As the trade war continues, internal challenges are cropping up in both China and the United States. A new round of tariffs worth $16 billion in Chinese exports kicked in on Thursday. China has retaliated in kind. Curiously, the South China Morning Post reported that President Xi Jinping has declined to send his top lieutenant – Vice President Wang Qishan, known for his strong relationships in Washington – to try to hammer out a deal with the U.S. This comes a month after Xi pulled his top economic adviser, Liu He, from the front lines of the trade war, supposedly because of the belief in Beijing that Xi failed to anticipate the White House’s willingness to escalate the conflict. These moves reflect a growing sense in Beijing that there is no end in sight, and that the best it can do is contain the fallout at home.
The “good” news for China is that the yuan fell slightly again, having stabilized slightly this past week. This will help make Chinese exports cheaper, offsetting some of the pain of the trade war. But Beijing doesn’t want it to fall too far. A currency collapse would be disastrous, and it has been intervening to manage the pace of the yuan’s decline.
In the U.S., there are reports that businesses are being hurt by Washington’s trade policies and are questioning them accordingly. U.S. car manufacturers, for example, claim they are losing space in the Chinese auto industry to Japanese and German competitors. Even the Federal Reserve is studying the potential negative effects that trade disputes would have on U.S. businesses and households. There will always be casualties in a trade war. But for political reasons, neither side can tolerate large-scale casualties, which may limit how far either side will escalate here versus pursuing alternative avenues.
Russia is rattling its saber near the Black Sea. According to an official from the Black Sea Institute of Strategic Studies, recent Russian exercises in the Sea of Azov suggest preparations are underway for landing operations on Ukraine’s coastline. Meanwhile, NATO-allied forces in Romania scrambled to meet suspected Russian fighter aircraft operating over the Black Sea – the second time they have done so since July. Russian President Vladimir Putin has touted the strength of Russian forces in Eastern Europe and has claimed that NATO refuses to address protocol for Russian military flights. Most likely, this is merely posturing ahead of a meeting between U.S. and Russian officials to discuss Ukraine. It will be their first meeting since January.
Germany is trying to bend but not break ties with the U.S. over Iran sanctions. Foreign Minister Heiko Maas openly called on Europe to create its own payment channels so that it can circumvent the SWIFT system used by the U.S. to enforce the sanctions. Chancellor Angela Merkel backpedaled immediately. She acknowledged that ties with Washington were dicey, while carefully noting both the importance of Iranian commerce and U.S. security cooperation. Related, Merkel will travel to Azerbaijan on Saturday to explore the possibility of using the Southern Gas Corridor for Germany’s energy needs. Heretofore Germany has been interested in Russia’s Nord Stream 2 pipeline, a project Washington opposes.
Those waiting for Saudi Aramco’s long-anticipated IPO will have to wait a little longer, depending on which reports you believe. Sources close to IPO talks have reported that the operation is now off the table. And it makes sense if it were true – oil prices are rising, and Saudi Arabia’s deficit is falling. Still, the Saudi energy minister affirmed Riyadh’s commitment to the project, only he caveated his statement by saying the IPO would be “ … at a time of its own choosing when conditions are optimum.” He added, “This timing will depend on multiple factors, including favorable market conditions, and a downstream acquisition which the Company will pursue in the next few months, as directed by its Board of Directors.” This, too, makes sense. Flip-flopping on such a major operation would convince investors only of Saudi Arabia’s unreliability. Framing it as a matter of timing allows Riyadh to save face without having to sell off a huge chunk of its crown jewel. For now, though, we’ll have to wait and see.
- Russia’s defense industry debuted a new Serp anti-drone system. The system combats drones in urban areas by providing automatic tracking and suppression of on-board electronics.
- Argentine President Mauricio Macri will visit Wall Street operators during his upcoming trip to New York for the U.N. General Assembly. He and his economic team want to assure bankers and investors that the country faces zero risk of default.
- Commercial satellite imagery shows that North Korea has stopped dismantling its facilities at a satellite launching site.
- Germany’s Interior Ministry announced the indefinite suspension of repatriating Uighurs to China. This follows recent reports of Chinese government persecution of Uighurs in Xinjiang.
- U.S. President Donald Trump called on Secretary of State Mike Pompeo to investigate reports of land expropriation and violence against white farmers in South Africa. This relates directly to South Africa’s most pressing political issue: land reform.
- A spokesman for the U.S. Department of Defense said Washington will continue with its F-35 Joint Program with all partners, including Turkey.