China Hints at Retaliation After U.S. Blacklisted Chinese Tech Firms

Posted on 10/08/2019 7:18 AM

Trump comments on biofuel boost package

Today’s updates:

 

* Beijing warns of retaliation over the U.S. tech blacklist
* China hats NBA broadcasts over Hong Kong tweet
* Trump comments on possible mini agreement with China
* Who is winning the U.S./China trade war?
* Kudlow says delisting Chinese firms ‘not on the table’
* Trump says biofuel boost package ‘close to 16 billion’ gallons
* U.S., Japan sign mini agreement
* Iraq replaces the head of its state grain agency
* GOP allies blast Trump on Syria exit
* UN said it’s running out of money
* Another Brexit breakdown
* Federal budget deficit for 2019 pegged at $984 bil., highest since 2012

 

Markets: David Malpass, the president of the World Bank, warned that global growth could fall short of the 2.6% rate it predicted in June. In a speech in Montreal, ahead of the World Bank and IMF’s annual meetings next week, Malpass warned that global growth was “slowing” and said he expected it to be even lower than the forecast from four months ago due to “Brexit, Europe’s recession, and trade uncertainty. Moreover, in much of the developing world, investment growth is too sluggish for future incomes to rise in a meaningful way,” Malpass said.

 

“South Park,” the long-running Comedy Central cartoon, was erased from major online platforms in China after an episode taunted the country’s censors and parodied their effects on American entertainment.


 

— U.S./China trade policy developments:

  • U.S. Commerce Dept. said it will add 28 Chinese companies and government bodies to an export blacklist for their alleged role in repression in China’s Muslim-majority western region of Xinjiang. A U.S. spokesman said the decision was not related to bilateral trade negotiations resuming in Washington this week. Among these 28 were eight major tech companies, including three AI startups valued at over $1 billion. China indicated it would hit back against the move, over alleged human rights violations against Muslim minorities. Foreign ministry spokesman Geng Shuang told reporters to “stay tuned.” The U.S. list included video surveillance companies and AI startups.
  • Chinese state-run television network CCTV said it was suspending the current broadcast arrangements for the NBA's preseason games in China. It follows a tweet made by Houston Rockets General Manager Daryl Morey in which he showed support for the anti-government protests in Hong Kong. NBA Commissioner Adam Silver released a statement on the situation: "It is inevitable that people around the world — including from America and China — will have different viewpoints over different issues. It is not the role of the NBA to adjudicate those differences." "However, the NBA will not put itself in a position of regulating what players, employees and team owners say or will not say on these issues. We simply could not operate that way." Basketball is hugely popular in China, and the NBA stands to lose hundreds of millions of dollars if it loses its Chinese sponsors.
  • Both China and the U.S. confirmed the high-level talks in Washington set for Thursday and Friday, with China stating that Vice Premier Liu He will head the delegation that will include Commerce Minister Zhong Shan and People’s Bank of China Governor Yi Gang. However, the South China Morning Post reported China was downplaying expectations ahead of the negotiations. They also quoted an unnamed source as saying the Chinese team could leave the U.S. Friday night, Oct. 11, instead of the original plan for the team to leave the U.S. on Oct. 12.
  • As for prospects for a partial deal, President Donald Trump at the White House Monday said that was not what the US was looking for in the talks. “I think it’s not what we prefer at all,” he noted. “They are starting to buy a lot of our agricultural products. You see that. They’re coming in very strong on pork.” Trump said he did not know if the purchases would be considered a “partial” agreement. “My inclination is to get a big deal. We’ve come this far. But I think that we’ll just have to see what happens. I would much prefer a big deal. And I think that’s what we’re shooting for.” But Trump also injected his brand of humor into the situation, noting both sides have top people in the negotiations. “If I don’t think they’re doing a good job, I’ll fire them, and I’ll go over and take their place.”
  • Who is winning the U.S./China trade war? Weijian Shan, Chair and CEO of PAG in a new article (link) for Foreign Affairs: "There have been over a dozen rounds of high-level negotiations without any real prospect of a settlement ... "Trump thinks that tariffs will convince China to cave in ... China may be willing to budge on some issues, such as buying more U.S. goods ... but not to the extent demanded by the Trump administration ... The numbers suggest that Washington is not winning this trade war."
  • Kudlow: Delisting Chinese firms ‘not on the table’. National Economic Council adviser Larry  Kudlow on Monday said the administration had begun studying U.S. investor protections in China, but that delisting Chinese companies traded on U.S. exchanges “is not on the table. I don't know where that came from,” Kudlow told reporters. “What we're looking at, actually, is investor protection, U.S. investor protections ... transparency and compliance with a number of laws,' he said, citing complaints from exchanges. He added that the administration had convened a 'study group' to examine those issues, but said it was 'very early' in its deliberations."

— Ethanol package ‘close to 16 billion’: Trump. President Trump said the package announced by his administration on Friday to boost corn-based biofuel will approach 16 billion gallons of ethanol demand once it’s finalized. Trump spoke about the ethanol agreement yesterday at a press conference. “We’ve come to an agreement, and it’s going to be, I guess, about getting close to 16 billion,” he said. “So, they should like me out in Iowa and all of the different places.”

— U.S., Japan sign mini agreement. The U.S. and Japan on Monday signed a limited trade deal intended to boost markets for American farmers and give Tokyo assurances, for now, that Trump won’t impose tariffs on auto imports. The deals on agriculture and digital trade cover about $55 billion worth of commerce between the world’s largest- and third-biggest economies, U.S. Trade Representative Bob Lighthizer said at a ceremony in the Oval Office alongside Trump. The accord is a “game changer for our farmers” and ranchers, Trump said at the event. But the agreement in large part mostly echoes what would have been in place via the Trans-Pacific Partnership (TPP) that Trump pulled out of his third day in office. The new U.S./Japan trade deal will provide staged reduction of Japanese tariffs for more than $2 billion worth of U.S. beef and pork, matching access now granted to the 11 Trans-Pacific Partnership trade pact countries, a text of the agreement shows.

Other items of note:

  • Reaction mounts over Trump’s Syria exit. The White House insisted on a telephone briefing for reporters last night that President Trump did not offer Turkey a "green light” to slaughter U.S.-backed Kurdish forces in Northern Syria, and that the U.S. would not bear responsibility for any ISIS resurgence in the area. A senior administration official said Trump will withdraw the 50-100 special forces currently operating near the Turkey-Syria border, but is not pulling out of Syria entirely. Sens. Lindsey Graham (R-S.C.) and Marco Rubio (R-Fla.) reacted angrily to the latest developments. Senate Majority Leader Mitch McConnell (R-Ky.) warned on Monday against “a precipitous withdrawal” from Syria and urged Trump to “exercise American leadership.” The Kurds have been among America’s most effective allies against the Islamic State, and analysts warned that a U.S. withdrawal could benefit Iran, Russia and President Bashar al-Assad of Syria.

  • Iraq replaces the head of its state grain agency. Iraq, a major Middle East wheat and rice importer, has replaced the head of its state grain buying agency, government sources and a document showed today, Reuters reported.  Naeem al-Maksousi was replaced by Hassanein Mahdi Elwan, a document reviewed by Reuters showed. The reason for the replacement, which comes after a week of unrest in Iraq in which more than 100 people have been killed, was not clear.

  • EPA has approved an increase of pesticide residue limits that is 300 times higher than the normal level to fight infestation from an insect that destroys rice sprouts.

  • The UN said it’s running out of money. Secretary-general António Guterres told his 37,000 employees that the body is operating with a $230 million deficit and that it could run out of money by the end of the month. Guterres attributed the shortfall to countries paying just 70% of the sum needed to maintain its $5.4 billion budget.

Markets. The Dow on Monday lost 95.70 points, 0.36%, to close at 26,478.02 after trading both sides of unchanged during the session.  The Nasdaq fell 26.18 points, 0.33%, at 7,956.29. The S&P 500 was down 13.22 points, 0.45%, at 2,938.79.

U.S. deficit hits $984 billion. The federal deficit was $984 billion in fiscal 2019, the highest figure since fiscal 2012, according to a Congressional Budget Office (CBO) estimate. The deficit was 4.7% of GDP, compared to 3.9% in fiscal 2018. The projection came in the CBO’s monthly budget report for September, the last month of fiscal 2019. The monthly CBO estimates are usually within a few billion dollars of the official number, which will be released by the Treasury Department later this month.

This year’s slump for American railroads is getting worse as a slowdown in manufacturing threatens broader weakness in the U.S. economy.

Trade policy uncertainty impact growing. IHS Markit's Ben Herzon and Joel Prakken: "We estimate that the increase of trade policy uncertainty from 2014 through 2018 lowered real investment spending and GDP by about $100 billion, or 0.5% of real GDP. So far this year, trade policy uncertainty has been about as elevated as it was last year.”

Another Brexit breakdown. Boris Johnson told German Chancellor Angela Merkel on a call this morning that a Brexit deal is "essentially impossible" if the EU demands Northern Ireland should stay in the bloc's customs union. Brexiteers fear the backstop would limit the capacity for new independent trade deals, as well as a commitment to EU rules with no influence over them. Merkel responded that a deal would never be possible unless Northern Ireland stayed in a customs union, a juncture the two called a "clarifying moment."


 

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