The opposite of what we’d expect in the trade war. If China is worried about escalating the trade war, it’s not showing it. Just before U.S. markets opened Friday morning, Beijing announced new retaliatory tariffs between 5 and 10 percent on some $75 billion worth of imports, including crude oil, from the U.S. The new duties will be implemented in two batches — once on Sept. 1 and again on Dec. 15 — when the next two rounds of Washington’s 10 percent tariffs on some $300 billion in Chinese goods kick in. The announcement followed a “constructive” phone call between deputy-level negotiators, according to White House economic adviser Larry Kudlow, who on Wednesday said a Chinese delegation is slated to visit Washington sometime in September. If China thought a deal was in reach, we’d expect it to nudge down the U.S. trade deficit by ramping up purchases of U.S. agriculture and energy products — things China needs anyway. It’s doing the opposite.
Risks of a South China Sea strategy. Chinese survey ships are measuring the drapes in the exclusive economic zones of littoral states in the South China Sea. More than a month ago, we highlighted a slow-motion standoff involving Chinese ships (flanked by Chinese coast guard and maritime militia vessels) in oil-rich waters off the coasts of Vietnam and Malaysia. Since then, the Chinese have continued to come and go repeatedly in both areas, occasionally popping up in the Philippines’ EEZ, too. Beijing’s goal here is not to take the hydrocarbons for itself but to force regional states into joint exploration agreements that implicitly acknowledge China’s distended territorial claims. During his trip to Beijing this weekend, Philippine President Rodrigo Duterte is expected to discuss just such an agreement. One risk for China, as always, is that this stirs up anti-Chinese political sentiment, making it harder for governments to negotiate. It also pushes littoral states into the arms of the U.S. and its allies. It should come as no surprise, then, that the U.S. State Department issued a scathing denunciation of Chinese “intimidation” in Vietnamese waters on Friday — the same day that Australian Prime Minister Scott Morrison arrived in Hanoi for the first visit by an Australian leader since the two countries formalized their “strategic partnership” earlier this year.
Beating China at its own game? According to Politico, European Commission officials have drafted a 173-page plan urging the president-elect of the European Commission, Ursula von der Leyen, to more forcefully counter U.S. trade threats and advocating more support for European Union tech firms in the face of stiffening competition and regulatory hurdles from the U.S. and China. For example, the plan calls for new tools to allow the EU to impose unilateral tariffs on the U.S. if Washington succeeds in crippling the World Trade Organization. It also proposes a $100 billion fund to invest in high-potential European tech firms, and suggested that Chinese state support for its own tech firms may require the EU to follow suit. Coordinated EU action on issues like establishing common standards for telecommunications networks contributed to the success of European giants like Nokia and Ericsson, but otherwise the EU tech sector has largely struggled to compete with the U.S. and China. This hints at a possible future in which, rather than focusing on reining in China’s particular form of state capitalism, Western governments start trying to beat China at its own game.
- South Korea says it will continue to share intelligence with Japan despite abandoning a key intel-sharing pact yesterday, but only if the U.S. acts as intermediary.
- Another U.S. warship sailed through the Taiwan Strait.
- Italian President Sergio Mattarella is giving leaders of major Italian political parties until next Tuesday to form a government and avoid a snap election.
- Hong Kong protesters are forming a really long human chain.
- Panamanian President Laurentino Cortizo said he does not see the latest U.S. immigration proposal to Panama as viable. Washington wants Panama to harbor U.S. asylum seekers coming from Africa and Asia.
- French President Emmanuel Macron will meet Iranian Foreign Minister Mohammad Javad Zarif on Friday.
- A U.S. State Department official said the U.S. offer to sell Patriot air defense systems to Turkey has “expired.”
- Canadian Foreign Affairs Minister Chrystia Freeland announced a visit to Cuba next week for talks with her counterpart there on the situation in Venezuela.
- One Israeli was killed and two injured in a Palestinian attack near a settlement in the occupied West Bank on Friday, Israeli medical officials said.