The ongoing trade tensions and what it means for us
THE US imposed tariffs on US$16 billion of Chinese imports last week.
Although retaliations followed this move, China emphasised the need for negotiations to avoid more tariffs.
US Fed and the European Central Bank (ECB) minutes revealed concerns about protectionism.
Mexico and the US are reportedly close to agreeing to a North America Free Trade Agreement (NAFTA) deal.
The UK published ‘no-deal’ effect papers on the Brexit agreement.
US tariffs on Chinese imports went into effect last week, with more in sight.
As expected, the US imposed a 25 per cent tariff on US$16 billion of imports from China, following the first batch of tariffs on US$34 billion of Chinese imports on July 6, 2018.
China retaliated immediately by imposing a 25 per cent tariff on US$16 billion of US imports.
US trade representative is holding a public consultation period regarding President Donald Trump’s tariffs on an additional US$200 billion of imports from China.
While many US firms have registered complaints, tariffs on US$200 billion could take effect in late September.
In that case, China has already announced a retaliation of five to 25 per cent tariffs on another US$60 billion of US imports.
A renewed attempt at trade negotiations this week yielded little progress.
New talks started between the two sides last week, although it was a low-level talk (led by China’s Vice Commerce Minister Wang Shouwen and the US Under Secretary of the Treasury for International Affairs David Malpass) compared with the previous rounds of talks during May to June.
This suggests that China is willing to explore some workable solution to prevent or what we reckon, at most delaying the implementation of the US$200 billion of tariffs.
However, the talks concluded on Thursday with little progress.
We believe that China will continue to emphasise negotiations as a way to resolve the current trade dispute.
But even if talks resume, they could easily stretch beyond November, with US tariffs on US$200 billion of Chinese imports being introduced before a resolution has been reached.
Amid weaker global trade expectations, Fed and ECB minutes showed some concerns with the current trade tensions.
The latest world trade volumes data for the second quarter of 2018 (2Q18) showed only a small effect of the protectionist policies discussed and implemented since the beginning of the year.
But this was a backwardlooking indicator and frontloading of trade, to avoid tariffs, could support volumes in short run.
Recent minutes of the July Federal Open Market Committee (FOMC) meeting mentioned that the latest staff economic outlook which showed that trade policies could have a significant adverse effect on US growth.
Trade tensions were also recognised as a notable driver of recent market moves in emerging market economies and currencies.
With this regard, Malaysia may face external pressure amid the ongoing trade tension as both countries represent a large bloc of Malaysia trading partner.