Newsletter 6 - January 13, 2020
This week’s big event in trade will be the “phase-one” deal signing in Washington DC, likely on Wednesday. Liu He will join Trump for the ceremony to be held in the White House’s East Room. Xi Jinping - Trump’s counterpart as leader of China (and Liu He’s boss) - however, won’t be there. That may be because Xi fears associating himself so publicly with a trade deal that may not be so solid nor meaningful.
“Trump caught the Chinese side by surprise, deciding to sign the deal himself, even though his counterpart, Liu He, is at vice-premier level – an unusual imbalance in presidential history,“ reports the South China Morning Post. “It’s too risky for Xi to travel to the US and put his own name to the trade deal, when it has the potential to be thrown out at the last minute by Trump,” said one China policy analyst quoted by the Hong Kong-based paper.
“standing room only”
So other than Trump and Liu, who are going to be there? The more than 200 guests will be made up of executives from technology, finance and auto companies, who will be joined by American farmers, as well as GOP lawmakers. Democrats, however, will not be invited, to the “standing room only” event, says CNBC Washington correspondent Kayla Tausche, citing senior administration officials as her source, in a January 10 tweet.
Kayla Tausche @kaylatauscheSome color on the Wednesday #PhaseOne signing: sr admin official expects East Room to be "standing room only," as the White House holds the highest-significance ceremony of the Trump Administration. "A capstone event," the official says.
“shaping up to underwhelm”
Even now, there is a lot of uncertainty about just what the deal will include with the final text still yet to be unveiled. It is “shaping up to underwhelm,” says a recent note by Adam Crisafulli, founder of market research house Vital Knowledge, reports Forbes. “It still isn’t clear what Trump and Liu He will affix their signatures to,” he writes. Treasury Secretary Steven Mnuchin told Fox News on January 12 that the US will release the english version of the deal text after the signing.
Will China really buy all those US farm goods?
While it has been clear for some time that a huge agriculture buy by the Chinese is supposed to be a key part of the deal, whether it will actually come off as promised is questionable. “There is still a lot of uncertainty about how you would achieve $40 (billion) or potentially even $50 billion of agricultural purchases,” Goldman’s Global Head of Commodities Research Jeff Currie told CNBC. “A lot of the people I talk to are really skeptical that you can really achieve that number.”
Skepticism is understandable when comparing the target purchases to those in previous years. “Annual U.S. farm exports to China typically exceeded $20 billion between 2010 and 2018, before falling sharply to around $13 billion over the last two years as trade war duties impacted sales of soy beans and pork,” the CNBC report points out.
China’s picking up more Brazilian soybeans
Making it even less likely, China has just made another large purchase of Brazilian soybeans. “China is picking up soybean cargoes in Brazil, dashing hopes for big American sales immediately after a partial trade deal is signed with the U.S. next week,” Bloomberg reported on January 8, citing “people familiar with the matter.”
Communist Party organ
And a key sticking point—China's continuing industrial subsidies—seems even farther from resolution as Chinese officials push to further strengthen the Party’s control over the economy. The latest move: a new regulation that aims to ensure Communist Party committees play a larger role in state enterprises. “All major business and management decisions must be discussed by the Communist Party organ before being presented to the board of directors or management for decision,” states the provisional regulation.
Trump’s dump and pump
After earlier ridiculing and abandoning the semiannual trade and investment talks long held between the Chinese government and previous U.S. administrations, Trump seems set to resurrect them, report Bob Davis and Alex Leary in the Wall Street Journal. Smart trade watchers, including Heather Timmons and James Fallows, are pointing out the irony:
M. Taylor Fravel @fravelU.S., China to announce semiannual talks next week that would be separate from second-phase trade negotiations https://t.co/buRp1EOR9a
bob davis @bobdavis187U.S., China to announce semiannual talks next week that would be separate from second-phase trade negotiations. Once again, a Comprehensive Economic Dialogue approach, which Trump aides had previously derided. With @learyreports https://t.co/wTBL9c9YzK
Weird victory dance
Meanwhile, what do you do if your company successfully opens China’s first wholly foreign-owned auto factory, with high hopes for the electronic vehicle market, even in the middle of a trade war? Do a weird victory dance, or at least that’s the case if you are Elon Musk who performed one to celebrate the first delivery of Tesla’s Model 3 sedans at the new gigafactory in Shanghai on January 7.
US manufacturing employment fell again in December as companies continued to “grapple with slowing global growth, trade uncertainties,” writes Chad Moutray, chief economist at the National Association of Manufacturers, in a January 8 tweet. Meanwhile, “in 2019, the sector added 34k workers, down from a more robust 216k in 2018.”
Where it hurts
Former US and WTO trade official Jennifer Hillman shared a map which shows which states have been hurt worst by retaliatory tariffs in the trade war. “More than half of US states face retaliatory tariffs on at least 25% of their exports to EU or China,” she writes in a January 6 tweet.
Who’s paying US tariffs anyway?
"Tariffs are paid by the importer – that's us, that's not China," says Walter Spiegel, an officer at Reading, Ohio-based Standard Textile, in an interview with the Cincinnati Enquirer. "It's taking cash out of the pocket of a company and paying the government. That's less money to create jobs, expand, buy new equipment or to hire new employees."
While Trump presents the drop in the deficit as sign of victory in the trade war, the reality is different, points out Bloomberg’s Shawn Donnan. “The biggest contributor to the drop in the deficit from January through November was the continuing boom in shale oil,” which saw the US cut petroleum imports, he writes in a piece entitled “Trump’s Trade Deficit Victory Has Plenty of Caveats Attached.”
“When it comes to the rest of the U.S. economy -- including a manufacturing sector Trump has promised a revival of -- the trade picture looks very different. The non-petroleum deficit grew almost $20 billion to $766.2 billion in the first 11 months of 2019, putting it on track to beat 2018’s full-year record deficit of $824.8 billion.”
Trade war impacting global economy says World Bank. The World Bank’s annual report on the global economy highlights the negative impact of trade tensions: “The global trade slowdown and heightened trade policy uncertainty have affected regional growth through three main channels: weaker total exports; disruptions in cross-border supply chains; and declining private investment amid low business confidence.”
Where in The World’s The Wheat? Check out this cool map that shows where the world’s wheat is grown.
The economists' consensus on free trade is crumbling, points out Noah Smith in a recent commentary for Bloomberg Opinion. "The experience of the China shock, in which a sudden wave of import competition devastated the lives of many American manufacturing workers, was a wake-up call," he writes in this timely piece.
Cost of tariffs on US economy shown in yet another NBER paper: US firms facing tariff increases on their imports “represented 65% of manufacturing employment. For all affected firms, the implied cost is $900 per worker in new duties," the paper says.
Read the recently released January Trade Bulletin from the US-China Economic and Security Review Commission here.
Self promotion alert:
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