Posts Tagged ‘trade’

The Trade Casualties Mount

July 21, 2018

Peter Navarro says the harm is a ‘rounding error.’ He’s out of touch.

The Trade Casualties Mount
PHOTO: RICHARD DREW/ASSOCIATED PRESS

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President Trump is escalating his trade rhetoric, threatening China and Europe with more tariffs on more goods if they don’t agree to his terms. Mr. Trump says winning these trade wars is “easy,” so let’s take a look at the early returns on his steel and aluminum tariffs and the retaliation they’ve inspired.

Commerce Secretary Wilbur Ross in March slapped a 10% tariff on aluminum and 25% on steel in the name of helping American metal manufacturers. But one problem is that downstream businesses can’t easily reconfigure global supply chains, and higher input costs are making them less competitive globally.

Consider Alcoa , the top U.S. aluminum manufacturer whose shares plunged 13% Thursday and another 3% Friday after the company reported that tariffs are crimping earnings. The tariffs could wipe out $100 million of income this year, equal to about 18% of profits last year. “Tariffs will not solve the challenges facing the aluminum industry,” Alcoa CEO Roy Harvey said on an earnings call.

Alcoa makes about 28% of its aluminum in Canada because of lower energy costs, and nearly half of U.S. aluminum imports come from Canada. While Alcoa is restarting part of an idle smelter in Warrick, Indiana, the company isn’t planning to bring others back online because U.S. smelters are among the oldest and least efficient in the world. Retrofitting plants is expensive, which is why six have shut down since 2012. Many manufacturers are expanding operations abroad where energy is cheaper.

Century Aluminum , the second biggest U.S. aluminum manufacturer, boasts that its Iceland smelter is “our largest, most-modern and lowest-cost facility,” producing about 17% more than rated capacity. Two of its three U.S. smelters last year were running at half capacity. Century’s stock also tumbled this week as investors bet that tariffs might whack its earnings.

Meantime, many businesses are delaying investments in the U.S. because of the uncertainty caused by the tariffs. Borusan Mannesmann, which produces pipelines for the oil and gas industry, was recently notified that Commerce had denied its application for a steel-tariff exemption. This has frozen its plans to invest $75 million in expanding production in Baytown, Texas.

Commerce also rejected an exemption for Plains All American, which is building a pipeline from the Permian basin to the Gulf Coast that will relieve a supply bottleneck. Inadequate pipeline capacity in the region has curtailed oil production and exports, which will frustrate Mr. Trump’s efforts to keep a lid on gas prices while applying sanctions pressure on Iran.

Plains All American said it wanted to import steel from Greece because no manufacturer in the U.S. produces the specific type it needs. The company had put the purchase order in last year, and asking a domestic manufacturer to produce the specialized steel now would delay the pipeline’s completion. But its costs will be higher.

Meanwhile, White House trade adviser Peter Navarro told CNBC on Thursday that the damage from the trade war so far is no big deal. “We got two economies that add up to around $30 trillion in annual GDP. The amount of trade we’re affecting with the tariffs is a rounding error compared to that,” he said. That drew a sharp rebuke Friday from the American Farm Bureau Federation that has watched retaliatory tariffs hit U.S. agriculture especially hard.

“Prices for all of our export-sensitive farm goods have tanked since May, when this tariff game started. Farm income was already off by half compared to four years ago, with debt levels rising—hardly a strong position for agriculture going into this trade war,” said the Farm Bureau. “This situation will only worsen as combines roll between now and the fall election season. The nation’s farmers and ranchers support the broader goal of strengthening our overall economy and trade balance, but not at the risk of long-term, irreparable harm to our ag exports and the jobs they create.”

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All of this and more are examples of the real and growing damage that Mr. Trump’s arbitrary and punitive trade policy is doing to U.S. companies and workers. Businesses have been relatively quiet so far because they are happy with the tax reform and deregulation. But if Mr. Trump escalates his protectionism, the pain will increase and so will the political backlash before November.

Appeared in the July 21, 2018, print edition.

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G20 finance ministers meet in Argentina as trade dominates agenda

July 21, 2018

With trade conflicts brewing around the world, this weekend’s G20 meeting of finance ministers in Argentina might not be the most fun place to be on the planet. Yet critical questions will be on the agenda.

    
Buenos Aires G20 Finanzministertreffen Mnuchin (Reuters/M. Brindicci)

G20 finance ministers meet this weekend in Buenos Aires in their first meeting since global trade tensions moved beyond rhetoric into a volley of tariffs and counter-tariffs.

Trade will dominate the agenda in the Argentine capital, with much attention likely to be focused on US Treasury Secretary Steven Mnuchin as he looks to “respond to concerns on US trade policies” at the gathering of finance ministers and central bankers from the world’s 20 leading economies.

The EU, China and Canada will be among those represented, with all of those having come into direct conflict with the trade polices of US President Donald Trump in recent weeks and months.

Read more: US firms try to protect themselves amid Trump trade battles

The US and China have placed $34 billion (€29 billion) worth of tariffs and counter-tariffs on each other, with more expected to follow, with the US also placing tariffs on steel and aluminum from the EU, Canada and Mexico, resulting in further counter-tariffs from those trade partners.

With tensions escalating markedly in recent weeks, both from the continuing rounds of tariffs and from some of the rhetoric concerned — such as President Trump describing the EU as “a foe” — the hopes for any kind of tangible progress emanating from the meeting are low.

In the group’s first meeting of the year back in March, little of note emerged other than a joint statement agreeing that “economic and geopolitical tensions” threatened global growth.

Talk has given way to tariffs in the intervening period, and on the eve of this weekend’s gathering, International Monetary Fund (IMF) boss Christine Lagarde warned that the current tensions over trade present “the greatest near-term threat” to the world economy. However it should be noted that the IMF still projects global growth of 3.9 percent in 2019.

Big gathering, little significance?

While Mnuchin and the US delegation are likely to spend the weekend trying to convince Japan, the EU and other members of the ‘Group of Seven’ (G7) of the need for a stronger collective stance against the trade practices of China, it is unlikely that they will find their ostensible allies to be at their most obliging.

Read more: Sieren’s China: Pendulum politics between China and the EU

“US trading partners are unlikely to be in a conciliatory mood,” Eswar Prasad, international trade professor at Cornell University and former head of the International Monetary Fund’s China Division, told Reuters.

“(US) hostile actions against long-standing trading partners and allies has weakened its economic and geopolitical influence,” he said, referring to the raft of tariffs the Trump White House has driven.

While the economic heft of those represented at the gathering is not in doubt — at the close of the last G20 meeting, the financial leaders represented 75 percent of world trade and 85 percent of gross domestic product — concrete progress on the various issues appears to be out of reach, particularly with more tariffs and counter-tariffs expected in the near future.

Aside from the trade issues, the meeting will also address crises threatening a number of emerging economies, not least in host nation Argentina, which recently accepted a $50 billion IMF loan to try to stabilize its economy.

aos/kd (Reuters, AFP)

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Trump’s tariff threat unsettles global markets

July 21, 2018
European carmaking stocks tumble, dollar retreats from 12-month high
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China’s currency continued its weakening trend after its biggest fall against the dollar since February on Thursday © Bloomberg

By Dave Shellock 

  • US president considering levies on all Chinese imports
  • S&P 500 slips, European carmakers take big hit
  • Dollar on defensive, Treasury yields rebound
  • US yield curve steepens sharply

Onshore renminbi weakens past Rmb6.8 per dollar

Fresh concerns about the prospect of a global trade war unsettled financial markets after Donald Trump threatened to slap tariffs on all Chinese imports to the US — hard on the heels of his criticism on Thursday of the Federal Reserve’s recent interest rate rises.

On Wall Street, the tariff concerns were offset to some degree by a sharp rise for Microsoft shares after the company’s quarterly results exceeded expectations.

But in Europe, carmaking stocks were badly hit, with the Stoxx 600 index tracking the sector falling 2.1 per cent. That helped push the German Xetra Dax index down 1 per cent, a bigger fall than most of its regional peers.

Image result for German Xetra Dax index , photos

“The US currently plans to impose tariffs on imports from China worth $250bn, out of a total of just over $500bn last year, so this latest threat would represent a significant step up in its protectionist trade policies if enacted,” said Capital Economics.

“Although the S&P 500 has proved fairly resilient to trade worries so far, we doubt that this will last. The retaliation by other countries to US protectionism so far has mostly been aimed at US farmers, not multinationals. But that could change.”

Meanwhile, the dollar index — a measure of the US currency against a basket of peers — was down 1.1 per cent from a 12-month hit on Thursday before Mr Trump said he was “not thrilled” about the Fed raising rates, and warned that a strong dollar “puts us at a disadvantage”.

“It does appear that not only do we appear to be heading for a trade war, but it also looks like currencies are about to be brought on to the field of battle as well, as the US administration tries to limit the effects of its own fiscal stimulus,” said Michael Hewson at CMC Markets UK.

Mr Trump’s comments on Thursday followed Jay Powell’s semi-annual monetary policy testimony to Congress, in which the Fed chairman gave a bullish assessment of the US economic outlook and signalled that interest rates would continue to rise gradually “for now”.

Despite the president’s remarks on monetary policy, longer-dated Treasury yields rose on Friday, with the gap between two- and 10-year yields rising to the highest for eight days.

The 2-10 spread has fallen steadily in recent months, fuelling concerns about a possible inversion of the yield curve that many see as a harbinger of recession.

The dollar’s retreat provided some respite for sterling after a week in which a series of weaker than forecast UK economic data releases, as well growing uncertainty over Brexit, cast doubt on whether the Bank of England would raise interest rates next month.

The pound briefly dipped below the $1.30 level to a 10-month low earlier this week.

There were big falls for industrial metal prices this week, with copper briefly sliding below $6,000 a tonne, although the metal rallied yesterday to trim its weekly drop to about 1.5 per cent.

Oil prices had a choppy week as concerns about increased global supply came to the fore. Brent crude fell 3 per cent over the five-day period.

Gold, meanwhile, bounced off a 12-month low on Friday as the dollar weakened but was still down 0.8 per cent over the week.

Equities


In New York, the S&P 500 slipped 0.1 per cent to 2,801, leaving it barely changed on the week, while the Nasdaq Composite index also edged down 0.1 per cent on Friday. Microsoft shares rose 1.8 per cent.

Across the Atlantic, the pan-European Stoxx 600 finished 0.2 per cent lower, with the FTSE 100 in London shedding 0.1 per cent.

Japan’s Topix closed down 0.3 per cent.

In Hong Kong, the Hang Seng index rose 0.8 per cent, bouncing up off a 10-month low. In mainland China the CSI 300 rose 1.9 per cent.

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Forex and fixed income


The dollar index was down 0.7 per cent at 94.47, after reaching 95.65 on Thursday.

The euro was up 0.7 per cent at $1.1724 while the greenback was 0.8 per cent lower versus the yen at ¥111.51.

Sterling was up 0.9 per cent at $1.3131.

The yield on the 10-year US Treasury was up 4 basis points at 2.89 per cent while that on the 30-year bond was 6bp higher at 3.03 per cent. The two-year was flat at 2.60 per cent.

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China’s onshore renminbi— which trades in a 2 per cent band either side of a daily midpoint set by the country’s central bank — was 0.1 per cent lower at Rmb6.7659 per dollar, having touched Rmb6.8106, its weakest since June 2017.

Commodities


Copper climbed 1.4 per cent in London to $6,147 a tonne, after touching a one-year low of $5,988 on Thursday.

Brent crude settled at $73.07 a barrel, up 0.7 per cent on the day, while US West Texas Intermediate was 1.2 per cent higher in late trade at $70.31.

Gold was $8 higher on the day at $1,231 an ounce.

Additional reporting by Michael Hunter in London and Alice Woodhouse in Hong Kong.

https://www.ft.com/content/c7fe69fe-8bb5-11e8-b18d-0181731a0340

 

Donald Trump Likely To Shape Trade Discussions of G20

July 21, 2018

US President Donald Trump’s latest attacks on China and the European Union will shape the discourse on global trade conflicts and competitive devaluation as Group of 20 finance ministers meet in Buenos Aires this weekend.

Trump’s protectionist policies that have seen him slap steep tariffs on steel and aluminum, angering allies such as the EU, Canada and Mexico, already looked set to fashion discussions between finance ministers and central bankers from the world’s 20 leading economies during two days of meetings.

That is even more the case after his latest Twitter outburst on Friday saw him accuse the EU and China of “manipulating their currencies and interest rates lower,” while he also took aim at the US Federal Reserve for hiking interest rates, complaining that it eroded “our big competitive edge.”

Image result for G20, photos

China and the US have no plans for bilateral talks, according to US Treasury Secretary Steven Mnuchin, who has vowed to “respond to concerns on US trade policies” when he meets with fellow ministers.

But China will be a hot topic as Group of Seven ministers hold a one-hour session on the margins of the wider meeting, not least after Trump threatened to crank up punitive tariffs against the country to include the entire $500 billion in goods the US imports from the Asian powerhouse.

As well as his steel and aluminum duties, and threats to likewise hit foreign car imports with tariffs, Trump has already slapped China with a 25 percent levy on $34 billion in goods, with another $16 billion on the way.

– ‘Very serious’ –

Other than announcing counter-measures, China has kept relatively quiet over Trump’s various threats — perhaps safe in the knowledge that his tariffs are a drop in the bucket next to their expected $2.4 trillion exports for 2018.

But German Chancellor Angela Merkel warned that the EU was “ready” to respond to the US should more excises be forthcoming, describing current trade tensions as “very serious.”

International Monetary Fund chief Christine Lagarde, whose press conference will kick off activities on Saturday morning, said earlier this week that increasing trade restrictions pose “the greatest near-term threat” to the world economy, despite projected growth of 3.9 percent through 2019.

She also warned Trump that “the US economy is especially vulnerable” due to “retaliatory measures.”

IMF economists say that in a worst case scenario $430 billion — a half point — could be cut off global GDP in 2020 if all tariff threats and retaliation are implemented.

Others are also worried about Trump’s measures, including India, which alongside China, Brazil, Russia and South Africa make up the five emerging market BRICS countries, all of which are G20 members.

“All BRICS members have benefitted from globalization. All of them need finance and capital inflows,” said Sreeram Chaulia, dean at Delhi’s Jindal School of International Affairs.

“Trump is trying to put a brake on trade and finance. We rely on international capital movement and inward FDI, Trump wants to stop it.”

– ‘History is clear’ –

The economic problems plaguing a number of emerging markets will occupy ministers, particularly given that host nation Argentina recently secured a $50 billion IMF loan to try to stabilize its economy, after the peso plunged 35 percent between April and June.

“The situation facing certain emerging markets is more delicate with the rise of the dollar and the question of capital flows,” a French source told AFP.

As well as the dollar, rising oil prices and US interest rates have helped fuel the capital flight from emerging economies such as Brazil and Argentina, with investors taking out $14 billion between May and June.

“The meeting will take place against the backdrop of ongoing financial vulnerabilities in emerging market economies and global trade tensions,” said Australian Treasurer Scott Morrison.

He headed to Buenos Aires planning to urge G20 members to keep markets open.

“History is clear: when trade barriers go up, growth and jobs go down,” he added.

Economist Rubens Barbosa, former Brazilian ambassador to Washington and London, says Brazil will try to defend multilateralism in international trade — notably as upheld by the World Trade Organization.

“In Buenos Aires, what will be on the table is protectionism and the strengthening of the WTO from the point of view of emerging countries such as Brazil,” he said.

Trump accuses China, EU of currency manipulation, blasts Fed

July 20, 2018

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President Donald Trump on Friday launched a fresh attack on American trading partners, saying the EU and China were manipulating their currencies as he took another swipe at the US central bank.

The remarks on Twitter early in the day followed a CNBC interview in which Trump said he was willing to hit all Chinese imported to the United States with tariffs.

The harsh comments took fresh aim at pillars of the international economic system and compounded Trump’s break with long-established norms by again openly rebuking the Federal Reserve.

They also signaled an undiminished appetite for battle on multiple fronts after a week dominated by coverage of the fallout from his dealings with Russian President Vladimir Putin.

In a pair of tweets, Trump said China, the European Union and others had been “manipulating their currencies and interest rates lower” while the dollar gained in strength, eroding “our big competitive edge.”

He said the Fed’s course of tightening monetary policy “now hurts all that we have done.”

Fed has raised the benchmark lending rates twice this year, after three increases in 2017, and two more rate hikes are expected this year as the central bank removes stimulus from the economy to keep a lid on inflation.

The chance inflation might accelerate has increased after the massive tax cut Trump championed, which has raised the US debt and budget deficit.

“The US should be allowed to recapture what was lost due to illegal currency manipulation and BAD Trade Deals,” Trump said on Twitter. “Debt coming due & we are raising rates – Really?”

He again said he was willing to ramp up his attacks on China, potentially imposing punitive tariffs on all of the $505.6 billion in goods imported from that nation.

“I’m ready to go to 500,” Trump said the CNBC interview broadcast Friday. “We’ve been ripped off by China for a long time.”

The White House in June already threatened to extend US taxes on Chinese imports progressively to up to $450 billion.

Steep tariffs already are in place on $34 billion in Chinese goods, and a second tranche of $16 billion in products is under review and could soon be added.

Washington also is now targeting another $200 billion in imports which see fresh tariffs imposed as soon as September.

Beijing has vowed to hit back dollar-for-dollar and accused the United States of starting the “largest trade war in economic history.”

– Escalating trade fight –

In the full CNBC interview, Trump reiterated his claim that the United States is “being taken advantage of” on issues including trade policy.

“I don’t want them to be scared. I want them to do well,” he said of China. “I really like President Xi (Jinping) a lot. But it was very unfair.”

The US-China spat is the largest and broadest of several trade fights picked by Trump.

The growing share of international trade under threat has raised the prospect the escalating trade war could harm the global economy by disrupting companies’ supply chains, pushing firms to hold off on investments and making goods more expensive for consumers.

In the CNBC interview, Trump also said he was “not happy” the Fed planned to continue raising benchmark lending rates.

“I’m not thrilled,” he said. “Because we go up and every time you go up they want to raise rates again.”

He likewise also took aim at the dollar, saying a higher value “puts us at a disadvantage” and adding that the Chinese yuan “has been dropping like a rock.”

Those comments, plus Trump’s criticism of Federal Reserve interest rate hikes, had sent the dollar tumbling on Thursday.

After sliding recently to its lowest levels in a year as the Sino-US trade conflict heated up, the yuan strengthened to around 6.77 to the dollar around 1400 GMT on Friday in choppy trading.

The late rebound triggered market speculation that authorities had intervened to prevent the yuan falling too steeply but analysts said China seems okay with further depreciation as the trade war rumbles on.

“The (yuan’s) slide against the US dollar will substantially cushion the impact on Chinese exporters from the planned next round of US tariffs,” Rajiv Biswas, chief Asia economist with IHS Markit, told AFP

The US dollar, meanwhile, continued its decline against the euro and pound.

“Currency is now part of the trade war folks,” said Greg McKenna, chief market strategist at AxiTrader.

“And it is worth pondering whether this is a president who is going to break with 25-30 years of tradition in not interfering in Fed policy deliberations going forward.”

AFP

Merkel: ‘Good for all’ that Trump, Putin plan to meet again (Angela Taking The High Road)

July 20, 2018

Image may contain: 1 person, smiling, child, closeup and indoor

Meetings between the US and Russian presidents should become the “normality”, German Chancellor Angela Merkel said Friday, adding that it is “good for all” that Donald Trump and Vladimir Putin plan new talks.

“That talks are held is basically good for all, in particular between these two countries,” Merkel said at her regular summer press conference.

“I find that meetings between the US and Russian presidents must return to normality,” she said.

Trump is planning to host Putin for talks in Washington later this year, after a first bilateral meeting in Helsinki on Monday.

Trump has come under fire following the Helsinki talks for what many saw as his unsettling embrace of the Russian strongman — and his seeming disavowal of his own intelligence agencies and their assessment that Moscow meddled in the 2016 election.

© AFP/File | German Chancellor Angela Merkel says it would be good for all concerned if US President Donald Trump (left) and Russian President Vladimir Putin (right) were to meet regularly after their Helsinki summit

The talks in the Finnish capital were closed-door and with no one else present but interpreters.

The US president on Thursday listed the topics discussed as “stopping terrorism, security for Israel, nuclear proliferation, cyber attacks, trade, Ukraine, Middle East peace, North Korea and more.”

Putin was last invited to the White House in 2005 by then-president George W. Bush, while former Russian president Dmitry Medvedev visited in 2010.

Pressed by reporters on how she viewed her relationship with Trump in light of his repeated criticism of Germany’s asylum policies, defence spending and trade surpluses, a diplomatic Merkel stressed the importance of transatlantic cooperation.

Ties at the moment are “under strong pressure”, she acknowledged.

“Nevertheless the transatlantic working relationship, also with the US president, is central to us and I will continue to maintain it.”

She also expressed hope that a trade war with the US could be staved off, ahead of European Commission chief Jean-Claude Juncker’s visit to Washington next week to try and negotiate a solution.

Merkel said the European Union was “ready” to respond if Trump makes good on his threat to slap steep tariffs on foreign cars, a move that would hit Germany’s auto industry particularly hard.

But tit-for-tat retaliation would be “by far the worst-possible solution”, Merkel warned, describing the current trade tensions as “very serious”.

The potential car tariffs would not just violate the rules of the World Trade Organization, she added, but could also “endanger the prosperity of many people around the world”.

AFP

‘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.

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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.

Reuters

https://www.japantimes.co.jp/news/2018/07/20/business/hi-im-soybean-trade-war-china-deploys-cartoon-legume-reach-u-s-farmers/#.W1HXdNJKhaQ

Reuters:

Trump Says He’s ‘Ready To Go’ With $500 Billion in Tariffs on All China Imports

July 20, 2018
President says he doesn’t like U.S. being taken advantage of

U.S. has imposed duties on $34 billion of Chinese goods so far

China accused American officials of making false accusations

President Donald Trump said he’s “ready to go” with tariffs on $500 billion of Chinese imports, saying the U.S. has been taken advantage of for too long.

Image result for China flag food

“I’m not doing this for politics. I’m doing this to do the right thing for our country,” Trump said in a CNBC interview aired Friday. “We are being taken advantage of and I don’t like it.”

The $500 billion figure is about the value of Chinese goods imported into the U.S. last year. S&P stock-index futures declined along with the Stoxx Europe 600 gauge after Trump’s comments aired.

The threat is likely to put further strain on a trade dispute between the world’s two biggest economies. China accused American officials of making false accusations Thursday as it fired back against a claim President Xi Jinping is blocking talks with the U.S. Earlier, White House Economic Adviser Larry Kudlow said Xi has no intention of making a deal over trade with the Trump administration.

Trump earlier this month imposed 25 percent tariffs on $34 billion of Chinese goods, with another $16 billion to follow soon. The administration has also released a list of 10 percent tariffs on an additional $200 billion of Chinese goods, which could take effect as early as next month. China retaliated on the first wave of tariffs by slapping duties on the same dollar amount of U.S. imports, and Beijing has said it’ll fight against any further U.S. actions.

China imports far less from the U.S., buying about $130 billion in American goods last year, so it doesn’t have as much to leverage with tariffs, but it could use other measures to hit trade such as tightening regulatory oversight.

Can Trump Win a China Trade War? We May Soon Find Out: QuickTake

Trump authorized the tariffs after an investigation he ordered by the U.S. Trade Representative’s office found that China was violating intellectual property rules and forcing American companies operating in China to hand over their technology secrets to gain access to the market. Chinese Commerce Ministry spokesman Gao Feng last week called those accusations “groundless” and said that the U.S. trade penalties contravene rules at the World Trade Organization.

Trade discussions aimed at defusing tensions between the U.S. and China have stalled, and Treasury Secretary Steven Mnuchin said the U.S. would only be willing to get back to the table if China agrees to deepen structural changes to its economy.

The International Monetary Fund warned earlier this week that escalating trade tensions are threatening to derail a global upswing. If threatened trade barriers become reality, global output could drop by about 0.5 percent below its projected level by 2020, IMF Chief Economist Maurice Obstfeld said. The U.S. economy would be “especially vulnerable,” given it would be the focus of retaliation in a tit-for-tat conflict, Obstfeld said.

The Trump administration has also angered key allies by imposing tariffs of steel and aluminum imports earlier this year. On Thursday, automakers and vehicle-making nations such as Mexico criticized the administration’s study into whether auto imports pose a risk to national security, which could lead to tariffs.

An IMF analysis shows that potential U.S. duties on foreign cars represent a greater risk to the global economy than the tariffs the Trump administration is considering on Chinese imports.

https://www.bloomberg.com/news/articles/2018-07-20/trump-says-he-s-ready-to-go-with-tariffs-on-all-china-imports

Merkel says transatlantic ties with Trump ‘crucial for us’

July 20, 2018

Germany’s relationship with the United States is crucial, Chancellor Angela Merkel said on Friday after U.S. President Donald Trump last week accused Berlin of being a “captive” of Russia due to its energy reliance.

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German Chancellor Angela Merkel

Asked about her working relationship with Trump, Merkel told a news conference: “One can say that the values, or our usual framework, are under strong pressure at the moment.”

“However, the transatlantic working relationship, including with the U.S. president, is crucial for us and I will carry on cultivating it,” she added

Reuters

Reporting by Riham Alkousaa; Writing by Paul Carrel; Editing by Caroline Copley

China Sends Yuan Lower by Most in Two Years After Trump Criticism

July 20, 2018

The central bank guided the Chinese currency 0.9% lower against the dollar

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China weakened the yuan by the most in two years on Friday, hours after President Donald Trump called out the currency’s slide..

The People’s Bank of China set the dollar’s reference rate at 6.5960 yuan, 0.6% lower than its value in the previous day’s “fix,” which reflects the previous day’s close and overnight currency moves. That put the yuan at its lowest level against the dollar since Dec. 20.

The yuan fell further shortly after trading began in mainland China, hitting its weakest value since Dec. 13, according to Wind Info. In recent action, one dollar bought 6.6167 yuan, putting the Chinese currency on track for a daily loss of 0.3%.

In the offshore market, the yuan was little changed from the previous day with one dollar buying 6.6192 yuan.

The yuan’s drop accelerated after China and the U.S. escalated threats of trade tariffs in the middle of this month, and got another push Sunday after China’s central bank announced measures to inject more than $100 billion into the financial system.

The diverging fortunes of the world’s two largest economies argue for a weaker yuan. The Federal Reserve is expected to raise rates two more times this year due to the strong economy, while recent Chinese data suggest growth is starting to slow and the country’s central bank is likely to loosen policy further.

Some analysts have argued China could use a yuan devaluation to fight back against U.S. tariffs on its exports.

Still, Chinese authorities are eager to moderate the pace of the yuan’s depreciation, traders said. If the currency slides too quickly, it could spark destabilizing capital outflows that proved hard to tame in the months after the yuan’s 2015 devaluation.

Traders and investors say they are now watching the scale of the yuan’s latest decline in relation to other major currencies. The yuan has dropped 1.8% against the dollar this week, outpacing the euro’s 0.8% fall, the Japanese yen’s 0.2% slip and the Korean won’s 0.8% pullback.

That means the yuan’s value has also started to weaken not just against the dollar, but also on a global basis. The dollar, euro, yen and won make up more than 60% of the yuan’s trade-weighted basket, which is closely monitored by the Chinese central bank.

The yuan has now dropped 1.6% against the greenback this year.

Source: Dow Jones

https://www.wsj.com/articles/china-sends-yuan-lower-by-most-in-two-years-after-trumps-comments-1532057299