Trump Hits China With Tariffs; Beijing Vows to Strike Back President Trump said he will impose new tariffs on about $200 billion in Chinese goods and threatened to add more, escalating trade tensions.
The 10% tax on Chinese imports will take effect on Sept. 24 and will rise to 25% at the end of the year, according to administration officials. The tariffs will affect thousands of goods ranging from luggage to seafood, extending the impact of Mr. Trump’s aggressive tariff policy for the first time to a broad population of American consumers.
(…) “if China takes retaliatory action against our farmers or other industries, we will immediately pursue….tariffs on approximately $267 billion of additional imports. “
The announcement means that starting next week, Mr. Trump will have imposed tariffs on nearly half of the Chinese goods imported to the U.S., which last year were valued at $505 billion. If he follows through on his next threat, all Chinese imports would be hit. (…)
One danger here is that consumers will do like many manufacturers have done in Q2: advance purchases and stock up. Boom/bust coming?
AMERICA CURSED
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A Twist in the U.S. Tariff Battle: ‘It’s Helping China Be More Competitive’ In the Pearl River Delta, companies are racing even faster toward more advanced manufacturing and products
(…) In 2000, 17% of the region’s industrial output was classified as high-tech products, including electronics, biotech and aerospace components. That rose to 44% last year, according to figures from the local government and HSBC Research.
To help spur the manufacturing revolution in the face of tariffs, Guangdong province, which includes the Pearl River Delta, recently announced plans to invest more than 450 billion yuan ($65.46 billion) through 2020 to subsidize strategic industries including information technology, high-end equipment manufacturing and biomedical products.
Jimmy Liao’s company in Shenzhen, TechTurbo Innovation Ltd., buys and modifies computer chips for use in smartwatches, internet-connected home devices and specialty lighting products. Many of its clients make products that were expected to fall on the $200 billion list of tariffs, leaving them searching for ways to cut costs—including asking Mr. Liao for less expensive chips.
His solution: Buy fewer chips from his chief American chip supplier, Qualcomm Inc., and steer more business to a Chinese supplier, Telink Semiconductor Co. By 2019, he expects to buy half his chips from China, up from 20% last year. Those purchases will help support a domestic semiconductor industry China is spending billions of dollars to nurture. (…)
As battle lines on trade were being drawn earlier this year, GMM Nonstick Coatings in Zhuhai decided to shift factory work to India and build four additional facilities there. Ravin Gandhi, chief executive officer, said GMM worried that its nonstick coatings, which are used on cookware such as George Foreman grills, might be next on the tariffs hit list.
“There’s already been a natural shift away from China, but now it’s accelerated since the trade friction,” he said. (…)
The city of Zhuhai announced in August that it is working with Taiwan-based Foxconn on a semiconductor project. People familiar with the matter said the aim is to build a chip fabrication plant. (…)
Meanwhile, in China, via The Daily Shot:
Empire State Manufacturing Index Eases; Prices Improve
The Empire State Manufacturing Index of General Business Conditions declined to 19.0 during September from 25.6 in August. It was the lowest reading since April, but suggested continued economic growth. The Action Economics Forecast Survey expected a reading of 22.1.
Haver Analytics calculates a seasonally adjusted index that is comparable to the ISM series. The calculated figure slipped to 56.0 from 56.6, and remained below the June high of 58.2. During the last ten years, the index has had a 68% correlation with the q/q change in real GDP.
Most of the components of the Empire State Survey declined this month, including new orders, shipments and unfilled orders. The delivery times reading also fell and indicated nearly the quickest product delivery speeds since January. The inventories index surged to the highest level since May.
The number of employees index was fairly steady though it remained up sharply from its January low. During the last ten years, there has been a 77% correlation between the employment index and the m/m change in factory sector payrolls. An improved 22% of respondents reported increased employment and a higher 8% reported a decease. The index of future employment declined. The employee workweek reading increased, but remained well below its April high.
The prices paid index increased modestly, yet remained below the April high. Forty-nine percent of respondents indicated increased prices, while two percent reported a decline. Prices received fell to the lowest level since December.
Business Leaders Survey Covering service firms in New York, northern New Jersey, and southwestern Connecticut
SENTIMENT WATCH
Investors raise cash buffers as gloom gathers over global economy: BAML survey Investors cut equity exposure this month as they grew more wary that economic growth may slow, but kept a long-standing preference for mega-cap tech stocks, Bank of America Merrill Lynch’s monthly survey indicated on Tuesday.
(…) A net 24 percent of those surveyed expected global growth to slow in the next year, up from 7 percent in August. This was the worst such outlook since December 2001. (…)
As a result, the average cash balance climbed to an 18-month high of 5.1 percent, from 5.0 percent in August. Overall allocation to equities fell 11 percentage points to a net 22 percent overweight – near July’s levels which were the lowest in 18 months.
(…) investors’ allocation to U.S. equities rose to the biggest overweight since January 2015, while allocation to euro zone equities fell to an 18-month low. (…)