Date: November 23, 2018
U.S. Firms Evading Trump Tariffs by Switching Output Abroad: UBS
U.S. companies are evading President Donald Trump’s goods tariffs by partly moving production abroad, shielding China for now from the effects of an escalating trade dispute, according to research by UBS Group AG. “If U.S. companies move a stage of their manufacturing overseas (to a country other than China), the trade tax is avoided,” Paul Donovan, chief economist at UBS Wealth Management, said in a note. He added that China is not losing out as a result as its goods are still making it to the U.S. eventually, just via a third country. “Asian companies that might be considered rivals to China are not necessarily going to win trade share,” Donovan wrote. “Instead it is the U.S. that is losing out, and it is countries that can provide similar production facilities to those of the U.S. that stand to gain.” Donovan’s view contrasts with that of some economists, who suggest Trump is succeeding in making China pay most of the cost of his trade battles. Donovan predicted that it will be harder for companies to evade tariffs once the number of them increases, and that adjusting supply chains will work less well as levies move from components like electrical switches to finished goods. “The risk is that the U.S. administration feels emboldened by the limited economic damage from its earlier trade taxes,” Donovan added. “The taxes have not done much damage, because they have been evaded. That means, of course, that they have also had little to no impact on the burgeoning U.S. trade deficit.”
Euro-Area Economy Puts Another Dent in ECB Hopes for Rebound
The euro-area economy stumbled again this month, with a key indicator falling to the lowest in four years, denting expectations for an economic pickup after a summer slowdown. Adding to worries, the composite PMI from IHS Markit also showed that employment and orders growth slowed and companies’ expectations dropped. The euro, which plunged earlier after a weak reading in Germany, was down 0.3 percent against the dollar. The figures will be another disappointment for European Central Bank policy makers, who are counting on a rebound this quarter as they prepare to start unwinding stimulus. They’ve acknowledged “fragilities’’ in the economy, but are holding to the line that the broad-based expansion remains intact. Chief Economist Peter Praet said Thursday that downside risks have increased, but the overall outlook remains “broadly balanced.” Changing that view would be a big step for the ECB, which will have to confirm at its meeting in less than three weeks whether it will stop bond purchases at the end of the year as planned. The PMI continues a run of bad news for the euro area. Just this week, the OECD cut its forecast for economic growth and consumer confidence fell more than forecast. Separate data on Friday confirmed Germany’s economy shrank for the first time in more than three years, with exports proving a major drag. The contraction was largely due to a temporary slump in the auto industry, but the weak PMI raises questions about the expected rebound.
China Defends Developing Economy Status at WTO Amid Reform Push
China said it won’t allow reform of the World Trade Organization to include stripping it of its status as a developing nation, a move that would challenge its state-led development model. Speaking in Beijing, Deputy Commerce Minister Wang Shouwen said WTO reform should address developing nations’ interests and defend the multilateral trading system. Unilateralism threatens the WTO’s authority, and the dispute with the U.S. over appointments to the WTO’s appellate body needs to be addressed urgently. While other nations argue that China has abused its role in the WTO by using its status as a developing nation to allow it to continue state subsidies for industry, officials in Beijing defended that as accurately reflecting lagging per capita income, education levels and healthcare standards. The WTO faces survival problems as one member keeps blocking new appellate body nominees, abusing national security to impose tariffs and takes unilateral actions citing domestic laws, Wang said, alluding to the U.S. without naming it. WTO reforms should ensure the special and differentiated treatment for developing members, Wang said