Putting the brakes on a U.S.-China trade deal? U.S. President Donald Trump took to Twitter yesterday to express his dissatisfaction with the current direction of U.S.-China trade talks. According to Trump, 10 percent tariffs on $200 billion worth of goods will be increased to 25 percent on Friday, while an additional $325 billion worth of goods will be subject to 25 percent duties “shortly.” Trump’s tweets were especially surprising considering that talks had generated some momentum of late. Just last week, the U.S. trade representative and the U.S. treasury secretary were in Beijing, and by all accounts, things went well. A Chinese trade delegation led by Chinese Vice Premier Liu He is expected in Washington this week, and China analyst Bill Bishop said last Friday that Chinese President Xi Jinping was expected to visit the U.S. in mid-June to sign a deal. China seems to have been caught slightly flat-footed by the sudden change in tone, with a Foreign Ministry spokesperson saying that Beijing was “trying to get more information” even as a trade delegation prepared to travel to the U.S. We’re on record as saying we expect a U.S.-China deal this year, and right now, this seems more like an 11th hour attempt by the U.S. to extract a few more concessions rather than a true breakdown in negotiations, but the U.S. is certainly putting Xi in a tough position.
Help for Chinese banks. Whether coincidental or by design, the People’s Bank of China cut reserve requirement ratios for small and medium-sized banks a few hours after Trump’s tweets on the China trade deal. The cuts, which will release roughly $40 billion into the Chinese economy when they come into effect on May 15, are meant to help small companies and those in rural areas cope with slowing Chinese growth. China has had to slow down the pace of some of its reforms as a result of the U.S. trade dispute and will likely look to continue supporting Chinese companies and putting off tougher reforms until the economy is steadier.
Turkey in the Eastern Mediterranean. On a visit to North Cyprus on Saturday, Turkey’s foreign minister said his country would conduct drilling operations inside Cyprus’ exclusive economic zone. The European Union and the United States joined Cyprus in issuing statements of concern and calling on Turkey to halt all drilling operations, but Turkey’s defense minister doubled down on Sunday, saying that Turkey would “always protect the rights of the people of Turkish Republic of Northern Cyprus.” This is a long-running dispute, but as we noted in our 2019 forecast, Turkey has better reasons than ever to be more assertive in the Eastern Mediterranean. Even as U.S. national security adviser John Bolton attempts to make a routine U.S. naval deployment in the Middle East look like a threatening gesture toward Iran, the U.S. faces a more assertive and powerful challenge in NATO ally Turkey, who is not going to back down because of a few strongly worded statements.
The Turkish lira under pressure. We’ve been writing about Turkey’s external debt problem since December 2017. After the Turkish lira took a nosedive in October 2018, Turkey was able to stabilize the currency with a number of confidence-boosting monetary measures, but the underlying external debt problem has not gone anywhere. The currency is now at its lowest point on the dollar in seven months and today fell below six liras on the dollar. In the past, Turkish President Recep Tayyip Erdogan has tried to use the currency’s weakness as a rallying cry against “economic terrorism” from foreigners, but the lira’s slide continues. Now the question is how much more time Turkey can buy before this enters crisis territory again.
Panama’s new president. Hailing from Panama’s center-left Democratic Revolutionary Party, Laurentino Cortizo appears to have won Panama’s presidential elections, though final results will be certified on Thursday and the margin between Cortizo and second-place candidate Romulo Roux is fewer than 40,000 votes. (Roux has already asked for a recount.) Cortizo’s victory would be good news for U.S. interests in Panama and the region. China has tried to boost relations with the strategically located linchpin between the Atlantic and Pacific oceans, but Cortizo is on record as saying that Panama needs to improve its relationship with the United States and more heavily scrutinize Chinese investment in Panama. He also, however, said Washington needed to pay more attention to Central America if it didn’t want other countries like China to increase their footprint there.
Loya Jirga results. Over the weekend, Afghan officials released a document detailing the results of Afghanistan’s four-day Loya Jirga, which concluded on Friday. Most significant among the 23 points was the call for an “immediate and permanent ceasefire” between Taliban and Afghan forces to begin on the first day of Ramadan. The Taliban, however, criticized the Loya Jirga manifesto, arguing that Ramadan is a more “appropriate” time for “jihad” rather than a cease-fire and lambasting what it saw as the Loya Jirga’s tolerance of foreign military forces in Afghanistan. Still, in negotiations in Doha over the weekend, a Taliban spokesperson said both sides had offered new proposals on the withdrawal of U.S. and NATO forces from Afghanistan and that, while further negotiations were necessary, the gap between the two sides was growing narrower.
A tenuous cease-fire in Israel and the Gaza Strip. An outbreak of hostilities that began after a Palestinian sniper wounded two Israeli soldiers on Friday escalated significantly over the weekend, leaving approximately 27 Palestinians and four Israelis dead. Egypt and the United Nations reportedly brokered a cease-fire that went into effect this morning, but it remains to be seen whether it will hold. Israeli Independence Day begins on the evening of May 8, and next week, Palestinians will observe Nakba Day, or the Day of the Catastrophe, on May 15. Both days have sparked clashes in the past, and with tensions running high, they may lead to further hostilities. For his part, Israeli Prime Minister Benjamin Netanyahu said the campaign was “not over” and that Israel would ensure security for Israeli residents living within range of Hamas and Islamic Jihad missiles.
- A Venezuelan general and five soldiers were killed in an ambush on Saturday.
- Industrial production in Brazil was down 1.3 percent in March month over month and 6.1 percent year over year.
- Some 30,000 Scottish protesters took the streets of Glasgow on Saturday calling for a second Scottish independence referendum.
- Russia’s foreign minister and the U.S. secretary of state will meet on the sidelines of an Arctic Council meeting today in Finland.
- Two U.S. missile destroyers sailed within 12 nautical miles of Gaven and Johnson reefs in the Spratly Islands earlier today.
- Egypt’s parliament rubber-stamped President Abdel-Fattah el-Sissi’s state of emergency declaration on Saturday.
- The Tajik and Uzbek armies held joint military exercises.