Tankers and sanctions. On Thursday, British authorities seized an Iranian tanker near Gibraltar called the Grace 1 that was carrying Iranian crude to Syria’s Baniyas refinery, whose owner is subject to EU sanctions. It was the first time Europe has stopped a suspicious tanker at sea, though the sanctions banning the shipment of oil to Syria have been in place since 2011. Spanish officials said the seizure took place at the request of the United States. A senior commander of Iran’s Islamic Revolutionary Guard Corps tweeted that Iran should seize a British oil tanker the Grace 1 is not immediately released.
The situation is making Europe uncomfortable. France’s finance minister has said that the barter trade mechanism set up by France, the U.K. and Germany to continue EU trade with Iran despite U.S. sanctions could see its first transaction “in a few days.” The holdup, according to two European diplomats, is that due diligence is still underway and that Iran hasn’t yet set up a mirror company to facilitate the process. European leaders have tried to stay neutral in the intensifying U.S.-Iran standoff, but with the Iranians threatening retaliation and vowing to enrich uranium “by whatever amount we feel like” after Sunday, Europe’s position may not be tenable much longer.
Trade talks resume. White House chief economic adviser Larry Kudlow confirmed Thursday that working level trade negotiations with China would resume next week, beginning with a series of phone calls. But China still appears to be staking out two positions that will probably prevent an agreement from being reach anytime soon. One is that all tariffs be lifted immediately upon completion of a deal. As we’ve noted, the U.S. has few tools available with which to ensure that China actually implements its concessions — some of which will take years to complete — and continues to abide by them even when domestic political and economic conditions make it prohibitive to do so. Naturally, the U.S. wants to lift tariffs incrementally. The other condition is that the U.S. ease its ban on exports of core components such as semiconductors to Chinese tech firms – namely, Huawei. During the G-20 summit, Trump had appeared to relax the ban, but his government has yet to clarify just how relaxed it really is. The administration is under pressure from two directions: from hawks in Congress and the intelligence community pushing it to go for the jugular, and from U.S. tech firms ban wary about losing Huawei and its ilk as major buyers.
China takes its gloves off. China doesn’t buy enough stuff from the U.S. to match tariffs blow for blow. But it does have other ways to retaliate. One is by making life miserable for U.S. businesses with operations in China. (There are limits to how far Beijing can push them without spooking much-needed foreign investors and triggering capital flight.) This can take place in unexpected ways. For example, Chinese film studies have reportedly imposed an informal ban on hiring American actors. Another way to retaliate is by stoking nationalist sentiment among Chinese consumers and implicitly encouraging a boycott of U.S. products. Initially after the trade war started, Beijing refrained from this sort of behavior; it wanted to minimize the political costs of making painful concession to the U.S. But now it has thrown caution to the wind, and it may be having its intended effect. According to a survey of Chinese consumers conducted by London-based advisory firm Brunswick, more than half reported that they’ve begun avoiding U.S. products. The problem for the U.S. here is that consumer boycotts tend to last a lot longer than tariffs, which, of course, Beijing can lift overnight. Beijing does not control Chinese consumers as tightly as it controls trade policy – and the more consumers believe China is being bullied by the U.S., the more U.S. firms will struggle to recover market share if and when the trade war ends.
The race to 5G speeds up. Mobile operators aren’t waiting for the U.S. to settle on a policy toward Huawei and other Chinese telecom firms before pushing ahead with their 5G rollouts. Some aren’t even waiting for their own governments. In the U.K., where a final decision on whether or how much to restrict use of Chinese tech in domestic telecom networks won’t be made until the next government is formed, mobile operators Vodafone and Three announced plans to move ahead with Huawei equipment in the less-vulnerable “core” parts of local 5G networks. Vodafone, in fact, switched on limited 5G networks in seven cities in the U.K. earlier this week, while warning that replacing Huawei gear from its existing networks would cost up to $88 million. The Dutch government, meanwhile, implied it wouldn’t ban Huawei from its next-generation networks, saying that stricter vetting requirements would be sufficient to address any Chinese cyber-threats associated with Chinese telecoms equipment. This comes a week after China Mobile launched the first pieces of its own networks.
- Last Wednesday, the Indian government said it had not finished importing Iranian oil, despite claiming to have ceased all imports in late May.
- Iranian media has again claimed that the IRGC attacked and destroyed a group of “anti-revolution terrorists” near the border with Turkey. And again, Iranian media neglected to say whether the group was Kurdish separatists, though this is very likely the case.
- The first Russian S-400 air defense systems bound for Turkey will be loaded onto cargo planes on Sunday and will arrive in Turkey next week, Haberturk reported.
- Protest leaders and Sudan’s military junta reached a power-sharing agreement, ending months of unrest.
- German manufacturing orders fell 2.2 percent in May compared with the previous month.
- Russian President Vladimir Putin’s approval rating rose to 68 percent this month from 66 percent in April-May, according to the independent Levada Center polling agency. The rating had lingered in the mid-to-low 60s since Moscow implemented reforms to raise the retirement age last summer.
- The U.S. economy added 224,000 jobs in June after a disappointing May, and unemployment hovered at around 3.7 percent.
- Turkey issued a navigational warning that it will conduct live-fire naval exercises on Sunday and on Tuesday south of the Greek island of Kastellorizo.