US-China Trade War Update: 26 August, 2019

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Vice Premier Liu He,China’s senior negotiator for trade has publicly announced that China is willing to resolve the trade dispute with the United States through negotiation. Liu also stated that his country opposes an escalation of the trade war now underway. The composed gesture coming from Beijing was answered by President Trump at the G-7 summit underway in France. Trump went as far as to predict that a trade deal will be reached with China at some point in the near future. It remains unclear whether today’s gestures reflect sincere intentions or if they are simply water on the fire. Last week’s wave of new US and Chinese tariffs sent global markets into spasms. Monday’s conciliatory words helped to calm markets, however, the current trade situation between the United States and China remains volatile.

Trade talks are expected to resume in Shanghai next month. Expectations will be high even though both Washington and Beijing will likely remain cautiously optimistic about the chance that further talks will bring an end to the trade war. Suffice to say, it would be in Beijing’s best interests to bring the trade matters to an end soon given what’s happening in Hong Kong, as well as recent issues in the South China Sea. China cannot move decisively in either area while the eyes of the world remain fixed on it. Beijing understands this, yet there are factions in the government that favor taking a harder line in the next round of trade discussions.

6 August, 2019 World Brief: Kashmir, Turkey, US-China Trade War

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The beginning of the week has been a volatile one across the world from the Middle East to Asia. I am coming off of a long weekend and feel the best way to begin the week on here is with a brief on some of the world’s brightest flashpoints at the moment.

 

Kashmir

The Indian government has decided to fully incorporate the Muslim-majority state of Jammu and Kashmir (J&K) into the nation. It will become a union territory and the central government in New Delhi will assume considerably more control over the state’s affairs. The Kashmir region has enjoyed almost full autonomous authority since 1949. Article 370 of the Indian Constitution, the section of the document allowing J&K to conduct its own affairs, will be scrapped. Last week, a buildup of army troops, and paramilitary police in Kashmir, coupled with government warnings for visitors to leave the region immediately, foreshadowed Monday’s announcement. Unrest is expected and will likely occur. The growing concern in the region and around the world is what Pakistan’s reaction will be to India’s move. It will likely intensify tension between the rivals, who have fought multiple wars over the Kashmir region in the past. The Pakistani government has called for a joint session of the nation’s parliament today, and the military leadership has begun discussions on ‘regional security.’

 

Turkey Prepares for Syrian Offensive

Turkey has started moving forces onto its border with northwestern Syria as a major offensive against the US-backed Syrian Kurdish forces in that area becomes likely. A military move against the Kurds by Turkey will significantly ramp up already high tensions between Ankara and Washington. A delegation of US military officials is presently in Turkey and conducting talks aimed at heading off the Turkish offensive. Whether or not the Turks heed the US warning remains to be seen.

 

US-China Trade War

Following a sudden, and sharp drop of the yuan against the dollar, the US Treasury has designated China as a currency manipulator. The exchange is the latest as the US-China Trade War shows no signs of letting up anytime soon. The US viewed the drop in the yuan’s value as a deliberate move by Beijing to make China’s products cheaper on the international market and circumvent US tariffs. Stock indexes around the world reacted negatively to the Chinese action, and the US label, especially Wall Street which saw its worst trading day of the year. Today, China’s central bank set the yuan’s official position above the 7 yuan-to-the-dollar mark, bringing it out of currency manipulation territory and calming world markets. It is becoming clear, however, that the US-China Trade War will likely escalate further before it calms.

 

US-China Trade Talks Scheduled for Monday in Beijing

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The United States and China will begin two days of trade talks early next week in Beijing. This round of discussions will be the first in-person meeting between representatives of the two nations since President Trump and Chinese president Xi Jinping’s discussions at the G20 Summit in Buenos Aires last month. Those discussions between the two leaders brought about a 90-day halt on further tariffs and the talks scheduled for 7-8 January, 2019 are officially being held to further the implementation of the agreements made between Trump and Xi. Unofficially, China’s rush to put together the upcoming talks could indicate growing unease in Beijing about the Chinese economy’s recent downward trend, and the effects that the US-China trade war is beginning to have on it. China’s stock market indices experienced rapid gains once the trade talks were confirmed, showing that anxiety about the state of China’s economy is not restricted to the government.

The massive, and destabilizing US-China trade war scenario prophesized by a number of prominent Western economists has failed to come about. Both nations are making a concerted effort to prevent the current level of tariff exchanges from escalating, while still protecting their respective positions and principles. So far Washington and Beijing have succeeded in this effort. Still, there is cause for concern on the horizon and it is directly connected to the performance of China’s economy in the coming months. This week’s warning from Apple about weak iPhone sales in the PRC is the latest in a litany of somber economic news emerging from the Asian giant. Auto, and new home sales have declined, and factory profits are dropping. GDP growth is also growing sluggish, and there is legitimate concern now among economists and investors that China’s economic slowdown will worsen before it improves.

If that turns out to be the case,  the first victim could be the 90-day tariff ceasefire now in place. Next week’s talks should give the world fresh insight to the Chinese government’s own interpretation of its economic prognosis, as well as an unguarded glimpse at just how much pain the tariff exchange with the United States is causing for Beijing.

Sunday 3 June, 2018 Update: Italy and US Tariffs Will Dominate the G7 Summit This Week

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Not surprisingly, the new Italian government’s calls for debt relief from the European Central Bank (ECB) appear to be falling upon deaf ears. The ECB has released a statement saying current treaties in place forbid such a move. German Chancellor Angela Merkel ruled out the possibility. In an interview published today in Frankfurter Allgemeine Sonntagszeitung Merkel said the eurozone should not be transformed into a ‘debt union.’ These dismissals set the stage for a potential showdown between the EU and Italy’s populist government over the future of Italy’s place in the eurozone. Giuseppe Conte, the new Italian prime minister, is expected to meet with Merkel, and French President Emmanuel Macron at this week’s G7 summit in Canada.

Italy will not be the only major point of discussion in Quebec later this week. US trade tariffs, and their potential impact will be discussed at length. At midnight on Friday tariffs on steel, and aluminum imports from the EU, Canada, and Mexico were put into effect. The US has been negotiating with all parties involved. Progress has been slow in coming, however, prompting the US to take unilateral action. The EU has promised strong countermeasures in response.

Fears of a global trade war have been looming for some time. Negotiations between the US and China appeared to have pushed much of the concern to the background for some time. Markets had stabilized, and investors seemed to be getting over their jitters. If the EU, Canada, and Mexico are unable to reach some sort of compromise with the US this week, those fears could spiral out of control and have an adverse effect on global markets, and the global economy as a whole.

This promises to be a busy upcoming week in Quebec.

Saturday 24 March, 2018 Update: Trade War Looming?

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The notion of a potential trade war breaking out sometime in the near future is creating much speculation. A number of well known economists, including Nobel Prize winners Joseph Stiglitz and Paul Krugman are convinced President Trump’s aggressive protectionist tariffs, coupled with China’s retaliatory actions herald the beginning of a US-China trade war that will have drastic effects on the global economy. Other economists, and experts in the field are less convinced a trade war is upon us. They point to the Chinese retaliation measures as proof of this thesis. Beijing’s response has been cautious, and calculated. 128 US products with an import value of $3 billion have been targeted. The sum is a fraction of President Trump’s tariffs on $60 billion in Chinese imports. What the future will bring remains to be seen, but if the market reactions over the last two days are an indication, the anxiety out there may not diminish for some time.

It is open for debate whether or not China’s responses will be strictly economic in nature. Economists seem to believe this will be a tit-for-tat exchange of tariffs between the US and China.  Beijing can decide to craft a geopolitical response as well. China’s actions in the North Korea situation have vacillated between helpful and hindering. The Trump administration had long sought Beijing’s assistance in defusing the high tensions in the region. To Washington’s chagrin, China has not exercised its substantial influence with Pyongyang in a beneficial manner. With economic tensions between the US and China rising, Beijing could use it as a justification to do even less with regards to the North Korean situation.

The South China Sea presents another arena where the PRC can project its displeasure with US actions. China has been extending its military reach there, and has expressed increasing annoyance with US attempts to project power in the disputed sea. Today a US Navy destroyer cruised within 12 nautical miles of Mischief Reef, once a fishing atoll, now the site of a Chinese military installation. Now, with the tariffs becoming a heated matter, Beijing can respond more aggressively to US warship patrols, possibly leading to a diplomatic compromise or a concession of sorts down the line.

Saving face is important to China. If the tariff tug-of-war continues, and even escalates, the South China Sea, and North Korean issue provide two areas where Beijing can challenge Washington with a measured approach without plunging the world into a major trade war.