Thursday, 22 August 2019 03:52 GMT

Santa Trump freezes tariffs as China catches a chill

(MENAFN - Asia Times) Donald Trump has decided against playing The Grinch who stole Christmas. But his decision to freeze an increase in tariffs on a range of consumer products, such as smartphones and laptops, might come too late to prop up China's slowing economy.

Overnight, the US presidentannounced he was pushing backduties on an array of Chinese imports worth US$300 billion from September 1 until after the holiday spending rush.

'We're doing this for Christmas season, just in case some of the tariffs would have an impact on US customers,' Trump told the media. 'Just in case they might have an impact on people, what we've done is we've delayed it so that they won't be relevant to the Christmas shopping season.'

The statement contradicted successive tweets and briefings that the United States was 'receiving billions of dollars in tariffs from China,' which he again reiterated.

In the broader context of the trade war between Washington and Beijing, opinions were divided.

Kyle Bass, a hedge fund manager and thefounder of Hayman Capital Management , felt it was a case of the White House blinking first in the year-long conflict which has rippled through the global economy.

'It does look like President Trump has blinked,' he told the CNBC news network. 'Every time it [the dispute] makes the [US] stock market go down a few hundred points [the president] backs away.'

But any relief for President Xi Jinping's administration might be short-lived.

On Wednesday, the world's second-largest economy showed further signs of stress with factory output plunging to its lowest level in 17 years last month.

Sluggish demand

Disappointing retail sales, fuelled by stalling demand for new cars, added to the toxic mix.

While industrial output jumped 4.8% in July compared to the same period in 2018, it was down significantly from last month's 6.3% figure,the National Bureau of Statistics reported .

Retail sales also took a hit afterrising just 7.6% compared to 9.8%in June as Chinese consumers started to feel the pinch from escalating trade tensions.

"Given the complicated and grave external environment and the mounting downward pressure on the economy at home, the foundation for [the] sustainable and healthy growth of the economy still needs to be consolidated," Liu Aihua, a spokeswoman for the National Bureau of Statistics, said at a press conference.

These latest numbers followed a broader data dump last week which showed that factory price inflation dropped below zero for the first time since 2016.

The producer price index, which is an important barometer of the industrial sector and measures the cost of goods, fell 0.3% in July compared to 0% from the previous month.

As a reflection of sluggish demand, this could dent corporate profits and trigger a dip in prices globally.

"The profitability for industrial firms will take a hit and the broader outlook will continue to slump," Edward Moya, an analyst at theglobal forex group OANDA , said.

At the same time, food prices jumped 9.1% last month compared to the same period in 2018, triggered by soaring pork prices sparked by the African swine fever outbreak.

Only China's trade stats pierced the gloom.

Imports plunge

Last Thursday, theGeneral Administration of Customsrevealed that dollar-denominated exports in July increased 3.3% year-on-year, although imports plunged 5.6% during the same period.

The highly contentious trade surplus with theUS came in at $27.97 billionwhich was lower than June's figures of $29.92 billion. Overall, it was $45.06 billion.

"Economic conditions worsened across the board last month," Julian Evans-Pritchard, asenior China economist with Capital Economics , said in a note. "Exports still look set to remain subdued in the coming quarters as any prop from a weaker renminbi [yuan] should be overshadowed by further US tariffs and broader external weakness.'

To add to the misery, GDP, or gross domestic product, growth dipped to 6.2% in the second quarter of the year, which was a three-decade low.

'The United States and China are clearly on a collision course,' Eswar Prasad, a senior fellow at Global Economy and Development, said in a commentaryfor the Brookings Institution on Monday . 'These are the world's two largest economies, and the collapse of trade between them would hardly bring either one to a grinding halt. But the combatants are not evenly matched.

'The breakdown in trade between the two countries is already causing pain in both economies … [and] the battle will intensify if rising tensions close off investment flows and dampen the movement of tourists and students between the two countries,' he continued on the Washington-based think tank's website.

'But the US economy is about 50% larger than China's and is less dependent on trade, so its prospects look better. And China exports more to the United States than it imports from the United States (a fact that clearly riles up Trump and was a key instigator for the trade war). So the near-term pain will be greater for China,' he added in the commentary which first appeared in the Washington Post.

Still, Trump's Santa clause in his tariffs strategy is unlikely to bring festive cheer to Xi and his cabinet or a Happy New Year to American consumers.

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Santa Trump freezes tariffs as China catches a chill


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