China

Give and take

What will happen next in the trade conflict between the USA and China? More and more customs threats from the American side, including import restrictions. The Chinese side responds to this escalation with further trade restrictions, a noticeable devaluation of the currency and in the end the Chinese central bank sells its largest pledge, US government bonds. As a result, world trade is going into recession and global economic growth is slowing noticeably. This could be the case, driven in particular by the US. But it doesn’t seem very likely to me. In this scenario, the US economy would record less growth loss relative to China and other export-oriented economies, but the US growth momentum would also weaken. This should have a lasting negative impact on the labor market and the stock markets. By then at the latest, US President Trump will be in need of an explanation, especially in…

USA vs. China – Trump turns customs screw again

After a break of several weeks, trade talks between the USA and China took place again last week for the first time. Apparently, however, there was little willingness on the part of the Chinese delegates to accommodate American interests. Otherwise it is hard to understand that immediately after the end of the consultations there was talk of good talks, but the US President suddenly announced the introduction of further punitive tariffs on 1 September. Thus the trade conflict between the USA and China is now climbing a new escalation stage, after it had looked as if this cliff had been avoided at the G20 summit in Osaka. Even if Trump believes that China is paying the tariffs, the negative effects will ultimately hit the US economy. US exports to China have fallen sharply due to retaliatory measures and were 18 percent down on the previous year in the second quarter….

China: Weak growth in Q2 leads to expectation of new economic stimuli

Under the pressure of the trade dispute with the USA, China’s economic growth continued to fall in the second quarter to 6.2 percent. It is probably the weakest value for more than a quarter of a century. At the beginning of the year, the economy had stabilised thanks to higher government spending. However, since these were primarily early expenditures, the effect quickly fizzled out. The growth setback now is also a consequence of the shortlived nature of these measures. At the same time, the burden of mutual punitive tariffs is now considerable. China’s exports to the USA are currently just under 10 percent, while China’s imports from the USA are down by as much as 30 percent. The increase of the existing tariffs from 10 to 25 percent, which US President Trump ordered in May, is unlikely to have had any effect so far. The braking effects will not be…

Profiteers of the trade dispute

At the G20 summit, a further escalation in the US-Chinese trade dispute has been averted for the time being. However, the truce now agreed between Beijing and Washington stipulates that the special tariffs, which have been in place since the summer of last year and have just been significantly raised, will continue to apply for the time being. This means that the burdens particularly on the Chinese export trade will remain relatively high. The Asian neighbours are also affected by the bilateral trade barriers between the US and China as they are strongly integrated into the production chains of the Chinese export industry. Taiwan, Korea and Malaysia are particularly affected, and Vietnam, Thailand and Japan to a slightly lesser extent. Since the introduction of US tariffs, their exports of intermediate goods to China have plummeted as strongly as China’s exports to the US. Nevertheless, China’s neighbours are also able to…

The world after the G20

At the recent G20 summit, US President Trump and his colleagues once again spared us a catastrophe through their heroic conduct. Or such at least has been the press narrative built up very skilfully and effectively (particularly by the US) for the last few weeks. The problems that needed to be solved were actually created by the heads of government themselves beforehand – yet the G20 summit is viewed as a success. One undoubtedly positive aspect is that there was no major spat at the G20 meeting, while the countries involved also managed to come up with a final declaration – a little humility at least. The commitment to environmental targets is also a positive and necessary thing, but unfortunately the US was ultimately not willing to play ball here. The agreement between the US and China to resume negotiations on economic cooperation, and the announcements by President Trump that…

China selling its Treasuries: a warning to Trump?

There has long been speculation over whether China might use its huge portfolio of US Treasuries as a weapon in the (trade) war against the US. The latest data from the US Treasury Department is likely to add fuel to these speculations: Having already sold US Treasuries to the tune of USD 20 billion in March, China went on to sell further T bonds worth USD 10 billion in April. The volume of US Treasuries sold by China in the last twelve months thus amounts to an impressive USD 86 billion. As the chart below shows, this is not the first time China’s portfolio of Treasury bonds has fallen, and the current episode is also unlikely to break any new records. The Chinese had already disposed of US Treasuries in 2016, with the sales volume adding up to an even more impressive 150 billion US dollars. However, there is one…

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