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 Frontier Markets, Strategy, Analysis, Business Model Innovation
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 →

GFH Buys Backs Shares, Issues Bonus Shares

February 16, 2019 By in Analysis Tags:

Last week, Gulf Finance House (GFH) announced that it would recommend distributing bonus shares. That comes on the heels of a share buyback program launched last year. The idea of a share buyback program is that shares of GFH are cheap and so it makes sense for the company to buy them back. The reverse, issuing bonus shares, makes sense for GFH when shares are expensive. So the two are, on the face of it, inconsistent if executed at the same time.

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 →