Introduction: China warns US no winners in trade wars
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Two days after the US election result, countries around the world are digesting what impact Trump 2.0 will have on their economies – especially if the president-elect kicks off a trade war.
China would obviously be in the firing line, given Donald Trump’s suggestion he could slap a 60% tariff on Chinese imports at the US border.
And with that in mind, presumably, China’s ambassador to the United States has warned that there are no winners in tariff or trade wars.
Ambassador Xie Feng also warned against wars over science, technology or industry, in a speech at a U.S.-China Business Council dinner on Thursday seen by Reuters.
Xie encouraged U.S. companies to invest and operate in China, and said he was looking forward to strengthening dialogue and cooperation on global challenges such as climate change and artificial intelligence.
Striking a concilliatory pose, Xie argued for the merits of partnership:
“China and the United States can achieve many great and good things through cooperation, and the list of cooperation should be stretched longer and longer.”
“The more success stories of mutually beneficial cooperation, the better.”
“Cooperation”, though, wasn’t top of the agenda during Trump 1.0; in 2018, Washington imposed trade sanctions on China, including restrictions on investment and tariffs, prompting tit-for-tat retaliation from Beijing.
This time round, China’s president Xi is presiding over a far worse domestic economy; if Trump imposes new tariffs, analysts reckon it could affect $500bn worth of Chinese goods.
ING’s global head of macro, Carsten Brzeski, predicts that the Trump administration will initally focus on domestic policy, including immigration and extending/expanding tax cuts, before turning to trade issues….
Brzeski told clients:
We think the earliest timing for tariffs to be implemented is the third quarter of 2025. China would likely be impacted first, with a gradual series of tariffs introduced on different products from other countries coming in later.
Tariffs would be a blow for US consumers – already reeling from the global spike in inflation in 2022 and 2023 – as they’ll be passed on by importers.
Last night, America’s top central banker said the US economy was performing well, with stronger growth than other major economies, falling inflation and a solid jobs market.
Jerome Powell also insisted he would not resign if Trump asked him to leave his role, following reports that some of the president-elect’s advisors would like Powell to resign.
Asked it he would quit if asked by Trump, Powell responded with a blunt “no”. Powell also said the White House demoting Fed governors from their leadership roles is “not permitted under the law”.
BREAKING: Federal Reserve Chairman Jerome Powell just defiantly told a reporter that If Trump tries to fire him, he can’t.
Powell is right.
Reporter: Do you believe the president has the power to fire or demote you?
Powell: Not permitted under the law. NOT PERMITTED UNDE… pic.twitter.com/V1yz6EfGRF
— Brian Krassenstein (@krassenstein) November 7, 2024
The agenda
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7.45am GMT: French trade data for September
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9am GMT: UN’s monthly food price index
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1.30pm GMT: Canadian non-farm payroll report for October
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3pm GMT: University of Michigan US consumer confidence index
Key events
China unveils £1trn package to shore up economy
Back in China, a 10 trillion yuan (£1trn) program to refinance local government debt has been reportedly rolled out.
It’s a sign that Beijing is taking steps to support its economy, before Donald Trump takes office.
According to the Xinhua News Agency, Chinese lawmakers have approved a State Council bill to raise the ceiling on local government debt by 6 trillion yuan (about £650bn).
This will allow local officials to swap hidden debt for newly issued bonds.
Local governments will also be able to tap another 4 trillion yuan (£430bn) set aside for new special local bonds for the same purpose.
The move could cut systemic risks in the Chinese economy.
Finance minister Lan Fo’an told a briefing the plan was:
A major policy decision taking into consideration international and domestic development environments, the need to ensure the stable economic and fiscal operation, and the actual development situation of local governments.
At the other end of the FTSE 100, housebuilder Vistry have tumbled 15% after its build cost crisis deepened.
Vistry told shareholders this morning that the review into cost errors at its South Division shows the problem is worse than expected.
Vistry has added £50m to its total estimate of the impact to its profits over the next three years, taking the total to £165m.
Its review into the problems shows that “insufficient management capability, non-compliant commercial forecasting processes and poor divisional culture” led to the company’s staff messing up costings.
In the City, shares in British Airways’ parent company have jumped over 7% after it reported strong results this morning.
IAG are leading the FTSE 100 risers after posting a 7.9% increase in revenue in the third quarter of the year, with operating profits up 15.4% to just over €2bn.
Luis Gallego, IAG Chief Executive Officer, says:
“We achieved a very strong financial performance in Q3 2024, with a 15.4% increase in operating profit compared to the same period last year and improving our margin to 21.6%. This is due to the effectiveness of our strategy and Group-wide transformation.
“We are also delivering on our commitment to provide sustainable returns for shareholders. “Demand remains strong across our airlines and we expect a good final quarter of 2024 financially.”
More tariffs, less red tape: what Trump will mean for key global industries
Investors have also been digesting the consequences of a second Trump term.
The discussion around what trades work best with a Trump administration centers on three points, Bob Savage, head of markets strategy and insights at BNY, told clients:
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Tax cuts = higher deficits. Trump policy shifts from the current government will revolve around taxes – expected to be lower thereby increasing the government deficits and borrowing needs.
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Tariffs = inflation. Investors also fear the role of tariffs as they are expected to disrupt global trade and supply chains as they did in 2016-2020 with risk of inflation and less investment.
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Deregulation = more lending. The markets also see Trump pushing for less regulation by government – leading to easier lending as capital requirements drop, along with more pressure on the FOMC to ease.
Governor of the Bank of England Andrew Bailey is concerned that new tariffs could cause a ‘fracturing of the world economy’.
Speaking to LBC’s Tonight with Andrew Marr yesterday, after cutting UK interest rates, Bailey explained that growth would suffer:
‘What I would call fragmentation of the world economy, the world economy sort of breaking up is not a good thing, it’s a bad thing… Tariffs is one of the things that can cause that sort of fracturing of the world economy…
Open trade really stimulates growth. Adam Smith taught us this, open trade is good for growth. Now, there are risks attached to it, and we have seen those risks, so there are obviously risks. We saw it with the impact of the Ukraine War, that if you’re overly dependent on one part of the world for something, obviously, if it gets disrupted, that can have a bad effect.
So, diversification, spreading your sources of things, and trade is sensible and good. But if the world becomes more closed the cost of trade goes up – protectionism, that’s not a good thing.’
Wang Dong, a professor of international relations at Peking University, has warned that “Trump 2.0 is likely to be more destructive than the 2017 version.”
In a pre-election interview with Chinese media, Wang said:
“Compared with his first term in office in 2017, Trump’s views in his second campaign in 2024 have not changed much, but the domestic situation and international environment have changed dramatically … during the Trump 2.0 period, China and the United States are likely to have constant friction and conflict”.
Here’s our new analysis of how China is preparing for the return of Donald Trump:
Introduction: China warns US no winners in trade wars
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Two days after the US election result, countries around the world are digesting what impact Trump 2.0 will have on their economies – especially if the president-elect kicks off a trade war.
China would obviously be in the firing line, given Donald Trump’s suggestion he could slap a 60% tariff on Chinese imports at the US border.
And with that in mind, presumably, China’s ambassador to the United States has warned that there are no winners in tariff or trade wars.
Ambassador Xie Feng also warned against wars over science, technology or industry, in a speech at a U.S.-China Business Council dinner on Thursday seen by Reuters.
Xie encouraged U.S. companies to invest and operate in China, and said he was looking forward to strengthening dialogue and cooperation on global challenges such as climate change and artificial intelligence.
Striking a concilliatory pose, Xie argued for the merits of partnership:
“China and the United States can achieve many great and good things through cooperation, and the list of cooperation should be stretched longer and longer.”
“The more success stories of mutually beneficial cooperation, the better.”
“Cooperation”, though, wasn’t top of the agenda during Trump 1.0; in 2018, Washington imposed trade sanctions on China, including restrictions on investment and tariffs, prompting tit-for-tat retaliation from Beijing.
This time round, China’s president Xi is presiding over a far worse domestic economy; if Trump imposes new tariffs, analysts reckon it could affect $500bn worth of Chinese goods.
ING’s global head of macro, Carsten Brzeski, predicts that the Trump administration will initally focus on domestic policy, including immigration and extending/expanding tax cuts, before turning to trade issues….
Brzeski told clients:
We think the earliest timing for tariffs to be implemented is the third quarter of 2025. China would likely be impacted first, with a gradual series of tariffs introduced on different products from other countries coming in later.
Tariffs would be a blow for US consumers – already reeling from the global spike in inflation in 2022 and 2023 – as they’ll be passed on by importers.
Last night, America’s top central banker said the US economy was performing well, with stronger growth than other major economies, falling inflation and a solid jobs market.
Jerome Powell also insisted he would not resign if Trump asked him to leave his role, following reports that some of the president-elect’s advisors would like Powell to resign.
Asked it he would quit if asked by Trump, Powell responded with a blunt “no”. Powell also said the White House demoting Fed governors from their leadership roles is “not permitted under the law”.
BREAKING: Federal Reserve Chairman Jerome Powell just defiantly told a reporter that If Trump tries to fire him, he can’t.
Powell is right.
Reporter: Do you believe the president has the power to fire or demote you?
Powell: Not permitted under the law. NOT PERMITTED UNDE… pic.twitter.com/V1yz6EfGRF
— Brian Krassenstein (@krassenstein) November 7, 2024
The agenda
-
7.45am GMT: French trade data for September
-
9am GMT: UN’s monthly food price index
-
1.30pm GMT: Canadian non-farm payroll report for October
-
3pm GMT: University of Michigan US consumer confidence index
