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Labor

US port strike could strangle the economy

The chip shortage, cyberattacks, the Suez and Panama Canal. Americans have had to deal with a host of supply chain disruptions, and it looks like another is on the docket. As their contract expired on Tuesday, around 47,000 dockworkers in 36 East and Gulf Coast ports went on strike. This was the first time such a walkout has occurred in the US since 1977.

Members of the International Longshoremen's Association (ILA) have embarked on a devastating walkout that could threaten the US economy, force prices to rise, and cost up to $5 billion per day, per JPMorgan.

After the dockworkers’ contract expired early Tuesday morning, billions of dollars in trade suddenly halted as ILA members stopped unloading containers and walked off the job.

• The IRA, which is the largest maritime union in North America, and the United States Maritime Alliance failed to reach a deal after talks stopped in June.

What do they want? 

The alliance wants greater use of technology to boost productivity and save expenses, while the union wants higher salaries (a 77% wage increase) and less automation.

An increase in wages: The alliance’s last offer was a 50% wage boost, which “exceeds every other recent union settlement, while addressing inflation, and recognizing the ILA’s hard work to keep the global economy running.”

• The average dockworker makes over $150,000 per year and paid hours for union members went up 11% between 2015 and 2023, per a UC Berkley study.

  • Over one-third of dockworkers made over $200,000 per year.

• The ILA’s president, Harold Daggett—who is the main negotiator of the wage increases—had a salary of $728,694 in 2023 and takes home over $900,000 per year in total compensation.

A cutdown on automation: Dockworkers want ports to approve a ban on automation because they see it as an immediate threat to their employment.

• Currently, only three ports in the United States—all of them in California—are regarded as fully automated, and conflicting accounts exist regarding the degree to which they have harmed employees.

• In 2020 and 2021, automation replaced 5% of the workforce (~570 jobs), according to a report funded by the West Coast dockworkers union.

If the IRA and the United States Maritime Alliance cannot reach a deal, depending on how long the strike lasts, the work stoppage could have far-reaching results at both home and abroad.

Lasting consequences

An estimated 60% of US shipping traffic goes through the East and Gulf Coasts (see map), and a looming strike would have catastrophic effects on a wide range of industries, including retail, automotive, and manufacturing, among many more.

If drawn out, the port strike will likely cause delays and disrupt supply chains, as well as have serious repercussions for food and many other agricultural items that American farm and ranch families export to international consumers (see an overview here).

Some good news: For months, retailers have been bracing themselves for a possible strike, so it is likely many of them stocked up on items, which could help increase access and curb the rising cost of goods.

Tech

The global tech industry could be affected by Hurricane Helene

As Hurricane Helene leaves widespread damage throughout the Southeast US, more industries are being affected. After the storm devastated Spruce Pine, North Carolina, it kicked off severe setbacks in producing semiconductors that could provide an international problem for the tech industry.

Semiconductors are essential to almost every technology in the modern world, as they provide a foundation for everything from phones to AI to vehicles. Silicon wafers, a material used for producing semiconductors, can only be made using the highest-purity quartz.

The problem is the super-pure quartz comes primarily from one town… Spruce Pine.

Essential element

Spruce Pine is home to the world’s only natural source of pure quartz, and now there is no way to mine it.

The amount of damage caused by the severe storm at the quartz mines is undetermined, however, the roads and rail lines that provided access to the mines were seriously damaged.

• According to the National Weather Service, Spruce Pine received over two feet of rain from Helene.

• There is no current estimate for when the two businesses that run the quartz mines in the town, Quartz Corp. and Sibelco, will resume operations.

  • May Kristin Haugen of the Quartz Corporation told NPR they have “no visibility” on when they could continue mining.

While chipmakers have reserves of pure quartz that could prevent a massive fallout, if the mines remain closed in the long term, it could cause a global spike in tech prices and massive supply-chain disruptions.

Can’t you get it from somewhere else? Although other countries (like Russia and Brazil) also ship out quartz, it’s like comparing diamonds to dirt. There are ways to refine and purify substandard quartz but if the process is drawn out it may still lead to international disruptions.

Finance

The Chinese stock market had its best day in 16 years

This is China’s best rally since 2008… much like the Beijing Olympics. After the Chinese government rolled out a plethora of forceful stimulus measures to revive the nation’s struggling economy, Chinese stocks made an assertive comeback.

A historic run

On Monday, traders in China exchanged a record $372 billion worth of stocks as nearly everyone tried to capitalize on the rise. “Many foreign investors are afraid of missing out,” said Dickie Wong, the head of market research at a Hong Kong firm.

• The Nasdaq Golden Dragon stock index (made up of US-traded companies that mostly conduct business in China) surged about 41% over the last month

  • 29% of the gain was recorded in the week before this Monday.

• China's blue-chip CSI 300 index increased by over 8%, setting a record five-day rise of over 25%.

Last week, the CSI 300 index marked its best weekly performance in 16 years, largely due to Chinese policy. Wong told Reuters, “The policies are so intensive, we have never seen such clear instruction to… support the stock market.”

What policies pushed the gains? 

Many of the shocking announcements the Chinese government made last week to help its sluggish economy centered around one key sector: housing.

• Shanghai, Shenzhen, and Guangzhou, three major Chinese cities, lifted restrictions on home purchases.

• The central bank of China (called the People's Bank of China) said that it would inject $114 billion into the stock market.

• Additionally, the central bank ordered a reduction in the current mortgage rates and cut the medium-term loan rates.

While China’s broad policy push to ease restrictions and free up the economy did produce gains, it’s not clear that its success will keep up.

Reversing course: After rallying 30% and hitting nearly two straight weeks of gains, Chinese stocks in Hong Kong declined yesterday, raising concerns of a bubble among financial analysts.

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Grab Bag

DirecTV buys major competitor for only one dollar

This is the TV provider version of the Terminator teaming up with John Connor to defeat the T-1000. In an announcement that brings together the two carriers in their battle to stay relevant in the streaming era, DirecTV said it will acquire previous competitor Dish for $1.

The $1 buyout (kinda)

While a one-dollar acquisition would be something to marvel at, of course, its a bit more complicated:

• In exchange for taking on $10 billion worth of debt, DirecTV will pay $1 to EchoStar, the parent company of Dish and Sling (who it’s also buying).

But that’s not all… here’s where the complicated part comes in.

• In addition to the other deal, TPG, a private equity firm, will pay $7.6 billion to AT&T for its 70% stake in DirecTV.

  • This grants TPG complete 100% ownership in the company since TPG acquired the remaining 30% of DirecTV from AT&T in 2021.

The deal comes after years of discussions regarding a potential merger of the two companies, but now that they have lost the majority of their customers (63% of them in the last eight years), it was all but inevitable in order to keep the doors open.

A new TV giant

With 18 million subscribers, DirecTV will now be the biggest US TV distributor following the merger. CEO Bill Morrow thinks that the increase will enable the company to negotiate better prices and provide more affordable (and smaller) packages so people don’t have to pay for channels they don’t want to watch.

Going forward: It’s always possible that the merger will draw the eyes of regulators, considering how their leash has been thrown in the bushes (especially concerning big tech). That being said, Morrow doesn’t think any scrutiny will be tossed his way before he can get rid of $1 billion in annual costs, a longstanding promise to investors.

California banned legacy admissions for college students

Incoming frat boys just let out a big sigh. “Legacy admissions”, or the practice of universities giving preference to relatives or donors, was banned this week in the state after California Governor Gavin Newsom signed a bill.

Debates over legacy admissions and leveling the playing field in higher education are becoming more prevalent. According to the new regulation, universities must reveal all admissions data; those found to be in breach won't face any financial penalties.

Longstanding debate

The argument put out by admissions offices is that legacy admissions are a net advantage since they allow families to direct their donations toward financial aid, while opponents claim that they just serve to bolster the school's already substantial donation pool.

So far: Illinois, Colorado, and Virginia have only restricted the practice at public institutions, while California is the second state to do the same at both public and private colleges, following Maryland.

Fast Facts

Cat Chronicles: A cat lost by its owners in Yellowstone National Park traveled roughly 900 miles back to its home in California. I’d say he deserves a treat. 

Record Rain: 40 trillion gallons of water fell on the southeast last week from Hurricane Helene, according to former NOAA chief scientist Ryan Maue. That’s enough to fill the Dallas Cowboys stadium 51,000 times.

Fortnite Failure: Fortnite added a setting that allows parents to set a timer for how long their children can play. Surely they won’t resent you for the coming years.

Franchise Frontier: The WNBA has awarded the city an expansion team that will start playing in the 2026 season, bringing the league’s total number of franchises up to 15.

Stop Sharing: In response to Netflix's decision to make money from password leakers, Disney+ launched a scheme targeted at toughening down on password sharing.