Trump announces fresh tariffs on Chinese products, ramping up rates by 5%

Trump makes the announcement via Twitter

On October 1, Chinia is going to be hit by fresh tariffs.
Here’s the announcement, which was clearly timed to hit moments after the FX close:
For many years China (and many other countries) has been taking advantage of the United States on Trade, Intellectual Property Theft, and much more. Our Country has been losing HUNDREDS OF BILLIONS OF DOLLARS a year to China, with no end in sight Sadly, past Administrations have allowed China to get so far ahead of Fair and Balanced Trade that it has become a great burden to the American Taxpayer. As President, I can no longer allow this to happen! In the spirit of achieving Fair Trade, we must Balance this very unfair Trading Relationship. China should not have put new Tariffs on 75 BILLION DOLLARS of United States product (politically motivated!). Starting on October 1st, the 250 BILLION DOLLARS of goods and products from China, currently being taxed at 25%, will be taxed at 30% Additionally, the remaining 300 BILLION DOLLARS of goods and products from China, that was being taxed from September 1st at 10%, will now be taxed at 15%. Thank you for your attention to this matter!
One thing that’s a bit unclear is the Dec 15 tariffs. I’m guessing those are still exempted until then.
All told, this isn’t that bad. It could have been worse. He’s ramping up tariffs by 5%. It’s not some kind of apocalyptic announcement but it certainly continues the trend of escalation.
trade war

IMF says monetary easing unlikely to make a lasting improvement in trade balance

Exchange rates can’t do it all

The IMF is out with a blog post about the effectiveness of using monetary policy to weaken a currency and boost exports.
“One should not put too much stock in the view that easing monetary policy can weaken a country’s currency enough to bring a lasting improvement in its trade balance,” the authors write.
They estimate that a 10% decline in a country’s currency improves the trade balance by about 0.3% of GDP in the near-term, largely via a contraction in imports. Over three years the effect is larger and hits an average of 1.2% of GDP.
One thing they highlight is that much international trade is done in US dollars. This slows and limits the effects of weakening the currency.

Bundesbank sees risk of the German economy entering a recession

Comments by Bundesbank via its monthly report

  • Euro area economy growing at a subdued pace in Q3
  • Sees first signs of downturn in the labour market
  • German economic outlook remains unclear, hinges on exports
  • Economic activity could shrink over the summer (Q3) due to weak industrial activity
  • It is unclear if exports will regain their footing before the domestic economy becomes more severely affected
Given the way things are going, another economic contraction wouldn’t be surprising.
As mentioned over the last few weeks, the dichotomy of Germany’s economy (manufacturing and services performance) will eventually settle on one path and the likelihood of negative spillovers from the manufacturing to services sector grows with each passing day.
Thursday’s PMI data may give us a glimpse of that but lawmakers and policymakers will be certainly be hoping that the services sector will continue to bolster the economy through these tough times.

Eurozone June current account balance €18.4 billion vs €29.7 billion prior

Latest data released by the ECB – 19 August 2019

  • Prior €29.7 billion; revised to €30.3 billion
Slight delay in the release by the source. The surplus shrinks below €20 billion for the first time since 2017 as we see a drop in goods, services and primary income for the month of June. That’s not encouraging but at this point in time, this is still a minor data release.
The data is a general indication of flows in/out of the euro area economy. EUR/USD holds steady at 1.1101 currently still.

UK Times reports government secret no‑deal Brexit preparations leaked

Via the Sunday Times (gated), the paper say they have the full copy of an unprecedented leak of government documents

“This is not Project Fear-this is the most realistic assessment of what the public face with no deal. These are likely, basic, reasonable scenarios-not the worst case,” a senior government source told the Sunday Times.
Britain faces shortages of fuel, food and medicine,
  • a three-month meltdown at its ports,
  • a hard border with Ireland
  • rising costs in social care in the event of a no-deal Brexit
Says the Times:
  • The documents … have emerged as the UK looks increasingly likely to crash out of the EU without a deal.
  • Compiled this month by the Cabinet Office
Apart from that, how was the weekend?
Via the Sunday Times (gated), the paper say they have the full copy of an unprecedented leak of government documents 

German Finance Minister says could deploy up to 50bn EUR of extra spending if needed

German Finance Minister Olaf Scholz spoke on Sunday,

  • Said Germany has fiscal strength
  • is thus able to counter future economic crisis “with full force”
  • could spend up to 50bn EUR extra
Germany’s economy is showing signs of slowing, Scholz floating the idea here of dially back government promises to target balanced budgets and instead borrow to fund investment.
  • if we have a debt level in Germany in relation to economic output that is below 60 percent, then this is the strength we have to counter a crisis with full force

US President Trump says China is doing poorly, wants to make a deal

I believe this is what the psychiatrists refer to as ‘projection’.

And, more:
  • US consumers may have to pay more to cover costs of tariffs
(ps there is no may about it)
  • Does not think China would retaliate for an increase in tariffs
Still going:
  • thinks trade war with China will be fairly short
  • he understands September meeting between US and China negotiators is still on
  • Powell should be cutting rates, other countries are cutting and we should stay even
I believe this is what the psychiatrists refer to as 'projection'.
Oh, if you are down this far …. here are some Asia rumours beginning to do the rounds:
  • China has frozen mainland assets of Hong Kong citizens
  • Yang Jiechi delivered letter to Trump – with news that China is to to fully take over Hong Kong…. in return China to sign 153 pages of previous agreement on trade deal and buys 10-30 bln $ farm products
Juicy rumours but that’s all they are. Make up your own mind. I can’t see China caving in and signing the previous agreement FWIW. And, if China want to snaffle up HK they’ll do so regardless.