Trade war

Trade war

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  TRADE WARS REPORT BY: MULFI RAHMAN MGT 1 INTRODUCTION TO BUSINESS PRESIDENT UNIVERSITY 2018
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  TRADE WARS 1. USAVSCHINA China and the United States are locked in an ongoing trade war as each country has introduced tariffs on goods traded with the other. US President Donald Trump had promised in his campaign to fix China's "longtime abuse of the broken international system and unfair practices". Starting in January 2018 the U.S imposed a tariff on solar panel imports, most of which are manufactured inChina. On July 6, the U.S. specifically targeted China by imposed 25% tariffs on $34 billion of imported Chinese goods as part of Trump's tariffs policy, which then led China to respond with similarly sized tariffs on U.S. products. A tariff on an additional $16 billion of Chinese imports was added in mid August, with China responding proportionately. A further tariff on $200 billion of Chinese goods is to go into effect on September 24, to which China plans to respond to with tariffs on $60 billion of US goods. The Trump administration said the tariffs were necessary to protect intellectual property of U.S. businesses, and to help reduce the U.S. trade deficit with China. The U.S. administration is relying partly on Section 301 of the Trade Act of 1974 to prevent what it claims are unfair trade practices and theft of intellectual property. This gives the president the authorityto unilaterallyimpose finesor other penalties on a trading partner if it is deemed to be unfairly harming U.S. business interests. Trump had already, in August 2017, opened a formal investigation into attacks on the intellectual property of the U.S. and its allies, the theft of which cost the U.S. alone an estimated $225–600 billion a year Reaction U.S. commerce secretary Wilbur Ross said that the planned Chinese tariffs only reflected 0.3% of U.S. gross domestic product, and press secretary Sarah Huckabee Sandersstated that the moves would have "short-term pain" but bring "long-term success". Nucor's John Ferriola said that even with the tariffs on steel, the cost of an average $36,000 car would go up about $160, less than 1/2 of 1%, while a can of beer would only cost an extra penny more. After president Trump imposed tariffs against a number of allies, including Mexico, Canada and countries in the EU, G7 finance leaders strongly condemned the tariffs and planned retaliating with tariffs of their own. By early July 2018, there were negative and positive results already showing up in the economy as a result of the tariffs, with a number of industries showing employment growth while others were planning on layoffs.
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  Markets In anticipation oftariffs going into effect, stock prices in the U.S. and China sustained significant losses for four to six weeks prior. Trade war fears had led to a bear market in China where by late June the total value of the country's stock markets was 20% lower than it had been at the beginning of 2018 when it reached record levels.[67] The Japanese Nikkei also suffered a "three- week pullback". On July 6, when the tariffs went into effect, markets rebounded and rallied due to positive jobs report in the U.S.Asian markets similarly rebounded, ending the day in a high note. According to the Associated Press, the positive reaction to the tariffs in U.S. and Asian markets was because of an end to uncertaintyand, according to Investor's Business Daily, because "markets had largely priced in the impact" Industry associations Following announcements of escalation of tariffs by the U.S. and China, representatives of several major U.S. industries expressed their fears of the effects on their businesses. Organizations critical of the intensifying trade war included National Pork Producers Council, American Soybean Association, and Retail Industry Leaders Association. Several mayors representing towns with a heavy reliance on the manufacturing sector also expressed their concerns.[70] In September, a business coalition announced a lobbyingcampaign called "Tariffs Hurt the Heartland" to protest the proposed tariffs. Proponents of the increased U.S. tariffs included Scott Paul, president of the Alliance for American Manufacturing. Who has been worst affected so far? The International Monetary Fund says an escalation of the tit-for-tat tariffs couldshave 0.5% off global growth by 2020. There are signs that the trade dispute is already affecting the Chinese and US economies. Morgan Stanley has said a full-blown escalation of the trade dispute could knock 0.81 percentage points off global gross domestic product. This scenario would involve the US slapping 25% tariffs on all goods from both China and the EU, and similar measures imposed in response.
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  Among companies, thecar industry seems to have been the most affected so far.Major carmakers recently warned that changes to trade policies were hurting performance. Ford and General Motors have lowered profit forecasts for 2018, citing higher steel and aluminium prices caused by new US tariffs. There are also concerns that the trade war could hurt other aspects of US-China relations. Mr Trump recently accused China of manipulating its currency - a sign that the row could be spreading to foreign exchange markets. Smaller Asian countries further down the supply chain could also suffer. According to the Economist, 30% of the value of the goods China exports to America originates from third-party countries. Ultimately, China may not have as much firepower as the US to retaliate, given the US buys much more from China than it sells to them. This could mean it would find alternative ways to fight back such as making life difficult for American companies in China by increasing red-tape. 2. USA VSTURKEY LONDON – Late on Thursday night, the White House threatened further economic sanctions against Turkey if it fails to release detained American pastor Andrew Brunson. Brunson has been under house arrest for almost two years in Turkey for his alleged links to a banned Turkish political movement. Efforts to free him are at the heart of the current economic and diplomatic spat between the US and Turkey. The Turkish lira fell nearly 5% on Friday in reaction to the fresh US sanctions. US President Donald Trump probably thinks he is winning his trade war against Turkey. His “cherished DOLLAR” is “very strong.” The reality, however, is that Trump is strengthening alliances between countries that don’t have America or the West’s best interest’s at heart. By punishing Turkey with
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  sanctions, he isonly pushing the country closer to other nations who see the strategic importance of having Turkey on their side. There were twoclues to that last week:  IRAN: Turkish finance and treasury minister Berat Alkayrak told investors on a conference call that “We don’t expect fines on Halkbank.” Those six words will be meaningless to most people outside Turkey. But they are hugely significant. Halkbank violated economic sanctions against Iran. One of its executives was sent to prison in the US. The implication is obvious: Turkey will be siding with Iran on this issue. Iran, obviously, is a historic sponsor of terrorism.  QATAR: The kingdom gave a $15 billion rescue loan to Turkey last week. Qatar alsosponsors terrorism. Qatar is so corrupt it’s comical: This is the country that paid bribes to host the 2022 World Cup in the desert. This map says it all. Trump’s trade war is solidifying Turkey’s ties toIran and Qatar. Toget an idea of how big a loss this is to the West, consider that just eight years agoTurkey was on the verge of gaining full membership of the European Union. It was a democratic nation that abolished the death penalty. It was finally ready toturn away from the dictatorships of the Middle East and join the alliance of North American and European nations who believe in democracy, the rule of law, and civil rights. There were many steps in the undoing of that alliance, not least Germany balking at the idea of 80 million Muslims suddenly getting the right to live wherever they want. That fed the paranoia of Turkish President Recep Tayyip Erdoğan, an Islamist autocrat, that Europe was basically for white Christians not brown Muslims. Regardless of how we got here, the reality is NATO’s largest standing army in Europe is now cozying up to Iran and indebted to Qatar. Trump should be trying to get Turkey back on side with the West rather than levying huge punishments to secure the release of one man.
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  The Turkish economywill continue to need all the trade it can get and right now Qatar and Iran look like less burdensome partners. Russia and China are waiting in the wings too, according to Reva Goujon, the VP of Global Analysis at Stratfor. Turkey already has a defence cooperation agreement with Russia and China has Erdogan on board for its massive Belt and Road infrastructure initiative. Much of Turkey’s pain is self-inflicted. Erdogan’s mismanagement of the Turkish central bank may further devalue the lira. This, after all, is the man who sincerely believes that “When you look at the cause and effect relationship, the interest rate is the cause and inflation is the result. The lower the interest rate is, the lower inflation will be.” (Literally, the opposite is true.) The endgame – if it comes to a balance of payments crisis – may involve a rescue package from the IMF. From the perspective of London and Washington, that might look like a mechanism to bring Turkey back intothe fold. Surely the Turks will be grateful for the largesse of our interest-bearing credit! Samantha Lee/Business Insider
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  ToErdogan, that creditwill look like the kind of debt-load that crushed Greece. Erdogan continues to suspect that the machinations of the West are merely callbacks to the 1920 Treaty of Sevres, through which the Western nations dismembered the Ottoman Empire. What will the US get out of this? The rising dollar may well crush the feeble lira, but it’s hard to see how that benefits Americans. (Some inside the Trump Administration seem to think the dollar is already too strong.) Maybe America will get Andrew Brunson back. But he’s just one guy, caught preaching in the wrong place at the wrong time. The price of those “victories” will be the strengthening of ties between Turkey, Russia, China, Iran and Qatar, and Turkey’s further alienation from the West. More on the Turkish lira crisis:  The crisis in Turkey is being caused by the US Fed, and we are only at the beginning  UBS: Turkey could be heading into a balance-of-payments crisis  The reason Turkey’s economic collapse is so scary is that Iran, Russia, and Syria are waiting in the wings  The lira’s crash ‘looks certain to push the Turkish economy into recession and may well trigger a banking crisis’  Turkey’s lira crisis may be down to Erdogan’s fundamental misunderstanding of how ‘evil’ interest rates work 3. USA VSINDONESIA We seemed to belittle United States President Donald Trump’s executive order in April last year against 16 countries with which the US had suffered major trade deficits, including Indonesia, which ranked 15th on the list. Similarly, an unfazed reaction was initially displayed when the European Union announced a ban on palm oil imports from Indonesia, the world’s largest palm oil producer. Only later did we realize and sought a path to save the millions of smallholders and workers, as well as the abundant state revenues.
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  “What we produceare not goods that compete with theirs, not like those from China. [The US] might think the things they import are goods that beat out their own products, but the products from Indonesia are not the same as they produce,” Coordinating Economic Minister Darmin Nasution said, reacting to Trump’s realization of his “America First” policy last year. As stated by a senior government adviser, imports from Indonesia accounted for less than 1 percent of total US imports in 2017. The government might forget that any trade tension between major economies, especially the US and China, would send shockwaves across the global economy. Only very recently did the government realize the serious threats of a trade war initiated by the US and the EU. The danger is so real that President Joko “Jokowi” Widodo now has no choice but to soften Indonesia’s position, while at the same time finding alternatives to mitigate the losses. Amid stagnating economic growth and the weakening rupiah, Jokowi seems to be facing mission impossible, to counter or minimize the impacts on the country’s economy. Any trade war would hurt our exports the most, as the sector is labor intensive. According to the US Trade Representative, the country suffered from a US$13.2 billion trade deficit in 2016. Trump is becoming much more confident in justifying his protectionism and forcing his will against US trading partners, as the policy has proven to help the country’s economy. Indonesia’s top-seven exports to the US are knitted apparel, woven apparel, rubber, electrical machinery, footwear, fish and seafood, while the main imports from the US are miscellaneous grains, seeds, fruit, aircraft, space craft, machinery, food waste, animal
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  feed and cotton. TheUS is a key market for Indonesian exports. Therefore, Trump’s trade war will hurt our exports directly and indirectly, through declining exports to China and our other destinations. Trump has demanded that Indonesia open its market wider for US goods, including politically sensitive agricultural products such as beef. It is also tempting to know whether Trump is targeting Indonesia in retaliation for our support for Palestine and our opposition to his decision to move the US Embassy to Jerusalem. The government has no choice but to secure sensible compromises from Trump. Forget old-fashioned trade negotiations. Jokowi should try to see the problems from Trump’s point of view and how they would affect the US president’s interests, including his domestic politics and business empire. 4. USA VSEUROPE The United States’ administration has recently focused a substantial part of its attention on rebalancing trade relationships and trade agreements with the rest of the world. Rather than resolving those disputes through the formal arbitration procedure of the World Trade Organisation (WTO), the US has unilaterally imposed tariffs on a number of products. The main economic effects of these tariffs are not substantial. However, this strategy has been seen by most US trade partners as an attempt to put political pressure on other governments to re-evaluate their trade relationship with the US. Additionally, this move re- engages governments in trade negotiations with a view to secure more favourable terms of trade for US products. A trade war between the US and European Union or the US and China, which happen to be two of the largest bilateral trade partnerships, is still only a scenario and not yet a reality.
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  Despite this, itis worth considering its impact on trade by looking at the current picture and potential winners and losers, but also at the way these trade partners have resolved their disputes in the past. The current trade relationship between the US and the EU definitely favours Europe. In 2017, the US maintained a trade deficit with the EU of over $151 bn. Almost half of that was with Europe’s largest economy, Germany, which accounts for over $64 bn. Adding to this, the trade deficit with Ireland of $38 bn and Italy with over $31 bn, makes it clear that two thirds of the overall balance can be attributed to just three EU countries. The current trade relationship between the US and the EU definitely favours Europe From a product perspective, the key contributors to this particular deficit between the US and EU are chemical goods, with a trade worth of $41 bn. Furthermore, machinery and transportation equipment makes up approximately $29 bn in deficit each. From a US perspective, a trade surplus with the EU only exists in products such as oil, agricultural goods and minerals and ores, with a trade surplus of just over $6, $5 and $4 bn respectively. With this picture, one can verify the argument that the recent US administration’s decision to impose tariffs on a number of products does not apply to those that has the highest contribution to the US-EU trade deficit. Therefore, this strategy has only political implications, not economic ones. A very similar scenario emerges when we analyse data for individual US state trade with the EU. The three regions with the highest exports to the EU are California, Texas and New York. California exports primarily computers and electronic equipment; Texas exports oil and gas as well as chemicals; and New York predominantly exports used or second hand merchandise. This shows that a trade war can have a number of winners and losers depending on which sectors or products the two partners might wish to target. It is also difficult for the two partners to calculate the exact costs of such a trade war given the complexity of the relationship and the unequal distribution of trade flows. The issue in scenario planning means that although the two partners might use some trade instruments to influence the relationship, the US administration’s decision to impose trade tariffs will
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  probably remain atthe political level and will not develop in a full trade war. In the past, both the US and EU have aimed at resolving their trade disputes within the context of the WTO. Over the last 25 years the US has filed 117 cases in WTO as the complainant. Out of these 117, only 19 were directly addressed to the EU as a respondent. The EU on the other hand has filed 64 in total as a complainant with 33 having a direct respondent in the US. Both the US and EU have aimed at resolving their trade disputes within the context of the WTO Given the vast amount of trade between the two partners, this amount of reported cases is relatively small. US cases against the EU focused on agricultural and technology products, whilst EU cases against the US targeted textiles and metals. The last case filed by the US was in 2009 regarding poultry produce, whereas the most recent one from the EU looked at tax incentives for large aircrafts in 2014. Both parties have managed to resolve their disputes through the WTO. Despite some delay to come to a mutually agreed outcome or accept the resolution of the appellate body, this has been a constructive way of settling any trade related differences. It would be strange to see two players compete in trade war by rapidly escalating tariffs without attempting to resolve any issues through the WTO mechanism first. It is undeniable that we have seen a change in the way the US administration behaves under President Trump regarding major issues such as trade. This shift in rhetoric demonstrates a more aggressive foreign policy attitude that sends a strong political signal to those outside of the US borders. The US has sent, through imposing tariffs, a clear political signal that hopes to address the substantial trade deficit and review trade relations with key partners such as the EU and China. This supposedly constitutes as ‘putting America first’. These signals have not been welcomed but have not yet led to a full explosion of retaliation measures that could lead to a trade war.
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  INFLUATION TRADEWARS TOINDONESIA : 1. the US is an important trading partner for Indonesia. List of Indonesian prices to the US to rank from Indonesia's total exports. Things that can be seen from sharing, sharing to the US from year to year are always the top five. Based on data from the Trade Map and CEIC, Indonesia's export share to Uncle Sam's country increased from year to year, namely 9.4 percent (in 2014), 10.9 percent (in 2015), 11.3 percent (in 2016), and 10.6 percent (in 2017). The distribution of exports to China in 2014 amounted to 10 percent of total exports, in 2015 amounted to 10.1 percent, in 2016 amounted to 11.2 percent, and in 2017 amounted to 13.2 percent. "At present, Indonesia is more sensitive to China's economy compared to the US As with the US, if economic growth there slows 1 percent, then Indonesia's economic growth will also fall by 0.07 percent. 2. The trade war between the US and China will not have a direct impact on Indonesia. However, if these conditions are prolonged, China will divert its steel and aluminum products to other countries and Indonesia will become one of them. Concerns about the flood of Chinese product imports are reasonable. Because, Indonesian steel producers complained about the unhealthy competition applied by China. Chinese-made steel products are thrown into Indonesia at low prices. Of course, locally made products are squashed because they can't compete. As with the US, Indonesia also depends on imports for China. China ranks first as the largest importing country in Indonesia, ahead of Singapore and Japan. Data from the World Trade Atlas shows, in the period from January to November 2017, Indonesia imported from China as much as US $ 32.04 billion or grew 15.78% year on year from US $ 27.67 billion. Iron and steel commodities become the third largest commodity for imports from China. As of November 2017, imports of iron and steel from China amounted to US $ 1.78 billion or slowed 7.43% from November 2016 amounting to US $ 1.92 billion. In the last seven years starting from 2011, the trend of imports of iron and steel from China has tended to increase. Look, in 2011, Indonesia only imported iron and steel from China amounting to US $ 989.96 million. Its value continues to grow year by year. Until 2016, Indonesia's imports of iron and steel penetrated US $ 2.09 billion. The Indonesian government has actually installed a protective fence by applying anti dumping and safeguards. At least, seven trade remedies were addressed to China for steel and aluminum
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  products. Additional importduties charged are quite varied, ranging from under 10% to 20%. In fact, this policy was unable to reduce the rate of imports of iron and steel products. Naturally, this US policy makes local producers wary of the threat of flooding of imported products from China. Moreover, the Indonesian government is incessantly launching infrastructure projects. This government agenda will boost the need for steel and aluminum. Chinese exporters who are keen on seeing the Indonesian market certainly take advantage of this as a ticket to enter the Indonesian market. As a result, the steel producers were busy asking the Ministry of Trade to protect domestic products from import invasion. All instruments are not only safeguard and dumping but also the enactment of the Indonesian National Certificate (SNI) and inspection must be applied.