MOSCOW, 26 Aug — PRIME, Natalia we don’t pay. Escalation of a trade war, the United States and China at the weekend has increased — the Minister of Finance Steven Mnuchin said a tweet by the President of Donald trump, where he wrote that he orders the companies to seek an alternative to China in their work. To give such an order, the head of state can, if you declare a state of emergency, said Mnuchin. This has not happened yet.
The head of the U.S. Treasury suggested that the President was referring to his desire to ensure that a protracted trade war don’t face problems and take off from China. He recalled that trump has declared a state of emergency for the erection of the border fence on illegal immigrants. This allowed him to bypass Congress to obtain the necessary funding.
Previously, trump said that the United States from September 1 will raise duties on goods from China with a capacity of 300 billion dollars not by 10% as planned, and 15% increase on another group of products with a volume of 250 billion dollars from October 1, will be 25% and 30%.
On Monday morning Moscow time, the official foreign Ministry spokesman China Geng Shuang said China will take necessary retaliatory measures if the United States can further increase duties on Chinese goods, threats to Beijing won’t work.
Against this background the world’s stock exchanges have met the Monday morning slowdown, however, trump immediately announced that China last night was in contact with U.S. trade representatives and expressed a desire to return to the negotiating table. According to him, the representatives of China have contacted US twice and said they wanted to conclude an agreement on trade. The negotiations on this issue will begin in the near future, trump added. He did not rule out delaying the fee increase.
SUPERBORE “FIFTH CATEGORY”
Analysts, however, are skeptical about the prospects for establishing trade relations and believe that the threat of trump enterprises to withdraw from China may be quite real, though not so easily achievable. This option is fraught with huge financial and reputational losses, said a senior analyst at Consulting Federation Vladimir Ananiev.
“One of the few things the President can do without congressional approval — is to introduce a state of emergency (National Emergency), declaring, for example, cooperation with China is a threat to national security. Such is regulated by the law “On emergency economic authority in the international sphere”, IEEPA. It is the prerogative of the President. The task of trump’s advisers will be to develop a defensible rationale for such measures and define the scope of application,” he says.
“If the situation will go that far, it would be akin to artificial “superbore”, which will lead to the flight companies in a short time with the disruption of the production chain and product supply,” agrees senior analyst “Discovery Broker” Andrei Kochetkov.
However, after such a hurricane “fifth economic category” the trump chances for re-election for a second term will be even zero, but negative, he added.
Soft ousting of American business from China has already begun. In fact, import duties are administrative-economic mechanism of motivation of businesses to move production facilities back to the US. A significant part of Chinese exports — the products of American companies that use cheap labor of China and attractive administrative and fiscal conditions for improving the efficiency of production. 25% of the fee already force companies to think about searching other countries with similar conditions or to lay the return of production under American jurisdiction. Of course, that promises to raise them another 5% makes it impossible to plan business processes using Chinese capabilities, says the expert.
About the future can be judged by the extent that, as will become apparent concrete action from the United States. American companies can (spot or all) to prohibit the use of the yuan in the calculations to have a credit relationship with Chinese banks, to import and export the yuan and securities denominated in RMB. The most drastic measure — the cancellation of all transactions and property transactions, in which China (the government, companies or individuals) is of interest, according to Ananiev.
A more balanced measure he calls the ban the companies participating in the government orders US to do business with China. Can be banned and the developers of the national significant technology equipment. Consequences is a rupture of industrial relations, loss of market, (the place of the departed will come competitors), the decline in revenue, net profit and, eventually, the stock drop.
According to Kochetkova, in response to restrictions Huawei China can significantly reduce the sale of American products in its territory, and the first candidate becomes the Apple. In addition, may suffer and sales of Boeing. However, state restrictions, this is nothing compared to what Chinese society may appear the idea of “anything American”. It threatens to fall sales a huge list of goods of American origin, which, consequently, will reduce corporate profits in the US due to the loss of volume of the market. Losses in aggregate will slow down economic growth and accelerate the onset of the global recession.
At the same time Washington made a strategic mistake, at the same time after a quarrel with Beijing and Moscow. At the time, about the evils of such a policy, warned Henry Kissinger. Now China has the opportunity to replace part of the American supply procurement in Russia. This applies to agricultural products and oil, and LNG, and small aircraft, and heavy trucks. In any case, to capitulate to the ultimatums Beijing is not ready and will insist on the principles of reciprocity, I am sure Kochetkov.
Situational we can take advantage of the situation, I agree Ananiev. For example, under anti-American tariffs fell crude oil, which automatically makes Russian energy is a bit more profitable. When and if the United States imposes tight restrictions against Chinese technology companies, the same Huawei will pay more attention to the Russian market.
“But that’s when a trade war will trigger an economic downturn — as it inevitably will — we will feel the outflow of foreign capital in safer assets, and oil, the Russian stock market and the ruble will inevitably fall”, — predicts analyst.
In General, experts believe that the resumption of meaningful negotiations under the current President of the United States. Thus, a trade war could still last a year or two, with unpredictable consequences for both countries and the world economy as a whole.
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