June 15, 2018
Trump Approves Tariffs on $50 Billion of Chinese Goods
President Donald Trump has approved tariffs on Chinese goods worth about $50 billion, said a person familiar with the decision, ratcheting up a confrontation on trade with Beijing and triggering losses in the domestic stock market. The Trump administration is preparing to release a refined list of the first batch of Chinese products to be hit with tariffs on Friday that hones in on technologies where China wants to establish itself as a leader, according to people familiar with the matter. In April, the U.S. revealed an initial list targeting about 1,300 products worth $50 billion in Chinese imports. The U.S. is also nearing completion of a second list of products ordered by Trump, worth $100 billion, which would be subject to the same public hearing process as the first, Reuters reported on Friday. That could bring a another wave of duties after 60 days or more, the report said. The White House has said the first series of duties will be implemented “shortly” after the release of Friday’s list, though no date has been set. “Implementation of the tariffs, when it occurs, could take us closer to a trade war,” said Shane Oliver, head of investment strategy at AMP Capital Investors Ltd. in Sydney. “I suspect Trump also sees these announcements as a way of pressuring China into action on trade – so more classic Art of the Deal stuff.” The Shanghai Composite Index dropped to its lowest since September 2016 and a whisker away from the 3,000-point mark, as markets await the looming announcement of the list of targets. U.S. futures dropped after the Reuters report of the $100 billion list. Speaking at a regular briefing on Friday, Foreign Ministry Spokesman Geng Shuang repeated China’s threat that if the U.S. unveils new tariffs then all previous agreements on trade will not come into effect. Geng said that U.S.-China economic ties are mutually beneficial, but warned that “if the U.S. rolls out unilateralist and protectionist measures that harm China’s interests, then we will respond immediately with necessary measures to safeguard our rights and interest.”
U.K. Employment Rises More Than Forecast But Wage Growth Slows
The U.K. economy continued to create jobs at a healthy pace in the three months through April but wage growth unexpectedly slowed. The employment rate reached a record-high 75.6 percent after the economy added 146,000 jobs, more than the 120,000 predicted by economists. The jobless rate held at 4.2 percent, its lowest since 1975. However, a surprise moderation in the pace of wage growth may suggest the economy retains a margin of spare capacity. Pay growth excluding bonuses slowed to 2.8 percent between February and April, the Office for National Statistics said Tuesday. For Bank of England policy makers, the question is how quickly the economy uses up whatever slack it has left. Bets on an August interest-rate hike receded on Monday after manufacturing and construction failed to bounce back as forecast in April following snow disruptions the previous month. The pound held gains following the labor-market data and was at $1.3414 as of 9:32 a.m. London time. With inflation slowing to 2.5 percent on average between February and April, households enjoyed the strongest period of real wage growth for more than a year, though pay including bonuses only matched the rate of CPI. Regular private-sector pay slowed to 2.9 percent in the latest three months, and the figure for April alone dropped sharply to 2.5 percent, the least in five months. April is a significant month for wage settlements as it marks the start of the new financial year for both the government, which employs more than 5 million workers and sets the statutory minimum wage, and many private-sector firms. Around 40 percent of all pay awards take effect during the month. In the public sector, the government is relaxing seven years of pay restraint. However, only a handful of settlements will have been included in the April data, which showed pay growth staying at 2.5 percent. Any coming pay rises are likely to be backdated to April, as was the case with the recent settlement for more than 1 million National Health Service workers.
Japan’s New Economic Plan Puts Fiscal Discipline on Back Burner
The Japanese Cabinet approved a new mid-term economic plan on Friday that further delays efforts to rein in debt and removes an important cap on spending. The plan for economic policy making and fiscal management for the next three years targets a primary balance surplus by fiscal 2025, five years later than the previous goal, and drops a 500 billion yen ($4.5 billion) limit on annual increases in social spending. Some economists have expressed concern about the removal of the spending cap while most see the delay in the primary surplus target as an acknowledgment of reality. Even under its most optimistic growth scenario, the Cabinet Office says it will take until 2027 until a surplus can be achieved. With an aging population that requires more public spending on medical care and pensions every year, Japan is struggling to put its finances in order. It has repeatedly pushed back the key budget target, which measures the government’s fiscal position excluding interest payments on its borrowings. “The policies for controlling social spending are vague, and the degree to which they’ll be effective is unclear,” SMBC Nikko’s Yoshimasa Maruyama and Koya Miyamae wrote in a note after a draft of the plan was released earlier this month. In addition, the government established three additional fiscal goals to achieve by the time it crafts its next mid-term plan in 2021: halving the primary balance deficit from its 2017 level, bringing debt down to 180 to 185 percent of gross domestic product and cutting the budget deficit to within 3 percent of GDP. Despite removing the spending cap and delaying the surplus target, the plan reaffirms that Japan should go ahead with a 2 percentage point increase in the sales tax in October 2019. This would bring the tax rate to 10 percent. The government will consider policy measures to smooth out demand before and after the tax hike.