Overseas Headlines- October 30, 2018

Date: October 30, 2018

United States:

U.S. Plans More China Tariffs If Trump-Xi Meeting Fails, Sources Say

The U.S. is preparing to announce by early December tariffs on all remaining Chinese imports if talks next month between presidents Donald Trump and Xi Jinping fail to ease the trade war, three people familiar with the matter said. An early-December announcement of a new product list would mean the effective date — after a 60-day public comment period — may coincide with China’s Lunar New Year holiday in early February. The list would apply to the imports from the Asian nation that aren’t already covered by previous rounds of tariffs — which may be $257 billion using last year’s import figures, according to two of the people. U.S. officials are preparing for such a scenario in case a planned Trump-Xi meeting yields no progress on the sidelines of a Group of 20 summit in Buenos Aires in November, according to two of the people, who declined to be identified to discuss internal deliberations. They cautioned that final decisions had not been made. Trump, in an interview with Fox News late Monday, said “I think we will make a great deal with China, and it has to be great because they’ve drained our country.” Any further broadening of tariffs would show the Trump administration’s determination to escalate its trade war with China even as companies complain about the rising costs of tariffs and financial markets continue to be nervous about the global economic fallout. Stocks erased gains partly on concern about an escalating trade war between the world’s two largest economies. The S&P 500 Index fell as much as 2.1 percent before paring the drop and ending the day down 0.7 percent. Hong Kong’s Hang Seng Index fell 0.9 percent Tuesday, while the Shanghai Composite Index rose 1 percent. During a daily briefing, Lu Kang, a spokesman for China’s Ministry of Foreign Affairs, told reporters the U.S. should adopt a serious attitude and hold talks with China on the basis of equality and good faith instead of making other kinds of noises if it’s sincere about resolving trade frictions.



Euro-Area Economy’s Bumpy 2018 Keeps ECB on Edge About Risks

The euro-area economy’s bumpy ride in 2018 may not be over just yet, with risks both near and far to keep Mario Draghi on edge when it comes to the next policy step. From the global trade dispute to Italy’s budget battles, threats remain “prominent,” to use the words of the European Central Bank president. On top of the impact of uncertainty on investment, higher oil prices may drain consumer confidence. Already, weaker surveys and sentiment measures suggest there’s no significant rebound coming soon after the economy grew the least in four years in the third quarter. While there were temporary factors at play, including a hit to German car production, that continues a theme of the year after bad weather and strikes in France took their toll in the first half. The slowdown comes at a crucial time for the ECB as it prepares to cap asset purchases. Draghi said last week that the euro area has lost some momentum, but isn’t headed for a downturn. So while the plan to wind down QE remains on track for now, a further slide in growth could make it harder for Draghi to ignore the bad news. Among the major one-off factors in the third-quarter underperformance was in Germany, where issues in the auto industry may have meant the expansion stalled. The economy of Italy, in an ongoing fight with Brussels over its controversial plans to boost fiscal spending, also stagnated, while France grew less than anticipated. The sluggishness means the euro area is slipping behind the U.S. once again after growing faster in 2017. The U.S. economy has just recorded its best back to back quarters since 2014.



Economists Cut China GDP Estimates as Trade War Trumps Stimulus

Forecasters reduced estimates for Chinese economic growth over the coming quarters as recent government measures to counter an escalating trade war with the U.S. were seen as inadequate. Gross domestic product will probably increase by 6.4 percent on a year-over-year basis in the final quarter of 2018 before growth decelerates to 6.3 percent in the first quarter of 2019, according to 65 economists surveyed by Bloomberg. Those forecasts, collected Oct. 22-29, were marked down from the estimates of 6.5 percent and 6.4 percent, respectively, collected in September’s survey. “We are looking for a slowdown into 2019, despite attempts by the government to stimulate via fiscal and monetary policy,” Patrick Franke, an economist at Helaba in Frankfurt who participated in the survey, said. “Trade conflict, including the tariff hike to 25 percent, should continue to weigh on growth.” GDP growth slowed to 6.5 percent in the third quarter from 6.7 percent in the second quarter, missing estimates for a 6.6 percent increase, according to figures published on Oct. 19 by China’s National Bureau of Statistics. The third-quarter growth number marked the slowest pace of economic expansion in China since the aftermath of the global financial crisis in 2009. On Tuesday, China’s currency slid to its weakest level against the U.S. dollar in more than a decade following a report that U.S. President Donald Trump plans to expand tariffs to cover the full range of imports from China if he is unable to extract concessions from Xi Jinping during a Group of 20 summit of world leaders in Argentina at the end of November. Currently, U.S. duties cover $250 billion of Chinese imports. The latest round of tariffs, which the U.S. imposed on $200 billion of Chinese goods in September, are currently being assessed at a 10 percent rate, but are expected to increase to 25 percent in January. Expanding tariffs to the full range of imports would increase the value of Chinese goods covered by an additional $257 billion, based on last year’s import figures. While the Chinese government introduced a further package of stimulus measures this month to counter the effects of the slowdown, the effects have yet to be felt, according to a set of early indicators of sentiment in October compiled by Bloomberg Economics. Forecasters in this month’s survey also increased their estimates for average consumer price inflation this year and next year and reduced estimates for China’s current account surplus as a percentage of GDP.