Posts Tagged ‘Brazil’

Brazilians Denounce Their Leader, but Economists Offer Praise

August 16, 2018

Unpopular President Michel Temer, who steps down after October elections, righted a falling economy but didn’t revamp a troubled pension system

Brazilian President Michel Temer

BRASÍLIA—Brazil’s president, Michel Temer, has been called a coup plotter, charged with corruption and is highly unpopular with voters.

But as Mr. Temer prepares to leave politics after national elections in October, many economists credit him with taming his country’s high inflation, reviving private investment with business-friendly policies and pulling the country out of a steep recession.

There’s still plenty of unfinished business. During his two years in office, he failed to make dents in a huge budget shortfall and national debt load, nor accomplish a key goal—reforming a pension system that eats up nearly half of Brazil’s budget.

“It’s an important issue for the nation,” Mr. Temer told The Wall Street Journal in an interview. “Candidates should be talking more about it.”

Many Brazilians view Mr. Temer with suspicion. The 77-year-old former vice president came to power in 2016 after Congress removed President Dilma Rousseff on charges of mishandling the budget. Many accuse him of orchestrating her ouster, an accusation he denies.

His image was further tarnished in 2017, when as president he appeared to endorse the payment of hush money to a jailed lawmaker in a recording leaked to the press. He denied the ensuing charges of corruption and avoided a trial during his term.

Still, 82% of Brazilians disapprove of his governance, according to a recent Datafolha poll.

“Temer is so bad,” said Djanira da Hora, a 64-year-old retiree who sells homemade sweets on the streets of Brasília, the capital. “There is nobody you can trust in the government.”

Many of those who track Brazil’s economy assess his reign more positively than most ordinary Brazilians.

Mr. Temer’s economic team, led by retired banker Henrique Meirelles, cut red tape, reined in spending and took steps to boost business confidence and spark new investing after it had plummeted under Ms. Rousseff, many economists say.

Many of the changes were opposed by unions and the powerful leftist Workers’ Party of Ms. Rousseff and her predecessor, Luiz Inacio Lula da Silva. But they helped set the stage for the first economic growth in 24 months. The economy is projected to grow 1.5% this year.

“Temer made policy changes that stopped the bleeding caused by the recession,” said economist Monica de Bolle of the Peterson Institute, a Washington think tank. “It helped the economy muddle through the crisis.”

The team cut inflation from 9% when Mr. Temer took office to 3% last year, the lowest since 1998, helping to alleviate the strain on household budgets. In a country beset by budget overruns and high public debt, his administration won constitutional approval limiting government spending for the first time.

Mr. Temer also cobbled together the legislative backing to loosen labor law restrictions, leading to a 25% drop in job-related lawsuits. His administration opened up a moribund oil sector to foreign investment, auctioning deep-water oil fields that won the government a nearly $2 billion signing bonus.

Under his watch, Brazil’s central bank trimmed its main interest rate to a 6.5% historic low from 14.25% two years ago.

“Given the circumstances and the state of public finances there were some solid advances,” said Geert Aalbers, a senior analyst at Control Risks, a global risk consultancy.

Obscure for most of his career, Mr. Temer in 2105 made a series of business-friendly proposals as vice president that ran squarely against his boss’s program. Congress removed President Rousseff from power a year later and installed Mr. Temer.

Then in 2017, a prominent industrialist secretly taped Mr. Temer appearing to endorse the hush money, prompting the attorney general to press corruption and money laundering charges against him. The president lobbied Congress to shelve the proceedings.

But the scandal consumed Brazil much of last year, contributing to Mr. Temer’s failure to overhaul the pension system amid a lack of political support.

In the interview, Mr. Temer denied wrongdoing and called the accusations part of “a plot meticulously organized to derail pension reform.” He has offered no evidence of his assertions.

“I want to be remembered as a reformist,” Mr. Temer said. “I don’t want to leave with the stigma of immorality on my shoulders.”

The challenges for Brazil remain sizable: The government struggles to tame a gaping budget shortfall equal to 7% of gross domestic product and a debt load equivalent to 77% of output.

“Looking at the brief Temer administration, what it really tried to do was to fix the fiscal problem,” said UBS economist Tony Volpon. But the “fiscal situation is extremely bad” and the next leader “will have to keep making adjustments to avoid total disaster.”

Most economists, and Mr. Temer himself, agree that the new president must address a pension system that permits some government workers to retire in their 40s with a full salary for life.

The electoral landscape is still fluid, with the most popular choice, Mr. da Silva, barred from running, and other candidates distancing themselves from Mr. Temer.

Mr. Temer, who will leave office when his successor arrives on Jan. 1., expects to face corruption charges he says are likely to be revived when he’s a private citizen. He is also writing a book.

“It will be fiction but based on real-life characters” from his years in power, he said. “I already have them all in my mind.”

Write to Paulo Trevisani at


India denies story that China would print Indian currency

August 14, 2018

The Indian government has denied a report that a Chinese company would be printing its currency notes, calling it “baseless” amid social media outrage.

The report by the South China Morning Post claimed a Chinese company had been contracted to print international currencies, including the Indian rupee.

The news spread quickly on social media, prompting outrage over how this could endanger national security.

Indian rupee notes

India prints all its currency in four high-security presses.

“Reports about any Chinese currency printing corporation getting any orders for printing Indian currency notes are totally baseless. Indian currency notes are being and will be printed only in Indian government and the Reserve Bank of India (RBI) currency presses,” an official from the Department of Economic Affairs told news agency ANI.

The Chinese report quickly gained traction on social media, briefly causing the hashtag #ChinaPrintingRupee to trend worldwide.

Many angry users demanded an explanation from the government and questioned the wisdom of the decision given recent tensions between the two countries.

India and China were involved in a weeks long stand-off along part of their 3,500km (2,174-mile) shared border last June.


Indian MP Shashi Tharoor was among those who demanded a comment from the Indian government.

Other politicians, including the spokesman of the Delhi state government, said the move would endanger India’s “financial sovereignty”.

The company mentioned in the report is the China Banknote Printing and Minting Corporation. It describes itself as the world’s largest money printer.

The South China Morning posted quoted a company official as saying that it had “successfully won contracts for currency production projects in a number of countries including Thailand, Bangladesh, Sri Lanka, Malaysia, India, Brazil and Poland.”

Indian rupee hits record low of 70 to the dollar

August 14, 2018

The Indian rupee hit a record low of 70 to the dollar on Tuesday as emerging market currencies are sold off by investors spooked by the Turkish financial crisis.

The under-pressure rupee touched 70.09 briefly during mid-morning trade as fears grow that the plight of Turkey’s lira will spread to other emerging countries.

The under-pressure currency touched the psychologically important mark during mid-morning Tuesday trade. (AFP)

South Africa, Argentina, Mexico, Brazil and Russia have all seen their currencies slip over the past week because, like Turkey, they remain heavily dependent on foreign capital, especially the dollar.

The rupee has been on a downward spiral throughout 2018 after starting the year at 63.67.

India is a massive net importer of oil, securing more than two-thirds of its needs from abroad.

Analysts say the high crude prices are squeezing the Indian currency, making it less appealing to investors.

The fall in the rupee is leading to a widening of India’s current account deficit, when the value of imports exceeds the value of exports, they say.


New York Plans to Cap Uber and Lyft

August 9, 2018

Taxi drivers welcome the measures, while ride-hailing firms warn the cap will lead to reduced service in the outer boroughs and higher fares

Mohammad Tipu Sultan, of the New York Taxi Workers Alliance, reacts with fellow union members after City Council members vote to cap Uber and other ride-hailing services at City Hall in Manhattan on Wednesday.
Mohammad Tipu Sultan, of the New York Taxi Workers Alliance, reacts with fellow union members after City Council members vote to cap Uber and other ride-hailing services at City Hall in Manhattan on Wednesday. PHOTO: BYRON SMITH FOR THE WALL STREET JOURNAL

New York moved to become the first city in the U.S. to cap ride-hailing services including Uber Technologies Inc. and Lyft Inc., freezing new vehicle licenses for one year while it studies the fallout from the booming industry.

The vote Wednesday by the New York City Council could cripple the growth of Uber and Lyft in their biggest U.S. market as both companies are heading toward eventual initial public offerings. The Silicon Valley companies’ businesses depend on recruiting as many drivers as they can to drive down fares and cut pickup times.

Council members approved a package of bills after months of campaigning from taxi drivers and others in favor of the legislation and a challenge by the ride-hailing companies urging customers to oppose the bills.

Mayor Bill de Blasio, who has championed the measures and unsuccessfully tried to rein in the services in 2015, said he would sign the legislation. “Our city is directly confronting a crisis that is driving working New Yorkers into poverty and our streets into gridlock,” he said.

The ride-hailing firms warned that the cap, which the council approved in a 39-6 vote, would lead to reduced service in the outer boroughs and to higher fares at a time when the city’s subway and bus systems are frequently delayed and overcrowded.

New York Plans to Cap Uber and Lyft

“The city’s 12-month pause on new vehicle licenses will threaten one of the few reliable transportation options while doing nothing to fix the subways or ease congestion,” a spokeswoman for Uber, Danielle Filson, said.

Ms. Filson added: “Uber will do whatever it takes to keep up with growing demand.”

Joseph Okpaku, vice president of public policy for Lyft, said: “These sweeping cuts to transportation will bring New Yorkers back to an era of struggling to get a ride, particularly for communities of color and in the outer boroughs.”

The vote marks the first big lobbying setback for Uber CEO Dara Khosrowshahi.

Image result for Dara Khosrowshahi, photos

Uber CEO Dara Khosrowshahi

Since joining the company in September from Expedia Group Inc., Mr. Khosrowshahi has scored several wins, including a short reprieve in London after regulators there threatened to effectively shutter Uber. He also helped to soften legislation affecting ride-hail drivers in Brazil.

Uber’s fate in New York carries added weight as the company eyes an IPO in the second half of next year. If other cities follow New York’s example, it could cast doubt on Uber’s ability to maintain its growth, as well as the effectiveness of its lobbying operation. The nine-year-old company, last valued by investors at about $70 billion, recorded more than $7 billion in revenue last year but lost $4.5 billion.

Ride-hailing companies have altered the way New Yorkers get around the city.

Subway and bus ridership is falling despite a growing population and rising employment in New York. The Metropolitan Transportation Authority, which runs the systems, says ridership is falling most steeply in parts of the outer boroughs and during off-peak hours—times and places where ride-hailing is growing fastest.

The taxi and livery companies are a powerful force in New York. The value of a yellow taxi medallion has plummeted from more than $1 million a few years ago to less than $200,000 today.

Uber and Lyft, which dominate the market in New York, have expanded rapidly. In 2015, 25,000 ride-hailing vehicles were licensed in the city. Today, there are about 80,000 such vehicles.

Their growth has come at a time of rising congestion on the city’s streets and of falling wages for taxi, livery and black-car drivers. There are about 13,500 yellow cabs in the city and about 32,000 livery and traditional black cars. Bruce Schaller, a transportation analyst who has studied app-based ride-hailing, said on some New York City streets Uber and Lyft vehicles contribute to at least 50% of traffic.

New York is unique because it issues licenses to Uber drivers, allowing the Taxi and Limousine Commission to more closely monitor ride-hailing firms. As a result, New York’s Uber and Lyft drivers tend to be professionals, many of whom used to drive yellow cabs.

In other cities, just about anyone with access to a vehicle who passes a background check can drive for Uber.

The council also voted to allow the city to set a minimum hourly wage for ride-hail drivers. The companies would be required to fill in the gap if drivers don’t meet the threshold.

Uber has said it supports congestion pricing to help ease traffic in New York and would work with the city on setting terms.

Some cities, including Boston, have reached agreements with Uber and Lyft for more disclosure about the numbers of rides they complete or other data, though they generally have little oversight of their operations beyond taxation and certain safety measures.

During the cap on new vehicles, the Taxi and Limousine Commission will study whether to regulate the number of licenses in the city and where those vehicles can operate. Other bills passed by the council create a new class of for-hire vehicle that can be independently regulated and a minimum payment for drivers.

Standing inside City Hall’s rotunda on Wednesday, Mohammad Tipu Sultan, a 43-year-old cabdriver from Brooklyn, welcomed the vote. “This is the first step,” he said. “The fight is not over.”

Write to Paul Berger at and Greg Bensinger at

Appeared in the August 9, 2018, print edition as ‘New York Limits Uber, Lyft Drivers.’

Putin says ‘ready to go to Washington’, invites Trump to Moscow

July 27, 2018

Russian President Vladimir Putin said on Friday he had invited US leader Donald Trump to visit Moscow and was ready to travel to Washington for a new summit, as he praised their “useful” meetings.

Speaking after their Helsinki summit sparked a political crisis in the United States, Putin said the two leaders planned to meet on the sidelines of a summit in Argentina later this year and possibly at other venues.

“I am ready to go to Washington,” Putin told reporters after a summit of the leaders of the BRICS group — Brazil, Russia, India, China and South Africa — in Johannesburg, adding that he had also invited Trump to visit Moscow.

© POOL/AFP/File | Russian President Vladimir Putin said he had invited US leader Donald Trump to visit Moscow and was ready to travel to Washington for a new summit, as he praised their “useful” meetings

“He has a desire to conduct meetings in the future and I am ready,” he said, stressing however that conditions should be in place for such events to go ahead.

Putin said he and Trump planned to meet on the sidelines of a G-20 meeting in Buenos Aires starting late November and possibly other venues which he did not name.

“Life goes on and our contacts are continuing despite all the difficulties — the difficulties in the US domestic political life,” Putin said.

He said the two leaders needed to see each other face-to-face to discuss a host of international and bilateral issues.

“Contacts at the highest political level are needed,” Putin said. “You cannot discuss everything by phone.”

The Kremlin chief spoke after the US administration earlier this week delayed a second summit between Putin and Trump to next year under fire from critics at home.

The summit between the US and Russian leaders in the Finnish capital this month unleashed political turmoil in Washington, with some critics accusing the US president of betraying America’s interests.

Trump faced intense criticism after the Helsinki news conference, during which he appeared to support Putin’s “extremely strong and powerful” denial of subverting the 2016 US presidential election.

Trade war risk to dominate BRICS summit in South Africa

July 24, 2018

Leaders of the BRICS emerging economies — Brazil, Russia, India, China and South Africa — will meet in Johannesburg this week, with the threat of a worsening global trade war topping the agenda.

US President Donald Trump’s hardening stance has compounded fears of an all-out trade war after he slapped levies on goods from China worth tens of billions of dollars as well as tariffs on steel and aluminium from the EU, Canada and Mexico.

China’s President Xi Jinping is on a whistle-stop tour to cement relations with African allies. (AFP)

Russian President Vladimir Putin, China’s President Xi Jinping and Indian Prime Minister Narendra Modi will attend the annual three-day summit opening in Johannesburg on Wednesday.

Earlier this month, China said that it would step up cooperation with other developing nations like the BRICS grouping to counter “trade protectionism”.

China on Monday rejected accusations by Trump that it was manipulating the yuan to give its exporters an edge, saying Washington appeared “bent on provoking a trade war”.

Trump has said he is ready to impose tariffs on all $500 billion of China imports, complaining that China’s trade surplus with the US is due to unfair currency manipulation.

“As to the US being bent on provoking a trade war, China does not want a trade war but is not afraid,” China’s foreign ministry spokesman said when asked about Trump’s threat to impose the across-the-board tariffs on Chinese goods.

Russian Economy Minister Maxim Oreshkin said last week ahead of the Johannesburg meeting that “this summit is about the context — we are at a time when the US and China announce new measures almost every week”.

Image may contain: 1 person, closeup

Maxim Oreshkin

He said much of the discussions with China would likely focus on what is happening with the United States.

“This is a trade war, so leaders’ discussions are particularly important in coordinating our positions,” said Oreshkin.

– A unifying cause? –

Sreeram Chaulia, of the Jindal School of International Affairs outside Delhi, said BRICS leaders would “concur that the US has unleashed punitive trade wars that are hurting all the BRICS members”.

“They have a collective interest in promoting intra-BRICS trade. The urgency this time is greater,” he said.

The BRICS group, comprising more than 40 percent of the global population, represents some of the biggest emerging economies, but has struggled to find a unified voice — as well as achieving sharply different growth rates.

Analysts say US trade policy could give the group some renewed momentum.

“Trade agreements between associations of countries like BRICS have become increasingly important given the self-seeking, and ultimately short-sighted, barriers to trade that are being instigated by the US,” Kenneth Creamer, an economist at Johannesburg’s Wits University, told AFP.

“South Africa, and Africa more broadly, can benefit from increasing exports to fast growing countries like India and China. BRICS has the strategic potential to re-shape world trade.”

The trade war risk also dominated a meeting of Group of 20 finance ministers and central bankers at the weekend in Buenos Aires, while International Monetary Fund chief Christine Lagarde again spoke out against the tit-for-tat tariffs.

China’s President Xi was due to hold bilateral talks with South African Cyril Ramaphosa on Tuesday after visiting Senegal and Rwanda as part of a whistlestop tour to cement relations with African allies.

Signalling diplomatic rivalry over influence in Africa, India’s Narendra Modi is visiting Rwanda and Uganda on his own five-day tour of the continent including the BRICS summit.

Turkish leader Recep Tayyip Erdogan will also attend a summit as the current chair of the Organisation of Islamic Cooperation (OIC). Erdogan will reportedly meet Putin on the summit’s sidelines.

European Commission chief Jean-Claude Juncker travels to Washington on Wednesday to meet Trump as part of the EU’s effort to head off a trade war.


‘Hi, I’m a soybean’: In trade war, China deploys cartoon legume to reach U.S. farmers

July 20, 2018

In the tense trade war with the United States, China’s government has turned to an unlikely weapon: a cartoon bean.

“Hi, everybody. I am a soybean. I may not look like much, but I’m very important,” says the animated character in a video posted on Friday on the website of China Global Television Network (CGTN), the overseas news network of state-owned China Central Television.

Image may contain: one or more people, cloud, sky and food

The short video in English with Chinese subtitles seems designed to undermine support for the trade dispute from U.S. farmers, key supporters of President Donald Trump, by highlighting the damage tariffs could have on American soybean exports.

Its release follows the imposition on July 6 of tariffs on $34 billion of Chinese imports by the United States. In return, China levied taxes on the same value of products from the United States, including soybeans. Trump has also threatened further tariffs on $200 billion in Chinese goods.

The video also highlights efforts by China’s Communist Party to turn to foreign actors, cartoons and even rap to try to deliver its ideas in less turgid formats.

Opting for the unusual narrator illustrates how Beijing views soybeans as a powerful tool in its battle with its top trading partner. Soybeans were the United States’ biggest agricultural export to China, worth $12 billion last year.

The video is partly educational, but is mostly aimed at delivering a political message.

After outlining the main uses of soybeans from tofu to animal feed to biscuits, the bean turns its focus to its central role in the trade war.

China can choose to buy beans from other exporters, such as Argentina and Brazil, if prices become too expensive, the bean says in the video.

But falling prices and lower sales would hurt U.S. soybean farmers, it warns, pointing out that U.S. prices have fallen by 18 percent from May to early July, to their lowest this year.

Nine out of the top 10 soybean growing states voted for Trump in the 2016 presidential election, the video notes.

“So will voters there turn out to support Trump and the Republicans once they get hit in the pocketbooks?” asks the bean.

The cartoon does not mention that soymeal prices in China are rising, triggering fears of food inflation. Soymeal is a crucial animal feed ingredient for pork producers and the country is the world’s biggest pork consumer.

It is not the first time soybeans have had a starring role in Beijing’s trade showdown with Washington. Social media was transfixed by a ship racing to deliver its cargo of U.S. beans before the tariffs kicked in.



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