Capital, one of the better known investment banks in the region which is headquartered and listed in Dubai. Last month Shuaa released their H1 2017 financial results and there was quite a bit of commentary around these results. This commentary seemed to contradict the behaviour that I outlined in April. So I waited and read through the results, the press releases, the news articles and TV interviews. Now I’m ready to give a more realistic analysis of the results. My analysis will be dual, of the actual performance and of how the performance is reported. The latter is critical, as I have pointed out earlier this year on less than optimal reporting or commentary by First Abu Dhabi Bank, Abu Dhabi Commercial Bank, Emirates NBD, Mashreq Bank, Arabtec and Etisalat but stellar reporting by Dubai’s SWF ICD (all links are to my articles on reporting and transparency by these companies which were published in The National). Continue reading →