June 20, 2018
United States:
Trump Faults China’s Economic Policy as Threat to U.S. Security
The world economy lurched closer to an all-out trade war as the Trump administration accused China of threatening U.S. economic interests and as the European Union made good on its threat to hit American goods with retaliatory tariffs. A scathing report, posted late Tuesday by the White House, blamed Beijing for hijacking intellectual property and pursuing destructive industrial policies, saying the nation’s spectacular economic growth “has been achieved in significant part through aggressive acts, policies and practices that fall outside of global norms and rules.” “Given the size of China’s economy and the extent of its market-distorting policies, China’s economic aggression now threatens not only the U.S. economy, but also the global economy as a whole,” according to the 35-page document. The White House report came out just before the EU triggered the first phase of retaliation against the U.S. over its metal-import tariffs, approving a 25 percent duty on 2.8 billion euros ($3.2 billion) of U.S. products including Harley-Davidson Inc. motorcycles and Levi Strauss & Co. jeans. It opens up a second contentious trade front for Trump, who ordered U.S. officials on Monday to consider imposing tariffs on an additional $200 billion in Chinese imports — with another $200 billion to be added if Beijing retaliates. The EU countermeasures will hit U.S. consumer, agricultural and steel products in many key Republican constituencies, putting pressure on Trump ahead of crucial midterm elections in November. “We did not want to be in this position,” European Trade Commissioner Cecilia Malmstrom said in a statement on Wednesday. “However, the unilateral and unjustified decision of the U.S. to impose steel and aluminum tariffs on the EU means that we are left with no other choice.”
Trump’s Immigrant Child Detentions Mean $458 Million for Nonprofit
The Trump administration plans to pay a Texas nonprofit nearly half a billion dollars this year to care for immigrant children who were detained crossing the U.S. border illegally, according to government data. The nonprofit, Southwest Key Programs Inc., is to be paid more than $458 million in fiscal 2018, according to the data — the most among the organizations, government agencies and companies that run a detention and care system for immigrant children on behalf of the Department of Health and Human Services. Southwest Key has about a dozen facilities in Texas, including a site at a former WalMart Inc. store in Brownsville that has drawn attention from members of Congress and national news organizations. President Donald Trump is facing bipartisan criticism for his “zero tolerance” policy toward families that cross the U.S. border with Mexico illegally. Under the policy, all undocumented adults who cross the border are to be arrested and prosecuted, even if they mean to petition for asylum. As a result, their children are removed and placed in the custody of U.S. authorities — briefly with Customs and Border Patrol, under the Department of Homeland Security, and then with the Office of Refugee Resettlement at the Administration for Children and Families, an HHS agency. The refugee office is housing and caring for nearly 12,000 immigrant children, according to Steve Wagner, ACF’s acting assistant secretary. More than 2,000 of them were separated from their parents or other caregivers after crossing the border, under the Trump policy announced in April; the rest entered the U.S. on their own.
Europe:
Sovereign Debt Writedowns Draw Closer in Franco-German Plan
France and Germany want to make it easier to restructure bonds of euro-area nations that get into trouble. A joint proposal, released Tuesday, envisages the start of talks on strengthening collective action clauses, which have been mandatory for sovereign bonds issued by euro-area states since 2013. The new procedure would kick in when a member of the currency bloc seeks financial assistance from its crisis-fighting fund. Rules currently in place allow repayment modifications if the terms are approved by two sets of majorities. Holders of all the affected bonds voting together must approve changes, as must holders of each bond series separately. Replacing this cumbersome “two-limb” voting procedure with a single-limb aggregation clause requiring a single vote by holders of the affected bonds would make it harder for holdouts to resist debt restructuring attempts when the majority of investors concedes that it’s necessary. The Franco-German proposal also calls for the European Stability Mechanism to “facilitate” dialog between member states and private investors, when changes to repayment terms are sought. While this provision is similar to what the International Monetary Fund currently does for countries seeking assistance, the ESM will have a tighter grip on the process because its lending power in euro-area bailouts is a multiple of the IMF’s capacity. “This proposal mis-diagnoses the problem, which is European procrastination over debt relief,” said Gabriel Sterne, head of global macro research at Oxford Economics in London. “No creditor ever wants to give debt relief, so you need a neutral referee to assign losses. That should be the IMF, but they haven’t done their job properly.
U.K. Manufacturing Growth Bounces Back in June, CBI Says
U.K. manufacturing picked up in June as order books strengthened to their highest level in five months. The volume of output in the sector jumped to the strongest this year in the three months through June, the Confederation of British Industry said in a report Wednesday. Expectations for output prices also edged closer to the long-run average after touching a 34-year high in January. Orders for exports continued to grow. The report backs up the outlook of Bank of England policy makers, who expect the U.K. economy to bounce back in the second quarter after a sluggish start to 2018. With Brexit clouding the horizon and recent data proving mixed, economists and investors are looking for signs from BOE officials on the next interest-rate move when the central bank announces its latest decision Thursday. There was evidence of that uncertain picture in Wednesday’s CBI survey. The report showed that businesses expect a mild slowdown in output growth in the next three months, suggesting the recent strength may prove temporary. About half of economists in a Bloomberg survey say they expect a quarter-point BOE hike in August after the first increase in a decade last November.
Asia:
Trump’s Tariffs Could Deliver a Sizable Hit to China’s Economy
Donald Trump’s threat to impose tariffs on another $200 billion of Chinese imports could cut as much as half a percentage point from the nation’s economic growth, according to economists. The warning comes amid signs that the world’s second biggest economy — and biggest contributor to global growth — is already slowing down as a simmering trade dispute with the U.S. risks spiraling into a protracted trade war. China’s economy grew by 6.9 percent in 2017 and the government has set a growth target of 6.5 percent for the current year. Trump on Monday evening ordered identification of $200 billion in Chinese imports for additional tariffs of 10 percent — with another $200 billion after that if Beijing retaliates. He’s already promised to place tariffs of 25 percent on $50 billion, starting July 6 with an initial $34 billion worth of imports. Analysis of how the tariffs impact vary and much depends on the final details of the duties that are pushed through. It’s also the case that China’s authorities have massive monetary and fiscal power they can unleash to counter any trade-related slowdown. Officials are already pulling multiple policy levers in an attempt to steady financial markets rattled by the intensification of the trade dispute with the U.S. and a worsening growth outlook. Officials are already pulling multiple policy levers in an attempt to steady financial markets rattled by the intensification of the trade dispute with the U.S. and a worsening growth outlook. Officials set the daily fixing of the yuan at a much stronger level than expected on Wednesday, suggesting efforts to stem a two-day slump that was the steepest since the 2015 devaluation. Late Tuesday, People’s Bank of China Governor Yi Gang pledged to use monetary policy tools “comprehensively” in support of the economy.