Week a long time in trade stoush

Week a long time in trade stoush

Wed, 01/08/2018 - 09:59
USA China

The simple reality of the trade environment is that upheaval is the new normal. Photo: Reuters

Feel like you have whiplash? You are not alone, writes Darryl Daisley, who has been tracking the rapid tit-for-tat trade war between China and the US.

Volleys on both sides of the Chinese and American trade war are increasing.

In recent days, there has been a raft of actions by each of the world’s two biggest economies — any one of which could have significant implications for business.

And while there’s still appetite to mitigate the damage through dialogue and the pursuit of new trade deals, it is not clear which country has the capacity to ease tensions any time soon.

Consider the pace of the changes across just one week in July.

On Monday July 23, Beijing announced a range of measures, including tax cuts, infrastructure spending and new loans to business with the goal of reinvigorating economic growth, which has begun to slow in recent months.

The announcement was a sign China was looking for new ways to revitalise its economy as the trade war with the US escalated.

The tax cuts for business were worth about $10 billion and come on top of much bigger injections of funds into the banking system in May and June that were aimed at boosting activity.

The Chinese government says the new stimulus is intended to help the country cope with "an uncertain external environment”.

By Tuesday, the Trump administration had announced up to $12 billion in emergency aid to farmers to counter Republican dissent over the president’s disruptive trade policies.

The aid was also designed to help farmers deal with tariffs from Mexico and other countries besides China, which have imposed levies on US products in response to American tariffs on steel and aluminium.

The emergency aid package might have been welcomed by US farmers but it also signals trade tensions are unlikely to be resolved in the near future. Farmers are expected to start receiving payments by September.

On Wednesday, there was actually a silver lining: this time with the US and European Union appearing to step back from the brink of a new round of tariffs.

Despite playing down expectations with a series of aggressive tweets in advance of the meeting between Donald Trump and European Commission President Jean-Claude Juncker, the meeting ended with an unexpected announcement of a process to avoid further tariffs.

Messrs Trump and Juncker said they had agreed to hold off on proposed car tariffs, and the EU would work with the US to resolve the dispute on steel and aluminium while pursuing a bilateral trade deal.

This boded well for Thursday, where shares on Wall Street surged.

Newspaper USA Today noted that if trade wars could be measured by stock markets, “(then) as a measure of who's winning the trade dispute, the US has a clear lead over China and its other trading partners”.

News and markets publisher Bloomberg was less enthusiastic. There were two kinds of trade wars, it said, dangerous ones and dumb ones.

The second is the kind that hurts the country, even if it succeeds. So far, unfortunately, much of President Donald Trump’s trade war has been of the latter variety,” it said.

By Friday global markets appeared almost content, but the dizzying ride does leave you wondering about what the next week could bring.

The simple reality of the trade environment is that upheaval is the new normal and that Wall Street is so far not exerting much pressure on a return to certainty.

The other big theme will be the unfolding story of China’s stimulus program — and what that means for its other trading partners.

Week to week, it remains uncertain as to what positions will be adopted by key players in the global market.

Tensions are likely to continue and the future is unclear.

What does it mean for business? When the global environment is this unstable, you need to be speaking to your advisers far more often, given the blow that could affect your business or supply chain could arrive overnight.

Darryl Daisley is director of Pitcher Partners.