More on U.S.-China trade. China and the United States are putting pen to paper at last, but don’t get too excited. With yet another round of high-level talks beginning in Washington on Thursday, both Reuters and Bloomberg have reported that the U.S. and China are sketching out six memorandums of understanding on some of the thorniest issues at the heart of the trade dispute. With some, such as agriculture and intellectual property protections, Beijing wants to do (or already has been doing) a lot of what the U.S. is asking anyway, so there’s plenty of room for agreement. But on others, like forced technology transfers and cyber theft, non-tariff trade barriers such as Chinese industrial policies, and a curious demand that China manipulate the yuan to keep it stable against the dollar, Beijing probably isn’t in a position to make meaningful concessions. Enforcement mechanisms demanded by the U.S. are another sticking point. The bottom line is that the two sides are laying the groundwork to forestall the scheduled March 1 tariff increase and keep talks rolling into the spring. Compared to where things stood last summer, this is major progress. But there’s little to suggest that China and the U.S. will put the trade war fully out of its misery anytime soon.
The other front of the trade war. Elsewhere on Wednesday, U.S. President Donald Trump threatened tariffs on European car imports if the U.S. and the European Union can’t reach a trade deal. One of the countries that would be hardest hit is, of course, Germany; 14 percent of German auto exports in 2017 went to the United States. Estimates of the direct damage to German economic output of unilateral tariffs range from 0.1 to 0.2 percent, which is worse than it sounds considering that the indirect effects should be greater and that the European Commission estimates that gross domestic product will grow by only 1.1 percent in Germany this year. But car tariffs would also harm the economies of strategic U.S. partners in Central and Eastern Europe, especially the three countries (Hungary, Slovakia and Poland) that Secretary of State Mike Pompeo visited last week. And that’s to say nothing of the impact on Japan and South Korea, which are also staring down the barrel of tariffs on their cars, nor of the U.S. itself, whose own car industry has officially opposed the tariffs.
A new political party in Turkey? According to Turkish newspaper Hurriyet, a few former political heavyweights in Turkish politics may be joining together to form a new party. Former Deputy Prime Minister Ali Babacan and former President Abdullah Gul are reportedly part of the effort. There is also speculation that former Prime Minister Ahmet Davutoglu may be joining the new party or forming his own. Such political developments wouldn’t matter much to us if it weren’t for the economic challenges that continue to undermine current President Recep Tayyip Erdogan’s government. Inflation has declined since its December 2018 high but is still above 20 percent, and the government took to selling discounted vegetables at markets earlier this month. The latest measurement on unemployment increased two percentage points to 12.3 percent. There have been rumors in the past of Gul, in particular, throwing his hat in the ring to challenge Erdogan’s grip on Turkish politics, but those rumors have always turned out to be just that – rumors. Then again, Gul gave a speech a few weeks ago in Istanbul highly critical of populism, and the economic situation wasn’t this volatile the last time these rumors floated.
Cracks in the anti-Qatar coalition? A day after reports that the United Arab Emirates had scrapped its ban on shipping cargo to and from Qatar, the UAE government said it had done no such thing and claimed a port circular that said the ban was canceled had been “misinterpreted.” The UAE, alongside Saudi Arabia, Bahrain and Egypt, severed ties with Qatar in 2017 over the Qataris’ alleged support for terrorism and their close relationship with Iran, and imposed a low-level blockade on the Gulf country. The move hasn’t had the desired effect – Qatar’s economy has outshone most of its neighbors’ economies, and it has been forced to increase trade with Iran because of the embargo. Still, the Saudis, who are leading the effort, aren’t ready yet to concede the point, even if the U.S. wants them to do so, so that they can lead a larger united front against Iran.
- Georgia may increase imports of Russian natural gas, citing the importance of diversification after its largest supplier, the State Oil Company of Azerbaijan Republic, announced a 10.5 percent price hike.
- The eurozone’s flash purchasing managers’ index, a measure of business confidence, ticked up slightly to 51.4 from last month’s 51. Anything below 50 constitutes a contraction. The PMI for manufacturers alone fell to 49.2 from 50.5, the worst reading in nearly six years.
- Fitch Ratings said Wednesday that it could downgrade the United Kingdom’s debt rating because of the uncertainty surrounding Brexit.
- The foreign affairs committee of the European Parliament recommended formally suspending Turkey’s EU accession talks, citing concerns over human rights and pressure on the judiciary. Turkey’s Foreign Ministry called the recommendation “absolutely unacceptable.”