China minister says trade war with US would be ‘disaster’

BEIJING — China said Sunday that it will not initiate a trade war with the United States, but vowed to defend its national interests in the face of growing American protectionism.

“There are no winners in a trade war, and it would bring disaster to our two countries as well as the rest of the world,” Minister of Commerce Zhong Shan said at a briefing on the sidelines of China’s annual parliamentary session.

“China does not wish to fight a trade war, nor will China initiate a trade war, but we can handle any challenge and will resolutely defend the interests of our country and our people,” he said.

It was Beijing’s latest statement on “problems in Sino-US economic trade and cooperation,” alluding to President Donald Trump’s plan to impose heavy tariffs on imported steel and aluminum.

The US leader said Thursday that he was slapping tariffs of 25 percent on imported steel and 10 percent on aluminum, temporarily exempting big steel producers Canada and Mexico.

Chinese leaders have threatened in the past to retaliate against raised trade barriers, but have yet to take direct action following Trump’s announcement.

Citing Chinese researchers, Zhong said the US has been overstating its trade deficit with China by about 20 percent every year. He gave no details on how this figure was reached, but the US and Chinese governments generally report widely differing trade figures because Beijing counts only the first port to which goods go instead of their final destination.

The US reported a $375 billion deficit with China last year, so a 20 percent reduction would still be among the largest trade gaps that the US has with any country.

Zhong blamed the trade imbalance in part on controls over US high-tech exports to China, repeating a Chinese claim that Washington could narrow its trade deficit if it allowed China to buy more “dual use” technology such as supercomputers and advanced materials with military applications.

US officials have said such sales would make up only a few percent of the deficit while possibly threatening American national security.

The Trump administration earlier approved higher tariffs on Chinese-made washing machines, solar modules and some other goods, prompting Beijing to accuse Washington of disrupting global trade regulation by taking action under US law instead of through the World Trade Organization.

Liu He, Chinese President Xi Jinping’s top economic adviser, visited Washington earlier this month in an attempt to smooth strained ties.

Zhong said China would continue to “relax market access” to China and said China would also attach greater importance to intellectual property right, another point of tension with the US.

China absorbed $136.3 billion in foreign investment last year. The country has long been among the top global destinations for investment, but foreign enthusiasm is cooling. Surveys by business groups show companies are shifting emphasis to other Asian economies seen as more profitable or less restrictive.

“We have noticed that some foreign-funded businesses have complained about China’s investment environment,” Zhong said. “The fact that they have complaints indicates that they are still paying attention to China’s development and have confidence in China’s market.”

The commerce minister reiterated Premier Li Keqiang’s promise on Monday to liberalize the manufacturing industry and expand the opening up of sectors such as medical care, education and new energy vehicles. Specific details were not given, but Zhong pledged to give equal treatment to domestic and foreign businesses alike while continuing to curb “irrational overseas investment” from within China.

source: business.inquirer.net

Dollar retreats as Trump takes over; most global stocks fall

NEW YORK—The dollar retreated Monday, with warnings of wild volatility ahead, as Donald Trump began his presidency by attacking global trade deals and promising to put America first.

Most large global equity markets also fell amid uncertainty over the new US leader’s plans. Wall Street, London, Frankfurt, Paris and Tokyo all closed lower.

“America first, markets second,” said LCG analyst Jasper Lawler of the day’s sentiment on trading floors.

“Attempts to break out into new highs for the year have been temporarily shelved after Donald Trump opted for a protectionist, anti-establishment inauguration address,” his note to clients added.

In foreign exchange, the euro jumped to $1.0763 from $1.0697 on Friday.

‘Apocalyptic tone’

“The greenback … seems to have been shaken both by the apocalyptic tone set by Trump at his inauguration, and the global protests that greeted the former Apprentice host’s ascension to the highest office in the land,” said Spreadex analyst Connor Campbell.

Trump followed up an inauguration speech seen as angry and protectionist by making his first official act the withdrawal from the 12-nation Trans-Pacific Partnership. Trump also said he would renegotiate the North America Free Trade Agreement, threaten to impose border taxes, and his chief spokesman said the new president would not hesitate to confront China over the South China Sea.

READ: Trump torpedoes Pacific trade pact

Investors greeted Trump’s surprise election win in the hopes he would win pro-growth measures such as public works spending, lower taxes and regulatory reforms. Trump confirmed on Monday he plans to pursue those priorities, but markets have been worried the tough talk will lead to a trade war.

Doubts about his spending promises also took their toll on the US currency.

“Sellers swiftly exploited the lack of clarity in the (inauguration) speech regarding the proposed fiscal stimulus measures,” said Lukman Otunuga, an analyst at FXTM, predicting more trouble ahead for the greenback.

“The growing threat of Donald Trump’s proposed fiscal stimulus failing to keep up with market expectations may ensure dollar weakness becomes a recurrent theme in the short term,” he said.

The US unit was down more than four percent on the yen from the highs touched late in December. It was also well down against the euro and even against the pound despite concerns about Britain’s exit from the European Union.

“I suspect we’re entering extremely volatile times for the dollar,” Stephen Innes, senior trader at OANDA, said in a note.

Trump last week said the greenback was too strong against China’s yuan and claimed this was “killing” the US economy.

Key figures at 2200 GMT

New York – Dow: DOWN 0.1 percent at 19,799.85 (close)

New York – S&P 500: DOWN 0.3 percent at 2,265.20 (close)

New York – Nasdaq: DOWN less than 0.1 percent at 5,552.94 (close)

London – FTSE 100: DOWN 0.7 percent at 7,151.18 points (close)

Frankfurt – DAX 30: DOWN 0.7 percent at 11,545.75 (close)

Paris – CAC 40: DOWN 0.6 percent at 4,821.41 (close)

EURO STOXX 50: DOWN 0.9 percent at 3,271.41 (close)

Tokyo – Nikkei 225: DOWN 1.3 percent at 18,891.03 (close)

Shanghai – Composite: UP 0.4 percent at 3,136.77 (close)

Hong Kong – Hang Seng: UP 0.1 percent at 22,898.52 (close)

Euro/dollar: UP at $1.0763 from $1.0697

Pound/dollar: UP at $1.2524 from $1.2365

Dollar/yen: DOWN at 112.73 yen from 114.58 yen

Oil – West Texas Intermediate: DOWN 47 cents at $52.75 per barrel

Oil – Brent North Sea: DOWN 26 cents at $55.23 per barrel

source: business.inquirer.net

What it means if Trump names China a currency manipulator

WASHINGTON  — President-elect Donald Trump has vowed to name China a currency manipulator on his first day in the White House.

There’s only one problem—it’s not true anymore. China, the world’s second-biggest economy behind the United States, hasn’t been pushing down its currency to benefit Chinese exporters in years. And even if it were, the law targeting manipulators requires the U.S. spend a year negotiating a solution before it can retaliate.

Trump spent much of the campaign blaming China’s for America’s economic woes. And it’s true that the U.S-China trade relationship is lopsided. China sells a lot more to the United States than it buys. The resulting trade deficit in goods amounted to a staggering $289 billion through the first 10 months of 2016.

But in fact, for the past couple of years China has been intervening in markets to prop up its currency, the yuan, not push it lower.

What does currency have to do with the trade gap?

When China’s yuan falls against the U.S. dollar, Chinese products become cheaper in the U.S. market and American products become more costly in China.

So the U.S. Treasury Department monitors China for signs it is manipulating the yuan lower. Treasury has guidelines for putting countries on its currency blacklist. They must, for example, have spent the equivalent of 2 percent of their economic output over a year buying foreign currencies in an attempt to drive those currencies up and their own currencies down.

Treasury hasn’t declared China a currency manipulator since 1994.

What would happen if the US declared China a currency manipulator?

Probably not much, at least initially.

If Treasury designates China a currency manipulator under a 2015 law, it is supposed to spend a year trying to resolve the problem through negotiations.

Should those talks fail, the U.S. can take a number of small steps in retaliation, including stopping the U.S. Overseas Private Investment Corp., a government development agency, from financing any programs in China. Trouble is, the United States already suspended OPIC operations in China years ago — to punish Beijing in the aftermath of the bloody 1989 crackdown in Tiananmen Square.

So naming China a currency manipulator is mostly “just a jaw-boning exercise,” said Amanda DeBusk, chair of the international trade department at the law firm of Hughes Hubbard & Reed and a former Commerce Department official. “There’s no immediate consequence.”



Is China guilty of using currency to help its exporters?

For years, China pretty clearly manipulated its currency to gain an advantage over global competitors. It bought foreign currencies, the U.S. dollar in particular, to push them higher against the yuan. As it did, it accumulated vast foreign currency reserves — nearly $4 trillion worth by mid-2014.

But now the Chinese economy is slowing, and Chinese companies and individuals have begun to invest more heavily outside the country. As their money leaves China, it puts downward pressure on the yuan.

The yuan has dropped nearly 7 percent against the dollar so far this year. The Chinese government has responded by draining its foreign exchange reserves to buy yuan, hoping to slow the currency’s fall. China’s reserves have dropped by $279 billion this year to $3.05 trillion.

If Beijing stepped back and let market forces determine the yuan’s level, it likely would fall even faster, giving Chinese exporters even more of a competitive edge.

So Beijing is doing the opposite of what Trump says it’s doing. Cornell University economist Eswar Prasad earlier this month called Trump’s plans to name China a currency manipulator “unmoored from reality.”

“The whole discussion is ironic,” said David Dollar, senior fellow at the Brookings Institution and a former official at the World Bank and U.S. Treasury Department. “It’s out of date.”

Could Trump do anything on his own?

Gary Hufbauer, an expert on trade law at the Peterson Institute for International Economics, notes that as president, Trump could nonetheless escalate any dispute over the currency on his own. Over the years, Congress has ceded the president broad authority to impose trade sanctions. Trump has threatened to slap a 45 percent tax, or tariff, on Chinese imports to punish it for unfair trade practices, including alleged currency manipulation.

Brookings’ Dollar said China likely would bring a case to the World Trade Organization “against any protectionist measures that are a violation of U.S. commitments to the WTO,” which oversees the rules of global commerce and rules on trade disputes.

Some trade analysts wonder if Trump is using the tariff threat as a negotiating tool to win concessions from China.

Whatever the U.S. motive, China has a consistent record of retaliating against trade sanctions. When the Obama administration slapped tariffs on Chinese tire imports in 2009, for instance, China lashed back by imposing a tax on U.S. chicken parts.

China’s Global Times newspaper, published by the ruling Communist Party’s People’s Daily, has already speculated that “China will take a tit-for-tat approach” if Trump’s tariffs are enacted. The paper suggested that Beijing might limit sales of Apple iPhones and Boeing jetliners in China.

“The Chinese are predictable and reliable,” DeBusk said. “If they get punched, they punch back.” TVJ

source: business.inquirer.net

G20 nations warn of Brexit risk to global growth

CHENGDU, China — Britain’s vote to leave the European Union heightens risks for the world economy, finance chiefs from the G20 group of leading countries said Sunday at a meeting in China.

The outcome of last month’s referendum “adds to the uncertainty in the global economy,” the meeting’s host, Chinese finance minister Lou Jiwei, said after it concluded.

But he added that EU member countries were “well positioned to proactively address the potential economic and financial consequences stemming from the UK referendum.”

The issue has come to the forefront of the G20’s concerns at the meeting in Chengdu, the last before the grouping’s annual summit, to be held in the Chinese city of Hangzhou in September.

Ahead of the meeting the International Monetary Fund (IMF) downgraded its forecast for global growth this year, and officials in Chengdu said protracted talks between the EU and Britain over the departure could heighten risks.

“It won’t mean that they’ll get there in a week or a month. It’s a process that could take longer,” a senior US Treasury official told journalists on Saturday.

“The thing that would be very disruptive to confidence is if this becomes a highly confrontational process,” he said.

Britain’s new finance minister Philip Hammond on Saturday met his German counterpart Wolfgang Schaeuble and tweeted: “We agree we need a deal that works for the people of Britain & Germany.”

At a family photo on Sunday, Hammond was seated in the front row, but spent most of the event conversing only with one of his neighbors, World Bank president Jim Yong Kim.

‘More negative outcomes’

The IMF has expressed alarm over Britain’s looming departure from the EU.

“‘Brexit’ marks the materialization of an important downside risk to global growth,” IMF staff said in a report ahead of the meeting.

The IMF recently lowered its forecasts for global growth this year and next by 0.1 percentage point, to 3.1 percent and 3.4 percent respectively.

“But with ‘Brexit’ still very much unfolding, more negative outcomes are a distinct possibility,” the report said.

Other challenges threaten: a slowdown in the Chinese economy, as well as terrorist attacks and the failed coup in Turkey — which have rattled financial markets.

China’s economy, the world’s second largest, is caught in a fundamental transition to making domestic consumption the key driver instead of massive public spending and cheap exports.

Turkey’s Deputy Prime Minister Mehmet Simsek, who attended the meeting, said on Twitter that the attempted putsch against President Recep Tayyip Erdogan would not merit mention in the final communique.

At an earlier meeting in Chinese commercial hub Shanghai in February, the G20 finance chiefs agreed to use “all policy tools” including monetary easing, fiscal spending and structural change to boost growth.

The IMF has called on some countries, notably Germany and the United States, to boost spending on infrastructure, which has been opposed by Berlin.

“The world economy is beleaguered with many serious problems,” China’s Lou said on Saturday.

“We should make monetary policy more forward-looking and transparent, enhance the effectiveness of fiscal policy… so as to support stronger recovery of the world economy.”/rga

source: business.inquirer.net