March 28, 2018
Trump Targets China’s Push to Make Its Economy High-Tech
The U.S. is taking aim at President Xi Jinping’s strategy to make China a global leader in the high-tech industries of the future. After slapping tariffs on 20th century industries like steel, President Donald Trump is now mulling curbs on 10 strategic industries that Beijing aims to dominate this century. The measures may be announced as early as this week on industries that form the thrust of the “Made in China 2025” plan to boost high-end machinery, aerospace, new-energy vehicles and biotechnology. “These are things that if China dominates the world, it’s bad for America,” U.S. Trade Representative Robert Lighthizer told a Senate committee this month. The U.S. now sees China as a strategic rival and imposing such curbs would mark a concrete shift in its strategy toward containing China’s ascent in advanced industries. “Targeting ‘Made in China 2025’ is a much bigger deal for China than tariffs on steel or washing machines,” said Louis Kuijs, chief Asia economist at Oxford Economics in Hong Kong, who previously worked for the World Bank in China. “This is about the future and impacts one of the key ambitions China has set for itself. It would increase the probability of serious friction.” Measures targeting key industries of the future would more directly address complaints by American companies doing business in China. They have long argued that China uses a range of tactics to force them to transfer intellectual property, and that Chinese entities engage in widespread theft of U.S. trade secrets. Following an investigation into China’s intellectual property practices, the USTR says that the U.S. will “confront China over its state-led, market-distorting” practices in these areas.
U.K.’s Tight Labor Market Is Holding Back Growth, BOE Says
U.K. companies are finding it harder and harder to hire the right people and it’s having an impact on the pace of economic growth, according to a Bank of England report. That’s bad news for the U.K., which is already among the slowest-growing Group of Seven economies. It’s forecast to expand 1.5 percent this year and next, weaker than the euro area and the U.S. In a broad report based on surveys of companies published Wednesday, the BOE said recruitment difficulties were “elevated” and “remained a primary concern” among companies. The U.K. jobless rate is at its lowest in over four decades and employment is at a record high. The BOE added that the industries reporting skill shortages now include hospitality, warehousing, agriculture and food, adding to a list that already covered construction, engineering, software development, professional services and logistics. It blamed this on reduced availability of European Union workers, on which these sectors rely. While the impact of recruitment difficulties on pay has been limited, the BOE noted that settlements are running a bit higher this year than in 2017 — at between 2.5 percent to 3.5 percent. That’s playing into the thinking among BOE policy makers, who have set the stage for an interest-rate increase in May, after they hiked for the first time in a decade in November.
Economists Run Numbers on Spillovers From Trump’s China Threat
As the world awaits details on which Chinese products and industries the U.S. will target with tariffs, economists have run the numbers on the possible fallout. Here’s a sample of the analysis: The Japanese bank calculated foreign value added in China’s gross exports and tracked it back to the source. That showed that the biggest contributors of value add to China’s exports are all Asian, led by Taiwan, Malaysia, South Korea, Hong Kong and then Singapore. Nomura Holdings Inc. estimates one-third of China’s gross exports contains foreign value added, a very large share for such a major economy. “The bigger losers could be other smaller and more trade-oriented Asian economies that are big suppliers to China of high value-added parts and components that are used in China to produce the finished product,” according to Rob Subbaraman, head of emerging market economics at Nomura in Singapore.
China Beige Book Shows Economy May Be Losing Steam
The world’s second-largest economy held up in the first quarter, with “strikingly consistent” performances across regions, but may be losing steam, according to the China Beige Book. Manufacturing and services led with strong sales while there was some slowing in property and commodities, two engines of the old economy most at risk of overheating, CBB president Leland Miller and chief economist Derek Scissors said in a report. Job growth remains near a historic high in the private survey by CBB International, which collects anecdotal accounts similar to those in the Federal Reserve’s Beige Book. “Hiring has stopped accelerating but the employment situation is fine,” according to CBB’s report. “It would require a lot of contortion to see a poor economy in the first quarter,” Miller and Scissors wrote. “The tougher question is what’s going to drive growth a year from now,” they said, adding that two years of surprising manufacturing performance won’t endure and services likely will weaken after excellent first-quarter sales. “Next stop for the economy as a whole: a lull.” Policy makers at the National People’s Congress this month set a 2018 growth goal of around 6.5 percent that omitted last year’s aim for a faster pace if possible. Economists surveyed by Bloomberg forecast the same pace, which would follow a 6.9 percent expansion last year, the first annual pickup since 2010. China Beige Book said in December that data offer a “warning for 2018” now that leaders are less motivated to prop up growth after leadership changes in October. Fourth-quarter results already show some signs of a transition to slower growth, CBB said.