Tag: US President Donald Trump

What can Beijing do if China-US trade row worsens?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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China and the United States sank into a deepening trade conflict that roiled financial markets Tuesday after US President Donald Trump threatened to impose tariffs on an additional $200 billion of Chinese products, prompting Beijing to accuse Washington of starting a trade war.

Trump said Monday his threat was retaliation for China’s decision to raise tariffs on $50 billion of US goods over the weekend, a move that itself was in response to additional US tariffs on Chinese products announced Friday.

The sheer size of Trump’s latest threat makes it impossible for an in-kind response from China since the value of the goods involved exceeds by $70 billion the total value of US imports to China last year, US data shows.

China could be prompted to react in other ways. Here are some possible scenarios.

More Tariffs

After threatening on Friday additional tariffs of 25 percent on $50 billion of American products, China can raise tariffs on more US goods, such as aircraft.

It could also increase the size of the tariffs on the goods that it is targeting.

But it can only go so far.

China imported $129.89 billion of US goods last year, compared with US purchases of $505.47 billion of Chinese products, according to US data. The figures differ from those provided by Chinese customs, which showed China imported $153.9 billion of US goods and the US purchased $429.8 billion of Chinese products.

Either way, even if Trump goes on to impose tariffs on $300 billion or even $400 billion of Chinese goods, Beijing could only levy duties on a total of $100-plus billion of US products.

To escalate the trade war, China would have to turn to non-tariff measures.

Business Bottlenecks

China could create costly bottlenecks for US imports.

In May, importers and industry sources told Reuters that China had intensified inspections of goods shipped from the United States, compared with more random checks in the past. The products affected ranged from pork and vehicles to fresh apples and cherries.

China could also impose new regulations on US products and companies to either limit their presence in the world’s second-largest economy or even ban them altogether.

For years, US firms such as Facebook (FB.O) and Alphabet’s Google (GOOGL.O) have long been blocked from offering their products in China.

Getting licenses to operate in certain sectors could also get more difficult.

Jacob Parker, vice president of China operations at the US-China Business Council, said China would undoubtedly begin looking at other ways to enforce action against US companies operating in the market.

“One thing that we’ve heard specifically from companies is that the Chinese government has been holding meetings with domestic private and state-owned enterprises where they talk about diversifying away from the procurement of US products and services and shifting those contracts to European, Japanese or domestic Chinese companies,” Parker said.

Reduced Chinese access for US businesses could be a boon to other foreign companies in a year when China says it will further open its door to overseas investors and firms.

“That could have an enormous impact because many of our companies operating in China have significant market share built up over decades. If that is immediately eroded, it is almost impossible to get back,” Parker said.

Deals

Chinese clearance for US deals may also become more difficult.

China has, for example, yet to approve US chipmaker Qualcomm Inc’s (QCOM.O) proposed $44 billion acquisition of NXP Semiconductors (NXPI.O), a deal that has already got a nod from eight of the nine required global regulators.

Currency Moves

China could allow its yuan currency CNY=CFXS to drift lower against the dollar, making US goods more expensive and making Chinese exports cheaper. In fact, the yuan has been falling against the greenback since mid-April, after consistent gains since January 2017.

But some economists say Chinese policymakers would be wary of letting the yuan slide sharply against the dollar. The 2015 yuan devaluation led to months of capital outflows that Chinese authorities fought to stem, a memory that is not too distant.

Treasury Pile

China could also trim its massive holdings of US Treasuries. As of March, China held $1.188 trillion of US government bonds, the highest since October 2017.

But since China holds such a huge volume of US Treasuries in its portfolios, some economists say Beijing would not want to cause its investments to plummet in value.

As such, many economists think China is more likely to turn up the heat on US firms than risk creating havoc in the markets that might burn Beijing instead.

Boycotts

US goods may also be boycotted by Chinese consumers. South Korean goods were shunned when Beijing’s ties with Seoul turned chilly last year after South Korea deployed the U.S.-made Terminal High Altitude Area Defence (THAAD) anti-missile system despite Chinese objections.

The highest profile corporate casualty was South Korea’s Lotte Group, which saw its plans for shopping complexes indefinitely suspended and nearly all of its Lotte Mart stores in China shut for much of the year over alleged fire safety issues.

Chinese tourism to the United States may also suffer as tour operators reduce US-bound offerings. Around 3 million Chinese visit the United States annually spending tens of billions of dollars.

When Tsai Ing-wen was elected Taiwan’s president in 2016, Chinese tourist numbers to the island that China views as a wayward province slumped. Though Tsai says Taiwan wants peace with China, Beijing suspects she seeks formal independence.

Travel services accounted for almost two-thirds of US services exports to China in 2015, according to the US International Trade Commission. Travel services also formed the largest category of US services exports to China.

Embargo on US Goods

An extreme Chinese response would be a trade embargo on a swathe of U.S. goods, but that would be inconsistent with China’s rhetoric and actions if Beijing initiated such a move.

Such a move would represent a massive deterioration in bilateral ties and cause an upheaval in the global trade system.

The United States imposed a trade embargo on China from 1950 to 1972.

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Analysts react to US-China trade war as Donald Trump threatens more tariffs

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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US President Donald Trump on Tuesday escalated a growing trade war with China by unveiling new plans to impose 10% tariffs on an additional $200 billion worth of Chinese goods.

The US leader warned that after the new measures are in place – on top of existing 25% tariffs on $50 billion in Chinese imports – tariffs on another $200 billion of Chinese goods would go forward if China increases its tariffs yet again.

Here is a summary of what analysts are saying about the trade war between the world’s two largest economies.

Gavin Friend, Senior Market Strategist, National Australia Bank

• On trade war – There are several ways in which Beijing can retaliate US companies operating in China. But Beijing can’t apply the same amount of tariffs because the amounts are totally different.
• US exports to China – America exports goods worth of $150 billion a year, which is very less compared Chinese exports to US.
• US bonds – Chinese purchases of US debt helps America to keep interest rates at low. So we should not forget American benefits from this buying.

Alvin T Tan, Director, Forex Strategy, Societe Generale

• On trade war – The tariff war between US and China is very fluid. If this goes forward, will will see more risk aversion.
• On currencies – Emerging market currencies are likely to continue to be under pressure. Yen is likely to continue to outperform. Dollar-Yen has more downside potential not just in the next few days but broader than that we think.

Nick Parsons, Head of Research and Strategy, ThomasLloyd

• On trade war – There are several ways in which Beijing can retaliate US companies operating in China. It could directly target US firms operating in China, make life some more difficult for them. It could take direct actions against the way in which firms operate in the country or under the rules of global trading.
• On dollar – US dollar is doing very well and can carry on rallying from here against gold until US President Trump sends a tweet from his bedside one morning and says that the dollar has gone far enough, the dollar is expensive.

Jeff Chowdhry, LGM Investments

• On trade wars: US President Trump has already announced the tariff war with his so called friends in the G7. Now, he is it with China as an extension. Every sane person in the world knows that trade wars are not good and they are not beneficial for anyone but President is doing for a different audience, which is basically his support base in America.
• China is not North Korea – China is not a little puppet regime run by despot. It’s the second biggest economy in the world. If President can think he can bully China in the way that he bullies some other countries, I think you have got a bit of a problem. The issue is very simple, the more Trump tries to raise the bar, I do genuinely believe that the Chinese will continue to retaliate and I don’t think that they will back down.
• US Treasuries – China is the biggest buyers of US bond for many years. If they were to stop or to sell, the US bond market has a serious problem.

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US-China trade tensions drag global markets, Nifty closes at 2-week low

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Global markets see a sell-off after US President Donald Trump fired a fresh salvo in the ongoing trade spat between the Washington and Beijing.

Trump said he had asked the US Trade Representative to identify $200 billion worth of Chinese products that will be subject to additional tariffs of 10%.

Those tariffs will take effect if China did not ‘change its practices’.

In turn, China said it would take counter-measures if the US went ahead with the additional tariffs it had threatened.

The rising trade jitters led to deep cuts to global markets, with the impact being seen here in domestic equity market too.

Sensex slipped 262 points to 35,287, with Vednata and Mahindra & Mahindra being worst performing stocks.

The 50-stock index the Nifty closed with a fall of 89 points at 10,710, with market breadth being in favour of declines. The NSE Advance-decline ratio was at 1:3 at the close.

Reliance Industries Ltd, Infosys and IndusInd Bank were top Index losers, while HDFC Bank and ITC were seen fighting for the bulls.

Appointment of Sandeep Bakhshi as chief operating officer for five years, failed to excite the investors, as ICICI Bank closed with a fall of 0.3% after being volatile for better part of the day.

Besides, global trade tensions, domestic political development weighed on equity market as well.

The national ruling party, BJP, decided to withdraw the support to Jammu & Kashmir government led by Mehbooba Mufti of People’s Democratic Party (PDP).

BJP cited reasons of freedom of speech being under threat and a lag in development despite the full support of centre.

Recently, Editor of Rising Kashmir, Shujaat Bhukhari was killed by terrorists.

In the Futures market, the Nifty Put options of 10,700 and 10,600 saw an addition of 4 lakh and 5 lakh shares each in the open interest with premium surging 55% for both.

While Call options of 10,800 and 10,900 saw an addition of 11 lakh and 5 lakh shares each in the open interest with premium slipping 38-46%.

The Nifty June Futures closed with a premium of 12 points against a discount of 10 points on Monday.

On the global front, Chinese markets led losses, with major markets in the region closing sharply lower.

Greater China markets recorded heavy losses on the back of that news.

On the mainland, the Shanghai Composite fell 3.8% to close below the 3,000 mark at 2,906.43.

The smaller Shenzhen Composite sank 5.8% and closed at 1,594. Hong Kong’s Hang Seng Index fell 3.1%.

Other Asian markets saw slimmer losses, with Japan’s Nikkei 225 closing down 1.8% at 22,278 and South Korea’s Kospi declining 1.5% to end at 2,340.

“The tit for tat brings the two sides closer to a trade war,” said Louis Kuijs, head of Asia Economics at Oxford Economics.

Safe-haven plays like the Japanese currency firmed as investors turned to lower-risk assets.

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What Trumponomics means for global trade and India

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The rest of the world, says US President Donald Trump, is buying far too little from the US compared to what the US is buying from it and this boils down to boosting employment abroad at the expense of US jobs. He has therefore decided to impose harsh duties on US imports. The measure, in his view, will encourage American producers to increase domestic production and hence employment. Note, however, that Trump’s perception of the US unemployment scenario runs counter to the assessment of the Federal Reserve Bank, which has recently raised the key interest rate on the ground that “job gains are boosting income and confidence” in the economy.

What does conventional economics have to offer on the issue? Begin with the simplest possible case. Suppose we import laptops for $m each and export motorcycles for $x each. A 20 percent duty on laptops will raise their price to $1.2 m per piece in our domestic economy, which will incentivise domestic producers to produce more. As far as foreign laptops go, we will continue to import them at $m each, but sell them in the market for $1.2m, with the government collecting $0.2m per laptop to be spent on its own projects. In other words, consumers will be paying $1.2 m per laptop, whether imported or home produced. They will not be happy about the engineered price rise.

A higher laptop price will induce consumers to purchase fewer laptops. Our total demand for laptops will fall, even as our total domestic production of laptops rises! Consequently, our import of laptops will shrink and employment in the domestic laptop industry will rise, just the way Trump wishes it to for the US economy.

Notice though that we buy the imported laptops with the help of our export earnings from motorcycles. If the international prices $m and $x have not been affected by the import duty, then importing fewer laptops at $m each will involve lesser total expenditure than in the past. Our import expenditure in turn is the foreigners’ income and it is this income that they will normally use to buy our motorcycles. The number of motorcycles we end up selling therefore will go down simultaneously.

Consequently, motorcycle production at home falls, along with employment in that industry. Employment wise then, we have a rise in the laptop industry and a fall in the motorcycle industry. The net result, Trumponomics notwithstanding, is unpredictable.

The story doesn’t end here. If the laptop importing economy is large (like America), its imports will be significant too. A fall in American imports could severely dent the world demand for laptops. If so, then the international price of laptops might actually fall, relative to the price of motorcycles. This means that to purchase each motorcycle from US, foreigners will need to give up more laptops, which amounts to a rise in the price of motorcycles. There is additional reason now for the demand for US motorcycles to fall. The impact on net employment could be negative as well as severe.

In our argument, we have been assuming the value of imports to be exactly equal to that of exports. In reality, US runs a trade deficit ($568.4 billion in 2017, according to the Bureau of Economic Analysis). Tariffs could well reduce this deficit but, as argued, a simultaneous fall in employment cannot be ruled out. If other countries (such as China, India and so on) retaliate, as they are likely to, their own economies too could run into problems.

Trumponomics may well slow down the world economy as a whole, just when it is showing signs of recovery.

Dipankar Dasgupta is former Professor of Economics, Indian Statistical Institute, Delhi and Kolkata

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

India to impose retaliatory tariffs on 20 US products to hit back on steel, aluminium duties

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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In a retaliatory action, India will raise duties by up to 100% on 20 US goods after Washington imposed additional duties on steel and aluminium, sources privy to the developments told CNBC-TV18.

The increase in duties will be effective from June 21, 2018 as New Delhi had notified retaliation tariffs against goods imported from the US on May 17.

India has said that the duty imposed by US has affected steel exports by $134.4 million, while the same on aluminium was $31.16 million.

On March 9, 2018, US President Donald Trump imposed heavy tariffs on imported steel and aluminium items, a move that has sparked fears of a global trade war.

Trump signed two proclamations that levied a 25% tariff on steel and a 10% tariff on aluminium imported from all countries except Canada and Mexico.

According to sources, motor cycle with engine capacity over 800 cc is going to attract 50% of duty; goods vehicles with capacity over five tonne 50%; golf carts and snowmobiles 50%; chocolate products and cocoa 10%; coffee 10%; almonds 10%; cashew nuts 10% and walnuts 100%.

The 20 items include peas, chickpeas, fresh apple, walnut, soybean oil, refined palmolein, coco powder, chocolate products, golf carts, motor cycle with engine capacity over 800 cc and other goods vehicles, with spark-ignition internal combustion piston engine.

Meanwhile, New Delhi and Washington will discuss all trade issues, including aluminium and steel tariff when US trade officials reach India in the last week of June for bilateral discussions.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow