Holding fire. As expected, the U.S. and China have reportedly reached a tentative “cease-fire” agreement in the trade war. The U.S. will reportedly hold off on imposing new tariffs on at least $300 billion in Chinese goods for the time being, China will back off its threat to restrict exports of rare-earth elements to the U.S., and negotiations will reopen after U.S. President Donald Trump and Chinese President Xi Jinping meet Saturday at the G-20 in Japan. More notable, in an interview with Fox Business on Wednesday, Trump said if and when negotiations once again stall and the U.S. moves forward with new tariffs, they may be only 10 percent, not 25 percent as previously threatened. This ostensibly would still help nudge Beijing toward more painful concessions, while lowering the risk of accidentally tipping the U.S. economy into recession or sparking a political backlash and, thus, potentially allow the U.S. to keep up the pressure long enough to deny Beijing the option of simply trying to wait out the U.S.
Bring on the battle royal. Also on Wednesday, Trump reiterated his willingness to open up multiple new fronts in the trade war, singling out, for example, both Vietnam and Europe as “worse than China.” On Thursday, Trump put the crosshairs on India, demanding the removal of retaliatory tariffs imposed by New Delhi following the Trump administration’s imposition of steel and aluminum tariffs in 2018 and recent removal of Indian trade privileges. For the U.S., this speaks to the broader challenge it’s facing in achieving the various goals of the trade war, many of which are working at cross purposes with each other and with broader U.S. strategic objectives. Very few manufacturing operations leaving China to avoid tariffs are returning to the U.S.; rather, they’re just moving to other low-cost hubs like Vietnam and India. This is inevitable: Complicated supply chains flow through too many countries, labor costs in the U.S. are too high, and U.S. firms have invested too much in robotics and automation for labor-intensive manufacturing in the U.S. to be competitive. But if the overriding goal is to isolate China, force it to abandon mercantilist trade practices and theft of U.S. technology, and boost the resilience of countries like Vietnam keen to partner with the U.S. on containing Chinese assertiveness, this is fine. In fact, it was emerging as the core long-term U.S. strategy before political winds at home forced the U.S. to abruptly change course. If the priority now is to lower the overall U.S. trade deficit and restore the competitiveness of U.S. industries that have lost out to globalization, compelling firms to move from one low-cost country to another won’t help – and Trump won’t be able to stop with China. Which direction the U.S. chooses to go will have profound implications for the balance of power in the Indo-Pacific and the future of global trade.
The UAE breaks with Saudi Arabia. In defiance of U.S. and Saudi finger-pointing at Iran, the United Arab Emirates’ investigation into last month’s attack on four oil tankers off its coast concluded Wednesday that blame could not be apportioned based on the available evidence. UAE Foreign Minister Sheikh Abdullah bin Zayed Al Nahyan, speaking alongside his Russian counterpart in Moscow, said a state entity was responsible but did not identify one. This echoed the UAE’s preliminary findings from three weeks ago, while the Saudi government has continued to blame Iran. The cracks in the Saudi-UAE relationship have been apparent for some time now and will only grow. Al Nahyan also said talks to establish a coalition to protect regional shipping lanes were underway, emphasizing that the UAE does not want “more turbulence” in the region.
Threats in Central Asia. The executive body of the Collective Security Treaty Organization is meeting in Bishkek, Kyrgyzstan. The CSTO countries will discuss additional measures to counter international terrorism in acknowledgement that the risk of extremism is spreading. The main threats to CSTO countries come from the northern provinces of Afghanistan, where militants are returning home from Syria and Iraq. There are also concerns about rising tensions on the Tajikistan-Afghanistan border. In addition to large-scale exercises by Russia in its Central Military District, Moscow is planning to help strengthen the Tajik army against threats from Afghanistan. Russian Defense Minister Sergey Shoigu also said the country must make full use of its Kant military base in Kyrgyzstan.
- Iran has not followed through on its threat to breach the maximum amount of enriched uranium allowed under its nuclear deal, U.N. nuclear inspectors said, but it is on track to do so this weekend.
- At least one police officer died and eight people were injured in twin suicide bombings targeting a police patrol and a police station in the Tunisian capital. It’s the second suicide bombing in Tunis in the past eight months.
- Tanzania suspended a major Chinese-backed port project – what would have been the largest port in East Africa – citing the onerous financial conditions put in place by Beijing.
- Forces allied to Libya’s internationally recognized government on Wednesday seized the town of Gharyan, which is south of Tripoli and home to the main supply base of eastern forces attacking the capital, witnesses and Tripoli officials said.
- Militants using drones attacked Russia’s Hmeimim air base in Syria. Russian air defense systems reportedly detected and destroyed two approaching unmanned aerial vehicles.
- The British House of Commons will vote Thursday on an amendment that would block government funds for some public spending if the U.K. leaves the European Union without a transition period, raising the costs of a no-deal Brexit.
- The German statistics agency said its updated forecasts show that by 2035 the working-age population will shrink to between 45.8 million and 47.4 million, down from 51.8 million in 2018. Without net migration, it could decline by approximately twice that amount.
- Car production in the United Kingdom fell by 15.5 percent in May, the 12th consecutive month of declines, the Society of Motor Manufacturers and Traders reported. For the year, output is down 21 percent.
- The Czech minority government survived a no-confidence vote. Over the weekend, some 250,000 people demonstrated against the government of Prime Minister Andrej Babis, who is under investigation for fraud and possible conflict of interest.
- Japan and France agreed on a five-year joint maritime security cooperation plan.
- The U.S. military has budgeted nearly $60 million to upgrade military infrastructure in Iceland.