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Less than two months ahead of the election, U.S. President Donald Trump has again floated the idea of decoupling the U.S. economy from China.

“When you mention the word decouple, it’s an interesting word,” Trump said on Labor Day at a White House news conference. “We lose billions of dollars and if we didn’t do business with them [China], we wouldn’t lose billions of dollars. It’s called decoupling, so you’ll start thinking about it.”

Trump also accused Democratic presidential candidate Joe Biden of having a lax attitude toward Beijing.

“If Biden wins, China wins, because China will own this country,” Trump claimed.

In the event he gains a second term as president, Trump declared that he would, among other things, ban federal contracts with companies that outsource jobs to China.

“We will make America into the manufacturing superpower of the world and will end our reliance on China once and for all,” Trump added. “Whether it’s decoupling or putting in massive tariffs like I’ve been doing already, we will end our reliance in China, because we can’t rely on China. We will bring jobs back from China to the United States and we will impose tariffs on companies that desert America to create jobs in China and other countries.”

Trump has already threatened to ban Chinese-owned software and apps including TikTok and WeChat, citing that they pose risks to national security. The U.S. government has also vowed to expel Chinese companies from its stock exchanges if they do not adhere to transparent accounting practices. Trump has also sanctioned some Chinese and Hong Kong officials for imposing a controversial national security law in Hong Kong.

Trump added: “We’ll manufacture our critical manufacturing supplies in the United States, we’ll create ‘made in America’ tax credits and bring our jobs back to the United States.”

In June, U.S. Treasury Secretary Steven Mnuchin said that the decoupling of the U.S. and Chinese economies would occur if American companies could not compete fairly in China, Reuters reported.

“If we can compete with China on a fair and level playing field, it is a great opportunity for U.S. businesses and U.S. workers, as China has a large, growing middle class,” Mnuchin said at the time. “But if we can’t participate and compete on a fair basis, then you are going to see a decoupling going forward.”

However, as the two largest economies in the world, the U.S. and China’s business ties are deeply intertwined, illustrated by the phase 1 trade deal that was signed in January. Still, as Trump has pointed out, China has a massive trade surplus with the U.S. – amounting to $34.2 billion in August, the highest level since November 2018.

But decoupling might hurt China more than the U.S.

A study by Bloomberg Economics determined that a total decoupling would reduce China’s annual growth rate to about 3.5% in 2030 – down from the current forecast of 4.5%.

But China could partially mitigate the effects of decoupling by significantly increasing its own technological innovations.

“If China moved to increase domestic funding for research and development, and expanded its ties with other advanced economies, it could hope to offset a significant amount of the drag,” Bloomberg economists Tom Orlik and Bjorn van Roye wrote.

But in the event the U.S. is able to persuade other key trading partners to decouple from China – namely Japan, South Korea, Germany and France – China’s growth rate could potentially plunge to 1.6% in 2030.

Michael A Witt, professor of strategy and international business at INSEAD business school in Singapore, wrote in the Harvard Business Review that decoupling might arise as an inevitable result of de-globalization, which has been under way for more than a decade.

“At best, international trade was stagnating before the pandemic hit, and foreign direct investment had fallen by 70% in 2018 from its peak in 2007,” Witt wrote. “Never easy, Sino-U.S. relations have taken a more confrontational turn under [Chinese President] Xi Jinping.”

Witt noted that COVID-19 has accelerated the process of deglobalization by “providing a justification for re-shoring production of strategic goods.”

Abishur Prakash, a geopolitical futurist at the Center for Innovating the Future, a strategy consulting firm based in Toronto, told International Business Times that at the heart of a potential U.S.-China decoupling is technology.

“This is what makes this current decoupling a new phenomenon,” he said. “By targeting Chinese technology – i.e. 5G, chips – the U.S. is forcing China to ‘disconnect’ in certain areas, like where Chinese tech firms [can conduct] IPOs or where China gets its chips from. [But] as China becomes more self-reliant, it may take radical steps, like replacing U.S. technology systems and platforms with its own alternatives. The world will [then] be divided along brand new faultlines as the two largest economies in the world try to operate independently of each other.”

Prakash also noted that decoupling from China is really more about Washington trying to take back the power it lost as businesses moved manufacturing and supply chains to Shanghai and Shenzhen in China.

“The U.S. can do this in two ways: Invest in local, U.S.-based initiatives, or tap [its] allies,” he stated. “For example, the U.S. and Australia are working on ‘China-free’ supply chains for rare earth minerals.”

Prakash further noted that other decouplings are gradually taking place.

“As tech drives geopolitics, India and Japan are decoupling from China, while the European Union is decoupling from the U.S.,” he said. “Ideas like globalization are being tossed out. Now, it’s all about nations putting themselves first. And [now] tech companies [are] becoming global stakeholders.”

But is decoupling of the U.S. and China realistic?

“In theory, it’s possible,” Prakash said. “In application, it’s a lot harder. However, things are moving a lot faster than most expected. For example, Japan is preparing subsidies for Japanese companies to move from China to India. And, the recent targeting of TikTok and Huawei Technologies shows that the West, led by the U.S., does not want to become reliant on Chinese technology.”

The big grey area right now, Prakash added, has to do with what steps China will take.

“If China starts targeting Western tech firms, banning products or forcing new compliance, it will only speed up the decoupling,” he indicated. “This may not be in China’s interest economically. But, at the same time, if China does nothing, the U.S. is trying to decouple itself from China anyway. If this were a game of chess, the U.S. has moved its bishops but China is yet to move its pawns.” (Ibtimes)

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Automaker Daimler AG to pay $1.5 billion to settle emissions cheating probes

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Daimler AG Chief Executive Officer Dieter Zetsche (C) speaks to the media after he unveiled the Mercedes-Benz Concept Style Coupe at Auto China 2012 in Beijing April 23, 2012. China's premium car market should grow 15-20 percent this year, Zetsche said on Monday, adding that Daimler's sales should at least match that rate. Zetsche also said he expects the company's Mercedes-Benz luxury brand to post a sales increase in Europe this year. REUTERS/Jason Lee

Automaker Daimler AG and subsidiary Mercedes-Benz USA have agreed to pay $1.5 billion to the U.S. government and California state regulators to resolve emissions cheating allegations, officials said Monday.

The U.S. Department of Justice, Environmental Protection Agency and the California attorney general’s office say Daimler violated environmental laws by using so-called “defeat device software” to circumvent emissions testing and sold about 250,000 cars and vans in the U.S. with diesel engines that didn’t comply with state and federal laws.

The settlement, which includes civil penalties, will also require Daimler to fix the vehicles, officials said. In addition, the company will pay $700 million to settle U.S. consumer lawsuits.

The Stuttgart, Germany-based automaker said on Aug. 13 that it had agreements with the Justice Department, Environmental Protection Agency, Customs and Border Protection, the California Air Resources Board and others over civil and environmental claims involving about 250,000 diesel cars and vans.

Environmental Protection Agency Administrator Andrew Wheeler said Daimler did not disclose all of its software, which included “devices designed to defeat emissions controls.”

In a statement, Daimler said it denies the allegations that it cheated and does not admit to any liability in the U.S. The settlements resolve civil proceedings without any determination that Mercedes and Daimler vehicles used defeat devices, the company said. Plus, Daimler said it did not receive a notice of violation of the Clean Air Act from the EPA or California regulators, which is common when defeat devices are used.

The company said it is not obligated to buy back the vehicles, as Volkswagen was, nor will it have an independent monitor to track its progress on the settlement. “By resolving these proceedings, Daimler avoids lengthy court actions with respective legal and financial risks,” the company said.

Daimler also said the emissions control system in the U.S. vehicles is different than models sold in Europe because of different regulatory and legal requirements.

Daimler AG said the settlement would bring costs of about $1.5 billion, while the civil settlement will bring a one-off charge of $875 million. It estimated that “further expenses of a mid three-digit-million” euros would be required to fulfill conditions of the settlements.

Daimler said it owners of model year 2009 through 2016 Mercedes cars and 2010 through 2016 Sprinter vans with “BlueTEC II” diesel engines will be notified of recalls to fix excessive vehicle emissions. Customers will be notified by mail starting late this year, and the company will set up a customer website, Daimler said in a statement.

Owners also will get mailed notices and a website with details of the civil lawsuit settlement including a claim form, Daimler said. The company also will pay attorneys fees of around $83 million.

Steve Berman, a lawyer involved in the class-action lawsuits against Daimler, said in a statement that current owners can get $3,290 or more, while former owners can get $822.50.

“Owners of Mercedes’ dirty diesel cars will finally be able to receive the compensation they deserve and repairs to ensure their vehicles are not emitting illegal levels of harmful pollutants,” Berman said.

Deputy Attorney General Jeffrey Rosen said the cost of the Daimler settlement is likely to send a message to deter other companies from engaging in similar conduct.

“We expect that this relief will also serve to deter any others who may be tempted to violate our nation’s pollution laws in the future,” Rosen said.

As part of the U.S. government settlement, Daimler will pay an $875 million civil penalty — about $3,500 for each vehicle that was sold in the U.S. The company will also be required to fix the vehicles and will need to replace some old locomotive engines with newer, low nitrogen oxide-emitting engines that should offset the illegal emissions from its vehicles, Rosen said. A Justice Department official said the company did not have to admit guilt as part of the settlement.

In addition, officials in California will receive $17.5 million for future environmental enforcement, as well as to support environmentally-beneficial projects in the state, officials said.

“Long term, cheating isn’t the smartest way to market your product. Daimler is finding that out today. But they’re not the first — nor likely the last — to try,” said California Attorney General Xavier Becerra.

Daimler’s pollution practices also are under investigation in Germany.

In April 2016, the Justice Department asked Daimler to conduct an internal probe into its exhaust emissions certification process. The request came as the EPA began checking all diesel engines after the Volkswagen cheating was revealed.

Volkswagen, ended up paying $2.8 billion to settle a criminal case due to emissions cheating. Fiat Chrysler also is being investigated for allegedly cheating on emissions.

VW admitted that it turned on pollution controls when vehicles were being tested in EPA labs, and turning them off when the diesel vehicles were on real roads. The company duped the EPA for years before being discovered by a nonprofit climate group and researchers at West Virginia University. In September 2019, federal prosecutors charged a Fiat Chrysler engineer with rigging pollution tests on more than 100,000 diesel pickup trucks and SUVs sold in the U.S., the first indictment since a wave of similar cases against Volkswagen and its managers.

The alleged scheme isn’t as large as the Volkswagen emissions scandal, which involved nearly 600,000 vehicles. But the charges showed that investigators are still on the case, even after Fiat Chrysler agreed to a $650 million civil settlement.

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Bitcoin’s ascent will be slow & steady: Bloomberg

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Megabulls such as PlanB are predicting parabolic short- to medium-term price moves for bitcoin, but Bloomberg analyst Mike McGlone believes the leading digital asset’s ascent to $100,000 will be a slow, steady and almost inexorable grind.

The senior commodity strategist at the financial news service believes bitcoin will steadily appreciate because of its fixed supply combined with a growing demand.

“I don’t see what [could] make it stop doing what [it’s] been doing for the last 10 years. And that’s going up,” he told Cointelegraph in a video interview.

McGlone thinks bitcoin could become a better store of value than gold, the traditional safe haven, because its supply is capped. Unlike gold, the total potential supply of which is unknown, bitcoin is inherently scarce; there will never be more than 21 million , and many of the ones already mined have been lost forever, thus increasing the potential value of those that remain accessible.

As demand for the digital asset grows, the price will inevitably go up, explained McGlone. He pointed out that the number of active bitcoin addresses is increasing rapidly and that more and more bitcoin is flowing into regulated exchanges, both of which are strong indications of increasing demand.

But he said investors shouldn’t expect bitcoin to soar to gobsmacking new highs on the short term as it has historically following its reward halvings – it climbed from around $1,000 to nearly $20,000 in the last bull run, before crashing hard in early 2018. Now that it is a mature asset, he said its price behaviour will be less dramatic.

When asked about Pantera Capital’s prediction that bitcoin will soar to $115,000 in just a year, McGlone said, “Bitcoin 10x? Maybe over 10 years, that makes a lot of sense.”

Read: Bitcoin is set to become digital gold: Bloomberg

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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Investors offload risk after Fed gets real

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A man with a protective mask walks in the rain past an electronic stock board showing Japan's Nikkei. AP Photo/Eugene Hoshiko

Hong Kong: Financial markets in Asia retreated on Thursday over disappointment that the US central bank did not expand its asset purchase programme, although it did reiterate its ‘lower for longer’ message.

The Bank of Japan’s decision to keep rates unchanged was expected by the market but investors sold off stocks as a dovish Fed weakened the dollar against the yen, whose strength in turn hammered exporters’ prospects.

The Japanese yen strengthened 0.2% to 104.7 to the dollar.

“The yen currently sits at around ¥105 against the dollar – that’s a little stronger than in the summer but far weaker than what the current spread between JGBs and US Treasuries would usually point to,” Capital Economics analysts Tom Learmouth and Marcel Thieliant said, referring to the narrowing of the spread. “While we expect the yen to remain close to ¥105 the risks are tilted slightly towards a stronger yen.”

The drag from exporters pulled down Japan’s Nikkei 225 index which fell 0.67%, while Australia’s S&P ASX 200 slipped 1.22% as investors worried about a rollback of stimulus after data released showed a drop in the unemployment rate.

Hong Kong’s Hang Seng index also retreated 1.56% as investors prepared for a slew of IPOs including the world’s biggest – the Ant Financial $30-billion bonanza expected next month. At least three share offerings are expected next week as well, as issuers avoid a clash with Ant Financial’s mammoth offering. Delivery company ZTO Express, biotech company Zai Lab and online retailer Baozun are in a race for cash.

China’s CSI300 eased 0.53% as the region remained under pressure following disappointment over the US central bank’s unchanged asset purchase programme.

‘Congress must step up’

“And while risk assets might love the intravenous drip of monetary stimulus, it is time to focus on policies that the real economy needs, and for that, Powell is dead right, it’s time for Congress to step up to the plate,” Robert Carnell, ING Bank’s Regional Head of Research in the Asia-Pacific, said.

“Perhaps the market reaction here is more a realisation of this and the fact that any resolution to the current impasse is unlikely until the Presidential election outcome is determined.”

US Treasuries picked on the Fed’s ‘dot plot’, extending its gains with the 10-year yield declining 2 basis points to 0.68%.

The Federal Reserve’s dot plot, which the US central bank uses to signal its outlook for the path of interest rates, projects no change in policy this year and borrowing costs near zero through till 2023, based on median estimates. It said they must achieve maximum employment and inflation at a rate of 2% over the longer run.

“The Committee decided to keep the target range for the federal funds rate at 0 to 1/4% and expects it will be appropriate to maintain this target range until labor market conditions have reached levels consistent with the Committee’s assessments of maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time.”

Asia Stocks

· Japan’s Nikkei 225 index dropped 0.67%

· Australia’s S&P ASX 200 slipped 1.22%

· Hong Kong’s Hang Seng index retreated 1.56%

· China’s CSI300 eased 0.53%

· The MSCI Asia Pacific index fell 0.70%.

Stock of the day

Times China bonds rose and shares fell after it announced a plan to buy back its bonds due in 2021.

This report appeared initially on Asia Times Financial.

Asia Times Financial is now live. Linking accurate news, insightful analysis and local knowledge with the ATF China Bond 50 Index, the world’s first benchmark cross sector Chinese Bond Indices. Read ATF now. 

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