Lagarde: trade wars are unwinnable
Newsflash: IMF managing director Christine Lagarde has urged countries to avoid being sucked into a global trade war in the wake of U.S. tariffs on steel and aluminum.
In a new blogpost, Lagarde calls for a multilateral approach to trade disagreements, and warns that no-one can win a trade war
(That looks like a rebuttal of Donald Trump’s claim that they’re easy to win).
Lagarde writes:
“Policy makers need to work constructively together to reduce trade barriers and resolve trade disagreements” without resorting to such tactics,
“They should ensure that the recently announced U.S. import tariffs do not lead to a wider escalation of protectionist measures. Economic history clearly shows that trade wars not only hurt global growth, but they are also unwinnable.”
IMF head Lagarde counters Trump, calling global trade wars "unwinnable" https://t.co/HeVHWogEOy pic.twitter.com/PXTOMh75qe
— Bloomberg (@business) March 15, 2018
Time for a recap
Donald Trump’s new top economic advisor has called for a “trade coalition of the willing” of allies to work with America to tackle China over trade. Larry Kudlow argues that Beijing deserves a ‘tough response’ - a sign that the White House isn’t ending its protectionist push.
China has hit back, with a government official warning that ‘appeasement’ was not an option if Washington unleashed more tariffs. A Chinese state-owned tabloid newspaper also called the US out, saying it should make Americans “more hard-working”.
Germany has weighed in too; its economy ministry fears ‘tangible’ damage to the global economy
Worries over tariffs have helped to push the aluminum price down to a three-month low today.
Stocks, though, have managed a small rise -- the Dow is up, after three daily drops in a row.
On the economic front, the number of American’s filing new claims for jobless benefit has dropped.
I’ll be back later with any major developments....
Updated
The aluminum price has hit a three-month low today, suggesting that the new US tariffs are beginning to bite.
The cost of a tonne of aluminum fell to $2,085 per tonne, its lowest level since before Christmas 2017.
President Trump’s decision to put a 10% tariffs on aluminum imports (excluding Canada and Mexico), is one factor; Norbert Ruecker of Julius Baer points out that they will hit demand:
“If you look at the impact, the trade tariffs will, in the end, be deflationary globally,”.
The president is defending himself over today’s story that he challenged Canada’s prime minister over trade without knowing the facts (see earlier post).
We do have a Trade Deficit with Canada, as we do with almost all countries (some of them massive). P.M. Justin Trudeau of Canada, a very good guy, doesn’t like saying that Canada has a Surplus vs. the U.S.(negotiating), but they do...they almost all do...and that’s how I know!
— Donald J. Trump (@realDonaldTrump) March 15, 2018
But....as Bloomberg’s Mike McKee points out - the US government’s own trade offices says it runs a surplus!
Said the man who just publicly admitted lying about the trade deficit figures to PM Trudeau.
— Michael McKee (@mckonomy) March 15, 2018
Said the man whose own Council of Economic Advisers says we have a trade surplus with Canada. https://t.co/mTJt9VvIOn
Worries over trade wars seem to be hitting Boeing again.
Shares in the aircraft maker are down almost 1.7% in early trading, making it the worst performer on the Dow.
That’s despite reports that Boeing could scoop a major new order, to supply fighter jets to India.
Wall Street looks to end losing streak
Ding Ding: The New York stock exchange has rung the opening bell, and investor are trying to break a three-day losing streak.
The Dow has opened higher, gaining 80 points of 0.3%. Traders are encouraged by today’s strong US jobless figures.
Energy stocks and financial firms are leading the way, with JP Morgan up 0.4%
Some experts are relieved that Donald Trump has chosen Larry Kudlow as his new top economic adviser.
One alternative was Peter Navarro, who helped craft Trump’s “America First” policy. He’s a big supporter of tariffs, and a vocal critic of free trade - arguing that America is getting a rough deal as its intellectual property is snaffled by China.
In contrast to Navarro, Kudlow is a more reassuring choice for the markets.
Rabobank analyst Bas van Geffen told clients:
“Markets may actually find some comfort in the fact that Mr. Trump decided to give the job to Kudlow, rather than someone with more radical economic beliefs, such as Peter Navarro, who is even more skeptical about the current free trade paradigm.
Neil Dutta, head of U.S. economics at Renaissance Macro Research, dubbed Kudlow a “cheerleader for growth”, adding:
“He regularly says ‘Free market capitalism is the best path to prosperity.’ He is a forceful advocate for open markets and trade liberalization, and more generally an economic libertarian who favors low taxes and less regulation.”
A dream candidate for Wall Street, in other words. But there is still jitteriness, simply because president Trump will be the one making the big calls on whether to slap fresh tariffs on Chinese technology imports, or European cars.
Donald Trump should be cheered by the latest drop in US unemployment claims, says Dennis de Jong, managing director at trading firm UFX.com:
“The US employment market has remained on a steady course of late, and with the latest figures showing a further fall in initial claimants, Donald Trump will surely use the opportunity to champion his job-boosting credentials as he embarks on the formative stages of a re-election campaign.
“A robust jobs market was a key pillar in his road to the White House and although there may be some who argue the success has come on the back of a healthier international economy, it’s hard to argue with the results.
US weekly jobless total falls again
Newsflash: The latest US unemployment figures show that America’s labor market remains pretty strong.
Just 226,000 Americans signed on for unemployment benefits last week, down from 230,000 in the previous seven days.
That’s close to the 48-year low struck in late February.
It’s also the 158th month in a row in which the ‘initial claims’ figure has come in below 300,000 -- traditionally the threshold for a robust jobs market.
JUST IN: Jobless claims in U.S. decline for third time in four weeks https://t.co/imz0SvooFe pic.twitter.com/WXceIdF8GT
— Bloomberg (@business) March 15, 2018
Wall Street analysts fear that Boeing could be a major victim from a trade war.
Shares in the airline have fallen by over 8% this month, as tensions over president Trump’s protectionist leanings have intensified.
China is a key market for Boeing, which secured a $37bn deal to sell 300 planes to China Aviation Suppliers last November.
Larry Kudlow’s plan to build a coalition to force China to change its trade policies could put future such deals in doubt, if relations between Washington and Beijing deteriorate.
As Boris Schlossberg, managing director of FX strategy at BK Asset Management, put it to CNBC:
“The question is really not economic. It’s political at this point.”
China: America needs to work harder, complain less
China has pushed back against the criticism from Donald Trump and Larry Kudlow.
With fresh tariffs looming, Beijing argues that America needs to work harder if it wants to close its whopping trade gap.
Chinese officials are also warning that they will hit back, if America presses on with unilateral tariffs [Trump wants to cut the US-China trade deficit by $100bn].
Reuters has the details:
In a Thursday editorial, widely-read Chinese state-run tabloid the Global Times said the United States was trying to play the victim.
“If the U.S. wants to reduce its trade deficit, it has to make Americans more hard-working and conduct reforms in accordance with international market demand, instead of asking the rest of the world to change.
“Once a trade war starts, capable countries won’t bow to the U.S. China has tried hard to avoid a trade war, but if one breaks out, appeasement is not an option.”
Speaking to reporters in Beijing, Chinese Foreign Ministry spokesman Lu Kang said history showed that trade wars are in nobody’s interests, but that China would protect its legitimate rights if “something happens we don’t want to see”.
Updated
Trump: We'll have fair trade
Ever the early riser, president Trump has just tweeted that America can look forward to years of ‘fair trade’.
He’s also confirmed Larry Kudlow’s appointment to lead his National Economic Council.
Larry Kudlow will be my Chief Economic Advisor as Director of the National Economic Council. Our Country will have many years of Great Economic & Financial Success, with low taxes, unparalleled innovation, fair trade and an ever expanding labor force leading the way! #MAGA
— Donald J. Trump (@realDonaldTrump) March 15, 2018
A profit warning from soapmaker PZ Cussons has taken the shine off the mood in the City today.
Shares in PZ Cussons, which makes Imperial Leather soap and Original Source shower gel, tumbled by 15% as traders made a clean exit from the company.
It admitted that earnings will miss forecasts, claiming that British consumers were cutting back on washing products.
The UK washing and bathing division has continued to experience lower levels of purchases reflecting consumer caution across all retail channels caused by economic uncertainty and inflation out-stripping wage growth.
This has also hit other consumer goods makers, with Unilever and Reckitt Benckiser both down around 1.5%.
Across the markets, the European stocks markets are a little higher, but trade war worries abound.
Fiona Cincotta, senior market analyst at City Index, says:
The FTSE started the day higher, although there appeared little for traders to cheers. Sentiment remained downbeat as concerns of an all out trade war weighed, particularly in light of the Team which Trump is building at the White House, which is pointing to the more aggressively interventionist as far as foreign policy goes.
Added to the concerns over Trumps newly formed team, reports that the President is looking to slap tariffs on $60 million worth of imports from China, no longer just steel and aluminium, is unnerving investors.
Germany: Trade war would cause tangible damage
Germany is increasingly worried that a global trade war could break out, hurting its growth and the wider global economy.
In a new monthly report, the German economy ministry warns that the new US tariffs on some metal imports could cause uncertainty, and hurt trade.
The ministry points out that the global economy is strengthening, but fears that protectionism could scupper this progress.
It says:
For the global economy, the IMF and, more recently, the OECD for the years 2018 and 2019 now expect growth of 3.9% each. However, this does not take into account the recently introduced US tariffs on steel and aluminum.
These could significantly affect trade in some regions. However, the impact on the global economy as a whole should remain manageable.
However, a possible escalation of a trade war and increasing uncertainty among market participants could cause tangible damage.
It’s important to note that Unilever isn’t quitting its impressive headquarters at Blackfriars.
Some staff will move to the new corporate HQ in Rotterdam. However, the company - dubbed Uni-leaver by some wags on social media - says its 7,300 UK-based employees won’t be affected by the change.
Even so, legal blogger David Allen Green is struck by the symbolism:
One of the most imposing and striking buildings on the banks of the Thames is Unilever House https://t.co/yNamgAyewZ
— David Allen Green (@davidallengreen) March 15, 2018
Situated at Blackfriars, where the freshwater of the Thames is said to meet the saltwater of the North Sea: https://t.co/bUJhghH03U
1/3
Blackfriars station, in turn, once proud as being where one could almost as easily board a train to continental Europe as to a London suburb: https://t.co/A03ckdpJxb
— David Allen Green (@davidallengreen) March 15, 2018
2/3
And now Unilever, whose headquarters were once at this point where Britain met Europe, in the most imposing and striking modernist building, are moving their headquarters to continental Europe.
— David Allen Green (@davidallengreen) March 15, 2018
3/3
Disappointment as Unilever picks Rotterdam over London for new HQ
The London Mayor’s office are gutted that Unilever has chosen the Netherlands over Britain as its single legal base.
Rajesh Agrawal, deputy mayor for business, argues that it shows the importance of keeping close ties with the EU after Brexit (even though Unilever insist Brexit wasn’t a factor):
Agrawal says:
“Unilever’s decision to move its headquarters to the Netherlands is clearly disappointing news for the capital.
It brings into sharp focus the need for the Government to secure a Brexit deal that secures London as Europe’s leading business centre. The best way to do this is for London and the UK to remain part of the Single Market and Customs Union.”
The big news in the City this morning is that Unilever has chosen Rotterdam over London as the site of its new corporate base, ending its dual-HQ structure.
After weeks of speculation, the Anglo-Dutch consumer giant plumped for the Netherlands over the UK. It is insisting that Brexit isn’t to blame, and there won’t be job losses, but the decision is a blow to the City’s prestige.
My colleague Julia Kollewe explains:
Unilever, the Anglo-Dutch consumer goods giant, has picked Rotterdam over London as its main base in a move seen as a blow to the government in the wake of the Brexit vote.
The group, which makes a number of well-known consumer brands including Persil, Dove and Marmite, has been based in London and Rotterdam for nearly a century.
The Unilever chief financial officer, Graeme Pitkethly, insisted Brexit “was absolutely not a factor” in the decision, which was announced after a board meeting and a year-long review.
Here’s her full story:
The Daily Mail think Unilever is trying to protect itself from a hostile takeover, having fought off Kraft Heinz last year.
Today’s Daily Mail City: Unilever to quit Britain pic.twitter.com/8qpc9X8I2q
— James Coney (@jimconey) March 15, 2018
Overnight, Donald Trump gave a worrying insight into his negotiating approach with other world leaders.
Speaking to donors at a fundraiser in Missouri, Trump bragged about how he’d argued with Canada’s Justin Trudeau over trade - without actually knowing the facts.
The Washington Post has the story:
President Trump boasted in a fundraising speech Wednesday that he made up information in a meeting with the leader of a top U.S. ally, saying he insisted to Canadian Prime Minister Justin Trudeau that the United States runs a trade deficit with its neighbor to the north without knowing whether that was the case.
“Trudeau came to see me. He’s a good guy, Justin. He said, ‘No, no, we have no trade deficit with you, we have none. Donald, please,’ ” Trump said, mimicking Trudeau, according to audio obtained by The Washington Post. “Nice guy, good-looking guy, comes in — ‘Donald, we have no trade deficit.’ He’s very proud because everybody else, you know, we’re getting killed.
“... So, he’s proud. I said, ‘Wrong, Justin, you do.’ I didn’t even know. ... I had no idea. I just said, ‘You’re wrong.’ You know why? Because we’re so stupid. … And I thought they were smart. I said, ‘You’re wrong, Justin.’ He said, ‘Nope, we have no trade deficit.’ I said, ‘Well, in that case, I feel differently,’ I said, ‘but I don’t believe it.’ I sent one of our guys out, his guy, my guy, they went out, I said, ‘Check, because I can’t believe it.’
Trump boasted in a fundraising speech today that he made up facts in a meeting with Justin Trudeau, saying that the U.S. runs a trade deficit with Canada without knowing whether or not that was the case, WaPo reports. https://t.co/2hGnAOzNfk
— Kyle Griffin (@kylegriffin1) March 15, 2018
Trump’s punchline is that America does run a trade deficit with Canada (as he claimed). However, US trade data actually shows a $12.5bn surplus (a $25bn surplus in services, minus a $12.5bn deficit in goods).
Here’s the full story: In fundraising speech, Trump says he made up trade claim in meeting with Justin Trudeau
My colleague Ed Helmore has written a profile on Larry Kudlow.
It covers his time working with Ronald Reagan in the 80s to his rehabilitation after being fired from Wall Street firm Bear Stearns over his cocaine addiction.
Updated
Trade war fears: What the experts say
Mazen Issa, senior foreign exchange strategist at TD Securities, says investors are concerned about Donald Trump’s next move:
“The Trump administration is rumoured to be preparing another tariff, this time aimed at China”
“Taken in conjunction with speculation of additional cabinet reshuffles, broader risk sentiment could be vulnerable.”
Lukman Otunuga, research analyst at FXTM warns that trade wars are bad for growth:
With Wall Street pummelled by rising fears of U.S protectionism on Wednesday, U.S stocks are at risk of extending losses this afternoon if the negative sentiment prevails.
Risk aversion could become a dominant market theme moving forward, as concerns intensify over escalating trade tensions negatively impacting global growth.
Michael Hewson of CMC Markets wonders if Kudlow and Trump will get along like a house on fire:
Concern that the US administration was looking to widen the scope of tariffs to Chinese goods to the tune of $60bn weighed on investors’ appetite for risk, though the declines were fairly moderate.
This may have been down to the appointment of Larry Kudlow as President Trump’s new economic adviser, who has stated that he is not a big fan of blanket tariffs, which should make for an interesting discussion with his new boss.
America’ Dow Jones index shed 1% last night, with Boeing dropping 2.5% amid worries about an escalating trade spat.
Asian markets have been mixed today; Australia’s S&P/ASX 200 has dropped by 0.25%, India has dipped a little, while the Philippines index has shed almost 2%.
Asia stock mkts drop, Bonds & the Yen rise as traders adopted Risk-Off approach amid mounting concerns that growing trade tensions would hurt global econ. Trade restrictions imposed on #China would impact Asia more broadly via extensive regional supply chains. Bitcoin drops <$8k. pic.twitter.com/MeMgdUcRVE
— Holger Zschaepitz (@Schuldensuehner) March 15, 2018
The agenda: Trade war jitters grow as Kudlow appointed
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
The prospect of a protectionist trade war between the world’s major economics continues to loom over the markets today.
Donald Trump’s new economic advisor, Larry Kudlow, has intensified the pressure by claiming that Beijing hasn’t played by the rules - and needs reining in.
Kudlow was named as the new director of the National Economic Council on Wednesday, and promptly went on the air to tell China to expect a tough approach.
He told CBNC that:
“I must say as somebody who doesn’t like tariffs, I think China has earned a tough response not only from the United States...
“A thought that I have is the United States could lead a coalition of large trading partners and allies against China, or to let China know that they’re breaking the rules left and right,” .
That’s the way I’d like to see. You call it a sort of a trade coalition of the willing.”
[that’s a reference to George Bush’s 2003 Iraq War coalition...]
On CNBC, Kudlow says he wants a "trade coalition of the willing" against China, which seems unlikely given how the tariffs we're rolled out and also not the best turn of phrase given how the last coalition of the willing went
— Ben Walsh (@BenDWalsh) March 14, 2018
This has done little to assuage concerns that Trump will soon launch new tariffs on Chinese imports, such as technology and telecommunications products.
Kudlow (a former Reagan advisor and Wall Street economist), has criticised tariffs in the past. But he’s happy to back Trump’s new steel and aluminium tariffs.
He told CNBC that he was relieved that Trump had exempted Canada and Mexico, and perhaps Australia. Europe might also qualify for an exemption too, he hinted, if they cut some of the tariffs they impose on US goods.
I don’t like blanket tariffs and I don’t think you should punish your friends to try and punish your enemies in international affairs.
My problem is the principle of the thing, I just don’t like blanket tariffs.
Larry Kudlow, new chief economic advisor to Trump, says China 'has earned a tough response' https://t.co/Mx3WW68HLd pic.twitter.com/gSbELXuE3i
— CNBC International (@CNBCi) March 14, 2018
Otherwise, the agenda is a little quiet, but there is some US economic data later:
The agenda
- 12.30pm: US Empire Manufacturing survey
- 12.30pm: US weekly jobless figures
Updated
