Trade war fears and the resilience of emerging markets
The much-dreaded trade war has come dangerously close to fruition after the tit-for-tat exchanges between the United States and China over the course of the past week.
 
Last Tuesday, the US, blaming China for intellectual property theft, released a list of 1,300 products that could possibly be imposed with a tariff of 25 percent -- worth a total of $50 billion -- unless China mends it ways. The very next day China came up with a list of US imports that could be charged with a 25 percent tariff, again worth approximately $50 billion.
 
Trump retaliated the following day saying that the US government is considering imposition of tariffs on another $100 billion of Chinese imports. In response, China warned on Friday that it was ready with a "fierce counter-strike" of fresh trade measures if Trump follows through on his threat and that it would fight the US "at any cost".
 
At the time of writing (April 9), neither of the two nations had followed through on their threats and, hopefully, a more conciliatory tone will be adopted this week. What needs to happen is quite straightforward. China should recognise that some of the US claims have merit. Beijing has long demanded that US businesses relinquish their intellectual property rights if they want to gain access to Chinese markets. For instance, if a US car manufacturer wants to sell cars in China, it has to team up with a local manufacturer and transfer all the technology or face steep import tariffs. China has been benefiting from this rule for decades. In case China ends this, Trump could withdraw his threats of tariffs and both sides would be in a position to disengage.
 
It is also more in China's interests to avoid a full-blown trade war. The country is still an export-dependent economy and it sells more goods to the US than it buys. But China, with its ambitions of being the next superpower, might not back down so easily. It would prefer not to be seen as yet another developing economy with no option but to do as Washington dictates. It also has some damning arsenal in its kitty to pose a credible threat to the US: A massive reserve of US Treasury bills. If it plans to dump these bonds on the world markets, it would mean catastrophe.
 
Therefore, it is in everyone's best interests that sense prevails, and a trade war is avoided at all costs.
 
A positive outcome from this affair has been the resilience shown by the emerging economies around the world. If history is any indication, a situation like a tit-for-tat trade war between two of the world's largest economies should have sent capital rushing towards safe assets in the US, leaving the emerging economies high and dry. That was the case until quite recently. A case in point is the "taper tantrum" of the US Federal Reserve which took place in 2013 and a similar flight of capital destabilised the developing world economies.
 
Morgan Stanley famously coined the phrase "fragile five" to describe the precarious situation in which Brazil, India, Indonesia, South Africa and Turkey found themselves. Now, the emerging economies are seeming more like safe havens. Since the turmoil of 2013, these nations have worked towards strengthening their balance sheets and making themselves resilient to global shocks.
 
As a result, considerable confidence is being shown towards the assets of these countries. Emerging Portfolio Fund Research data shows that in the first quarter of this year $43 billion has flown into equity funds of emerging markets. These inflows already account for two-thirds of their value in the whole of last year. In contrast, equity funds in the developed markets have attracted merely $25.5 billion in the first quarter of this year and the flows have also been more volatile than in emerging economies. The emerging market currencies have also been up four per cent against the dollar this year. These trends go on to show the strength of the emerging markets in sharp contrast to the dire situation just a few years ago.
 
Even if a trade war does break out and the global scenario does not remain as promising, India might emerge relatively unscathed. In the unlikely scenario where the carefully established rules-based trade system is forsaken, relationships will define trading patterns. Prime Minister Narendra Modi has spent the last four years building strong connections with countries around the world. These efforts would pay much-needed dividends to the Indian economy if a trade war ensues.
 
Whatever be the case, it is quite clear that the liberal world order established in the post-war era is going through dynamic changes. The developed world is uneasy about ceding its long-held power to the emerging economies. India still has a long way to go, but China is rapidly catching up in terms of technological competence. It is time to reset the rules of the global trading regime and ensure a fair and level playing field among countries with fundamentally disparate economic systems.
 
Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
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    Trump threatens China with additional USD100bn tariffs
    US President Donald Trump has ratcheted up the trade war rhetoric with China, saying he was considering an additional $100 billion in tariffs on the country, the media reported.
     
    "In light of China's unfair retaliation, I have instructed the US Trade Representative (USTR) to consider whether $100 billion of additional tariffs would be appropriate," CNN quoted the President as saying in a statement late Thursday.
     
    "Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers," Trump's statement said.
     
    The President added that he instructed to the USTR also to "identify the products upon which to impose" the additional tariffs.
     
    In responce, USTR Robert Lighthizer called Trump's request "appropriate".
     
    Earlier this week, the US announced new tariffs on $50 billion worth of Chinese goods, claiming that Beijing was stealing American intellectual property, CNN reported. 
     
    China responded within hours by announcing $50 billion worth of tariffs on US goods.
     
    The moves follow US tariffs that were imposed last month on Chinese steel and aluminium, which also prompted a response from China.
     
    Thursday's announcement also rattled markets.
     
    Dow futures fell after Trump's announcement and were down more than 300 points, or about 1.5 per cent in after-hours trading.
     
    The Chinese embassy in Washington did not immediately issue a response to the proposed new round of tariffs, CNN reported. 
     
    The Chinese government had said earlier this week that it would respond with equal measure to any new duties on its goods.
     
    Trump's latest threat was met with criticism from members of his own Republican party. 
     
    Nebraska Senator Ben Sasse called the move "the dumbest possible way to do this".
     
    "Hopefully the President is just blowing off steam again but, if he's even half-serious, this is nuts... He's threatening to light American agriculture on fire," Sasse added.
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.
     

     

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    China hits back, slaps new tariffs on 106 US products
    China in no time hit back by slapping tariffs of worth USD50 billion on 106 US products on Wednesday, hours after Washington decided to impose import taxes on 1,300 Chinese products.
     
    The Customs Tariff Commission of the State Council has decided to impose an additional tariff of 25 per cent on 106 items of products under 14 categories, Xinhua quoted the Chinese Finance Ministry as saying. 
     
    The Ministry said the move was in response to Washington's proposed list of products subject to additional tariffs, which covered Chinese exports worth $50 billion with a suggested tariff rate of 25 per cent. 
     
    The date of implementation will depend on when the US government impose the tariffs on Chinese products, the Ministry said. 
     
    The Chinese Commerce Ministry said the US move was "an evident violation of rules of the World Trade Organization (WTO)".
     
    Washington's action "severely infringed on the legitimate rights and interests that China enjoys in accordance with the WTO rules, and threatened China's economic interests and security", said the Commerce Ministry.
     
    New tariffs China decided to impose on US products were a reaction to "the emergency caused by the US violation of international obligations", it added.
     
    Affected products will include a wide variety of agricultural products such as soybeans, corn, beef, orange juice and tobacco. A range of chemicals and automobiles as well as aircraft with unladen weight between 15 and 45 tonnes, will also be subject to the tariffs, Xinhua said.
     
    The trade war between the world's two largest economies has escalated. The US says it is taxing Chinese products as punitive measures against Beijing's arm-twisting American companies to transfer their technology in return of letting them do business in China. 
     
    Beijing says although doors for talks are always open for Washington, it will give befitting reply if it faces the heat. 
     
    Disclaimer: Information, facts or opinions expressed in this news article are presented as sourced from IANS and do not reflect views of Moneylife and hence Moneylife is not responsible or liable for the same. As a source and news provider, IANS is responsible for accuracy, completeness, suitability and validity of any information in this article.

     

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