Overseas Headlines- April 2, 2019

United States:

If You Think Trump’s China Policy Is Tough, Wait for Car Tariffs

President Donald Trump’s threat to restrict foreign car imports would have a greater effect on the global economy than the U.S.-China conflict, according to World Trade Organization Chief Economist Robert Koopman. “Let me suggest a back-of-the-envelope calculation,” Koopman told reporters on Tuesday in Geneva. “U.S.-China trade is about 3 percent of global trade. Automobile trade globally is about 8 percent of global trade. So you can imagine that the impact of automobile tariffs are going to be bigger than the impact of the U.S.-China trade conflict.” Koopman’s comments come as the WTO slashed its global trade growth projection for 2019 to the lowest level in three years, citing the impact of rising commercial tensions and tariffs. Trump is currently mulling tariffs, quotas or other restrictions on imports of autos and automobile parts following the completion of a U.S. Commerce Department national security investigation. The inquiry is identical to the process the U.S. pursued for metals last year, after which it implemented 25 percent duties on steel and 10 percent tariffs on aluminum. Trump agreed in July to hold off on car levies while the U.S. and European Union negotiate an agreement to reduce tariffs on each other’s’ goods. But U.S. trade officials are frustrated with the lack of progress in the talks, with U.S. Ambassador to the EU Gordon Sondland saying in a February interview that “so long as the EU leadership plays the delay game the more we will have to use leverage to realign the relationship.”


United Kingdom:

EU Delivers U.K. Tax Bill as Brexit Deal Eludes Parliament

The European Union ordered the U.K. to claw back illegal tax breaks designed to lure multinationals to the nation — in a timely reminder that the EU still calls the shots on competition rules until Britain leaves the bloc. The European Commission said the British gave certain multinationals a selective advantage by granting them an unjustified exemption from U.K. anti–tax avoidance rules. “This is illegal under EU state aid rules,” Margrethe Vestager, the EU’s antitrust chief, said in an emailed statement. “The U.K. must now recover the undue tax benefits.” While the commission said the exemption was partly justified and didn’t specify which firms unduly benefited from it, at least 52 companies have come forward since the probe started in 2017. They estimated their tax liabilities at about 1.19 billion pounds ($1.55 billion), according to data compiled by Bloomberg Tax. The final bills may now be much lower because the EU didn’t outlaw the entire program. The ruling from the EU comes as British Prime Minister Theresa May is expected to confront her most senior ministers with the potentially explosive option of delaying Brexit by months, as the U.K. and its Parliament struggles to find a plan for leaving the 28-nation bloc. The U.K.’s group financing exemption, introduced in 2013, allowed companies active in the country to pay little or no tax on financing income received from a foreign unit via an offshore subsidiary. The EU regulator said in an emailed statement that it considered the derogation illegal when such financing income stemmed from U.K. activities. The exemption to controlled foreign companies rules was modified at the end of last year in a way that no longer raises concerns, the EU said.



China’s Brightening Economy Calls PBOC Easing Path Into Question

Signs that China’s economy is stabilizing have kicked off a debate about whether the central bank should keep injecting liquidity into financial markets, with a former senior official warning of the risk of asset bubbles. The People’s Bank of China should decide whether to cut the amount of money lenders must hold as reserves only after seeing more economic data, such as first-quarter gross domestic product due April 17, Sheng Songcheng, a former director of the PBOC’s statistics and analysis department, said in an interview with Economic Information Daily published Tuesday. Economists and traders expect the PBOC to cut reserve requirements at least three more times this year, having used such cuts since early 2018 to manage market liquidity and funnel cash into the slowing economy. Now, incoming data are pointing to a bottoming out of the growth slide following a stimulus push that’s spurred China’s markets and re-started the growth of its debt pile. “Cutting reserve ratios when the economy is already stabilized can push inflation higher and guide a large amount of funding to the property market,” Sheng was quoted as telling the newspaper. Even so, market conditions this month could prompt action by the PBOC even if it’s not strictly necessary to support the economy. Maturing loans offered via the medium-term lending facility will potentially suck liquidity out of the market, as will tax payments and local-government debt sales. The drain could add up to 1.5 trillion yuan ($223 billion), according to calculations by Bloomberg News. There are also risks to the economic outlook.


Analyst Certification -The views expressed in this research report accurately reflect the personal views of Mayberry Investments Limited Research Department about those issuer (s) or securities as at the date of this report. Each research analyst (s) also certify that no part of their compensation was, is, or will be, directly or indirectly, related to the specific recommendation (s) or view (s) expressed by that research analyst in this research report.

Company Disclosure -The information contained herein has been obtained from sources believed to be reliable, however its accuracy and completeness cannot be guaranteed. You are hereby notified that any disclosure, copying, distribution or taking any action in reliance on the contents of this information is strictly prohibited and may be unlawful. Mayberry may effect transactions or have positions in securities mentioned herein. In addition, employees of Mayberry may have positions and effect transactions in the securities mentioned herein.