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The Guardian - UK
The Guardian - UK
Business
Graeme Wearden

China hits back against latest US tariffs; pound hit by Brexit worries – as it happened

Containers at the Yangshan Deep-Water Port in Shanghai
Containers at the Yangshan Deep-Water Port in Shanghai Photograph: Johannes Eisele/AFP/Getty Images

Summary: More shots fired in trade war

Time for a recap.

The trade dispute between the US and China has escalated further, as neither side shows any appetite for backing down.

The Chinese government unveiled tariffs on $16bn of American goods today. Medical equipment, fuels, fish meal, wood waste, paper and paper waste, metal scraps, cars and bicycles are all on list of products targeted.

Beijing was retaliating against Washington’s decision to slap tariffs on an extra $16bn of Chinese goods overnight.

These latest tit-for-tat moves mean there are levies on $50bn of goods moving each way between the two countries.

So far, China’s economy seems to be holding up under the strain. Trade figures released overnight showed that exports rose by 12.2% year-on-year in July, while exports jumped by over 27%.

The decision to allow the yuan to fall against the US dollar may be supporting manufacturers, analysts say. But if the situation escalates, the global economy could be badly hurt.

With the two sides deadlocked, a ship full of soybeans has been anchored off China’s coast for a month - as its owners ponder whether to swallow the tariffs.

Fears of a hard Brexit have hurt the pound again. Sterling fell to an 11-month low against the US dollar, at $1.2854. Against the euro, it dropped to €1.1091, a nine-month low.

Fiona Cincotta, senior market analyst at City Index, explains why traders are worried:

he possibility of a no-deal Brexit has been looming over the pound for a while now but it seems to have asserted itself in traders’ minds even more this week since Bank of England governor Mark Carney said that the likelihood was now “uncomfortably high”, a sentiment later echoed by Britain’s trade secretary Liam Fox.

Elsewhere in the markets, Tesla board members have confirmed they are evaluating whether to take the electric car market private. There’s still some cynicism, though, as to whether Elon Musk will actually pull the idea off.

And the oil price has slipped, due to trade war worries and a smaller-than-expected drop in US crude inventories.

That’s probably all for today. GW

Soybean ship has been stuck off China's coast for a month

Tankers are moored at the port of Dalian in Dalian, China.
Tankers are moored at the port of Dalian in Dalian, China. Photograph: Bloomberg/Bloomberg via Getty Images

It’s a month since the US and China imposed their first wave of tariffs, in early July.

And ever since, a cargo ship full of soybeans has been waiting at anchor off the port of Dalian. Having failed to reach China before the deadline, the vessel is in limbo while its owners decide what to do. If they unload the beans now, they (or the buyer) would incur hefty tariffs.

Peak Pegasus

My colleague Rob Davies has been looking into the issue, and explains:

A shipment of soybeans worth more than $20m (£15.5m) has been bobbing aimlessly in the Pacific Ocean for a month, a casualty of the escalating trade war between China and the US.

Lingering uncertainty over the cargo’s fate offered a timely reminder of the fallout from a dispute that intensified on Wednesday, as the US president, Donald Trump, unveiled a second round of tariffs on $16bn of Chinese goods, prompting Beijing to respond in kind.

The Peak Pegasus, a 229 metre bulk carrier weighing 43,000 tonnes, has become the reluctant symbol of the potential consequences of this tit-for-tat trade spat.

The ship, owned by JP Morgan Asset Management, was scheduled to unload about 70,000 tonnes of American soybeans in the Chinese port of Dalian on 6 July, shortly after Trump imposed a first round of tariffs on $34bn-worth of goods.

As it rushed to shore in the hope of clearing customs before Beijing imposed retaliatory tariffs, the ship – and its protein-rich cargo – became an unlikely internet sensation on the Chinese social media platform Weibo.

However, the vessel arrived just too late and has been sailing around in circles ever since while the cargo’s owners, understood to be the agricultural commodity trading house Louis Dreyfus, decide what to do....

More here:

An offshore oil rig
An offshore oil rig Photograph: Yan Lerval/Alamy Stock Photo

The US-China trade row is also being blamed for falling oil prices today.

Brent crude has tumbled by 3.5% today to $71.99 per barrel, while US crude is down 3.8% at $66.60.

Economists are citing the risks to global growth posed by tariffs

Abhishek Kumar, senior energy analyst at Interfax Energy in London, says:

“The US-China trade war is set to worsen, and its impact on oil prices will be gradual as the situation develops.

Crude oil and refined products affected by additional duties will reduce their competitiveness in the Chinese market.”

The latest oil inventory figures from America have also hit the oil price. Crude inventories fell by 1.4 million barrels in the latest week, less than half the 3.3 million barrel draw analysts had expected.

Trade wars can have many casualties. And the dispute between America and China is threatening the future of a paper mill in the state of Arkansas.

Associated Press has the details:

A Chinese company’s announcement two years ago that it would spend more than $1 billion and hire hundreds of workers for a paper mill on the outskirts of this rural college town was seen as a much-needed shot in the arm for the region’s economy.

A web video promoting Arkadelphia “It’s a great place to call home!” continues to tout the Sun Paper project and its potential to generate jobs and boost development. But optimism has been giving way to concern in recent months amid President Donald Trump’s escalating trade dispute with China.

The threat of a full-blown trade war has delayed the project further and prompted the state’s governor to send his top economic development official to China to make sure it stays on track. It also has caused other Chinese companies considering investing in Arkansas to put their plans on hold.

“It’s like a dark cloud hanging over the future of the project,” Stephen Bell, the president and chief executive officer of the Arkadelphia Area Chamber of Commerce. “Right now, the clouds are off on the horizon. But I think no one knows where the trade situation is going right now.”....

More here.

Analyst: China trade war is a worry

By announcing new tariffs today, China’s is sticking firmly to its tit-for-tat policy on trade, says Art Hogan, chief market strategist at investment bank B. Riley.

That means that the trade war is likely to escalate, Hogan warns (via CNN):

“Our $16 billion comes at a scheduled time, which comes up on the 23rd. China said we see your $16 billion and we’ll match your $16 billion.”

“They’ll pretty much match what we do until they have no more levers to pull. The bad news is the trade war fears in China are escalating. The major concern right now in trade is China.

Updated

In case you missed this earlier, we learned overnight that China’s imports and exports both rose in July.

Exports jumped by over 12% year on year, indicating that the trade war hasn’t caused serious damage yet.

These photos from Lianyungang Port, in the Jiangsu Province of China, show that plenty of vehicle were lined up for shipment today:

Vehicles waiting for shipment at Lianyungang Port on August 8, 2018 in Lianyungang, Jiangsu Province of China.
Vehicles waiting for shipment at Lianyungang Port, in the Jiangsu Province of China. Photograph: VCG/VCG via Getty Images
Vehicles wait for shipment at Lianyungang Port on August 8, 2018 in Lianyungang, Jiangsu Province of China.

The interior of the New York Stock Exchange.
The interior of the New York Stock Exchange. Photograph: Mark Lennihan/AP

China’s latest wave of tariffs haven’t spooked the US stock market.

The Dow Jones industrial average has dipped by 24 points, or just 0.1%, while the broader S&P 500 index is flat.

David Madden of CMC Markets explains why traders aren’t panicking:

Markets had a muted reaction to China’s announcement that it plans to impose tariffs on $16 billion worth of US goods, starting on 23 August.

The token retaliation from Beijing keeps the trade spat alive, and it seems like China were doing it to send a message, rather than to inflict financial pain on the US.

So far, China has managed a tit-for-tat response to America’s trade tariffs -- including today’s retaliation to US plans for tariffs on $16bn of Chinese goods.

But Beijing can’t respond in kind if Donald Trump implements his threat for 25% tariffs on an extra $200bn of goods, simply because China doesn’t buy enough from America.

Oliver Jones of Capital Economics thinks Beijing might change course, and target individual US companies. He writes:

While China has so far responded to US tariffs primarily with duties of its own, it is reaching the limit of its ability to respond in this way.

There are already signs that China is starting to target US multinationals operating there directly instead. We think that its response will increasingly take this form if the US imposes tariffs beyond those already in the pipeline.

Beijing’s business district.
Beijing’s business district. Photograph: Wang Zhao/AFP/Getty Images

Here’s Reuters’ take on the US-China tariffs row:

China is slapping additional import tariffs of 25 percent on $16 billion worth of U.S. goods ranging from oil and steel products to autos and medical equipment, the commerce ministry said, as the world’s two largest economies escalate their trade dispute.

“This is a very unreasonable practice,” the commerce ministry said on its website http://www.mofcom.gov.cn, responding to the United States’ decision to slap 25 percent tariffs on another $16 billion of Chinese goods on Aug 23.

The slump in sterling today has given the London stock exchange a boost.

The FTSE 100 has gained 43 points, or 0.5%, to 7761 points. With the pound lower, multinational’s overseas earnings are worth more in sterling terms (updated).

Basically the Footsie is acting as the ‘up’ side of the see-saw, as the pound drops - currently down 0.5% against the US dollar to around $1.287.

Updated

Tesla’s shares have dipped in early trading, down $2.5 at around $377.

Wall Street may not be convinced that the company is definitely being taken private, following that announcement from the company’s board.

After all, “taking the appropriate next steps” is rater more guarded than Musk’s bold claim that he has “funding secured” to take Tesla off the stock market at $420 per share.

Tesla: We're evaluating taking the company private

Newsflash: Electric car maker Tesla has issued a statement, in response to founder Elon Musk’s comments yesterday about taking the company off the stock market.

Tesla says that Musk “opened discussions” last week with the company’s board about taking it private, to “better serve” its long-term interests.

The board have met several times since, and are now evaluating the idea.

Yesterday, Musk insisted that he had secured the funding to take Tesla private - even though it would be the biggest buyout ever.

Leaving the stock market would take some pressure off Tesla, as it battles to hit its production targets...

However, some financial analysts are sceptical that the plan would really work:

Updated

American scrap metal and waste paper will also incur 25% tariffs at the Chinese border in two weeks.

So, apparently, will US “fish meal for feed” (which I think is used to nourish farmed fish, poultry and pork).

List: The US products faces Chinese tariffs

China’s new retaliatory tariffs will apply to 333 US products.

Coal, diesel, cars and bicycles, medical equipment and steel products are all on the list, the Chinese commerce department says.

Updated

China announces new tariffs on US goods

Newsflash: China has announced it will impose retaliatory 25% tariffs on $16bn of US goods.

Beijing’s commerce ministry says it has been forced to retaliate to America’s “very unreasonable” levies on $16bn of Chinese exports (announced last night).

China’s measures will kick-in on August 23, the same day as America’s latest levies, as it sticks to its policy of respond in kind to Donald Trump’s trade moves.

So in two weeks, the two countries will be imposing tariffs on $50bn of each others goods. American officials are already working on plans for tariffs on another $200bn of Chinese products in September.

HSBC and Barclays’ buildings in Canary Wharf.
HSBC and Barclays’ buildings in Canary Wharf today Photograph: Hannah Mckay/Reuters

Reuters reports that City traders are taking steps to protect themselves against sterling falling further:

Nine-month and one-year sterling/dollar risk-reversals fell on Wednesday to the lowest since early-March 2017, as investors rushed to protect themselves from further weakness in the British currency.

Risk reversals are a gauge of investor expectations for a currency’s direction and are used to hedge against expected moves. The fall in sterling risk reversals indicates greater demand for put options, derivatives that give investors the right to sell an asset.

This is from Miles Eakers of foreign exchange firm Centtrip:

Sterling is being hit by fears of a ‘no-deal Brexit’, says Lukman Otunuga, research analyst at FXTM.

Sterling was pounded by the Dollar and most of its major counterparts on Wednesday as fears heightened over the UK exiting the European Union without a trade deal in place.

Concerns of a potential hard Brexit scenario have haunted investor attraction towards the Pound and have left the currency vulnerable to downside shocks.

The selloff is gathering pace. Here’s the latest damage:

  • Pound vs US dollar: $1.286, an 11-month low
  • Pound vs euro: €1.109, a nine-month low

Economics lecturer Daniel McLaughlin says the slide in the pound is bad news for UK consumers:

[It’s true that a weaker currency makes exports more competitive, but it also makes imported raw materials pricier - so it’s not an undiluted win]

Euro hits 90p

Newsflash: The euro has risen over 90p against the pound for the first time since last autumn.

Updated

Jordan Rochester of Japanese bank Nomura predicts the pound will keep falling ahead of the next crunch EU summit in October - when Theresa May will try to persuade leaders to back her ‘Chequers’ deal.

“We remain bearish on the pound in the short term until the Brexit mess is out the way and look for the currency to enter a $1.27-1.28 range before the leaders summit.”

Ouch! The pound just fell through $1.29 for the first time since August 2017.

Pound hits nine-month low against the euro

UK holidaymakers heading to Europe this summer just suffered a blow.

The pound has weakened against the euro to its lowest level since last November, meaning trips across the channel have become a little more expensive.

Sterling fell as low as €1.1129, down 0.25% today.

The pound vs the euro over the last year
The pound vs the euro over the last year Photograph: Thomson Reuters

But that’s not all!

Sterling has dropped to a new 11-month low against the US dollar, at $1.2909, and is also weaker against the yen and the Swiss franc.

The pound has been under pressure this week, after trade secretary Liam Fox claimed that Britain was likely to leave the EU without a deal.

Such a hard-Brexit could lead to chaos at the borders, and leave companies struggling to keep their supply chains running

Christophe Barraud, an economist at Market Securities brokerage in Paris, has told Reuters that firms are trying to protect themselves from a sterling crisis.

“A lot of companies can’t wait for the negotiations outcome in October so a lot of course are trying to hedge against a drop in the pound.”

ANZ senior China economist Betty Wang agrees that Chinese factories have benefitted from the weaker yuan - even if Beijing hasn’t been fighting a currency war.

She says:

“Currency devaluation, which may have helped exports to some extent, has been largely market-driven in our view and is not a preferred policy tool by Chinese policy makers as part of the retaliation measures.”

Figures released earlier this week showed that Beijing hasn’t been burning through its foreign exchange reserves, suggesting it has been allowing the yuan to drop rather than fighting it:

China’s stock market suffered losses today, after America finalised its plans for tariffs on another $16bn of exports.

The Shanghai composite index fell by 1.2%, as traders worried that the trade war keeps ratcheting up.

Washington might be disappointed to see that China’s imports and exports actually rose in July, says Michael Hewson of CMC Markets:

If the US was hoping that its $34bn opening salvo of tariffs would have an effect on Chinese exports this morning’s China trade numbers would have been a disappointment to them.

Chinese exports for July saw a rise of 12.2% up from 11.2% in June, supporting the premise that for the moment we seem to be in a bit of a phoney war. We also saw a big rise in imports of 27.3% showing that domestic demand remains quite strong.

Workers unloading bags of chemicals at a port in Zhangjiagang in China’s eastern Jiangsu province.
Workers unloading bags of chemicals at a port in Zhangjiagang in China’s eastern Jiangsu province. Photograph: Johannes Eisele/AFP/Getty Images

China’s trade surplus with America remained close to a record high in July, despite the trade dispute.

Reuters explains:

China’s closely watched surplus with the United States dipped only slightly to $28.09 billion last month from a record $28.97 billion in June. Washington has long criticised China’s trade surplus with the United States and has demanded Beijing cut it.

Still, disagreements between the two major economic powers run deeper than just the trade balance and tensions remain over market access, intellectual property, technology transfer and investment.

Introduction: China faces $16bn of fresh US tariffs

Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.

America has fired another shot in the deepening trade dispute with China.

Overnight, Washington said it would impose a 25% tariff on $16bn of Chinese imports, taking the total amount being targeted to $50bn.

The new levy will come into force on August 23rd, and will apply to 279 product types. It mostly affects industrial products, such as machinery, chemicals and semiconductors. Motorcycles and railway cars also feature.

Announcing the move, the US trade representative declared that America was penalising China for stealing its intellectual property, saying:

China directs and unfairly facilitates the systematic investment in, and acquisition of, U.S. companies and assets to generate large-scale technology transfer”.

China is likely to retaliate soon, escalating the dispute that has been rumbling for weeks.

But... China may not be suffering from the trade war yet. Data released this morning shows that the country’s exports jumped 12.2% year-on-year in July, beating expectations.

Imports surged by a sparkling 27.3% - meaning China’s trade surplus shrank during the month to $28bn (from over $41bn in June).

This is significant, as America’s first wave of tariffs (on $34bn of Chinese goods) began in early July. Those tariffs have been blamed for a drop in German factory orders, but today’s figures suggest China’s economy is holding firm.

Of course, it’s still early days. Global trade, like the massive container ships it relies on, changes course slowly. Plus, China’s manufacturers may be benefitting from the country’s weaker currency, given the yuan has fallen pretty steadily recently to a 13-month low.

Julian Evans-Pritchard, senior China economist for Capital Economics, explains:

Adjusting for seasonality and price effects, we estimate that export volumes were essentially flat in July. Shipments to the US did weaken slightly, which suggests the tariffs had some impact.

But this was offset by stronger exports to the rest of the world, most likely buoyed by the weaker renminbi.

Chinese trade data
Chinese trade data Photograph: Bloomberg TV

Mike van Dulken of Accendo Markets agrees that China’s trade data is encouraging, especially in the current climate.

China trade data showed stronger growth in both exports and imports, notably the latter, suggesting strong consumption both domestically and internationally.

But

Also coming up today...

Wall Street will be watching for Elon Musk’s next move, after the inventor/entrepreneur surprisingly announced he plans to take Tesla private.

Shares in the electric carmaker surged last night, burning sceptical investors who had bet against the company. Going private would take some pressure off Tesla to meet financial targets (and prevent Musk having another row with the analyst community)

However, shares aren’t at the $420 level which Musk pitched his somewhat vague offer at (which has sparked grumbling about market manipulation), so Tesla’s future remains uncertain.

Tesla’s share price
Tesla’s share price Photograph: Bloomberg TV

Oil is calm this morning, having risen yesterday after the US issued new sanctions on Iran. Later today we get the latest American oil inventory figures, which may show a drop in stocks.

The agenda

  • 3.30pm BST: US weekly oil inventories

Updated

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