Trade War

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Trade War

Newsletter 11 - February 17, 2020

Dexter Roberts
Feb 17, 2020
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Welcome to the 11th edition of Trade War. It’s one week after China officially reopened for business and while there are some signs of life, there are also numerous flashing warning lights for the Chinese economy its ability to trade as before with the world.  

“The Chinese economy is the real concern”

Hao Hong, head of research at Bank of Communications International points out that \while people may be overly worried about the coronavirus (not sure I agree), they should be very concerned about the Chinese economy (100% agree).

“People are too pessimistic about the coronavirus. But the Chinese economy is the real concern,” he writes on twitter, posting a chart showing how China’s domestic airline capacity utilization has collapsed.

Twitter avatar for @HAOHONG_CFA
Hao HONG 洪灝, CFA @HAOHONG_CFA
#COVID2019 China domestic airline capacity utilization decimated. People are too pessimistic about the coronavirus. But the Chinese economy is the real concern.
Image
8:55 AM ∙ Feb 15, 2020
16Likes9Retweets

I’m staying home

Meanwhile, it’s not just travel by air in China. Travel by sea, road and rail also has been devastated by the virus, as this tweet by a Peking University professor shows.

Twitter avatar for @maxiaoalex
Xiao Ma @maxiaoalex
YoY changes in daily passenger no. by different methods of transportation in China from Jan. 10th to today. Blue: air; brown: road; grey: water; yellow: rail; vertical axis shows % of changes. Source: 民航一枝花 WeChat post.
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4:23 PM ∙ Feb 14, 2020
21Likes8Retweets

Where are the workers?

You can’t do business without workers—that in part appears to be the dilemma facing China’s companies as they struggle to resume operations. That’s particularly true of those who rely on migrants, most of which are not yet returning to the cities to work, writes Stephanie Studer in the Economist.

Twitter avatar for @studersc
Stephanie Studer @studersc
Of those working in China's big cities before the spring festival, perhaps just 15-30% have returned from trips elsewhere. And migrant workers trickling out of a railway station in Shanghai early this week told me they were in for a fortnight's quarantine.
economist.comChina’s official holiday ends, but not the woes of its firmsIt is hard to keep factories going when workers are stuck in the countryside
7:49 AM ∙ Feb 14, 2020
22Likes13Retweets

“On the verge of death”

Migrants may in part be staying away as they fear no jobs will be awaiting them. China’s small businesses appear to be in serious trouble, with 30 percent planning job cuts and one-tenth, “on the verge of death,” reports the South China Morning Post.

Twitter avatar for @HanFeiTzu
Jack Zhang @HanFeiTzu
Coronavirus epidemic poses existential threat to small businesses in China. Mass job losses loom: 10% of Chinese firms they surveyed were “on the verge of death”, with 30% planning job cuts and another 30% saying they could not pay their employees on time
scmp.comChina’s fear of job losses looms large as coronavirus takes toll on economyWith the coronavirus outbreak wreaking havoc on economic activities in China, firms are faced with tough decision whether to reduce staff levels and wages to be able to survive.
3:04 AM ∙ Feb 14, 2020
34Likes38Retweets

“Eviction measures includes water & power stoppage”

Making matters worse, those migrants who might consider returning, are finding they are not welcome and indeed are being forced out of neighborhoods in many cities, even when that’s where they had previously been living.

Twitter avatar for @dtiffroberts
Dexter Roberts @dtiffroberts
I worried this would happen and it sounds like it is- they are running migrant workers out of cities across China (doesn’t matter if they have provided the human fodder for the local factories or filled the low end service jobs, I guess) THREAD:
Twitter avatar for @WorkerEmpower
Worker Empowerment @WorkerEmpower
It's being reported on WeChat pages that migrant workers without proof of property ownership are prohibited from staying in residential areas in certain cities. Eviction measures includes water & power stoppage. Details in link below: https://t.co/vrKxKHb58c
9:29 PM ∙ Feb 13, 2020
1Like2Retweets

“An inherent tension”

Simon Rabinovitch who is consistently very good on calling China’s economy, makes a key point in the Economist: there is a tradeoff between continuing to aggressively curb the virus spread and getting China’s economy back on an even keel.

In short, there is no way for the economy to grow as long as cities are quarantined, roads blocked, and very importantly, people stay home, effectively withdrawing from most economic life.

Twitter avatar for @S_Rabinovitch
Simon Rabinovitch @S_Rabinovitch
Global markets are remarkably sanguine about the impact of China’s epidemic. But such optimism looks complacent: there’s an inherent tension between efforts to contain the virus and the world’s economic outlook. economist.com/leaders/2020/0…
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3:52 AM ∙ Feb 14, 2020
63Likes35Retweets

Lockdowns

Beyond Hubei's Wuhan, center of the coronavirus, other cities continue to clamp down on their populations. That’s happening in Huanggang, some 30 miles east of the provincial capital.

Twitter avatar for @PDChina
People's Daily, China @PDChina
#Huanggang city, about 30 miles east of #Wuhan, will begin #lockdown starting Feb.14, where all residents are not allowed to exit or re-enter their communities or residential areas amid novel #coronavirus (#COVID19) outbreak
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4:47 PM ∙ Feb 13, 2020
125Likes68Retweets

And quarantines

Even as the central government in Beijing pushes for companies to reopen and business to restart, the city has just announced that there will be a 14 day-quarantine for returnees to the capital—hardly a move designed to facilitate easy operation.

Twitter avatar for @StephenMcDonell
Stephen McDonell @StephenMcDonell
#Beijing has just announced that anyone arriving in the city from anywhere must now complete 14 days quarantine upon arrival (can be at home). #coronavirus #China
2:53 PM ∙ Feb 14, 2020
536Likes384Retweets

There go the barrels

Goldman Sachs predicts that China’s oil demand will fall by around four million barrels a day, because of the coronavirus.

Twitter avatar for @JavierBlas
Javier Blas @JavierBlas
Goldman Sachs estimates "peak" loss in Chinese #oil demand due to coronavirus at ~4m b/d. Wall Street bank cuts global demand growth forecast for 2020 to 600,000 b/d, down from pre-crisis forecast of 1.1m b/d growth "assuming gradual recovery" | #OOTT
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5:57 PM ∙ Feb 14, 2020
27Likes26Retweets

Meanwhile, back in the U.S.A.

Last year was tough on state economies due to the trade war—now they have the coronavirus affecting business. “Exporters from most U.S. states experienced dismal sales to China last year as tariffs slammed products ranging from wheat and whiskey to ginseng and gas,” reports Bloomberg News. With the virus, expect the pain to continue, “phase one” deal or not.

Twitter avatar for @next_china
Bloomberg Next China @next_china
Total U.S. merchandise exports to China fell 11% last year to about $107 billion
trib.alBloomberg - Are you a robot?
6:46 PM ∙ Feb 14, 2020
5Likes4Retweets

Anybody home?

The USTR announces a hotline for resolving disputes related to the “phase one” deal—and no one answers the phone….

Twitter avatar for @sdonnan
Shawn Donnan @sdonnan
I called the hotline... Got an answering machine that gave me a fax number...
Twitter avatar for @ABehsudi
Adam Behsudi @ABehsudi
USTR announces dispute resolution office for 'phase one' U.S.-China deal. Got a problem? Call the hotline. https://t.co/58tXhP5VQV
10:39 PM ∙ Feb 14, 2020
97Likes36Retweets

Tariffs? Who said tariffs?

U.S. VP Mike Pence avoids the word tariffs in a 45-minute long speech to the manufacturing association on February 14.

Twitter avatar for @sdonnan
Shawn Donnan @sdonnan
I listened to Mike Pence deliver a 45-min speech to National Association of Manufacturers today. Most interesting thing about it was what he didn't say. He never mentioned the word tariffs. He certainly didn't mention tariffs as a tool to boost manufacturing.
8:41 PM ∙ Feb 14, 2020
13Likes4Retweets

“Cascading protection”

Economists call a second set of tariffs on top of previous tariffs, for products earlier hurt by duties, “cascading tariffs.” That’s what steel and aluminum products are now experiencing, according to the Peterson Institute. “Trump [admitted] these new tariffs are to help an industry suffering because of his previous tariffs,” writes the Peterson Institute.

Twitter avatar for @PIIE
Peterson Institute @PIIE
Economists refer to a second round of tariffs on products hurt by earlier duties as "cascading protection." New tariffs on steel/aluminum are exactly that—Trump admitting these new tariffs are to help an industry suffering because of his previous tariffs.
piie.comTrump’s steel and aluminum tariffs are cascading out of controlPresident Donald Trump’s brazen move in late January to extend his previously imposed “national security” tariffs on steel and aluminu
3:05 PM ∙ Feb 14, 2020
13Likes5Retweets

Tariffs and U.S. jobs

And perhaps not coming as a surprise: it turns out tariffs don’t always protect jobs, at least in the steel and metals industry, points out this Bloomberg Opinion piece.

Twitter avatar for @sdonnan
Shawn Donnan @sdonnan
Striking chart in this @foxjust Bloomberg piece on Trump's steel tariffs. There are less people employed in the steel/primary metals industry than there were before the tariffs were announced in March 2018... bloomberg.com/opinion/articl…
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4:59 PM ∙ Feb 13, 2020
100Likes77Retweets

Notable/In Depth

Look what happens if you say you can make masks. Your stock goes WAY up.

Twitter avatar for @tracyalloway
Tracy Alloway @tracyalloway
A Hong Kong penny stock is up 129% because it said it would make masks. bloomberg.com/news/articles/… by @JeannyYu
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6:42 AM ∙ Feb 14, 2020
180Likes74Retweets

Good thread of video clips showing how a popular Beijing shopping mall is still deserted, even as officially China reopens for business.

Twitter avatar for @rogerVcente
Roger Vicente @rogerVcente
This is Solana Mall in Beijing on Saturday noon amidst the #COVID19 crisis outbreak.
Image
4:13 AM ∙ Feb 15, 2020
12Likes6Retweets

China-dependent Southeast Asian economies are suffering, as Trinh Nguyen of the Carnegie Endowment explains in this piece.

Twitter avatar for @Trinhnomics
Trinh Nguyen @Trinhnomics
Counting the economic impact of the 🦠, from tourism to supply chain , has revealed some cracks in Southeast Asia’s growth models that leaned too heavily on external demand and China-centric supply chains to drive their own domestic economic growth. 👇🏻👇🏻 carnegieendowment.org/2020/02/13/eco…
carnegieendowment.orgThe Economic Fallout of the Coronavirus in Southeast AsiaThe coronavirus has taken a devastating toll on its victims in China and elsewhere. But the epidemic has also exposed the downsides of leaning too heavily on China to power neighboring economies.
12:24 AM ∙ Feb 15, 2020
99Likes50Retweets

Nice informative story from Bloomberg New’s Peter Martin about the former Shanghai mayor now being sent to Hubei to do crisis control. He’s a Xi guy, surprise, surprise…

Twitter avatar for @PeterMartin_PCM
Peter Martin @PeterMartin_PCM
Barely a month ago, Ying Yong was sharing a stage with Elon Musk to celebrate the release of Tesla's China-built Model 3 sedans. Now he's off to Wuhan. Here's a short profile: bloomberg.com/news/articles/… @bpolitics
bloomberg.comBloomberg - Are you a robot?
11:58 AM ∙ Feb 14, 2020
20Likes22Retweets

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