Tags: china | deal | trade | tariffs | economy

Investors Await China Deal as Tariffs Hurt Economy

Investors Await China Deal as Tariffs Hurt Economy

By    |   Monday, 18 March 2019 11:46 AM

While on Wednesday the Fed is widely expected to confirm its intention to keep interest rates unchanged, at least for now, investors now seem to be assuming that in the grand scheme of things the U.S.-China trade deal will be done in the next few weeks.

President Donald Trump seems very keen to reverse the earlier policy of increasing tariffs, or taxes on U.S. consumers of goods partially made in China.

In the meantime, it remains unclear whether a possible June summit may be held.

In this context it might be noteworthy that Trump and President Xi Linping are expected to attend the G-20 meeting in Osaka, Japan, that will be held on June 28-29.

If the policy was supposed to change the U.S. trade position, clearly it has not been entirely successful and the economic costs of the additional tax burden have damaged equity markets, Reuters reported.

However, within that big picture of a trade deal, there are nuances that matter to individual sectors of the economy.

We got the trade data from Japan that did show some of the volatility, which is normal around the Asian Lunar New Year holidays. Exports were weaker to non-China Asia, although they were relatively good to the United States with exports rising 2 percent.

Japan also provided final January industrial production data that was up by 0.3 percent, which was revised slightly up from the initial 0.0 percent. This gives a somewhat mixed picture overall.

Japan is of course intimately bound up in the supply chains of Asia and indeed the rest of the world. So, the trade tariffs have affected the economy in Japan as well.

The removal of some of the trade tensions between the United States and China should support Japanese production in the months ahead.  

Meanwhile, China’s President Xi Linping is to travel to France, Italy and Monaco this week in what is apparently a trade-focused trip.

An Italian official said last week that Italy would sign a non-binding memorandum of understanding (MOU) with Beijing to officially support President Xi Linping's massive $1 trillion ($1.35 trillion) Belt and Road Initiative (BRI), also known as the New Silk Road, the Straits Times reported.

Besides that, Paris may not be looking quite at its best after this weekend of violence charging the “Champs-Elysées” avenue. The revival of the “yellow vest” violence on Saturday when rioters set fire to a bank and ransacked stores may turn the protests back being an economic negative for France, which is by the way the world’s sixth biggest economy when measured by GDP (IMF 2018 data), Reuters reported.

(The yellow vests movement is a French populist, grassroots political movement for economic justice that began in France in November last year.)

The protests were initially negative deterring tourism and shopping. They then resulted in a positive fiscal stimulus as the French government threw money at the problem. The current protests will once again increase the negative impacts on tourism and spending.

The euro remains close to unchanged at $1.1350

French President Emmanuel Macron cut short a skiing holiday, which gives an idea of the severity of the crisis, although on net, the fiscal stimulus effect should still be an overall positive for the French economy.

For investors who are interested to buy some relative cheap European equities, which they surely are compared to U.S. equities, I’d like to recall that there are still short-term sizable hurdles/risks in the European Union with (1) Brexit and (2) the European elections at the end of May and therefore “timing” could be “key”.

Over in the United Kingdom (UK), in the interminably tedious European Union (EU)-UK exit process, the UK government is indicating that the meaningful vote that is scheduled this Tuesday, may not take place, meaningful or otherwise, if the government does not feel that there is a sporting chance of getting their deal through Parliament.

If Prime Minister Theresa May’s government does not believe that Tuesday’s vote on “leaving” will pass Parliament, the idea is that an “extended” delay, which would imply the participation of the UK in the May European elections that will be held between May 23 and 26, which is of course after the “scheduled” Brexit date of March 29, would follow.

In the meantime, the British pound quotes a little weaker from Friday’s close at around $1.3250 per pound sterling.

This is of course a threat to the hardline anti-Europeans and an attempt to win their support by presenting a fairly logical but from their prospective unappealing alternative in relatively clear terms, the BBC reported.

Etienne "Hans" Parisis is a bank economist who has advised investors on financial markets and international investments.

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If the policy was supposed to change the U.S. trade position, clearly it has not been entirely successful and the economic costs of the additional tax burden have damaged equity markets.
china, deal, trade, tariffs, economy
Monday, 18 March 2019 11:46 AM
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