Nadero Wealth Management – The president of the United States, Donald Trump, has said he is prepared to increase levies imposed on Chinese imports to the U.S. if there are no significant developments with the Chinese negotiation team during the G20 summit later this month.
The 2019 G20 summit will take place on 28–29 June in Osaka and will be the first time the G20 meeting has been held in Japan.
During two days of negotiations in May in the United States ended with no change to the impasse, Trump has said several times that he expects to meet President Xi Jinping at the Osaka summit later this month. “No confirmation of any such meeting has been forthcoming from the Chinese, as far as we are aware,” noted Nadero Wealth Management from their base in China.
Depending on the outcome of the unconfirmed meeting, Trump says he will then decide whether or not he needs to move forward with his plan for tariffs on an additional $300 billion worth of Chinese imports. “Trade between the two nations has already seen a decline since the trade dispute began and other countries such as Malaysia and Vietnam have reaped the benefits,” according to research from Nadero Wealth Management.
Speaking to reporters earlier this week, Trump said he still believed the meeting with Xi would take place. “We are scheduled to talk and to meet. I think interesting things will happen. Let’s see what happens,” he said.
Tariffs are already in place on some $250 billion worth of Chinese goods entering the U.S. at a rate of 25%.
A spokesman for the Chinese foreign ministry said this week that China is willing to engage in further discussions about the trade dispute but has nothing to add about the likelihood of a meeting between the two leaders.
The already strained relationship between the two world economic giants came under more pressure last month after Trump accused the Chinese of reneging on agreements they thought had been made during the previous negotiation.
The agreements the American thought were in place would have necessitated amendments to Chinese law, which some saw as being a step too far for Beijing to accept.
One major bone of contention is Intellectual Property rights. The U.S. wants to see an end to forced technology transfers and theft of trade secrets. It also wants to see a significant reduction in the state support given to companies in China, which provides them with an unfair advantage and improved access for non-Chinese companies in the worlds second biggest economy.
Last month, Trump ratcheted up the rate of tariffs on $200 billion of Chinese products from 20 to 25% and made preparations to put levies on a further $300 billion of imports.
In a tit-for-tat move, China then raised duties on $60 billion worth of U.S. imports.
The United States also infuriated China by putting Huawei Technologies on a no-trade blacklist that essentially stops U.S. companies (and companies that want to do business with the U.S.) from conducting business with the tech firm who is the world’s largest telecommunications equipment manufacturer. This followed the U.S. backed arrest of Meng Wanzhou, Huawei’s chief financial officer in Canada.
It is a growing concern that further retaliation will be dished out by Beijing. They could, as they have indicated they are doing, write their own list of companies that they see as “damaging to the Chinese economy, or its companies,” or place a ban on exports of rare earth metals to the U.S.
China controls around 85% of all rare earth metals produced globally, and a ban would severely hamper the U.S. tech industry and significantly increase prices as manufacturers fight over the remaining available stocks not under Chinese control. The metals are needed in a wide range of tech industries from smartphones, processor chips, and batteries.
“The ban on Huawei is going to hurt companies in the U.S. as well as Huawei itself,” said Nadero Wealth Management, “many Huawei components are sourced from the U.S. and other countries that will see a decline in revenue as a result of the ban,” added Nadero.
It is too soon to know what the full implications of the ban on Huawei will be.
Trump has indicated that resolution to the Huawei situation could be resolved as part of a trade agreement with the Chinese.
The intensifying trade dispute between the world’s two biggest economies has unsettled financial markets with concerns that there would be disruption to worldwide manufacturing and supply chains and be the impetus to tip an already slowing world economy into recession.
Christine Lagarde, Managing Director of the International Monetary Fund, said settling the current trade issues should be the primary focus for G20 economies.
In a somewhat surprising turn of events, earlier this week China disclosed that the amount of goods exported grew by 1.1% last month compared to the same time last year, but imports declined by the most in almost three years. It is thought that Chinese exporters may have hurried shipments to the U.S. to arrive there before the new, increased tariffs came into effect.
“Tariffs are opposed by many in the U.S. business sector,” noted Nadero Wealth Management, “with businesses rightfully concerned that they will reduce demand for their goods and force prices up on the high street.”
With the massive flow of illegal immigrants crossing the border into the U.S., Trump announced that he would be imposing tariffs of 5% on imports from Mexico if their southern neighbor failed to take significant steps to stem the human tide.
Fortunately, the two countries came to an agreement before the weekend, removing the prospect, at least temporarily, that the United States would find itself embroiled in trade wars with two of its three main trading partners.
Equities lifted across the world on Monday, and the U.S. dollar moved forward against a basket of major currencies. The Mexican currency climbed by over 2% against the dollar, recovering the majority of the losses seen over the past few weeks.
Trump, who has used protectionism as part of an “America First” policy, said this week that the tariff threat to Mexico would be revisited if Mexico did not ratify another part of the migration agreement.