Overseas Headlines- August 23, 2018

Date: August 23, 2018 

United States:

U.S., China Impose New Tariffs on Each Other as Talks Resume

The U.S. and China imposed fresh tariffs on each other’s goods in the middle of trade talks aimed at averting the worsening conflict between the world’s two biggest economies. Both nations started levying the previously announced taxes on $16 billion of imports from the other country shortly after noon Beijing time. China also said it would lodge a complaint about the new American tariffs to the World Trade Organization, according to a Chinese Ministry of Commerce statement on its website. The U.S. will collect an additional 25 percent in duties on Chinese imports ranging from motorcycles to steam turbines and railway cars, and the Chinese retaliation will see a similarly sized tax on items including coal, medical instruments, waste products, cars and buses. U.S. Treasury Undersecretary for International Affairs David Malpass and Chinese Vice Commerce Minister Wang Shouwen met Wednesday and will meet again on Thursday for the first face-to-face trade discussions since June. Those talks aren’t expected to draw in senior decision-makers and are predicted only to result in a joint statement of productive discussions, according to a person familiar with the agenda.“US trade tensions with China are more likely to worsen this year, weighing on global growth in 2019,” according to a research report from analysts at Moody’s Investors Service. “Most of the impact of the trade restrictions on economic growth will be felt in 2019,” and any additional tariffs would be a “material downside scenario,” they wrote. President Donald Trump himself has played down expectations in recent days. That, analysts say, is partly because Trump and China hawks in his administration are feeling increasingly emboldened since the two sides held talks in May and June. At home, Trump has watched the subdued reaction of financial markets to his trade maneuvers and hailed recent strong economic news and polls showing his approval rating holding up among Republicans. Meanwhile, in China the economy has shown signs of weakness in recent months — a circumstance Trump has said gives the U.S. an advantage.



ECB Satisfied With Rate Guidance as Italy Turmoil Sidelined

European Central Bank policy makers said at last month’s meeting that investor expectations are aligned with their own plans, while expressing concern over the risk of trade spats and glossing over Italy’s political troubles. “Members widely expressed satisfaction that the communication of the June monetary policy decision had been well understood by financial markets,” the ECB said in the record of July 25-26 policy meeting, published Thursday. Risks to the economic outlook were “broadly balanced” though “uncertainties related to global factors remained prominent, in particular with regard to the threat of protectionism and the risk of an escalation of trade tensions.” In their last meeting before the summer break, ECB President Mario Draghi and his colleagues confirmed their plans for a gradual exit from ultra-loose policy, saying that data confirmed the euro-area recovery was solid and inflation on track toward their goal. On June 14, the ECB had announced that net bond-buying would end in December 2018 and that rates would stay on hold “at least through the summer” of 2019.There was no sign of any discussions on the rise of Italian bond yields after the installation of a populist government — which includes euro-skeptic officials, and which promises to challenge European spending rules. The Governing Council saw the “risk of persistent heightened financial market volatility” but noted “only modest changes in sovereign and corporate debt markets” since its previous session.This formulation “struck an appropriate balance between being sufficiently precise to provide effective forward guidance and maintaining a suitable degree of flexibility,” according to the account. The announcement “had been effective in aligning market views about the future evolution of policy rates with the Governing Council’s expectation.” While the euro-area’s expansion was continuing, policy makers warned that “trade tensions could generate a more general decline in confidence throughout the global economy, beyond any direct effects from the imposition of tariffs.” They also expressed concern over the impact of trade tensions on emerging markets, and the recent depreciation of their currencies. Since July, the euro-area outlook has been bolstered by a tick-up in economic activity in a survey of purchasing managers, and by further signs that wages are finally increasing robustly. The ECB next meets to set policy on Sept. 13, when it will also publish updated economic projections.



Asia Stocks Rise as Japan Rebounds, Technology Shares Advance

China and the U.S. are resuming trade talks this week, ending a hiatus after an earlier deal collapsed in May. Fresh rounds of tariffs on each other’s goods are set to take effect from Aug. 23, coinciding with the negotiations. “Investors are waiting for the U.S. and China trade talks starting tonight,” Linus Yip, a Hong Kong-based chief strategist at First Shanghai Securities, said by phone. “We saw some bounce back triggered by good interim results, especially in Hong Kong and China, but investors are still quite cautious about the outlook. The concerns on trade and emerging markets’ currencies are still there.”