Trade war after midnight. Chinese Vice Premier Liu He sat down for dinner with U.S. trade chief Robert Lighthizer on Thursday night, with just seven hours to go before a dramatic spike in U.S. tariffs on Chinese goods was to take effect. An hour and a half later, Liu was gone, and the 10 percent duties on $200 billion of Chinese exports jumped to 25 percent a minute after midnight. (China is expected to announce retaliatory measures shortly.) Liu and Lighthizer are meeting again this morning, but where things go from here is anyone’s guess. There’s no reason to think negotiations are dead in the water; neither side wants to bear the costs of a permanent trade war. It’s possible Beijing merely overplayed its hand by, at least according to the U.S., reneging on a slew of commitments it had made earlier and needs a minute to save face before recommitting. But if not, then it suggests Beijing is facing even tougher constraints at home than realized, and a deal is likely elusive. In the meantime, the jump to 25 percent tariffs will damage both economies, even if President Donald Trump never follows through on his repeated threat to slap tariffs on nearly all Chinese exports.
The China homefront. The course of the trade war was always going to be shaped largely by economic conditions in both the U.S. and China – and unexpected shocks to either system could prove pivotal. As we discussed recently, China is grappling with a strain of swine fever that may wipe out a massive chunk of its hog industry. This matters to the trade war because counter-tariffs targeting U.S. farmers have been one of the most potent retaliatory measures in Beijing’s toolbox. And if China needs to import more U.S. pork products, it loses this leverage. Earlier this week, a U.S. Department of Agriculture report claimed that China is also grappling with an infestation of armyworm, a crop-eating pest that affects soybeans – again, a major Chinese import from the U.S., and one Beijing has targeted with counter-duties in the past. This comes as Chinese data released Thursday showed a 2.5 percent annual increase in consumer price inflation in April, with food inflation jumping 6.1 percent, compared to 4.1 percent in March. And a sustained rise in inflation will give the Chinese Central Bank less room to maneuver to contain the fallout of the trade war and China’s myriad other economic woes.
A North Korean reminder. Midday yesterday, news broke that immediately captured our attention: The U.S. has seized a North Korean coal ship for violating international sanctions, the headlines read. But there is less here than meets the eye. Turns out, the boat had been impounded in Indonesia since last summer, the North Korean sailors on board have already begun to be sent home, and the U.S. had been trying to take possession of the vessel for months – hardly a retaliation for Pyongyang’s recent short-range missile tests, as many suspected. Still, Pyongyang is doing everything it can to remind Washington, now preoccupied with China, Iran and Venezuela, that it’s still around. So long as North Korea doesn’t resume intercontinental ballistic missile testing, the detente will stay intact. But its latest economic crisis means it can’t afford to sit pat, and we should expect additional moves aimed at driving a wedge between the U.S. and South Korea and pressuring other outside powers to withdraw their support for the U.S.-led U.N. sanctions regime.
The U.S. in Afghanistan. During a congressional hearing, Joseph Dunford, the chairman of the U.S. Joint Chiefs of Staff, said the U.S. will keep counterterrorism forces in Afghanistan “as long as an insurgency continues.” From Washington’s perspective, this makes sense, counterintuitive as it may seem. The U.S. wants to find a way to leave the conflict as soon as it can and, to that end, has been negotiating with the Taliban, but the territory the Taliban have gained recently gives them a better bargaining position. If Washington appears too eager to leave, the Taliban will only double down on that position. Keeping a credible threat in place, then, is an attempt to regain some leverage.
- South Africa’s long-ruling African National Congress appears to be the winner of the country’s latest national elections, according to preliminary results, but with a reduced majority.
- Citing national security concerns, U.S. communications regulators voted to deny an application by China’s state-owned China Mobile to provide phone service in the U.S.
- Several jihadist and Turkey-backed rebel groups in Syria have reportedly formed a coalition to fight the Syrian army.
- Turkey reportedly asked Russia to halt airstrikes in Syria’s Idlib province.
- German exports increased 2.5 percent year on year in the first quarter of 2019.
- Turkey plans to purchase U.S. Patriot and Russian S-400 air defense systems, according to unconfirmed reports.
- The U.S. approved a $3 billion sale of Apache helicopters to Qatar.
- U.S. Navy chief Adm. John Richardson is making a three-day visit to India.
- The U.S. is considering adding Vietnam to its list of currency manipulators.
- A U.S. airstrike killed 13 suspected Islamic State fighters in Somalia.
- The foreign ministers of Japan and Russia will revive talks on their World War II-era territorial dispute on May 10.