Posts Tagged ‘Canada’

China’s Response to Latest Trump Tariffs May Determine Course of Trade War

October 14, 2018

U.S. tariffs on around $200 billion in Chinese imports are set to jump to 25% on Jan. 1, up from the 10% implemented last month. That works out to around $30 billion in new taxes to be paid by U.S. importers, many of whom will pass at least some of the costs on to U.S. consumers.

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Be smart: Economics differ on the degree to which increased tariffs will affect things like GDP, corporate earnings, and inflation, but few of the predictions are broadly cataclysmic.

Image result for china, cargo ship, photos

The bigger wildcard is how China will respond. Trump, buoyed by his self-described trade successes with Canada and Mexico, is unlikely to back down before January.

  • If Republicans continue to run Congress, Trump will maintain free reign on trade, even if it violates traditional GOP orthodoxy.
  • If Democrats gain power, trade may be one area where they largely agree with the White House.

China cannot simply apply 25% tariffs to an equal amount of U.S. imports, because they don’t total $200 billion. Other possible options (and, no, this is not an exhaustive list):

  • Devalue the yuan, thus turning them into the currency manipulator Trump already says they are.
  • Severely restrict Chinese tourism to the U.S., which generated $33 billion in 2016.
  • Sell down its trillion dollar-plus stockpile of U.S. Treasury bills, or stop buying new ones. Either one could possibly increase U.S. government borrowing costs.
  • Make it much more difficult for U.S. businesses to operate in China, well beyond current concerns about IP theft and requirements that U.S. tech companies form joint ventures with local partners.

The bottom line: Trump has made America’s policy known. China’s response will determine if this becomes a full-blown trade war.


Mnuchin Says He’s Not Worried China Would Unload Treasuries

October 13, 2018
  • ‘We have plenty of buyers for Treasuries,’ Mnuchin Says
  •  Treasury chief speaks to reporters at IMF talks in Indonesia
Steven Mnuchin in Bali on Oct. 13 Photographer: Goh Chai Hin/AFP via Getty Images

Treasury Secretary Steven Mnuchin isn’t worried that China would use its $1.2 trillion pile of Treasuries holdings as a bargaining chip for a better trade deal.

“I am not losing any sleep over this issue. The Treasuries market is very liquid, this has never come up in any of our discussions whatsoever,” Mnuchin told reporters during a briefing on Saturday in Bali, Indonesia, where he’s attending the annual International Monetary Fund meetings.

“We have plenty of buyers for Treasuries,” he said, adding that China is “free to do what they want to do.”

An escalating tit-for-tat tariff war has fueled speculation that China could threaten to draw down its Treasury holdings, potentially sending yields higher and adding to volatility for the greenback. The country’s ownership of U.S. bonds, bills and notes slipped to a six-month low in July — the latest data available — just as the U.S.-China trade war was kicking off with the first round of U.S. tariffs on Chinese goods, and in-kind retaliation.

The U.S. can ill-afford to see weaker demand for its debt from its major buyers. With budget deficits rising in coming years and tax cuts approved in December expected to hurt revenue, the Treasury has to sell more securities to pay the government’s expenses. Some observers have said a wide-scale sell-off is unlikely given that China has few alternatives to invest in.

Mnuchin said no decision has been made over whether President Donald Trump will meet Chinese President Xi Jinping next month. White House economic adviser Larry Kudlow has said the leaders may meet at the Group of 20 meeting in Argentina from Nov. 30-Dec. 1.

The Trump administration is increasingly turning its attention to currencies as a tool to address improvements in trade deals.

The U.S.’s new trade deal with Canada and Mexico adds a currency provision that commits them to maintain market-determined exchange rates and refrain from competitive devaluations of their currencies. The pledge won’t have much effect on policy-making in the three nations, all of which have free-floating exchange rates. But it could serve as a template for future trade deals, giving the U.S. leverage over countries such as China.

“The currency issues are something that we would like to include in future trade agreements with everybody,” Mnuchin said on Saturday.

In an interview on Thursday in Bali, Mnuchin said the U.S. wants to make sure the depreciation in China’s currency isn’t a “competitive devaluation.” The yuan has fallen more than 6 percent this year against the dollar. People’s Bank of China Governor Yi Gang on Saturday said the country won’t use its currency as a weapon in a trade conflict.

— With assistance by Andrew Mayeda


Steve Scalise bullish on GOP: ‘I think we hold the House’ — Washington Examiner

October 12, 2018

“I think we hold the House,” Scalise, R-La., told Fox News Friday.

Image result for steve scalise, photos

Scalise said the decision by Democrats to resort to violent rhetoric during the Kavanaugh confirmation shows they have no ideas, and said this would turn off voters.

“Margaret Thatcher used to say, first you win the argument, then you win the vote,” he said. “They’re not winning the argument if they’re resorting to violence, and ultimately they’ll lose the vote if they continue to call on violence.”

He said the people he’s seen in swing districts shows they’re excited about the direction of the country, and the job growth seen over the last two years.

“You feel a lot of momentum right now our way,” he said. “I think people are angered by what they saw in the Senate the last few weeks. And frankly, when you talk to them about the economy, they like what they’re seeing.”

“People are working, they’re getting higher wages now because of the work we did with President Trump to cut taxes,” he added.

“You’re seeing an economy that’s booming, and yet Democrats want to raise taxes, they want to abolish ICE,” Scalise said. “They’ve got a very leftist agenda that’s out of touch with the people I’m talking to when I go to swing districts.”


Steve Scalise: Republicans will hold U.S. House

October 12, 2018

U.S. House Majority Whip Steve Scalise, R-Louisiana, believes that despite a Democratic push to take control of the House in this fall’s election, Republicans will remain in charge.

“I think we’re going to maintain the House, and I think it’s because people like the job that we’ve done in terms of tackling tough problems,” Scalise said by telephone as he was traveling to Springfield to appear at a fundraiser at Illini County Club for U.S. Rep. Rodney Davis, R-Taylorville.

“And you look at the tax cut bill especially,” Scalise said. “The economy had been struggling for 10 years, and we finally confronted some of the problems to get it back on track. And that’s being done by putting more money in the pockets of hardworking taxpayers and making sure that we’re competitive.”

Asked about the decision by U.S. House Speaker Paul Ryan, R-Wisconsin, not seek re-election, Scalise said it will be “a loss.”

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Rep. Steve Scalise of Louisiana throws out a ceremonial first pitch before Game 1 of the NLDS in Washington. (AP)

But, he added, “he’s leaving at a time when he’s got some important accomplishments and he’s done a lot for our team to lead us in terms of an agenda — but especially to raise the money necessary to allow us to keep the House majority.” He noted that Ryan didn’t seek to be speaker and now will be able to do something so important to him — spend time with his young family.

“So I applaud him for his decision,” Scalise said.

Scalise thinks President Donald Trump is “doing a really good job.

“I enjoy working with him because he’s focused on following through on the promises he made during the campaign,” Scalise said. “One of the things he said he would do is lower taxes rates, and to stand up for the United States and our allies” while “pushing back” on countries like North Korea and Iran.

While there has been some concern about Trump’s talk of tariffs on foreign imports leading to retaliation that could affect American agriculture, Scalise believes good will come out of the controversy.

“I think we’ve seen the president be selective and strategic” about the focus of the tariff policy, Scalise said.

“Primarily, it’s on China, who’s abused a lot of the trade rules,” Scalise said. “And that’s, I think, where the focus ought to stay. Let’s maintain our friendships around the world and trade with countries who are fair to us, but if China’s cheating, which most countries would agree they are, then they ought to be held accountable.”

“Just the fact that President Trump has put the threat of tariffs on the table, it’s brought China to the table,” Scalise said. “And so I think it’s ultimately going to end up in a positive result for the United States. I think a lot of the threats of retaliation are not going to be followed through. It’s just going to be fairer treatment for American jobs.”

Scalise and Davis were both at a House GOP practice for a charity baseball game in June 2017 when a gunman who had grievances against Trump and the GOP opened fire at the Alexandria, Virginia, field. Scalise was seriously injured, with a shot to his hip shattering bone and damaging internal organs. Two Capitol police officers were also shot, but they were able to return fire and kill the 66-year-old gunman. Davis, who was at bat when the shooting started, wasn’t seriously hurt.

“I’m doing really well,” Scalise said. “I’m fully back at work.” He said he had the last of nine surgeries two weeks ago. He said he has rehabilitation three days a week, and is “just glad to be able to get back to work and do the things I love.”

The experience doesn’t make Scalise think more gun laws are needed.

“Our founding fathers believed strongly in the right of Americans to be able to defend themselves,” he said. “That’s a hallmark of our country.”

Gun control advocates have called for banning bump stocks — devices that make semi-automatic guns repeat fire like automatic weapons.

“The president asked that his agencies go back and look at some of the regulations like bump stocks, and that is happening as we speak,” Scalise said. “But he’s also been clear that taking away the rights of law-abiding citizens is not the direction.”

Scalise said he was happy to be visiting Springfield again and said he has named a room in his whip office in Washington for Springfield’s most famous citizen.

When President Abraham Lincoln served one term in the U.S. House, Scalise said, “he used to sit in this little office by a fireplace. And now it’s one of my offices, and I renamed it the Lincoln Room. So, a lot of neat history.”

Scalise said Davis is a “great member” of his whip team — helping round up votes to move the agenda.

“And he’s had a real successful track record himself of passing legislation and working across the aisle, which is real important,” Scalise said. “We need good people like him to come back.”

Davis, also by telephone while traveling with Scalise, said he “couldn’t ask for a better guy and a better friend” to come to the 13th Congressional District to campaign for him.

“He has always been a supporter,” Davis said, “but this year is much more special. Watching him recover from what he experienced … on the baseball field that day, it’s really great to be able to see the courage and the strength that he’s shown, and I’m proud to introduce him to a lot of my friends and family and supporters.”

Davis faces Democrat Betsy Dirksen Londrigan of Springfield in the Nov. 6 election.

Contact Bernard Schoenburg:, 788-1540,

Saudi Arabia’s Dark Side Sees Light in Khashoggi’s Disappearance

October 12, 2018

As every country across the Mideast does with its leaders, it’s hard to escape posters and laudatory fawning over Saudi Crown Prince Mohammed bin Salman in the kingdom.

For activists, opponents and others willing to speak out against the 33-year-old heir apparent in the world’s largest oil exporter, it looks increasingly like it’s hard to escape his reach either at home or abroad.

The kingdom long has been known to grab rambunctious princes or opponents abroad and spirit them back to Riyadh on private planes. But the disappearance of Washington Post contributor Jamal Khashoggi, who Turkish officials fear has been killed, potentially has taken the practice to a new, macabre level by grabbing a writer who could both navigate Saudi Arabia’s byzantine royal court and explain it to the West.

The disappearance also peels away a carefully cultivated reformist veneer promoted about Prince Mohammed amid the kingdom allowing women to drive, instead exposing its autocratic tendencies.

“I’m not Gandhi or Mandela,” the prince told CBS in March when describing his personal wealth.

Mohammed bin Salman

Saudi Crown Prince Mohammed bin Salman

Saudi Arabia insists the allegations it faces over Khashoggi’s disappearance are “baseless,” but has not offered any evidence over the last week to support their claim he simply walked away and vanished into Istanbul though his fiancée waited just outside. Nor has Turkey fully explained why officials fear Khashoggi has been killed.

Prince Khalid bin Salman, the Saudi ambassador to the U.S., sought to convey sympathy with carefully moderate criticism in a note to friends in English the embassy shared with reporters.

“I would normally prefer not to address such outrageous claims, especially when it concerns the wellbeing of a missing citizen who dedicated a great portion of his life to serve his country,” Prince Khalid wrote. “It goes without saying that his family in the kingdom remain gravely concerned about him, and so are we.”

That sharply contrasts with the tone taken by Saudi local media, as well as Saudi-owned satellite channels and other broadcasters. There, newspapers have called Khashoggi’s disappearance a plot ginned up by Qatar, who the kingdom has been boycotting with three other nations since last year. Al-Jazeera, Qatar’s state-funded broadcaster, has focused extensively on the case in recent days.

Online, the smears have been worse, describing Khashoggi as an al-Qaida supporter for the interviews he did with Osama bin Laden in the years before he turned firmly against the West and plotted the Sept. 11 terror attacks. Khashoggi, apparently with royal court support, once even sought to have bin Laden return to the kingdom and renounce terrorism.

That harshness corresponds with the growing concerns internationally about the direction Saudi Arabia is taking under Prince Mohammed and his father. The kingdom won international praise for allowing women to be able to drive in June. But just ahead of that, the kingdom rounded up and imprisoned women’s rights activists, including reportedly grabbing one who was in the neighboring United Arab Emirates.

Similarly, Prince Mohammed wowed the business world with promises of having an initial public offering of the state oil behemoth Saudi Arabian Oil Co., or Saudi Aramco as it’s known, suggesting it would have a $2 trillion valuation. He hosted a major business summit at Riyadh’s Ritz Carlton, complete with a humanoid robot named Sophia getting Saudi citizenship.

Only weeks later, the Ritz Carlton would turn into a luxury prison as part of a mass arrest of businessmen, royals and others orchestrated by Prince Mohammed in what was described as targeting corruption. Those released agreed to sign over some of their assets, giving the crackdown the feel of a shakedown.

Meanwhile, the Saudi-led war in Yemen grinds on with its years-long stalemate, its toll on civilians in the Arab world’s poorest country unending.

The freeze on journalism and free expression isn’t limited to Saudi Arabia in the greater Persian Gulf.

In the United Arab Emirates on Monday, an influential Emirati official named Ali Rashid al-Nuaimi reportedly told youth gathered for a summit in Abu Dhabi that “our enemies have partnered with media organizations who have reported that the UAE has a prison camp and is committing human rights abuses in Yemen.” The Associated Press has reported on secret prisons in Yemen run by UAE-backed forces where detainees faced physical and sexual abuse, as well as how Emirati forces cut secret deals with al-Qaida militants to get them to abandon territory.

“If the worst-case scenario is realized, Saudi Arabia will have links to the murder of a vocal critic in a fashion engineered to create just enough doubt for the veneer of implausible-but-sufficient deniability,” the New York-based Soufan Center said Tuesday. “It also sends and unequivocal signal to other journalists who dare to criticize the regime.”

But even before now, some like Khashoggi had put themselves in self-exile abroad. If the worst is confirmed about the journalist’s fate, that may push even more critics underground and leave fewer still willing to speak frankly about the kingdom.

As Khashoggi wrote in his first column in the Post: “That is how breathtakingly fast you can fall out of favor with Saudi Arabia.”

The Associated Press


EDITOR’S NOTE — Jon Gambrell, acting Gulf news director for The Associated Press, has reported from each of the Gulf Cooperation Council countries, Iran and other locations across the world since joining the AP in 2006. Follow him on Twitter at . His work can be found at .

Jamal Khashoggi’s disappearance will haunt the Saudi government

October 11, 2018

The disappearance and reported killing of Saudi journalist Jamal Khashoggi will have many victims, starting with his family and his fiancee. But unless the Saudi government speaks and acts quickly and honestly about this terrible event, its own reputation will incur irreparable damage.

Since the emergence of the current government under Crown Prince Mohammed bin Salman, critics (including Khashoggi) have argued that its central characteristic and greatest flaw was despotism: one-man rule by the young crown prince. To this critique were added descriptions of his impulsiveness, inexperience and repression of any criticism of his approach to modernization.

By Elliott Abrams
The Washington Post

(L) Missing Saudi journalist Jamal Khashoggi, (R) Saudi crown prince Mohammad bin Salman.

Defenders of the new regime (including me) have argued in essence that MBS, as the crown prince is known, is in the traditional and positive sense of the term an “enlightened despot.” Though he was an absolute ruler, in this reading, he was one who used his power rationally to bring economic and social reforms, modernize his country and address the many developmental problems that hamper Saudi Arabia despite its wealth. He appears, for example, to have reined in the ultra-conservative clergy, has begun to improve the status and role of women, and has adopted plans aimed at creating a productive economy not dependent solely on oil production.

There has been no political reform. Internal critics have been harshly repressed, including women who urged a faster pace of change. Even this could be explained within the enlightened-despot model. The defense was that the modernization steps MBS is undertaking are radical and face many internal enemies, so gauging the right pace of change is a delicate and fateful decision. He must keep it in his hands and cannot permit public pressure either to go faster or to slow down. His detention of many very rich Saudis in the Riyadh Ritz-Carlton hotel until they paid ransoms was apparently fairly popular in the kingdom, because it was widely believed few of those men had gained their fortunes legitimately. Those ransoms were equivalent to the taxes they had never paid.

That has been the defense, and the accusation of impulsiveness had for a while little evidence to back it. Last year, most of the discussions about Saudi Arabia in which I participated questioned only whether the crown prince’s terrific reform program could really succeed. His highly successful two-week visit to the United States this year deepened the enthusiasm.

Opinion | Saudi Arabia is already under pressure on Capitol Hill. It could get worse.

Sen. Tim Kaine (D-Va.) warns that military and economic ties could be threatened if Saudi Arabia is proved to have killed journalist Jamal Khashoggi.

The alleged killing of Khashoggi is a death blow to all those hopes and expectations, unless the Saudis can somehow explain what happened and accept full responsibility. First, this is not the only recent event that raises questions about decision-making in Riyadh. This year, the planned initial public offering of shares in the state oil company Aramco appeared and disappeared like a desert mirage, suggesting that the crown prince’s economic plans may not have been realistic.

Second, the reported Khashoggi killing came just a few weeks after the bizarre Saudi overreaction to criticism from Canada, which took the form of a single tweet on human rights issues. Recalling their ambassador from Ottawa for a while would have been fitting if they wished to show anger. Instead, they brought him home permanently, expelled the Canadian ambassador in Riyadh, barred flights between the two countries, ordered Saudi students to leave Canada, and took several steps to diminish economic and financial relations with Canada. All that over a tweet.

And now comes the apparent murder, abroad, of a critic who had long been part of the Saudi establishment and was no revolutionary, no radical Islamist, no advocate of violence. I do not know Jamal Khashoggi well, but we had met and talked about the kingdom on several occasions. Any government that thinks it cannot survive his thoughtful criticism telegraphs to the world that it thinks itself shaky indeed.

When the revolutionary regime in France in 1804 executed the Duke d’Enghien, one commentator observed: “It’s worse than a crime, it’s a mistake.” Killing Khashoggi would be both: a great crime and a great mistake. It suggests either a regime without internal procedures and controls, or one in which an impulsive decision to kill a critic living in Washington cannot be contradicted or even questioned. The Saudis may not realize what a wide impact that conclusion will have on governments and on investors, but it will be profound. All Saudi decision-making will come into question, and the government’s reliability as a partner will be rendered uncertain.

MBS can repair some of the damage (though obviously not to Khashoggi’s loved ones) if he can bring himself to realize the error that has been committed. Saudi Arabia is and will remain for a very long time an absolute monarchy. What the crown prince must grasp is that his entire modernization program, indeed every defense of his own personal power, is undermined by what all the evidence suggests was a carefully planned murder. Jamal Khashoggi lost control of his fate when he entered the Saudi consulate in Istanbul. Mohammed bin Salman must act quickly to regain control of his own.

Elliott Abrams is senior fellow for Middle Eastern studies at the Council on Foreign Relations. He served as deputy assistant to the president and deputy national security adviser in the administration of President George W. Bush, where he supervised U.S. policy in the Middle East for the White House.
Opinion | If the worst is true about Jamal Khashoggi, Saudi Arabia must be punished

Jamal Khashoggi’s disappearance needs to be investigated fully,” says Rep. Gerry Connolly (D-Va.). 

Canada’s former ambassador to Saudi Arabia denounces Twitter diplomacy

October 11, 2018
Canada’s foreign ministry had sent a Twitter message saying it was ‘gravely concerned’ by a new wave of arrests of women and human rights campaigners in the kingdom
Canada's former ambassador to Saudi Arabia denounces Twitter diplomacy
Canada’s former ambassador to Saudi Arabia Dennis Horak.

Canada’s former ambassador to Saudi Arabia on Wednesday criticised  Twitter diplomacy in his first public remarks since being expelled from Saudi Arabia in August over a rights row.

“Yeah, yeah, not a fan,” now retired diplomat Dennis Horak said of Canada’s use of Twitter, which sparked his expulsion – also with a tweet.

“I think we took a step too far,” he told the Canadian Broadcasting Corporation (CBC).

“Whether we can come back from that, I don’t know… But we need to begin deciding, do we want this? Do we want to salvage this relationship or not?”

Riyadh expelled Ottawa’s ambassador – also with a Twitter announcement – and severed all trade and investment ties with Canada in August to protest its rigorous demands that jailed human rights activists be released.

Canada’s foreign ministry had sent a Twitter message saying it was “gravely concerned” by a new wave of arrests of women and human rights campaigners in the kingdom, including award-winning activist Samar Badawi.

“We urge the Saudi authorities to immediately release them and all other peaceful #humanrights activists,” the foreign ministry said in the message, which was also translated into Arabic.

Horak, a diplomat for three decades and who was three years into his second posting in Saudi Arabia, was on vacation in Canada at the time, and learned of his expulsion while at a barbecue.

“It was a very big surprise. I get that they were upset about the tweet, but to react the way they did, it was a serious over-reaction,” Horak said of the Saudi move.

Canada and its allies routinely call out alleged human rights abuses abroad.

“The American State Department issues a human rights report every year, the British parliament does raise issues every now and then, but they both have very strong relationships with Saudi Arabia. And so it can survive some of those public dressing-downs in ways that we were more vulnerable to,” Horak said.

He told CBC he believes the Saudis were concerned that Canada had targeted the message at their public during a time of volatility.

Some in Saudi Arabia, he explained, “are not happy with (recent) reforms and feel that perhaps Saudi Arabia is being too compliant with Western demands.”

“This would give them ammunition to say, ‘See, look, we are being pushed around by the West, they’re now demanding our judicial system do X, Y and Z.'”

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Wall Street bloodbath spills over to Hong Kong, China stocks

October 11, 2018

Chinese internet giant Tencent plunges 7.5 per cent as benchmark Hang Seng Index loses more than 1,000 points

South China Morning Post

PUBLISHED : Thursday, 11 October, 2018, 9:54am
UPDATED : Thursday, 11 October, 2018, 12:51pm

Hong Kong and Shanghai stocks plunged on Thursday morning as a sell-off on Wall Street spread to Asia after rising bond yields and interest rate increases spooked investors and caused a broad market rout.

The Chinese yuan was also hit hard, sinking to a 19-month low.

Hong Kong’s benchmark Hang Seng Index briefly tanked 1,033 points, or 3.9 per cent, to 25,159.69, the lowest intraday level since May last year. By the mid-session close, it was down 986.04 points, or 3.8 per cent, at 25,207.03.

As investors dumped stocks, turnover spiked. The half-day turnover for the main board increased to HK$74.8 billion, nearly 90 per cent of Wednesday’s volume for the entire day, HK$86 billion.

Index heavyweight Tencent Holdings was trading 7.43 per cent lower at HK$265.240 by lunchtime, having briefly plunged 7.5 per cent earlier to hit a 15-month low of HK$265.00.

Trading was exceptionally active for shares of the Chinese social media and gaming giant, whose half-day turnover reached a whopping HK$9.3 billion. The stock single-handedly accounted for 12 per cent of the entire main board’s trading volume, with the half-day turnover higher than Tencent’s average full-day turnover of HK$8 billion from Monday to Wednesday of this week.

All 50 component stocks on the Hang Seng Index dropped. Tencent, Sunny Optical Technology, and AAC Technologies were the only three stocks losing more than 7 per cent.

The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors

The Hang Seng China Enterprises Index, which tracks Hong Kong-listed Chinese companies, slid 4.1 per cent to 10,015.01 by the noon break.

“The US equity bloodbath is taking no prisoners in Asia as a sea of red greets investors at the open as equity deleveraging and liquidation intensifies,” said Stephen Innes, head of trading for Asia Pacific at Oanda.

“If the Feds are crazy, this market reaction is bordering on insanity, as so many negative cross-currents collide that is merely impossible to find a glint of optimism.”

He was referring to comments made by President Trump on Wednesday in which he called the US Federal Reserve “crazy” for raising interest rates.

“The US market sell-off has a lot to do with rising Treasury yields. But upcoming corporate earnings announcements are also a concern, as investors worry the trade-war effect will start to emerge in US companies’ third-quarter results,” said Stanley Chik, head of research at Hong Kong-based Smart Securities.

“Hong Kong stocks are likely to test new lows today.”

Chik said Tencent’s continued weakness is a key challenge for the Hong Kong market. The Chinese gaming giant has been hamstrung since regulators stopped approving new games as part of an apparent crackdown on internet addiction and content deemed inappropriate.

In mainland China, the benchmark Shanghai Composite Index tumbled 4.5 per cent to 2,603.89 by the lunch break, having briefly touched a four-year low of 2,601.84 during the morning.

On the tech-heavy Shenzhen exchange, the Shenzhen Composite Index and the start-up board, the ChiNext, both lost more than 5 per cent by noon.

Capital fled mainland China for overseas. Net outflows from the Shanghai and Shenzhen exchanges totalled 3.5 billion yuan on Thursday morning, according to data from the Stock Connect scheme linking mainland and Hong Kong markets.

Combined half-day turnover for Shanghai and Shenzhen markets stood at 222.1 billion yuan, almost equal to Wednesday’s full-day turnover of 236 billion yuan.

Elsewhere in Asia, Japan’s Nikkei 225 dropped heavily, falling 4.2 per cent to 22,514.14. Australia’s S&P/ASX200 lost 2.5 per cent to 5,899.20. South Korea’s Kospi fell 3.7 per cent to 2,145.42.

On the currency front, the Chinese authorities set the yuan’s daily guidance rate at 6.9098 per US dollar, the lowest in 19 months. It is the eighth straight day the central bank has lowered the reference rate.

On Thursday morning, the onshore yuan weakened 0.1 per cent to 6.9317 against the US dollar, while the offshore rate dropped 0.3 per cent to 6.9420.

Innes said the Chinese yuan’s decline is likely to continue.

“The PBOC (People’s Bank of China) appears to be in little rush to stem the weakening tide, despite the apparent risk from capital outflows and more equity liquidations,” he said.

Overnight in the US, the Dow Jones Industrial Average and the S&P 500 both slid more than 3 per cent, their worst days since February. The Nasdaq logged a 4.1 per cent loss, the biggest decline of 2018.

The yield on the US 10-year Treasury note briefly jumped to 3.23 per cent, before dropping back slightly.

US President Donald Trump on Wednesday lashed out at the Federal Reserve’s tightening policy again, reiterating his preference for lower interest rates.

“The Fed is making a mistake. They’re so tight. I think the Fed has gone crazy,” he told a group of reporters in Pennsylvania, according to the Financial Times.

“It’s a correction that we’ve been waiting for, for a long time. But I really disagree with what the Fed is doing, OK?”

On the same day, US Treasury Secretary Steven Mnuchin warned China against “competitive devaluation” of the yuan as the US-China trade war escalated, according to a Financial Times report.

U.S. Stock Market Sell-Off Explained: The Fed, Trade War, Trump Administration

October 11, 2018

The Fed’s liquidity injections no longer underpin asset prices, leaving a greater role for fundamentals.

Back to basics.  Photographer: Spencer Platt/Getty Images

The 3 percent to 4 percent plunge in the major American indexes on Wednesday is unsettling for investors who have grown accustomed to low U.S. market volatility in recent years. What’s more disturbing is that most of the traditional hedges against such a large equity selloff, both within and across market segments, did not work well.

Yet neither of these developments should come as a great surprise given the following five factors that also point to what’s ahead:

  1. After years of seemingly unquestioned central bank support – including the so-called “Fed Put” – stock and bond markets are transitioning away from a world where liquidity injections underpin asset prices and moving toward a greater role for fundamentals. Almost by definition, this is a volatile process: Think of a plane changing engines while flying at a high altitude. Turbulence is to be expected.
  2. Unusual divergence in economic performance and policies within the advanced world is complicating this liquidity-to-fundamentals market transition. U.S. growth is increasingly outpacing other countries’, powered by the combination of higher household income, increasing business investment and government spending. In addition, the Federal Reserve is well ahead in normalizing monetary policy, after ending quantitative easing, hiking interest rates eight times, publishing the timetable for reducing its balance sheet, and signaling further rate increases for both this year and next.
  3. The resulting dispersion in asset prices has placed some extra strains on markets. And it’s not strictly a matter of divergence. There are also a wide range of views on whether other countries will eventually converge with the U.S. in achieving higher growth or whether the U.S. will be pulled down.
  4. Trade tensions are adding to the uncertainties about the market transition. Specifically, it’s not yet clear how long it will take China to realize that the least bad alternative for its development is to pursue the same path that other countries (South Korea, Mexico and Canada) ultimately followed — that is, make concessions to the U.S. It also isn’t clear what concessions would satisfy the Trump administration.

Finally, technical conditions in markets are not helping by amplifying large moves in the short term rather than tempering them.

Over the longer term, success in the ongoing transition in the liquidity-fundamentals paradigm will place markets on a more solid footing. So will repricing that allows traditional stock-bond diversification to provide better risk mitigation. The short term, however, is likely to be quite volatile.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Time to End the U.S., China Trade War

October 10, 2018

The world’s first and second largest economies cannot disengage fully, regardless of the actions of particular administrations, say two US foreign policy observers from the Brookings Institution.


The Brookings Institution

Fresh from reworking US trade agreements with North American partners, the European Union, and South Korea, the Trump administration is focusing on its biggest trade irritant, China.

In confronting China, US President Donald Trump enjoys support from a policy community worried about China’s military assertiveness and willingness to flout global norms in fields ranging from international investments to intellectual property.

Image result for china, cargo ship, photos

But President Trump’s demands on China have ranged all over the map, demanding at one point that China reduce its bilateral trade surpluses, later that it drop the “Made in China 2025” technology initiative, and now that it eliminate tariffs that adversely affect Republican voters.

This new charge of election meddling — which President Trump laid out in remarks on nonproliferation to the UN Security Council — has been recently amplified by Vice-President Pence in even harsher terms that stopped just short of calling for full disengagement from China.

Calls for disengagement are premature and dangerous; earlier steps must include finding better US strategies for dealing with China. US policy needs clearer objectives, a more realistic approach, and better tactics to achieve its goals.

Today’s reflexive, tit-for-tat tariff escalation is proving ineffective and may cause lasting damage to both economies and to the critical US-China geopolitical relationship.

Trump Haley

FILE- In this Sept. 24, 2018 file photo, President Donald Trump talks to Nikki Haley, the U.S. Ambassador to the United Nations, at the United Nations General Assembly at U.N. headquarters. Congressional and Trump administration officials told The Associated Press that Haley plans to resign. She was appointed to the U.N. post in November 2016. (AP Photo/Evan Vucci, File)


The United States has inter-related problems with China and at different times has emphasised different issues, confusing Chinese negotiators.

President Trump has made a big deal of the bilateral trade imbalance. Economists do not see this as a problem.

China’s overall current account surplus, the broadest measure of trade, is down to about 1 per cent of GDP in 2018. China has deficits with many countries that export natural resources and surpluses with some advanced economies, like the United States, that import its manufactured goods.

The administration could probably reach an agreement to sell more to China, especially agricultural and energy products. Other things being equal, this would reduce China’s bilateral surplus. But the United States would then likely sell less of those products to other countries so that those bilateral imbalances would worsen. Nothing real would have happened.

A second and more important issue is that China has many market access restrictions. Some of these are old-fashioned protectionism: For many years, China had a 25 per cent tariff on auto imports. That has recently been reduced to 15 per cent, but such taxation is still high in today’s world.

There are also many sectors in which China restricts direct foreign investment, usually by requiring foreign firms to be minority partners in joint ventures.

Here, China is out of step with practices in other large emerging markets such as Brazil, India and South Africa. This investment protectionism puts foreign firms at a disadvantage and results in their transferring technology to Chinese state enterprises that will eventually be their competitors.

But China is now showing willingness to reduce restrictions in autos and financial services. This is a good start and a promising area in which Washington could make real progress in negotiations.

READ: Despite headwinds, China continues to open up, a commentary


A third issue closely related to the second is technology competition between these two biggest economies in the world.

These two spend the most, globally, on research and development, and there will naturally be competition to develop the technologies of the future. As long as it is on a level playing field, such competition is healthy. Each is likely to make breakthroughs.

The innovators will capture some of the benefits, but the nature of technology diffusion is that much of the benefit will spread to the whole world.

Chinese President Xi Jinping (middle) talks with Facebook Chief Executive Mark Zuckerberg (right) as Lu Wei, China's Internet czar, looks on during a gathering of CEOs and other executives at the main campus of Microsoft Corp September 23, 2015  in Redmond, Washington.

Chinese President Xi Jinping, centre, talks with Facebook chief executive Mark Zuckerberg, right, as

Chinese President Xi Jinping, centre, talks with Facebook chief executive Mark Zuckerberg, right, as Lu Wei, left, China’s Internet czar, looks on at Microsoft’s main campus in 2015 (Photo: AFP/TED S. WARREN)


Yet China distorts this competition in multiple ways. Chinese firms operating behind protective barriers often gain extra resources to take their innovations out to the world.

China’s industrial plan, “Made in China 2025,” sets targets for domestic self-sufficiency in key industries, and some tools to achieve these goals will violate market-oriented rules.

READ: The trouble with ‘Made in China’, a commentary

Direct subsidies to innovators and to state-owned enterprises also tilt the playing field toward China’s technologically sophisticated companies.

Weak international property rights protection in China, especially for foreign firms, puts US technologies at risk.

Electronics factory in Shenzhen. Steve Jurvetson/Flickr

Finally, as suggested by recent reports, China still condones cyber theft of commercial secrets.

Pushback against these policies is needed, but it would be far more effective if mounted by a global coalition of the United States and its allies.

More difficult issues arise for technologies that have defence applications. Each side has trade and investment restrictions concerning defence-related technologies.

The key issue here is to identify and update the areas that need to be restricted for legitimate security reasons. At the same time, these restrictions must not be allowed to become excuses for protectionism.

To address these multiple concerns, some voices in Washington are calling for the United States to disengage from China. They argue that it will not be possible to have fair competition and that the two countries are likely to be in conflict in the future.

This is a dangerous idea. First, US allies are not going to follow if the US adopts a Cold War policy of trying to contain China.

Second, an isolated China will have even stronger incentives to adopt unfair practices to achieve economic and technological parity. It is better to manage the competition than to assume that it is headed for conflict.



The rapid, wide-ranging escalation of tariffs in the US-China trade war has no precedent in the years since the Great Depression. The war began in early 2018 with US tariffs on solar panels and washing machines, and has now escalated to covering US$250 billion of US imports from China.

China, in turn, has imposed tariffs on the bulk of its imports from the United States. These actions — mostly unilateral and pointedly discriminatory — are almost certainly inconsistent with World Trade Organisation (WTO) rules.

The tariffs applied by the two countries are not “remedies” in the sense of correcting market distortions, nor are they preventing, say, sharp adjustments in a declining industry.

On the contrary, they will cause dislocations, raise costs, and increase uncertainty. Their value lies in the possibility that they will force the other side to make concessions, or at least deter it from even worse behaviour.

READ: Why tariffs are the wrong instruments to address US-China trade issues, a commentary

If that doesn’t happen — if neither side capitulates to the other’s demands — the tariffs will prove to be costly, mutual mistakes.

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Chinese exports piled up for shipment. Credit Reuters

And that seems to be where the US-China trade war is headed. These are large, domestically oriented economies that depend lightly on each other’s markets, so punitive tariffs have limited macroeconomic effects.

The value added in China’s exports to the United States amounts to about 2 per cent of the country’s GDP, down significantly from just a decade ago.

United States exports to China amount to only about 1 per cent of GDP. In the short run, these tariffs will subtract only a small amount from each economy’s growth. Capitulation on either side is very unlikely.

Over time, the costs of these tariffs will grow. The United States is apparently confident in threatening China because US imports from China exceed US exports to China.


But the asymmetry is illusory; tensions are already spilling into areas where the two countries are both consequential, including relations on the Korean Peninsula and between the Chinese and US militaries in the Western Pacific.

In these new spheres the potential for mutual damage is still higher.

Meanwhile, rapid-fire retaliations have all but closed off meaningful negotiations. The real issues, noted above, are complex and cannot be resolved by tweaking a ready template, such as existing trade agreements in the case of the South Korea-US free trade deal (KORUS) and the North American Free Trade Agreement (NAFTA).

In mid-September, Chinese and US officials apparently agreed to efforts to launch negotiations, but were then undermined by President Trump. With capitulation as the only option, Chinese decision makers halted discussions.


The self-defeating cycle of tit-for-tar tariff escalation is in neither country’s interest.

Even if the US goal were to disengage — an objective that we think would be wrong —that could be accomplished firmly and with fewer side effects with widely based tariffs and prohibitions on specific trade and investment flows. And if the United States does intend to solve genuine problems, it can suspend punitive tariffs while negotiations make progress.

Current tariffs are hardening positions rather than producing meaningful effects. They are taxes that make American producers less competitive and ultimately fall on consumers; they are bound to become unpopular over time.


Avoiding ineffective tariff escalation is not capitulation but smart policy, the first step toward achieving the goal of disengagement or negotiation.

An end to tit-for-tat responses — what the Hudson Institute’s Herman Kahn described in 1965, for nuclear war, as the “orgiastic spasm of destruction in which all the buttons are pressed and the commanding officers go home” — will offer immediate economic benefits to both sides and improve the climate for negotiation.

Stopping tit-for-tat escalation is beneficial even for a single country. The value of avoiding an “own goal” – imposing costs on the home economy — is self-evident.

In addition, there may well will be advantages for China from some steps advocated by the United States, but it is hard to pursue these ideas in the trade war environment.

The trade war plays into the hands of those who want to bolster state enterprises and maintain protectionism.

By putting tit-for-tat policies in the rearview mirror, China can focus on long-term priorities. These may include policies that have little to do with the United States, including the Regional Comprehensive Economic Partnership (RCEP) and the Belt and Road Initiative, as well as opening sectors to improve China’s competitiveness.

Along these lines, China recently cut tariffs on more than 1,500 products and eased investment restrictions to signal its continued economic opening.


Fruitful agreements between China and United States, however dim they may appear today, are possible. Many in China recognise that recent trends toward centralisation have backfired, and that continued growth will depend on renewed “opening up” in sectors ranging from financial services to technology.

China can take numerous unilateral steps that will benefit its domestic economy and be welcomed by Americans.

Within reasonable limits, the world’s first and second largest economies cannot disengage fully, regardless of the actions of particular administrations. They will compete in many areas and remain complementary in others.

The success of each will depend far more on its own policies than the policies of the other. Their joint goal must be to eliminate irritants, reduce distrust, and wall off areas of rivalry from those that allow mutually beneficial collaboration.

Even though neither China nor the United States is currently a party to the Trans-Pacific Partnership, that agreement establishes guidelines for competition in areas such as internet openness, data mobility, intellectual property protection, open investment, and the neutrality of state-owned enterprises.

These issues will have to be addressed sooner or later, whether now or under future administrations.

David Dollar is a senior fellow in the John L Thornton China Center at the Brookings Institution. Peter A Petri is the Carl J Shapiro Professor of International Finance at the Brandeis International Business School and a nonresident senior fellow in the John L Thornton China Center at the Brookings Institution. 

This commentary first appeared in the Brookings Institution’s blog Order from Chaos