Posts Tagged ‘Brazil’

U.S. Exporters Will Be a Surprise Loser From Tariff Fight

July 9, 2018

Economics and trade history show that as a country shuts out its partners’ products, it also deprives those partners of money to buy its exports

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U.S. exports grew relatively strongly in the spring, in part due to soybeans, but that increase may have been temporary, as foreign buyers rushed to beat the imposition of Chinese tariffs on soybeans. PHOTO: DANIEL ACKER/REUTERS

Who’s the biggest loser when tariffs are imposed on imports? The surprising answer: exporters.

Though completely counterintuitive, theory and evidence show that taxes on imports act just like a tax on exports.

Though it’s early, the Trump administration’s recent round of tariffs is already rippling out to exporters: Soybean farmers face plunging prices as China raises tariffs, Harley-Davidson will move production of motorcycles destined for the European Union out of the U.S., and BMW says foreign retaliation may hit exports from its South Carolina plant.

Economists credit Abba Lerner, then a graduate student at the London School of Economics, for proving theoretically in 1936 that an import tariff was equivalent to a tax on exports. The Lerner Symmetry Theorem is considered a key principle of trade economics, like 18th century economist David Ricardo’s theory of comparative advantage.

The practical link was obvious to protectionists and free traders alike as far back as the 1600s, says Douglas A. Irwin, an economist and trade historian at Dartmouth College. They understood that a country that shuts out imports deprives its trading partners of money to buy exports.

This, Mr. Irwin notes in his book “Clashing Over Commerce: A History of U.S. Trade Policy,” is why Americans were so divided over tariff policy in the 1800s. When northern states succeeded in raising tariffs to protect their manufacturers, they angered southern states who paid more for manufactured goods and suffered falling prices for their exports such as cotton and tobacco. Mr. Irwin’s data show that while exports and imports have varied between 3% and 25% of gross domestic product since 1790, the two tend to move together.

The link was especially strong under the gold standard because trade imbalances were financed by gold flows. If the U.S. ran a trade surplus, gold would flow in, depriving foreigners of the means to purchase U.S. goods. Now that exchange rates float, the effect is less direct, and a country can pay for imports by borrowing in the capital markets, as the U.S. has since the late 1970s.

Yet even now, exports and imports tend to rise and fall together, proof that the underlying relationship still holds. If the U.S., for any reason, cuts its imports from a trading partner, that country’s economy and currency both weaken, so it buys less from U.S. companies.

If a tariff generated significant new demand for the protected American sector, the resulting boost to prices and jobs would put upward pressure on inflation, interest rates and the dollar, further hurting exports.

In a recent National Bureau of Economic Research study, Alessandro Barattieri, Matteo Cacciatore and Fabio Ghironi examined the effect of changes in tariffs in 21 countries (though not the U.S.) and found they tended to reduce both imports and exports. On net, imports fell more, so the trade balance improved, but overall growth suffered because higher prices reduced consumers’ purchasing power, and the higher cost of imported capital goods undermined investment.

Over time, tariffs also reshape the economy. Newly protected industries draw workers and investment away from exporting industries whose inputs are now more expensive. That effect is compounded when exports are also targeted by foreign retaliatory tariffs. Heavily protected industries, like U.S. sugar farmers, don’t export much because prices abroad are much lower than at home. Protectionist countries like India and Brazil have lower imports and lower exports relative to GDP than open economies like South Korea and Chile, Mr. Irwin notes.

Since the U.S. began to raise tariffs only a few months ago, it’s too early to evaluate the impact. Exports grew relatively strongly in April and May, mostly due to aircraft and soybeans, according to Ian Shepherdson of Pantheon Macroeconomics. The rise in soybean exports may have been temporary, as foreign buyers rushed to beat the imposition of Chinese tariffs.

There are other signs of trouble for exporters. The dollar has risen sharply this year, mostly because of rising U.S. interest rates but also because U.S. tariffs have weighed on the currencies of Canada, Mexico, and China. That will tend to damp their purchases of U.S. products, even those unaffected by tariffs. The Texas Alliance of Energy Producers says higher costs and shortages of tubular steel due to the tariffs will hurt drilling and production of oil, the biggest U.S. export success story of recent years.

Like Harley-Davidson, many manufacturers who export from the U.S. may have to shift that activity abroad. “We export to more than 100 countries,” one manufacturer in the food, beverage and tobacco industry told the Institute for Supply Management in its latest monthly survey. “We are preparing to shift some customer responsibilities among manufacturing plants and business units due to trade issues (for example, we’ll shift production for China market from the U.S. to our Canadian plant to avoid higher tariffs).”

The end result of Mr. Trump’s efforts to make Americans spend more on American made products is that foreigners will spend less.

Write to Greg Ip at


After Day 1 of Trade War: So Much Trade Losing — Where’s the deal-making?

July 7, 2018

The tariff shooting begins with China, and where’s the deal-making?

Soybeans are loaded into a truck after being harvested at the Santa Cruz farm near Atibaia, Brazil.
Soybeans are loaded into a truck after being harvested at the Santa Cruz farm near Atibaia, Brazil. PHOTO: PATRICIA MONTEIRO/BLOOMBERG NEWS


The shooting has begun in the U.S.-China trade war, and let’s hope it’s not Fort Sumter. The South figured the Civil War would last a few weeks, but things happened. That’s the nature of trade wars as well, and while no one is likely to win this confrontation, both sides could certainly lose.

Early Friday the U.S. followed through on President Trump’s threats by imposing tariffs of 25% on $34 billion of Chinese imports, and Beijing retaliated on an equal value of U.S. goods. Those amounts are too small to tank either economy, but trade talks have stalled, meaning more tariffs could come as soon as next month.

The damage is already serious for American soybean farmers whose biggest customer is China. They now face a 28% tariff while competitors in Brazil and elsewhere pay no duty. The cash price for U.S. soybeans recently fell to its lowest level in about a decade. Producers of beef, pork, chicken and seafood will also take a hit. U.S. automakers, which will now pay a 40% tariff after it had recently fallen to 15%, will lose sales of highly profitable SUVs that are increasingly popular with Chinese consumers.

Meanwhile, American consumers will pay more for cars and health care due to U.S. tariffs on Chinese-made auto parts and medical instruments. Other prices will rise as companies rearrange supply chains to avoid disruption from future tariffs. For example, world-leading semiconductor companies are upset that chips made in the U.S. and sent to China for assembly or testing will face a high tariff on their total value when they return. Some firms may cut China out of their supply chain, but in other cases it will make economic sense to move U.S. production overseas.

Mr. Trump says this pain is necessary to force China to change its trade behavior. That may be his goal, but it isn’t clear what he or his trade advisers want from Beijing. Some U.S. officials fixate on the $375 billion bilateral trade deficit, and early on Beijing offered to buy more American goods. But Mr. Trump rejected that offer, without offering an alternative.

Other U.S. officials justify the tariffs as leverage to force China to change its Made in China 2025 industrial policy that includes forcing American companies to transfer intellectual property. But talks broke down as the Trump cabinet bickered, and the U.S. isn’t offering a clear set of demands.

China is guilty of abusing the trading system, including the use of nontariff barriers and arbitrary enforcement to put foreign companies at a disadvantage. Working out a new trading arrangement that stopped this misbehavior would be constructive. But to succeed the U.S. would need a united front with allies and trading partners to press China to obey World Trade Organization rules, or establish some new ones.

Instead the Trump Administration is picking tariff brawls at the same time with Europe, Japan, Canada and Mexico, and it is also attacking global trade rules. Far from being isolated, Beijing is trying to form an alliance with the European Union to punish Washington’s misbehavior. On trade at least, America First may soon mean America alone.

Mr. Trump also insists that the U.S. can weather this fight better than China can, and if the damage is so great why is the stock market not falling? One answer is that the U.S. economy has significant momentum from tax reform and deregulation. The other is that the tariffs have only begun, and the new costs will take time to affect investment.

But anecdotal evidence is growing of tariff-related investment delays and layoffs. The U.S. Chamber of Commerce this week released state-by-state data of the damage coming from tariffs, and 17 of the 20 worst hit states voted for Mr. Trump in 2016. This isn’t the “winning” those voters had in mind.

As for China, the Shanghai stock market’s 23% decline since January lends credence to the view that the economy is dependent on exports. Analysts estimate China’s economic growth slowed slightly to 6.7% in the second quarter and manufacturers struggled with slow export orders. But China’s market headwinds are largely of the government’s own making. The central bank has cracked down on banks making risky loans, which has dried up credit. Chinese leaders are sacrificing some growth for a healthier financial system.

China is also much less dependent on trade than it used to be. Exports as a percentage of GDP declined to 18.5% in 2017 from 36% in 2007. Beijing has cultivated trade with developing countries to reduce dependence on the U.S. and European markets. So while a trade war with the U.S. will do some damage, Beijing is not as vulnerable as many think.

The best way out of this showdown is for the two sides to call a truce and negotiate a new trade understanding. Yet neither Donald Trump nor Xi Jinping wants to look like the one standing down, so escalation is more likely than retreat. As the tariff casualties mount, even many Trump voters are going to ask: When is the master negotiator actually going to negotiate a better trade deal?

Appeared in the July 7, 2018, print edition.

Even Before Tariffs Hit, Shock Waves Ripple Through World Economy

July 5, 2018

Among the companies bracing: U.S. car makers Ford and Tesla—and Germany’s Daimler and BMW

Among the U.S. products China plans to hit with tariffs: sport-utility vehicles like these Ford Expeditions moving down the line at the company’s Kentucky Truck Plant.
Among the U.S. products China plans to hit with tariffs: sport-utility vehicles like these Ford Expeditions moving down the line at the company’s Kentucky Truck Plant. PHOTO: NICK CAREY/REUTERS



Businesses are bracing for disruptions in sales and supply chains as the U.S. and China hurtle toward levying tit-for-tat tariffs on billions of dollars in automotive products, farm crops and other goods.

Barring a last-minute reprieve, the U.S. is set to impose $34 billion in tariffs on imported Chinese machinery, auto parts and medical devices at 12:01 a.m. Eastern time Friday. China said it is prepared to respond immediately with equivalent tariffs on U.S. products including soybeans and sport-utility vehicles.

The battle threatens to disrupt commerce around the globe, and the consequences are already being felt.

An American chemical company has been rushing its shipments to China to beat the clock. A Beijing steakhouse has dropped U.S. beef from its menu. And China has been shifting soybean purchases to Brazil, from which it bought nearly 30% more beans in May than it had a year earlier, according to research firm CEIC. Chinese importers have mostly stopped buying U.S. soybeans, said Paul Burke of the U.S. Soybean Export Council, and agricultural giant Cargill Inc. worries about a longer-term shift to other suppliers.

By value, soybeans are the top item targeted by Beijing’s proposed tariffs; China imported around $14 billion in U.S. soybeans last year, according to Wind Information

In all, China’s tariffs would cover 545 categories of U.S. products, while the U.S. tariffs would cover 818 categories of products from China.

“The two largest economies in the world are linked,” said Bruce Blakeman, vice president of corporate affairs for Minnesota-based Cargill’s Asia Pacific region. “The impact of trade conflict will lead to serious consequences for economic growth and job creation and hurt those who are most vulnerable across the globe.”

In the CrosshairsU.S. farm exports that would be subject toChina’s planned tariffsValue of selected U.S. agricultural exports toChina in 2017Source: Wind Info
SoybeansCottonSorghumWheatCorn$0 billion$5$10$15

At a packed briefing for the news media Thursday, Chinese Commerce Ministry officials said $20 billion of the Chinese-made goods targeted by U.S. tariffs are made by foreign companies, including U.S. companies. “The U.S. is firing shots to the world, including to itself,” said Commerce Ministry spokesman Gao Feng.

Among the likely U.S. victims: medical-equipment makers such as Varian Medical Systems Inc., which exports to the U.S. cancer-detection systems manufactured in Beijing. Varian also has plants in California, Europe and Brazil, but the complexity of the manufacturing process makes shifting production difficult, one person with the company said.

“We’re looking at all sorts of scenarios,” the person said. “Like any multinational, we can’t just change overnight in terms of the supply chain.”

Varian is also concerned that if the dispute isn’t resolved, its U.S.-made medical devices could be hit in a subsequent round of Chinese tariffs, leading customers to switch to rival products.

Oil made from imported U.S. soybeans at a plant in China’s Shandong province on Tuesday. China is shifting to other soybean suppliers, notably Brazil.
Oil made from imported U.S. soybeans at a plant in China’s Shandong province on Tuesday. China is shifting to other soybean suppliers, notably Brazil. PHOTO: JASON LEE/REUTERS

The Trump administration contends the tariffs are needed to level the playing field in bilateral trade and protect U.S. companies from the pressure they face in China to transfer technology to Chinese partners.

In addition to the tariffs on $34 billion in goods set to go into effect Friday, both the U.S. and China have proposed a second round targeting $16 billion worth of products. When those would be implemented has yet to be determined.

On top of that, President Trump has threatened tariffs on a further $400 billion in Chinese products.

An American chemical company that exports to China is also concerned about losing customers, an executive said. China has threatened to levy duties on U.S. chemicals in the possible second round of tariffs, which has led the firm to accelerate shipments to China.

The company is also looking to shift some U.S. production elsewhere, but worries about the longer-term consequences as its Chinese competitors—which already offer lower prices—improve in quality.

A soybean field near Tiskilwa, Ill., last month. China buys about a third of the U.S. crop, and the prospect of losing that business helped send soybean prices this week to their lowest point since 2009.
A soybean field near Tiskilwa, Ill., last month. China buys about a third of the U.S. crop, and the prospect of losing that business helped send soybean prices this week to their lowest point since 2009. PHOTO: DANIEL ACKER/BLOOMBERG NEWS

“For now we will wait and see,” the person said. “We don’t know what will happen.”

Other countries are being drawn into the fray, like it or not. Germany’s Daimler AG and BMW AG , for example, sell U.S.-made sport-utility vehicles in China. Starting Friday, they will be subject to a 40% tariff. Those two auto makers, along with Ford Motor Co. and Tesla Inc. of the U.S., stand to suffer the most from the tariffs because they export significant numbers of vehicles to China.

Making matters worse, the 40% tariffs on U.S.-made vehicles are set to go into force just five days after China reduced its tariffs on imported vehicles to 15% from 25%. That means a wider advantage for rivals such as Toyota Motor Corp.

“The customer can always choose cars from countries other than the U.S.,” said a salesman at a Ford dealership in Shanghai. For now, Ford plans to sacrifice margin for market share by leaving the suggested retail price on its imported models unchanged.

“We encourage both governments to continue to work together through negotiation to resolve issues between these two important economies,” said a Ford spokesman.

Separately, Lincoln China also said it has no plans to raise prices.

Tesla dealerships in Shanghai said on Thursday that they were still taking orders at current prices, but that stocks were running low. They said new prices could be announced on Friday, but it wasn’t clear yet how much they would increase.

One worry many U.S. companies share is that anti-American sentiment will grow, hitting American-branded goods.

“The biggest concerns are the subtle forms of retaliation and disruption such as instructions to Chinese companies and consumers to channel their business away from American companies,” said James Zimmerman, a lawyer at Perkins Coie LLP in Beijing and a former chairman of the American Chamber of Commerce in China. “There are always substitutes.”

Write to Yoko Kubota at, Chao Deng at and Lucy Craymer at

China-US trade row might pave the way for the soybean Silk Road

June 30, 2018

Trade threats are giving added urgency to Beijing’s need to find long-term alternative suppliers for one of its key imports

South China Morning Post

Landlocked Kazakhstan in Central Asia is home to an extraordinarily diverse array of horticulture but there’s one crop coming in for special attention from China.

China is looking to Kazakhstan and other countries along the Silk Road to diversify its sources of soybeans.

China already imports nearly 100 million tonnes of the crop a year, accounting for about 60 per cent of the world’s market. Last year roughly half of those imports came from Brazil and a third from the United States, with suppliers in places like Russia, Ukraine and Kazakhstan together contributing less than 1 per cent of the total.

Almost all of the soybeans are processed into animal feed in China to satisfy the country’s ever-growing appetite for meat.

With finite room for growth in its small group of suppliers, China has long known it needs to diversify its sources to meet its expanding demand. That need has gained greater urgency in the last year as trade ties with the United States have frayed rapidly under the strain of tariff threats on both sides.

China has already imported less of the commodity from the US, and has instead turned to Brazilian and Russian supplies. In May, Russian authorities reported a record 850,000 tonnes in soybean exports to China since July, more than double the 340,000 tonnes a year earlier.

“Even if there is an agreement [with the US] China will look to diversify,” DC Analysis president Dan Cekander said. “The environment is now right that they will investigate all avenues of alternative suppliers, and the longer this dispute is prolonged the more likely that will happen.”

So far, China had cultivated few large-scale alternative sources and the huge market share might make buying US supplies inevitable, analysts said. But that could change as China pours investment into countries involved in its “Belt and Road Initiative”, Beijing’s effort to link economies into a China-centred trading network. And the longer the dispute with Washington goes on, the more these emerging sources will have to gain.

“The trade war with the US is generating really good press for the agricultural investment strategy along the belt and road,” said Even Pay, a senior analyst at Beijing-based consultancy China Policy. “[The trade war has] made the case for diversifying import partners really concrete, so policymakers and companies that may have been sceptical before are now seeing a lot of evidence that overdependence on any single supplier of agricultural products is risky.”

One neighbour keen to step into the breach is Kazakhstan, which after nearly a decade of trying finally exported soybeans to China last year.

Growers in the Central Asian nation shipped just 8,400 tonnes of the crop to China between September and March, according to Ukraine-based agribusiness consultancy UkrAgroConsult.

Exports had been derailed over the years by local protests over the leasing of land to Chinese agribusinesses.

But now Kazakhstan is laying the groundwork for greater exports in general with belt and road infrastructure projects, including the Kazakh section of the China-Europe transport corridor completed last year and the massive Khorgos dry port on the border with Xinjiang in China’s far west.

 China-US trade war is making American soybean farmers anxious

The relationship was reinforced in June when Chinese President Xi Jinping held talks with Kazakh President Nursultan Nazarbayev in Beijing, and pledged to coordinate their pet economic projects, Xi’s belt and road plan and Nazarbayev’s “Bright Path” economic policy. The two leaders agreed that bilateral ties would focus on transport, agriculture, investment and interbank associations, all critical for increasing Kazakhstan’s role as an agricultural exporter to China.

Tristan Kenderdine, research director at Future Risk based in Almaty, Kazakhstan’s biggest city, said

China wanted to use the belt and road to diversify its agricultural supply lines, but investment in agriculture moved more slowly than that in other industries. “Kazakhstan is desperate to diversity its economy, and cooperation with China is crucial,” Kenderdine said.

Investment is also growing along the China’s border with Russia in Heilongjiang province. In April, construction began on a port in Fuyuan for shipments of crops, much of it soybean, grown by Chinese companies on Russian farmland.

In addition, a small but rising amount of soybean comes from Ukraine. He Zhenwei, secretary general of the China Overseas Development Association, told entrepreneurs in Ukraine this month that this would continue, with China expected to increase imports of soybean and other agricultural products from the former Soviet state.

China has invested heavily in infrastructure in Ukraine, from dredging seabeds to increase capacity at seaports, to building grain silos and highways.

But there are still serious challenges to importing significant amounts of soybean and other agricultural products from these countries, including poor water supplies and Soviet-era infrastructure, according to Professor Yang Shu, director of the Institute for Central Asian Studies at Lanzhou University.

“At the moment, these countries could never hope to make a dent in major soybean suppliers like the US and Brazil,” Yang said.

Nevertheless, the evolving relationships and Chinese investment in agriculture in the region point to well beyond soybeans. At an interministerial meeting in May, Chinese officials called for the country to speed up development of its large international grain traders and agribusinesses, and to transfer of production capacity to advantageous areas along the belt and road.

Cekander said the trade row with the US could also prompt China to begin substituting soybeans for other goods, switching soybean meal used for feed, to corn and corn meal, which would boost demand for supplies from countries like Ukraine.

“The biggest fear is that there is structural change in Chinese demand if trade tensions wear on,” he said.

China drops tariffs on soybeans for some Asian nations

June 26, 2018


China on Tuesday confirmed it would cut tariffs on goods from five Asian nations, including soybeans, as a brewing trade war with the US could make American beans more costly.

As part of the Asia-Pacific Trade Agreement with neighbours Bangladesh, India, Laos, South Korea and Sri Lanka, Beijing will drop tariffs to zero on several important farm imports while cutting tariff rates on dozens of other goods starting July 1.

The date comes five days before Beijing is scheduled to impose new tariffs on the US, a major supplier of farm goods like the soybeans used widely in animal feed.

China will drop its border tax to zero on soybeans, soybean oil, rapeseed, cow and sheep fat, among other products, the list published Tuesday by China’s state council shows.

As the world’s largest importer of soybeans, with $14 billion in imports from the US last year, analysts are worried the planned tariffs could cause the price of animal feed to rise in the world’s second-largest economy.

Beijing has ordered its farmers to grow more of the crop and has been increasing imports from Brazil and Argentina, while India has also exported the beans to China in the past.


Photo at top:

© AFP/File | China is the world’s largest importer of soybeans, which are widely used in animal feed

Harley-Davidson workers back Trump despite jobs shift

June 26, 2018

Most blame only the EU as motorcycle maker moves some production away from US

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The men and women building the famous American motorbikes could lose their jobs because of the trade war launched by Mr Trump, but are sticking by their man © Bloomberg

Patti Waldmeir in Menomonee Falls, Wisconsin

It is time for a smoke break at the Harley-Davidson power-train facility in Menomonee Falls, Wisconsin, and the talk is all about tariffs.

The men and women who build these famous American motorcycles are weighing the latest unintended consequence of Donald Trump’s presidency: the possibility they could lose their jobs because of a tit-for-tat trade war that has caught the Harley in its crossfire.

The century-old Wisconsin company that Mr Trump has called “an American icon” — and which he has praised as a symbol of stubborn survival against the decline of the American Rust Belt — said on Monday that it would have to move some US production overseas to avoid EU tariffs. The motorcycle maker was the first US manufacturer to scale down domestic production in response to the levies, which were imposed as retaliation for US steel and aluminium duties.

The workers gathered outside the factory gate could end up as collateral damage, but most are sticking by their man regardless. Wearing earphones draped around their necks and safety blinders on their glasses, most happily volunteer that they voted for Mr Trump and would do so again — tariffs or no tariffs.

“He wouldn’t do it unless it needed to be done, he’s a very smart businessman,” said one Harley employee whose name is embroidered on his work shirt — though he asks not to be quoted by name.

“I think he’s playing poker: I’ll hit you with this, you’ll hit us with that, I think this will bring them to the table — unless he’s completely crazy,” chimed in another, who also declined to be quoted on the grounds that he could get into trouble with the company for speaking out.

I think he’s playing poker: I’ll hit you with this, you’ll hit us with that, I think this will bring them to the table — unless he’s completely crazy

Asked whether they blame the president or the EU for causing Harley’s offshoring decision, most say emphatically that they blame only the Europeans. “The president was just trying to save the US aluminium and steel industry”, said one approvingly.

Harley-Davidson said on Monday that it maintained a “strong commitment to US-based manufacturing”, but that its facilities in India, Brazil and Thailand would increase production to avoid paying the EU tariffs that would have cost it as much as $100m.

One worker, who gave his name only as Tod, when asked whether the latest news could make him vote against Mr Trump if he runs for a second term in 2020, said: “No, I don’t think so. It’s going to take a little bit more than that. He’s doing good things. We’ll just have to see who runs on the other side, that might change my vote”.

Mark, another Harley worker sitting astride his motorbike during the afternoon shift change at this plant that employs about 1,000 workers, said: “I think Harley is just using it as an excuse” to move more production overseas, after a recent decision to close the company’s Kansas City plant. “They will just blame it on Trump.”

Mr Trump later appeared to echo that argument, castigating the company for using the tariffs as a pretext. “Surprised that Harley-Davidson, of all companies, would be the first to wave the White Flag,” he tweeted, highlighting the irony that such a symbol of made-in-the-USA greatness would be one of the first casualties in his trade battle.

Several workers said they thought they could find other employment if they lost their Harley jobs — partly because the US economy is booming.

Still, these are the last people that Mr Trump would want to hurt with his trade manoeuvring. He won the presidency in 2016 largely by winning swing states such as Wisconsin — which had not voted Republican in a presidential election in over 30 years. And that was largely because blue-collar voters like these chose him and his promise to revive American manufacturing.

Image may contain: 1 person, text

He and his party cannot afford to lose their support just ahead of midterm congressional elections that are likely to see the Democratic party working hard to get more voters to the polls.

Scott Dunn, president of ACV, a hydraulic repair company located just outside the Harley-Davidson plant, probably speaks for many Trump supporters in this area when he said: “I think he’s right to confront the issue” of unfair trade.

Mr Trump’s backing, especially in the Midwest, has so far proved remarkably resilient. Even those who might be directly hurt by his policies are not rushing to abandon him. “He’s making changes, trying to get the country back where it needs to be,” said one Harley worker, grinding a cigarette butt into the pavement before returning to work.

The details of how he does so may matter less than the mere idea that Mr Trump is trying to “make America great again”.

Image may contain: 1 person, sitting and motorcycle

The company that is a symbol of made-in-the-USA greatness could be one of the first casualties in Mr Trump’s trade war © EPA


U.S. exempts certain steel products of Japan, four other nations from 25% import duties

June 21, 2018

The Commerce Department said Wednesday it has exempted some steel products from Japan and four other countries from the U.S. global tariffs of 25 percent on steel imports.

The exemption applies to seven U.S.-based companies importing steel products from Japan, Sweden, Belgium, Germany and China, the department said.

It was the first time that the United States has taken such action on a product basis since President Donald Trump invoked global tariffs of 25 percent on steel and 10 percent on aluminum in March, citing the need to defend “national security.”

The action covers 42 “exclusion requests” from the seven companies, including razor maker Schick Manufacturing Inc. of Connecticut, cutting tool maker Nachi America Inc. of Indiana and specialty steel supplier Hankev International Inc. of California.

Image may contain: 1 person, sitting

U.S. Commerce Secretary Wilbur Ross attends a Senate Finance Committee session discussing U.S. President Donald Trump administration’s imposing of tariffs on steel and aluminum in Washington Wednesday. | GETTY IMAGES / VIA KYODO

But it was not known for which products manufacturers from the five countries have won the exemptions.

The decision came after a process to determine whether the domestic industry can provide those products of a satisfactory quality and in sufficient quantity, as well as whether it is in the U.S. national security interest to grant an exemption for a specific product, according to the department.

“This first set of exclusions confirm what we have said from the beginning — that we are taking a balanced approach that accounts for the needs of downstream industries while also recognizing the threatened impairment of our national security caused by imports,” Commerce Secretary Wilbur Ross said in a statement.

The Trump administration initially exempted Argentina, Australia, Brazil, Canada, the European Union, Mexico and South Korea from the import duties, but drew criticism for imposing the tariffs on Canada, the European Union and Mexico on June 1.

The tariffs were apparently targeting China as the administration continued to push the emerging powerhouse to reduce its excess capacity — and exports — in these metals, a situation that Trump claims undermines American industry and jobs.

U.S., China Tariffs Hit American-Made Products from Chips to Cars

June 16, 2018

Tit-for-tat tariffs can affect U.S. companies and farmers in unexpected ways

Workers assemble a car at the Volvo manufacturing plant in Daqing, Heilongjiang province, China, on June 8. The effect of tariffs on U.S.-bound autos made in China is likely to be muted.
Workers assemble a car at the Volvo manufacturing plant in Daqing, Heilongjiang province, China, on June 8. The effect of tariffs on U.S.-bound autos made in China is likely to be muted. PHOTO: REUTERS


Chip makers, auto makers and soybean farmers are among those facing the brunt of tit-for-tat tariffs imposed by the U.S. and China in unexpected ways.

President Donald Trump’s plan to impose tariffs on about $50 billion of Chinese goods will force American semiconductor companies to pay duties on their own products because of the complexities of global supply chains, according to the Semiconductor Industry Association.

Most chips American companies import from China are designed in the U.S., and some of their components are made domestically before they are shipped to the Asian country for assembly, testing and packaging. The group called the tariffs “counterproductive.”

Meanwhile, Beijing’s retaliatory move to include American-made vehicles on its list of goods subject to 25% tariffs means that the reprieve auto makers appeared to have received last month, when China said it would reduce import duties on cars, never got off the ground. In May, China said that beginning July 1, it would cut tariffs on vehicle imports to 15% from 25%, a longstanding rate, to quell the Trump administration’s complaints of a trade imbalance.

German auto makers such as BMW AG and Daimler AG’s Mercedes-Benz, as well as electric-car maker Tesla Inc. and Ford Motor Co. , would have benefited from the lowering of Chinese duties. Those companies collectively sold about 240,000 U.S.-built vehicles in China last year, according to research firm LMC Automotive.

The effect of tariffs on U.S.-bound autos made in China would be more muted. Two car companies— General Motors Co. and Zhejiang Geely Holding Group Co.’s Volvo brand—accounted for all of the roughly 54,000 vehicles imported to the U.S. last year out of 17.2 million sold, LMC said. GM dealers last year sold about 40,000 China-made Buick Envision sport-utility vehicles, as well as a few hundred Cadillac hybrid sedans, representing about 1% of GM’s U.S. sales.

Still, duties on Chinese imports would disrupt recent moves by Ford and GM to use their Chinese factories to supply limited numbers of cars to the U.S. Those arrangements allow the Detroit companies to add new, niche models to U.S. showrooms while avoiding capital outlays at their North American plants.

For American farmers, China’s plan to slap levies on U.S. soybeans is a problem many were hoping to avoid. With more than 90% of this year’s soybean crop already in the ground, farmers from Arkansas to Wisconsin face being shut out of the world’s biggest market for the oilseeds, used to make animal feed and vegetable oil.

Agribusiness firms that dominate crop exports, like Cargill Inc., Archer Daniels Midland Co. and Bunge Ltd. , which already have seen soybean sales to Chinese buyers slow, may have to find alternate markets for U.S.-grown oilseeds, if the duties prompt China to increase purchases of Brazilian soybeans. The U.S. is the second-largest soybean producer after Brazil, the U.S. Agriculture Department estimates.

“Retaliatory measures will not solve the concerns raised by these two governments,” a Cargill spokeswoman said. “The impact of trade conflict between the world’s two largest economies will lead to serious consequences for economic growth and job creation and hurt those that are most vulnerable across the globe.”

China’s massive demand for soybeans has become a cornerstone for the U.S. agricultural sector. Last year China imported about $14 billion worth of soybeans, nearly two-thirds of all U.S. soybean exports, but a protracted trade battle could change that. An April study by Purdue University estimated that a 25% tariff on U.S. soybeans could cut American exports of the oilseed to China by 48% or more and wind up shrinking U.S. production by 11% to 15%.

“The one thing we don’t want to lose is China,” said Davie Stephens, vice president of the American Soybean Association, speaking from the cab of his tractor as he planted soybeans near Clinton, Ky.

Some industries managed to mute the impact of the tariff by lobbying to have certain items excluded from the U.S.’s tariffs list. The National Council of Textile Organizations said it managed to get almost all textile machinery built in China excluded from the tariff after it was included in the original list. The machinery is used by U.S.-based fabric and yarn manufacturers and would “hinder the competitiveness of U.S. textile manufacturers” if it carried a tariff, said Auggie Tantillo, president of the textile group.

The medical devices industry too will see a minor impact, on about $836 million in medical devices and diagnostic-related products that are imported from China, according to a spokesman for AdvaMed, a U.S. trade group representing device-makers.

The administration’s initial tariff proposal in April would have affected $2.8 billion worth of medical-technology imports from China, AdvaMed said. The U.S. imports about $6 billion in Chinese medical devices annually, according to Glenn Novarro, an RBC Capital Markets LLC analyst.

AdvaMed urged the U.S. trade representative to remove medical technology from its list of targeted products, “due to concerns about the adverse effects on our competitiveness, as well as potential longer-term impact on patient access to medical technology,” the spokesman said in an email. In May, 40 U.S. lawmakers signed a letter urging the administration to spare the industry from the tariffs.

The efforts appeared to pay off, with the administration removing or nearly removing products including defibrillators, orthopedic implants and hearing aids, Mr. Novarro said in a note to clients on Friday.

Write to Jacob Bunge at and Mike Colias at

  (Wall Street Journal Editorial)

Emerging markets await US and European Central Bank meetings

June 10, 2018

No respite seen for fragile EM countries from tighter Federal Reserve policy

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© FT montage; Getty; Bloomberg

Kate Allen, Roger Blitz and Michael Mackenzie

Central banks step into the limelight for investors this week, as European and US officials hold high-profile meetings, in what could prove a crucial moment for policymakers and particularly for emerging markets.

No respite for emerging markets from a strong dollar

Emerging markets are feeling the heat. Brazil has replaced Turkey in the pecking order of EM currencies under assault, as rising political uncertainty has pushed the real towards R$4 against the dollar, its lowest level in two years.

In recent weeks the likes of India, Indonesia, Turkey, Pakistan and the Philippines have raised their official interest rates. All told, EM countries have tightened policy 22 times in 2018 as the US dollar has gained altitude against the backdrop of the US Federal Reserve steadily retreating from easy money.

EM will find little respite from the developed market. “Despite concerns that individual EM stories are coalescing into a broader EM problem, at this stage DM central banks are unlikely to respond, with both the Fed and ECB taking further steps towards tightening/ending easing next week,” says Elsa Lignos at RBC Capital Markets. “That leaves EM central banks as the main line of defence.”

A surging dollar casts a hefty shadow over EM countries, which have been on a borrowing binge and have debt denominated in the reserve currency. A common feature of EM countries coming under the cosh are those with large current account deficits, such as Brazil, India, Indonesia, Turkey and South Africa.

JPMorgan’s EM currency index has fallen 9 per cent from its mid-February peak and loiters near the lows seen in late 2016 The worry is that this trend has room to run.

A shrinking Fed balance sheet and US money market rates near 2 per cent mean investors can be far more discerning after a prolonged period of hunting for yield, notably in EM and risky areas of credit.

The story of recent months is that money is leaving previously hot and richly priced areas of the risk spectrum and heading for safer assets such as US money market funds. These have just seen the biggest weekly inflow since 2013 when the taper tantrum resonated. EM equity and bond Funds are seeing their longest redemption streaks since the fourth quarter of 2016, says EPFR.

Some, such as Urjit Patel, the governor of India’s central bank, argue that the Fed’s balance sheet unwind, at a time of rising Treasury debt sales to fund the Trump administration’s tax cuts, is fuelling a dollar liquidity squeeze.

But EM investors hoping for the Federal Open Market Committee to cut them some slack likely face a long wait.

Other issues, such as political risk in Italy and rising trade tension, have caused market volatility and have been raised by some Fed members. But while Fed chair Jay Powell may mention these risks during his press conference on Wednesday, they are unlikely to amount to more than passing reference.

Ian Lyngen, strategists at BMO Capital Markets, notes global financial conditions have yet to hit past levels that “indicate a crisis’’ and “until that happens, or unless the Fed believes it is losing control of the pace at which markets tighten, we’re more likely to see the FOMC hold steady on its course towards higher rates’’.

Will the ECB signal an end to bond-buying?

After 43 months of bond purchases totalling €2.4tn, is the eurozone economy strong enough for its largest-ever programme of monetary stimulus to come to an end?

That is the question on the table this week as European Central Bank policymakers travel to Riga for their latest policy meeting on Thursday.

Almost six years after Mario Draghi, its president, promised the central bank would do “whatever it takes” to stabilise the bloc, the central bank is considering a return to more normal financial conditions.

Unlike other central banks around the world, the ECB has purchased corporate debt as well as government bonds, and lowered interest rates to negative levels.

The bond buying has put 22 per cent of eurozone governments’ debt on the ECB’s books, according to FT calculations, with low-debt countries such as Germany seeing more than 29 per cent of their outstanding securities purchased while the ECB owns 17 per cent of the paper of Italy, which is more heavily indebted.

And since it began buying investment grade corporate bonds in June 2016, the ECB has built up holdings of €157bn in corporate bonds — nearly 20 per cent of the company paper that is eligible to be bought.

The large-scale purchasing scheme has had a profound effect on bond yields. Spreads of companies whose debt does not qualify for purchase have trended downwards by nearly as much as those which are eligible, research by Deutsche Bank suggests.

With the programme scheduled to wind down in September, trading desks are bracing themselves for the loss of a major buyer of corporate paper.

“It does mean the market is being removed of a crutch which it has leaned on for a very long time,” said Frazer Ross, head of investment grade corporate syndicate at Deutsche Bank. He added that “in an environment where the market’s more volatile . . . the impact of the reduction is magnified”.

The wind-down is more or less inevitable, said a person who works on a debt capital markets desk in London, who added that they believed it would impact prices: “You’ve got an 800 pound gorilla that’s going to turn into the size of a flea . . . unless there’s Lehman part Two, they’re going to stop buying bonds.” Kate Allen and Chloe Cornish

Brazil to Host Major Auction for Oil Fields

June 7, 2018

Energy companies line up to bid on four blocks located off the Brazilian coast

Four oil blocks off the coast of Brazil will be bid on during an auction on Thursday.
Four oil blocks off the coast of Brazil will be bid on during an auction on Thursday. PHOTO: MAURO PIMENTEL/AGENCE FRANCE-PRESSE/GETTY IMAGES

RIO DE JANEIRO—The world’s largest energy companies line up Thursday for a major auction of coveted Brazilian oil fields, even as Brazil’s government rolled back some market-friendly policies that would have made its oil industry more competitive.

Exxon Mobil Corp. , Chevron Corp. , China’s Cnooc Ltd. and Spain’s Repsol SA are among 16 companies cleared to bid on four blocks in the Campos and Santos basins, thought to hold some 14 billion barrels of oil.

It is the government’s fourth auction of areas in the pre-salt region of southeastern Brazil where as much as 100 billion barrels of crude are believed to be locked under salt layers far beneath the seabed.

The pre-salt reserves were discovered in 2006, but private companies were kept away and production delayed by rules that required state-controlled Petróleo Brasileiro SA, or Petrobras, to be the operating partner with at least a 30% stake in any consortium in the region.

The government eased those rules last year to allow other companies to work without Petrobras if the state giant declined to participate in a project, although Petrobras still has the option to be the operator in areas it chooses.

The auction comes just days after Brazilian truckers went on strike to protest diesel prices that have soared along with international oil prices. The strike brought commerce to a standstill, and forced the government to reinstate price controls for diesel using tax cuts and other subsidies which it estimated will cost $2.5 billion this year.

The decision prompted the resignation of Petrobras’ market-friendly chief executive Pedro Parente, who had relied on the market pricing policy of the past two years to improve results and lower debt at the state oil company.

Despite wavering over fuel prices, the government has a history of respecting contracts in the oil industry, leading analysts to believe companies securing blocks in the pre-salt would avoid any potential backpedaling in the future.

Thursday’s contracts will be awarded to those that offer the biggest share of future production to the Brazilian government. Industry officials say bids could run as high as 75% of oil produced, a level first seen in an auction of pre-salt blocks in September.

The government also expects to collect around $800 million in signing fees.

“High interest for the pre-salt is leading to very risky bets,” said Juliana Miguez of Wood Mackenzie energy consulting group. She warned projects could become unprofitable if production doesn’t turn out as expected, “but based on pre-salt estimates, they are feasible.”

The long-term nature of the projects is also making bidders play down near-term concerns, analysts say.

“The exploration cycle can last two governments,” or eight years, said Helder Queiroz Pinto Junior, an economics professor and former oil regulator. “The companies focus on the geological conditions, and these are promising areas.”

Petrobras has said it is interested in being the operator in three of the areas, a sign for some that the blocks hold good prospects.

“No one knows the Brazilian coast better than Petrobras,” said Adriano Pires, director of Rio-based think tank Brazilian Infrastructure Center. “Investors recognize that the company…has been very careful in its investments decisions.”

Write to Luciana Magalhães at and Paulo Trevisani at