YCLOAK

European businesses are unsettled as they watch the U.S. and China collide over trade. And for good reason: the nascent global trade war could represent the biggest single threat to the economic upswing that has helped the region get past its financial crisis.

In theory, some European companies could benefit, jumping into market niches if Chinese businesses are kept out of the U.S. market. But that would only be a few companies or sectors.

When your entire economy is heavily dependent on trade, an overall slowdown in global commerce caused by tit-for-tat import taxes provokes fear and undermines confidence.

And that’s just what’s happening in Europe. By one measure, business confidence has fallen in six of the past seven months in Germany, where exports are almost half of annual economic output.

“It’s worth all our efforts to defuse this conflict, so it doesn’t become a war,” German Chancellor Angela Merkel said Wednesday.

The U.S. is due to put tariffs on $34 billion worth of Chinese goods on Friday. The Chinese will respond with tariffs on an equivalent value of U.S. products such as soybeans, seafood and crude oil.

Amid all this, Europe has its own trade dispute with the U.S. After the U.S. put tariffs on steel and aluminum from many allies, including the European Union, the 28-country bloc responded with import taxes on some $3.25 billion of U.S. goods. The Trump administration is also studying the option of putting tariffs on cars, which would significantly escalate the confrontation.

The head of the EU’s executive, Jean-Claude Juncker, will head to Washington in late July to try to personally persuade Trump against further measures targeting Europe.

The disputes over trade threaten to spoil the good times for Europe’s economy.

Growth last year was the strongest in a decade, since before the global financial crisis. While that has eased in recent quarters, the economy is still strong enough to create jobs. The number of unemployed fell by 125,000 in May, leaving unemployment in the 19 countries that use the euro at 8.4 percent, the lowest since 2008 and down from a high of 12.1 percent in 2013.

“Trade tensions stoked by U.S. President Donald Trump are clouding the economic outlook in Europe,” wrote analysts at Berenberg bank in London. They rated the trade risk ahead of troubles from Italy’s heavy debt load or faster than expected interest rate increases from the U.S. Federal Reserve.

Many European companies would suffer because they both produce and sell goods in the U.S. and China, the world’s biggest economies.

For example, tariffs that China is expected to impose Friday on U.S.-made autos would hit German carmakers Daimler and BMW since they both make vehicles in the United States and export them to China.

Daimler has already lowered its outlook for profits, citing higher than expected costs from the new tariffs. BMW warned in a letter to Commerce Secretary Wilbur Ross on Friday that tariffs would make it harder for it to sell in China the vehicles it builds at its factory in Spartanburg, South Carolina, “potentially leading to a strongly reduced export volumes and negative effects on investment and employment in the United States.”

Last year, BMW exported 272,000 vehicles from the Spartanburg plant, more than half its total production. Of those, 81,000 — worth $2.37 billion — went to China. BMW says its exports reduced the U.S. trade deficit by around $1 billion.

By themselves, the tariffs that take effect Friday won’t immediately have a dramatic impact on global trade. The fear is that retaliation will spiral, hitting the total amount of global commerce.

Even if the overall effect is to harm growth, there could be benefits for some European companies and sectors. Economists Alicia Garcia Herrero and Jianwei Xu at the French bank Natixis say that European makers of cars, aircraft, chemicals, computer chips and factory machinery could in theory snare market share by substituting for Chinese or American products in the two markets. But that’s only if Europe’s own trade dispute with the U.S. does not escalate — a big if.

Europe is waiting to see whether the Trump administration will go ahead separately with tariffs on auto imports. European companies like BMW, Daimler’s Mercedes-Benz, Volkswagen’s Porsche and Audi divisions, and Fiat Chrysler send $46.6 billion worth of vehicles every year to the U.S. Some 13.3 million people, or 6.1 percent of the employed population of the EU, work in the automotive sector, according to the European Automobile Manufacturers Association.

“Europe cannot win anything” on an overall basis “for one obvious reason: we are net exporters,” said Garcia Herrero, chief economist for Asia Pacific at Natixis and a senior fellow at European research institute Bruegel. “But we should not understate the view that some sectors could get something out of a U.S.-China trade war.”

Amid the brewing conflict, China has sought to get Europe on its side, putting on a diplomatic charm offensive during visits by Merkel and French Prime Minister Edouard Philippe. The EU and China agreed last month to deepen commercial ties and support trade rules. But the EU remains a close, longtime ally of the U.S. on a range of issues, despite the current tensions with the Trump administration.

One negative outcome for Europe, Herrero said, would be if Trump can push the Chinese into a trade agreement aimed at reducing the U.S. trade deficit. The additional U.S. goods to China could come at the expense of European competitors.

“If China concedes to the U.S. proposed agreement, the whole situation faced by the EU would be much tougher,” she and Xu wrote in a research note. “For China to massively reduce its trade surplus with the U.S., it has to in some way substitute its imports away from the EU to the U.S., which would have a significant negative impact on the EU producers.”
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China is putting pressure on the European Union to issue a strong joint statement against President Donald Trump’s trade policies at a summit

this month, but it’s facing resistance, European officials said.

In meetings in Brussels, Berlin and Beijing, senior Chinese officials, including Vice Premier Liu He and the Chinese government’s top diplomat, State Councillor Wang Yi, have proposed an alliance between the two economic powers and offered to open more of the Chinese market in a gesture of goodwill.

One proposal has been for China and the European Union to launch joint action against the United States at the World Trade Organization.

But the European Union, the world’s largest trading bloc, has rejected the idea of allying with Beijing against Washington, five EU officials and diplomats told Reuters, ahead of the Sino-European summit in Beijing on July 16-17.

Instead, the summit is expected to produce a modest communique that affirms the commitment of both sides to the multilateral trading system and promises to set up a working group on modernizing the WTO, EU officials said.

Liu has said privately that China is ready to set out for the first time what sectors it can open to European investment at the annual summit, expected to be attended by President Xi Jinping, China’s Premier Li Keqiang and top EU officials.

Chinese state media have promoted the message that the EU is on China’s side, officials said, putting the bloc in a delicate position. The past two summits, in 2016 and 2017, ended without a statement because of disagreements about the South China Sea and trade.

“China wants the European Union to stand with Beijing against Washington, to take sides,” said one European diplomat. “We won’t do it and we have told them that.”

China’s Foreign Ministry did not immediately respond to a request for comment on Beijing’s summit aims.

In a commentary on Wednesday, China’s official Xinhua news agency said China and Europe “should resist trade protectionism hand in hand.”

“China and European countries are natural partners,” it said. “They firmly believe that free trade is a powerful engine for global economic growth.”

China’s moment?

Despite Trump’s tariffs on European metals exports and threats to hit the EU’s automobile industry, Brussels shares Washington’s concern about China’s closed markets and what Western governments say is Beijing’s manipulation of trade to dominate global markets.

“We agree with almost all the complaints the U.S. has against China. It’s just we don’t agree with how the United States is handling it,” another diplomat said.

Still, China’s stance is striking, given Washington’s deep economic and security ties with European nations. It shows the depth of Chinese concern about a trade war with Washington, as Trump is set to impose tariffs on billions of dollars’ worth of Chinese imports on Friday.

It also underscores China’s new boldness in trying to seize leadership amid divisions between the United States and its European, Canadian and Japanese allies over issues including free trade, climate change and foreign policy.

“Trump has split the West, and China is seeking to capitalize on that. It was never comfortable with the West being one bloc,” said a European official involved in EU-China diplomacy.

“China now feels it can try to split off the European Union in so many areas — on trade, on human rights,” the official said.

Another official described the dispute between Trump and Western allies at the Group of Seven summit last month as a gift to Beijing because it showed European leaders losing a longtime ally, at least in trade policy.

European envoys say they already sensed a greater urgency from China in 2017 to find like-minded countries willing to stand up against Trump’s “America First” policies.

No ‘systemic change’

An April report by New York-based Rhodium Group, a research consultancy, showed that Chinese restrictions on foreign investment were higher in every single sector save real estate, compared with the European Union, while many of the big Chinese takeovers in the bloc would not have been possible for EU companies in China.

China has promised to open up. But EU officials expect any moves to be more symbolic than substantive.

They say China’s decision in May to lower tariffs on imported cars will make little difference because imports make up such a small part of the market.

China’s plans to move rapidly to electric vehicles mean that any new benefits it offers traditional European carmakers will be fleeting.

“Whenever the train has left the station, we are allowed to enter the platform,” a Beijing-based European executive said.

However, China’s offer at the upcoming summit to open up reflects Beijing’s concern that it is set to face tighter EU controls, and regulators are also blocking Chinese takeover attempts in the United States.

The European Union is seeking to pass legislation to allow greater scrutiny of foreign investments.

“We don’t know if this offer to open up is genuine yet,” a third EU diplomat said. “It’s unlikely to mark a systemic change.”
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In the busy summer travel period in Cuba, a long line of people wait for hours in the sweltering heat outside the Havana office of state-owned airline Cubana, many of them eager to visit families in the provinces.

But they are not waiting to book flights. Instead, they hope to get their money back on plane tickets or exchange them for bus tickets across the island.

Cubana, which has a virtual monopoly on domestic flights, has suspended nearly all of them due to a lack of working aircraft, plunging travel on the Caribbean’s largest island into chaos and highlighting problems at what was once a vanguard of Latin American aviation.

The flight suspensions were made a month after a Cubana flight crashed after takeoff from Havana airport in May, killing 112 people. They come at a time when Communist-run Cuba is trying to stimulate tourism, one of the few bright spots in its economy, by promoting beach resorts and colonial towns hundreds of kilometers (miles) from the capital.

“Now I will have to take a 16-hour bus ride to Guantanamo, but what other options do I have?” said kindergarten teacher Marlene Mendoza, who was bathed in sweat and got a bus ticket to eastern Cuba after queuing for more than seven hours.

Analysts say Cubana’s troubles stem largely from dual ills that afflict the whole state-run economy: the U.S. trade embargo and a problematic business model.

Cubana did not reply to requests for comment for this story.

Founded in 1929 as one of Latin America’s first airlines, Cubana was nationalized after Fidel Castro’s leftist 1959 revolution. In its heyday, it flew Cuban troops to Africa and passengers to allied socialist countries around the globe.

For decades it got around U.S. sanctions that restricted it from buying planes with a certain share of U.S. components — including European Airbus and Brazilian Embraers — by acquiring first Soviet and then Russian aircraft.

The carrier maintained a decent safety record, but its reputation for mediocre service and delays prompted many foreign tourists to use mostly land transport.

Then, over the past year, it started canceling more flights than usual, often putting passengers up in hotels for days, without commenting publicly on the disarray.

After the Boeing 737 crashed on May 18, Cubana said it had leased the plane from Mexican company Damojh due to a lack of its own aircraft. A second Damojh plane has been grounded pending a safety audit of its fleet by Mexican authorities, data from Flightradar24 shows, aggravating the shortage.

Cuban, Mexican and U.S. authorities are still investigating the crash and have not commented on possible causes. Damojh has said in a press release that is fully cooperating with those investigations into the “lamentable accident.”

Just four of Cubana’s own 16 planes are flying, according to a Reuters examination of data on Flightradar24 and Planespotters.net.

Not flying high

Over the past month, the airline announced it was axing several routes mainly used by Cubans and reducing the frequency of flights to Santiago, Holguin and Baracoa, all popular tourist destinations. In a statement, it said it was working to resolve the situation and apologized for the disruption.

Cubana also suspended all international routes except to Buenos Aires and Madrid, several staff told Reuters. The company did not comment publicly, leaving would-be travelers sharing their confusion on online forums.

“It has lost a lot of prestige. It’s already not the famous Cubana that used to fly to all parts of the world,” said one former employee, who asked to remain anonymous, who retired 6-1/2 years ago after working for Cubana for 40 years. “Anywhere else in the world, a company like Cubana would have folded.”

Cubana said in mid-June it did not have enough aircraft largely because of maintenance issues and lack of parts, which aviation experts say can cost millions of dollars.

The airline sells tickets to Cuban citizens at heavily subsidized prices. Its budget is also stretched by ferrying official delegations around sometimes at a financial loss, a former Cuban diplomat familiar with Cubana operations said.

Cash-strapped Cuba points the finger at the 56-year-old U.S. trade embargo, saying it has cost its flagship carrier millions of dollars.

The coup de grace was possibly the purchase of six AN-158 regional jets from Ukrainian manufacturer Antonov since 2013.

Cubana has said those planes have had technical problems and getting parts for the joint Russian-Ukrainian project has proven difficult since Russia’s annexation of Crimea in 2014.

An Antonov representative told Reuters that Cubana had not been paying for the necessary work, but it had signed a deal in April with the airline to cooperate “to resume the use of AN-158 planes before the end of the current year.”

Typically, airlines lease planes when theirs are undergoing maintenance or there is a spike in demand, but the U.S. embargo and financial constraints likely complicate this for Cuba, said Richard Aboulafia, vice president of U.S. aviation consulting company the Teal Group.

In May, Lithuanian lessor Avion Express and Italian lessor Blue Panorama both ended their contracts with Cubana, the companies told Reuters, without explaining why. Data from Flightradar24 shows they withdrew respectively four Airbus A320s and one Boeing 737.

That is around the time when Cubana turned to the little-known Damojh, leasing the 39-year-old Boeing 737.

Damojh has faced safety concerns in other countries in the region. Guyana’s aviation authority told Reuters it had revoked Damojh’s permit to fly there last year due to issues such as overloading planes. The airline declined to comment on the matter.

The crash in May has undermined trust in Cubana.

“I like to travel by plane. It’s faster and more comfortable,” said Maylin Lopez, 48, waiting at Havana’s bus station for her 15-hour ride to eastern Cuba. “But I can’t even imagine doing that now.”
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The U.S. Commerce Department on Tuesday granted a temporary reprieve to ZTE that allows China’s No. 2 telecommunications equipment maker to conduct business needed to maintain existing networks and equipment in the United States as it works toward the lifting of a U.S. sales ban.

The authorization from the department’s Bureau of Industry and Services, dated July 2 and seen by Reuters, runs until August 1.

ZTE and spokespeople for the Commerce Department did not respond to requests for comment.

ZTE, which makes smartphones and networking gear, was forced to cease major operations in April after the United States slapped it with a supplier ban saying it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea.

The company had also agreed to pay a $1 billion penalty and put $400 million in an escrow account as part of the deal to resume business with U.S. suppliers — which provide almost a third of the components used in ZTE’s equipment.

The escrow agreement is still pending, according to a source. Until it is executed, ZTE cannot deposit the $400 million in escrow necessary to get the ban lifted.

While the denial order is still in place, the authorization grants a waiver to some companies that do business with ZTE to do so for one month, a source told Reuters.

The waivers allow for a limited type of activity but do not authorize any new business.

The uncertainty about the ban amid intensifying U.S.-China trade tensions has hammered ZTE shares, which have fallen 60 percent since trading resumed last month following a two-month hiatus, wiping out more than $11 billion of the company’s market valuation.

ZTE announced a new board last week in a radical management shakeup as part of a $1.4 billion deal with the United States.
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Eike Batista, the former mining and oil magnate who was once Brazil’s richest man, was convicted and sentenced to 30 years in prison for bribing Rio de Janeiro state’s disgraced ex-governor, according to a court document published Tuesday.

Batista’s conviction and sentencing by federal judge Marcelo Bretas are the latest in a wave of graft investigations that have sent scores of powerful businessmen and politicians to jail.

The eccentric former billionaire’s meteoric rise and fall mirrored the recent fortunes of Brazil, where the commodities boom faded as his energy, mineral and logistics empire fell apart earlier this decade.

His swashbuckling attitude and confident forecasts of a prolonged golden era for Brazil evaporated just as Latin America’s largest economy suffered its worst recession on record.

Batista, whose legal team said he would appeal, was found guilty of paying a $16.5 million bribe to former Rio governor Sergio Cabral, who also was found guilty in the case.

Batista’s companies won state contracts in exchange for the bribe, including one awarding his consortium the rights to run Brazil’s temple of soccer, the Maracana in Rio, the stadium where the 2014 World Cup final was played and the 2016 Olympic Games’ opening and closing ceremonies were held.

The bribes were also linked to the construction of the $3.7 billion Acu port facility, controlled since 2013 by Prumo Logistica, which is majority owned by U.S.-based EIG Energy Partners.

Prosecutors said Batista paid a quarter of the bribes to Cabral in cash and the rest in shares of state-led oil company Petroleo Brasileiro SA, miner Vale SA and drinks company Ambev SA, a unit of Anheuser Busch Inbev NV.

Batista was last year fined 21 million reais ($5.4 million) for trading shares based on insider information about shipbuilding company OSX Brasil.

Tuesday’s ruling was the sixth corruption conviction for Cabral, who has been sentenced to over 120 years.

Six years ago, Batista, 61, had a net worth exceeding $30 billion and ranked among the world’s 10 richest people, according to Forbes magazine, and he had declared he would soon top the list. He sat atop EBX, then one of the world’s most expansive industrial conglomerates, with units ranging from oil and shipping to entertainment and beauty care.

However, Batista made massive bets on offshore oil plays that did not pan out and the extension of a commodity boom that fizzled as he inflated investors’ hopes.
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Major U.S. trading partners including the European Union, China and Japan voiced deep concern at the World Trade Organization (WTO) on Tuesday about possible U.S. measures imposing additional duties on imported autos and parts.

Japan, which along with Russia had initiated the discussion at the WTO Council on Trade in Goods, warned that such measures could trigger a spiral of countermeasures and result in the collapse of the rules-based multilateral trading system, an official who attended the meeting said.

More than 40 WTO members — including the 28 countries of the European Union — warned that the U.S. action could seriously disrupt the world market and threaten the WTO system, given the importance of cars to world trade.

The United States has imposed tariffs on European steel and aluminum imports and is conducting another national security study that could lead to tariffs on imports of cars and car parts. Both sets of tariffs would be based on concerns about U.S. national security.

U.S. President Donald Trump said on June 29 that the probe would be completed in 3 to 4 weeks.

But the European Union has warned the United States that imposing import tariffs on cars and car parts would harm its own automotive industry and likely lead to countermeasures by its trading partners on $294 billion of U.S. exports.

A Russian official told the WTO meeting that the issue of U.S. investigations had been raised over the past year in different WTO meetings, only to see things change for the worse.

The United States was losing its reputation as a trusted trade partner, the Russian delegate told the meeting, adding that the United States could soon start an investigation into the case for import tariffs on uranium products.

China, Canada, Switzerland, Norway, Turkey, Costa Rica, Hong Kong, Venezuela, Singapore, Brazil, South Korea, Mexico, Qatar, Thailand and India all echoed the same concerns and said they doubted the U.S. tariffs were in line with WTO rules.

The U.S. diplomat at the meeting said the matter was already the subject of formal disputes at the WTO, so it should not be on the committee’s agenda, the official who attended the meeting said.
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The U.S. government moved on Monday to block China Mobile Ltd. from offering services to the U.S. telecommunications market, recommending its application be rejected because the government-owned firm posed national security risks.

The Federal Communications Commission (FCC) should deny China Mobile’s 2011 application to offer telecommunication services between the United States and other countries, the National Telecommunications and Information Administration (NTIA) said in a statement posted on its website.

“After significant engagement with China Mobile, concerns about increased risks to U.S. law enforcement and national security interests were unable to be resolved,” said the statement, which quoted David Redl, assistant secretary for communications and information at the U.S. Department of Commerce, which NTIA is part of.

China Mobile, the world’s largest telecom carrier with 899 million subscribers, did not immediately respond to Reuters’ request for comment.

Its shares fell 2.6 percent at start of trading on Tuesday to their lowest in more than four years.

The Trump administration’s move on China Mobile comes amid growing trade frictions between Washington and Beijing. The United States is set to impose tariffs on $34 billion worth of goods from China on July 6, which Beijing is expected to respond to with tariffs of its own.

And ZTE Corp., China’s No. 2 telecommunications equipment maker, was forced to cease major operations in April after the U.S. slapped it with a supplier ban saying it broke an agreement to discipline executives who conspired to evade U.S. sanctions on Iran and North Korea. ZTE is in the process of getting the ban lifted and announced a new board last week.

China Mobile Communications Corp., a state-owned firm, owned almost 73 percent of China Mobile, according to Thomson Reuters data as of December.

In its recommendation, the NTIA said that its assessment rested “in large part on China’s record of intelligence activities and economic espionage targeting the US, along with China Mobile’s size and technical and financial resources.”

It said the company was “subject to exploitation, influence and control by the Chinese government” and that its application posed “substantial and unacceptable national security and law enforcement risks in the current national security environment.”

U.S. senators and spy chiefs warned in February that China was trying, via means such as telecommunications firms, to gain access to sensitive U.S. technologies and intellectual properties.
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Halima Sheikh Ali is the proud owner of one of the few ATMs in Wajir town in northeast Kenya. But rather than doling out shilling notes, it dispenses something tastier: a fresh pint of camel milk.

“For 100 Kenyan shillings ($1), you get one liter of the freshest milk in Wajir County,” she says, opening a vending machine advertising “fresh, hygienic and affordable camel milk” in order to check the liquid’s temperature.

One of the world’s biggest camel producers, East Africa also produces much of the world’s camel milk, almost all of it consumed domestically.

In the northeast Kenyan county of Wajir, demand is booming among local people, who say it is healthier and more nutritious than cow’s milk.

“Camel milk is everything,” said Noor Abdullahi, a project officer for U.S.-based aid agency Mercy Corps. “It is good for diabetes, blood pressure and indigestion.”

But temperatures averaging 40 degrees Celsius (104 degrees Fahrenheit) in the dry season, combined with the risk of dirty collection containers, mean the liquid can go sour in a matter of hours, he added, making it much harder to sell.

To remedy this, an initiative is equipping about 50 women in Hadado, a village 80km from Wajir, with refrigerators to cool the milk that remote camel herders send them via tuk-tuk taxi, plus a van to transport it daily to Wajir.

There a dozen women milk traders, including Sheikh Ali, sell it through four ATM-like vending machines, after receiving training on business skills such as accounting.

“The (milk) supply and demand are there. We just have to make it easier for the milk to get from one point to another,” said Abdullahi.

The project, which is part of the Building Resilience and Adaptation to Climate Extremes and Disasters (BRACED) program, is funded by the U.K. Department for International Development (DFID) and led by Mercy Corps.

Fresh and Lucrative

Asha Abdi, a milk trader in Hadado who operates one of the refrigerators with 11 other women, said she used to have to boil camel’s milk — using costly and smoky firewood — to prevent it turning sour.

“I spent 100 shillings ($1) a day on firewood, and the milk would often go bad by the time it got to Wajir as the (public) transport took over three hours,” she said.

Now Abdi and the other women in her group send about 500 liters of fresh milk to Wajir every day — a trip that takes just over an hour by van. They then reinvest the profits in other ventures.

“With the milk money I bought 20 goats,” said Abdi as she rearranged bags of sugar in her crowded kiosk. “But my dream would be to export the camel milk to the United States,” she added. “I hear it’s like gold over there.”

Drought-safe Investment

Amid hundreds of camels roaming stretches of orange dirt outside of Hadado, Gedi Mohammed sits under the shade of a small acacia tree.

“The (tuk-tuk) drivers should be here soon to buy my camel milk,” he said, sipping the precious liquid from a large wooden bowl.

In Kenya’s largely pastoralist Wajir County, prolonged drought is pushing growing numbers of the region’s nomadic herders to see camels — and their milk — as a drought-safe investment.

Mohammed, who used to own over 100 cows, said he exchanged them a decade ago for camels, “which drink a lot of water but can then survive eight days without another drop, when a cow will die after two days.”

But even camels suffer when the weather is really dry, he added.

“Drought is bad for business because with less food and water the camels produce less milk,” he said, impatiently waving at a teenage boy to fetch a straying camel.

“Business would be better if I had a vehicle to transport the milk to buyers myself,” said Mohammed, who said he has to travel ever-longer distances to find pastures for his animals. “Right now I rely on the (tuk-tuk) drivers to find me, and you never know how long they will be.”

Technical Issues

Back in Wajir, Sheikh Ali said her group’s cooled milk ATM allows her to save about 5,000 shillings ($50) per month, as she no longer has to buy firewood to boil milk and can sell the fresh liquid at a higher price.

But although the vending machines are proving popular, they also have been plagued by technical issues, said Amina Abikar, who also works for Mercy Corps in Wajir.

“Sometimes the machines break down, or indicate that there is no milk left when there are still 100 liters” inside, she explained.

“So we have to wait for the machine supplier’s technician to travel all the way from Nairobi. It would be better to train someone locally,” she said.

Also slowing down business growth is the high rate of illiteracy among women involved in the project, Abikar said.

Sheikh Ali, who cannot read or write, relies on her son to operate the machine and check its various indicators.

“I would love to do it myself but I don’t know my ABCs,” she said, adding that she still feels “proud that I am one of the only fresh milk traders in Wajir.”
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The European Union has warned the United States that President Donald Trump’s threat to impose a 20 percent tariff on imported European cars would seriously hurt the U.S. economy and invite retaliatory levies on up to $294 billion in U.S. exports.

In a 10-page letter sent to the U.S. Commerce Department last Friday, the European Union said that new tariffs on European-made vehicles and auto parts were unjustifiable and would be an economic mistake.

Trump has often attacked the EU trade surplus with the United States — $101 billion last year — and criticized the 28-nation bloc for its 10 percent tariff on U.S. car imports compared to the 2.5 percent levy the U.S. imposes.  In late May, Trump ordered the Commerce agency to investigate whether the 20 percent tariff should be imposed on national security grounds, although it was not immediately clear what security concerns there might be.

U.S. Commerce Secretary Wilbur Ross told CNBC on Monday it was “premature” to say whether Trump will go ahead with the tariff increase.

Meanwhile, Trump criticized the World Trade Organization, telling reporters at the White House, “They have been treating us badly for many, many years.”

He added, “If they don’t treat us fairly, we’ll be doing something,” but offered no further explanation.

The European Commission, the EU executive that handles trade issues, said Monday, “We’ll spare no effort, be it at the technical or political level, to prevent” the United States from imposing the higher tariffs on European car imports. Jean-Claude Juncker, the commission’s president, is headed to Washington later in July in an effort to try to persuade Trump officials to back off the new levies.

“We should de-dramatize these relations,” Juncker told a news conference last week.

On Sunday, Trump attacked EU trade practices, telling Fox News, “The European Union is possibly as bad as China, only smaller. They send a Mercedes in, we can’t send our cars in. Look what they do to our farmers.  They don’t want our farm products. Now in all fairness they have their farmers. … But we don’t protect ours and they protect theirs.”

Europe sent $43.6 billion worth of vehicles to the U.S. last year, compared to $7.1 billion worth of cars the U.S. shipped to Europe. In addition, the European Union says European companies manufactured nearly 2.9 million cars in the United States, directly supporting 120,000 U.S. jobs, or 420,000 jobs if car dealerships and car parts retailers are included.

The U.S.-EU tariff dispute on cars comes at a time Trump has feuded with the European Union, China and Canada over his imposition of new levies on steel and aluminum imports to the U.S.

Last week, the EU retaliated by imposing 25 percent tariffs on U.S. motorcycles, orange juice, bourbon, jeans and other products.

Canada said Sunday it has imposed higher tariffs on $12.6 billion worth of U.S. steel products, toffee, maple syrup, coffee beans and strawberries.

China and the United States, the world’s two biggest economies, are set Friday to impose tit-for-tat higher tariffs on $34 billion worth of goods the two countries export to each other.
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Tesla Inc nearly produced 5,000 Model 3 electric sedans in the last week of its second quarter, with the final car rolling off the assembly line on Sunday morning, several hours after the midnight goal set by Chief Executive Elon Musk, two workers at the factory told Reuters.

The 5,000th car finished final quality checks at the Fremont, California, factory around 5 a.m. PDT (1200 GMT), one person said. It was not clear if Tesla could maintain that level of production for a longer period.

Musk said the company hit its target of 5,000 Model 3s in a week, according to an email sent to employees on Sunday afternoon and seen by Reuters. Tesla also expects to produce 6,000 Model 3 sedans a week “next month.”

“I think we just became a real car company,” Musk wrote. The company hit the Model 3 mark while also achieving its production goal of 7,000 Model S and Model X vehicles in a week, Musk said in the email.

Tesla confirmed the contents of the email.

After repeatedly pushing back internal targets, Tesla vowed in January to build 5,000 Model 3s per week before the close of the second quarter on Saturday to demonstrate it could mass produce the battery-powered sedan.

Money-losing Tesla has been burning through cash to produce the Model 3, and delays have also potentially compromised Tesla’s first-to-market position for a mid-priced, long-range battery electric car as a host of competitors prepare to launch rival vehicles.

Production of the Model 3, which began last July, has been plagued by a number of issues, including problems from an over-reliance on automation on its assembly lines, battery issues and other bottlenecks.

As the end of the quarter neared, Musk spurred on workers, built a new assembly line in a huge tent outside the main factory, and fanned expectations that Tesla could hit its target, including tweeting pictures of rows of auto parts and robots over the final days of the quarter.

“It was pretty hectic,” said one worker who described the atmosphere as “all hands on deck.”

Another worker speaking after the 5,000th car was made described the factory as a “mass celebration.”

Tesla is likely to announce production and delivery numbers for the quarter later this week, and investors will watch to see whether the company can keep up its end-of-quarter production speed and increase efficiency to produce the cars at a profit.

Repeatable?

Tesla will have to prove to investors that it can sustain and increase its production pace, and some skeptics have bet against the company.

Short sellers lost over $2 billion in June due to Tesla’s rising share price and this latest achievement could buoy the company’s shares at market open on Monday.

Shares of Tesla, which closed on Friday at $342.95, are up 40 percent since a year low in April.

In recent months, the company has engaged in so-called “burst builds,” temporary periods of fast-as-possible production, which it uses to estimate how many cars it is capable of building over longer periods of time.

Analyst Brian Johnson of Barclays warned investors in March to be wary of brief “burst rates” of Model 3 production that were not sustainable.

One worker told Reuters that, to meet the goal, employees from other departments were dispatched to parts of the Model 3 assembly line to keep it running constantly, and breaks were staggered “so the line didn’t stop moving.”

The worker also said some areas within the factory were shut down to divert their workers to help out on the Model 3, such as the Model S line.

That suggests that Tesla was able to generally meet its production target through manual labor, rather than the automation Musk originally promised would make Tesla a competitive force in manufacturing. Earlier this year, Musk – who has described his vision for the Fremont factory as an “alien dreadnought” – acknowledged error in adding too much automation, too fast, to the Model 3 assembly line.

In May, Tesla sent a new battery assembly line via cargo planes to its Gigafactory battery plant outside Reno, Nevada, in order to speed production, as first reported by Reuters.

When first unveiled in March 2016, the Model 3 generated thousands of reservations from consumers in an unprecedented show of support for the new vehicle. Most recently in May, Tesla said that despite the delivery delays, its net Model 3 reservations – accounting for new orders and cancellations – exceeded 450,000 at the end of the first quarter.

Despite touting the Model 3 as a $35,000 vehicle, Tesla has yet to begin building that basic version and instead is currently building a higher-priced version. It is not clear how many of the orders are for the more premium version.

Steady progress has enthused others, however, and Tesla’s market value is close to that of General Motors Co.

The company has said it will not need to raise cash this year.

 
…

Canada’s retaliatory tariffs on U.S. goods take effect Sunday following the Trump administration’s new tariffs on Canadian steel and aluminum.

Canadian Prime Minister Justin Trudeau’s office said in a statement that the prime minister “had no choice but to announce reciprocal countermeasures to the steel and aluminum tariffs that the United States imposed on June 1, 2018.”

Trudeau and U.S. President Donald Trump spoke late Friday to discuss trade and other economic issues, the White House said Saturday.

“The two leaders agreed to stay in close touch on a way forward,” according to the prime minister’s office.

The telephone conversation between the two leaders was their first encounter since the G-7 summit in Quebec in June. After that meeting, Trump tweeted that Trudeau was “weak” and “dishonest.”

Trudeau also spoke Friday with Mexican President Enrique Pena Nieto to keep him up-to-date on Canada’s response to the U.S. tariffs.

The American goods that Canada has placed tariffs on include ketchup, lawn mowers and motorboats.

Canadian Foreign Minister Chrystia Freeland said the tariffs are regrettable. She said, however, Canada “will not escalate and we will not back down.”

Some of Canadian tariffs on U.S. items are politically targeted.

For example, Canada imports $3 million in yogurt, most of it coming from a plant in Wisconsin, the home state of House Speaker Paul Ryan. U.S. yogurt will now be hit with a 10 percent duty.

Whiskey is also on Canada’s list of tariffs for the U.S. Whiskey comes largely from Tennessee and Kentucky.

Kentucky is the home state of Republican Senate leader Mitch McConnell.
…

Iran is studying ways to keep exporting oil and other measures to counter U.S. economic sanctions, state news agency IRNA reported Saturday.

Since last month, when U.S. President Donald Trump pulled out of the nuclear deal that lifted most sanctions in 2015, the rial currency has dropped up to 40 percent in value, prompting protests by bazaar traders usually loyal to the Islamist rulers.

Speaking after three days of those protests, supreme leader Ayatollah Ali Khamenei said the U.S. sanctions were aimed at turning Iranians against their government.

Other protesters clashed with police late Saturday during a demonstration against shortages of drinking water.

“They bring to bear economic pressure to separate the nation from the system … but six U.S. presidents before him [Trump] tried this and had to give up,” Khamenei said on his website Khamenei.ir.

With the return of U.S. sanctions likely to make it increasingly difficult to access the global financial system, President Hassan Rouhani has met with the head of parliament and the judiciary to discuss countermeasures.

“Various scenarios of threats to the Iranian economy by the U.S. government were examined and appropriate measures were taken to prepare for any probable U.S. sanctions, and to prevent their negative impact,” IRNA said.

One such measure was seeking self-sufficiency in gasoline production, the report added.

Looking for buyers

The government and parliament have also set up a committee to study potential buyers of oil and ways of repatriating the income after U.S. sanctions take effect, Fereydoun Hassanvand, head of the parliament’s energy committee, was quoted as saying by IRNA.

“Due to the possibility of U.S. sanctions against Iran, the committee will study the competence of buyers and how to obtain proceeds from the sale of oil, safe sale alternatives which are consistent with international law and do not lead to corruption and profiteering,” Hassanvand said.

The United States has told allies to cut all imports of Iranian oil by November, a senior State Department official said Tuesday.

In the separate unrest, demonstrators protesting against shortages of drinking water in oil-rich southwestern Iran clashed with police late Saturday after officers ordered about 500 protesters to disperse, IRNA reported.

Shots could be heard on videos circulated on social media from protests in Khorramshahr, which has been the scene of demonstrations for the past three days, along with the nearby city of Abadan. The videos could not be authenticated by Reuters.

A number of protests have broken out in Iran since the beginning of the year over water, a growing political concern because of a drought that residents of parched areas and analysts say has been exacerbated by mismanagement.

Speaking before the IRNA report on the clash, Khamenei said the United States was acting with Sunni Muslim Gulf Arab states, which regard Shiite Muslim Iran as their main regional foe, to try to destabilize the government in Tehran.

“If America was able to act against Iran, it would not need to form coalitions with notorious and reactionary states in the region and ask their help in fomenting unrest and instability,” Khamenei told graduating Revolutionary Guards officers, in remarks carried by state TV.
…

U.S. President Donald Trump said in a tweet on Saturday that Saudi Arabia’s King Salman had agreed to his request to increase oil production “maybe up to

2,000,000 barrels” to offset production from Iran and Venezuela.

There was no immediate comment from Saudi authorities.

The world’s top oil exporter plans to pump up to 11 million barrels of oil per day (bpd) in July, an oil industry source told Reuters this week, after OPEC agreed with Russia and other

oil-producing allies to raise output by about 1 million bpd.

 
…

President Donald Trump said Saturday that he had received assurances from King Salman of Saudi Arabia that the kingdom will increase oil production, “maybe up to 2,000,000 barrels” in response to turmoil in Iran and Venezuela. Saudi Arabia acknowledged the call took place, but mentioned no production targets.

Trump wrote on Twitter that he had asked the king in a phone call to boost oil production “to make up the difference…Prices to (sic) high! He has agreed!”

A little over an hour later, the state-run Saudi Press Agency reported on the call, but offered few details.

“During the call, the two leaders stressed the need to make efforts to maintain the stability of oil markets and the growth of the global economy,” the statement said.

It added that there also was an understanding that oil-producing countries would need “to compensate for any potential shortage of supplies.” It did not elaborate.

Oil prices have edged higher as the Trump administration has pushed allies to end all purchases of oil from Iran following the U.S. pulling out of the nuclear deal between Tehran and world powers. Prices also have risen with ongoing unrest in Venezuela and fighting in Libya over control of that country’s oil infrastructure.

Last week, members of the Organization of the Petroleum Exporting Countries cartel led by Saudi Arabia and non-cartel members agreed to pump 1 million barrels more crude oil per day, a move that should help contain the recent rise in global energy prices. However, summer months in the U.S. usually lead to increased demand for oil, pushing up the price of gasoline in a midterm election year. A gallon of regular gasoline sold on average in the U.S. for $2.85, up from $2.23 a gallon last year, according to AAA.

If Trump’s comments are accurate, oil analyst Phil Flynn said it could immediately knock $2 or $3 off a barrel of oil. But he said it’s unlikely that decrease could sustain itself as demand spikes, leading prices to rise by wintertime.

“We’ll need more oil down the road and there’ll be nowhere to get it,” said Flynn, of the Price Futures Group. “This leaves the world in kind of a vulnerable state.”

Trump is trying to exert maximum pressure on Iran while at the same time not upsetting potential U.S. midterm voters with higher gas prices, said Antoine Halff, a Columbia University researcher and former chief oil analyst for the International Energy Agency.

“The Trump support base is probably the part of the U.S. electorate that will be the most sensitive to an increase in U.S. gasoline prices,” Halff said.

Trump’s comments came Saturday as global financial markets were closed. Brent crude stood at $79.42 a barrel, while U.S. benchmark crude was at $74.15.

Saudi Arabia currently produces some 10 million barrels of crude oil a day. Its record is 10.72 million barrels a day. Trump’s tweet offered no timeframe for the additional 2 million barrels — whether that meant per day or per month.

However, Saudi Aramco CEO Amin Nasser told journalists in India on Monday that the state oil company has spare capacity of 2 million barrels of oil a day. That was after Saudi Energy Minister Khalid al-Falih said the kingdom would honor the OPEC decision to stick to a 1-million-barrel increase.

“Saudi Arabia obviously can deliver as much as the market would need, but we’re going to be respectful of the 1-million-barrel cap — and at the same time be respectful of allocating some of that to countries that deliver it,” al-Falih said then.

The Trump administration has been counting on Saudi Arabia and other OPEC members to supply enough oil to offset the lost Iranian exports and prevent oil prices from rising sharply. But broadcasting its requests on Twitter with a number that stretches credibility opens a new chapter in U.S.-Saudi relations, Halff said.

“Saudis are used to U.S. requests for oil,” Halff said. “They’re not used to this kind of public messaging. I think the difficulty for them is to distinguish what is a real ask from what is public posturing.”

The administration has threatened close allies such as South Korea with sanctions if they don’t cut off Iranian imports by early November. South Korea accounted for 14 percent of Iran’s oil exports last year, according to the U.S. Energy Department.

China is the largest importer of Iranian oil with 24 percent, followed by India with 18 percent. Turkey stood at 9 percent and Italy at 7 percent.

The State Department has said it expects the “vast majority” of countries will comply with the U.S. request.
…

Editor’s note: A look at the veracity of claims by political figures

President Donald Trump has elevated his tax cuts to an act of biblical proportions, misleadingly claiming at a White House speech Friday that they triggered an “economic miracle.”

Not quite.

Also Friday, the president’s top economics aide, Larry Kudlow, appeared on the Fox Business Network to address one of the major problems with the tax cuts — that they’ll heap more than $1 trillion onto the national debt. Kudlow falsely countered that the budget deficit was falling because of growth generated by the tax cuts. The deficit is actually rising.

A look at the statements and the fact:

TRUMP: “Six months ago, we unleashed an economic miracle by signing the biggest tax cuts and reforms … the biggest tax cuts in American history.”

THE FACTS: The president is exaggerating, if not being outright deceptive.

Rather than achieving a miracle, his tax cuts have helped stoke additional growth in an economic expansion that was already approaching its 10th year. The additional growth is largely fueled by government borrowing, as the federal deficit rises because of the tax cut. The pace of growth is expected to taper off after next year, according to the Congressional Budget Office, the Federal Reserve and outside analysts.

And while the $1.5 trillion worth of tax reductions over the next decade are substantial, they’re far from the largest in U.S. history as a share of the overall economy. The Trump tax cut ranks behind Ronald Reagan’s in the early 1980s, post-World War II tax cuts and at least several more, according to the Committee for a Responsible Federal Budget, which advocates for deficit reduction.

Trump proudly went through a list of economic achievements that build on the progress begun under former President Barack Obama. The 3.8 percent unemployment rate and the historically low level of requests for jobless aid are both the result of a steady and gradual recovery from the worst economic meltdown since 1929.

Several hundred companies responded to the tax cuts by paying workers bonuses or hiking hourly wages, but any significant income growth has yet to surface in the overall economy.

The tax cuts have added on average $17 a month to people’s incomes, according to an analysis by Ernie Tedeschi, head of fiscal policy analysis at the investment firm Evercore ISI and a former Treasury Department economist. The analysis is based off consumer spending, income and inflation data released Friday.

That $17 monthly gain is helpful, but it’s far from miraculous.

​KUDLOW: “As the economy gears up, more people working, better jobs and careers, those revenues come rolling in, and the deficit, which is one of the other criticisms, is coming down, and it’s coming down rapidly.”

THE FACTS: Nope.

Since the fiscal year started in October, Treasury Department reports show the federal government has recorded a $385.4 billion deficit, a 12 percent jump from the same period in the previous year.

The Congressional Budget Office was even more blunt in a long-term assessment released Tuesday.

It estimates that the national debt — the sum of yearly deficits — will be $2.2 trillion higher in 2027 than it had previously forecast, largely a consequence of Trump’s 10 year, $1.5 trillion tax cut. The size of the debt could be even higher if provisions of the tax cut that are set to expire are, instead, renewed.
…

General Motors Co warned on Friday that higher tariffs on imported vehicles under consideration by the Trump administration could cost jobs and lead to a “a smaller GM” while isolating U.S. businesses from the global market.

The administration in May launched an investigation into whether imported vehicles pose a national security threat, and U.S. President Donald Trump has repeatedly threatened to impose a 20 percent vehicle import tariff.

The largest U.S. automaker said in comments filed with the U.S. Commerce Department that overly broad tariffs could “lead to a smaller GM, a reduced presence at home and abroad for this iconic American company, and risk less — not more — U.S. jobs.”

Higher tariffs could also hike vehicle prices and reduce sales, GM said.

​Less investment, fewer workers

Its comments echoed those from two major U.S. auto trade groups Wednesday, when they warned that tariffs of up to 25 percent on imported vehicles would cost hundreds of thousands of auto jobs, dramatically raise prices on vehicles and threaten industry spending on self-driving cars.

Even if automakers opted not to pass on higher costs “this could still lead to less investment, fewer jobs, and lower wages for our employees. The carry-on effect of less investment and a smaller workforce could delay breakthrough technologies,” GM said.

GM operates 47 U.S. manufacturing facilities and employs about 110,000 people in the United States. It buys tens of billions of dollars worth of parts from U.S. suppliers every year, and has invested more than $22 billion in U.S. manufacturing operations since 2009.

Still, 30 percent of the vehicles GM sold on the U.S. market in 2017 were manufactured abroad, according to the Michigan-based Center for Automotive Research. Eighty-six percent of those vehicles came from Canada and Mexico, while others came from Europe and China.

Detroit automakers Ford Motor Co and Fiat-Chrysler Automobiles NV also import many of the vehicles they sell in the United States.

“The overbroad and steep application of import tariffs on our trading partners risks isolating U.S. businesses like GM from the global market that helps to preserve and grow our strength here at home,” GM said.

GM shares closed down about 2.8 percent on Friday at $39.40. 

National security probe

Some aides have said that Trump is pursuing the national security probe to put pressure on Canada and Mexico to agree to concessions in talks to renegotiate the North American Free Trade Agreement.

Toyota Motor Corp filed separate comments opposing the tariffs on Friday saying they would “threaten U.S. manufacturing, jobs, exports, and economic prosperity.”

The company noted that Trump has repeatedly praised the Japanese automaker for investing in the United States, including a new $1.3 billion joint venture assembly plant in Alabama with Mazda.

“These investments reflect our confidence in the U.S. economy and in the power of the administration’s tax cuts,” Toyota said.

Toyota noted that international automakers assembling vehicles in the United States are based in countries including Japan, German and South Korea “that are America’s closest allies.”

The Commerce Department plans two days of public hearings next month, and Commerce Secretary Wilbur Ross said last week he aimed to wrap up the probe into whether imported vehicles represent a national security threat by late July or August.

“We have received approximately 2,500 comments already,” Ross said in a statement Friday, adding that he expected more before a midnight deadline.

“The purpose of the comment period and of the public hearing scheduled for July 19th and 20th is to make sure that all stakeholders’ views are heard, both pro and con. That will enable us to make our best informed recommendation to the president,” the statement said.
…

Just days before the Trump administration’s tariffs on Chinese steel and aluminum imports are set to go into effect, trade analysts are watching for ripple effects across the automotive, manufacturing and technology sectors. VOA’s Elizabeth Cherneff has more from Washington.
…

U.S. President Donald Trump said he expects a second tax overhaul to be unveiled in October or a bit earlier, and he is considering cutting the corporate tax rate to 20 percent from 21 percent.

In an excerpt of a Fox Business Network interview to be broadcast Sunday, Trump said: “We’re doing a phase two. We’ll be doing it probably in October, maybe a little sooner than that.”

“One of the things we’re thinking about is bringing the 21 percent down to 20, and for the most part the rest of it would go right to the middle class,” he said.

In December, Trump signed the biggest overhaul of the U.S. tax code in 30 years, slashing the corporate tax rate to 21 percent from 35 percent and giving temporary tax relief to middle-class Americans.

The sweeping bill passed the Republican-controlled Congress over the opposition of Democrats, who decried it as a giveaway to the wealthy that would add $1.5 trillion to the $20 trillion national debt.

Republicans, hungry to revisit the tax issue ahead of a November midterm election showdown for control of Congress, are to unveil the outline of new tax legislation over the summer in the House of Representatives.

But more tax cuts are unlikely to succeed in the closely divided Senate, where Democrats and conservative fiscal hawks could block such a measure.

The nonpartisan Congressional Budget Office warned this week that more tax cuts would hasten the growth of an already rapidly rising federal debt.

The debt, which equals 78 percent of U.S. gross domestic product, is on track to eclipse the 106 percent record set just after World War II in 2034.

House Ways and Means Committee Chairman Kevin Brady, who presides over the chamber’s tax policy debate, said this week that new legislation would aim to make permanent tax cuts for individuals that are to expire in 2026. He expects a House vote in the autumn.

The Texas Republican made no mention of plans for an additional 1 percentage point cut in the U.S. corporate rate, which analysts say would reduce government revenues by an additional $100 billion over a decade.
…

Canada struck back at U.S. steel and aluminum tariffs on Friday, vowing to impose punitive measures on C$16.6 billion ($12.63 billion) of American goods and unveiling a C$2 billion aid package for affected industries

and workers.

Foreign Minister Chrystia Freeland told a news conference the tariffs would come into effect on July 1.
…

U.S consumers increased their spending just 0.2 percent in May, a disappointing result after two months of much stronger gains. The weaker reading could raise questions about the extent of economic growth overall in the current April-June quarter.

The Commerce Department says the tiny rise in spending last month followed much stronger increases of 0.6 percent in March and 0.5 percent in April. It was the poorest showing since spending had fallen 0.1 percent in February.

Consumer spending accounts for 70 percent of economic activity, and economists are counting on solid gains to propel economic growth after a slow start to the year.

In a more hopeful sign, incomes grew a solid 0.4 percent in May, supported by strong growth in wages and salaries.
…

After a sharp sell-off, China’s yuan and stock markets attempted a modest recovery Friday, yet investors were grappling with some of their worst losses in years as a bitter Sino-U.S. trade row threatened to ruffle the world’s second-biggest economy.

The yuan was set for its biggest monthly fall on record. Chinese stocks, on a downward spiral since late January, were also poised for their largest monthly slide since January 2016.

The downturn highlighted the anxiety among investors as Washington and Beijing showed no signs of backing down from their tariff dispute.

The worry is that an extended selloff in stocks and the yuan could spark a bout of capital outflows, putting further strain on the economy and complicating policy making as authorities put up defenses against the trade battle with the United States.

Down 3 percent in month

The yuan has shed more than 3 percent of its value against the dollar in June, its biggest fall since the market exchange rate was unified in 1994. On Friday, it fell to its lowest since mid-November 2017, but pulled up to 6.6139 per dollar by 0600 GMT for a modest bounce of about 0.16 percent on the day.

Offshore, where the yuan trades more freely, the unit was up by about a quarter of a percent, at 6.6224 per dollar.

In equities, the benchmark CSI300 Index rebounded more than 2 percent, while the Shanghai Composite Index gained around 2 percent, though they were both down around 9 percent for the month. In Hong Kong, the benchmark Hang Seng Index was also up more than 1 percent.

Trump and trade

U.S. President Donald Trump has shaken the world trade order by seeking to renegotiate the terms of some of the United States’ trading relationships, in particular with China.

The U.S. is targeting $34 billion of Chinese goods for tariffs to take effect July 6, and has threatened tens of billions of dollars more for similar duties.

Chinese 10-year treasury futures for September delivery, the most traded contract, leapt 0.34 percent. A fixed income portfolio manager said the sharp rise was a result of central bank promises of “ample” liquidity.

“The central bank is expected to step up efforts to calm investors and slow the pace of the yuan depreciation that has sparked risk aversion across regional markets, including a possible reintroduction of the counter-cyclical factor,” Gao Qi, FX strategist at Scotiabank in Singapore, wrote in a note Friday.

He expected “strong resistance” at 6.70 yuan per dollar.

Hard-hit areas

Sectors and stocks that were exposed to the depreciating yuan have been hit hard this month.

Real estate was down 5.7 percent and poised for its fifth straight month of losses. The transport sector index, whose components include many leading airlines, tumbled 9.4 percent this month and was set for its steepest monthly drop since January 2016.

A trader at a regional bank in Shanghai who declined to be named said there had been some “filtering” of the midpoint fixing, which is set by the central bank each morning, in an apparent bid to keep the yuan from falling too sharply.

“It is too early to say whether the counter-cyclical factor has been revived. If market sentiment could recover by itself, there is no need to use the factor. Market still needs some time to digest,” the trader said.
…

Minnesota regulators on Thursday approved Enbridge Energy’s proposal to replace its aging Line 3 oil pipeline across the northern part of the state.

All five members of the Public Utilities Commission backed the project, though some cited heavy trepidation, and a narrow majority later approved the company’s preferred route despite opposition from American Indian tribes and climate change activists.

In discussion before the vote, several commissioners cited the deteriorating condition of the existing line , which was built in the 1960s, as a major factor in their decision.

“It’s irrefutable that that pipeline is an accident waiting to happen,” Commissioner Dan Lipschultz said ahead of the vote. “It feels like a gun to our head … All I can say is the gun is real and it’s loaded.”

Some pipeline opponents reacted angrily when it became clear commissioners would approve the project. Tania Aubid, a member of the Mille Lacs Band of Ojibwe, stood and shouted, “You have just declared war on the Ojibwe!” Brent Murcia, of the group Youth Climate Intervenors, added: “We will not let this stand.”

Opponents argue that the pipeline risks spills in pristine areas in northern Minnesota, including where American Indians harvest wild rice. Ojibwe Indians, or Anishinaabe, consider wild rice sacred and central to their culture.

Winona LaDuke, founder of Honor the Earth, said opponents would use every regulatory means possible to stop the project — and threatened mass protests if necessary.

“They have gotten their Standing Rock,” she said, referring to protests that drew thousands of people to neighboring North Dakota to rally against the Dakota Access pipeline. 

Others welcomed Thursday’s vote, including Bob Schoneberger, founder of Minnesotans for Line 3. He said Minnesota needs the line now “and will need it even more into the future.”

After commissioners agreed the pipeline upgrade was needed, the commission voted 3-2 in favor of Enbridge’s preferred route, which departs from the existing pipeline to largely avoid two American Indian reservations currently crossed.

The approved route does clip a portion of the Fond du Lac Band of Chippewa’s land, and commissioners said they would adjust the route if the Fond du Lac don’t agree. Tribal leaders had reluctantly backed a route that went much farther south as the least objectionable option.

After the commission’s work is formalized in the next few weeks, opponents may file motions asking it to reconsider. After that, they can appeal the decision to the state Court of Appeals. 

Several commissioners said the overall issue posed a difficult decision. Chairwoman Nancy Lange choked up and took off her glasses to wipe her eyes as she described her reasoning for approving the project. Another commissioner, Katie Sieben, said it was “so tough because there is no good outcome.”

The pipeline currently runs from Alberta, Canada, across North Dakota and Minnesota to Enbridge’s terminal in Superior, Wisconsin. Enbridge has said it needs to replace the pipeline because it’s increasingly subject to corrosion and cracking, and that it would continue to run Line 3 if regulators rejected its proposal.

Much of the debate has focused on whether Minnesota and Midwest refineries need the extra oil. Enbridge currently runs Line 3 at about half its original capacity of 760,000 barrels per day for safety reasons, and currently uses it only to carry light crude. 

The project’s opponents, including the Minnesota Department of Commerce, have argued that the refineries don’t need it because demand for oil and petroleum products will fall in the coming years as people switch to electric cars and renewable energy sources. Opposition groups also argue that much of the additional oil would eventually flow to overseas buyers.

Enbridge and its customers strongly dispute the lack of need in the region. They said Line 3’s reduced capacity is already forcing the company to severely ration space on its pipeline network, and that failure to restore its capacity would force oil shippers to rely more on trains and trucks, which are more expensive and less safe. Business and labor groups support the proposal for the jobs and economic stimulus. 

The Public Utilities Commission’s decision likely won’t be the final word in a long, contentious process that has included numerous public hearings and the filings of thousands of pages of documents since 2015. Lange said earlier this year that the dispute was likely to end up in court, regardless of what the commission decides.

Opponents have threatened a repeat of the protests on the Standing Rock Reservation against the Dakota Access pipeline, in which Enbridge owns a stake. Those protests in 2016 and 2017 resulted in sometimes violent skirmishes with law enforcement and more than 700 arrests. 

Similar concerns over the role of tar sands oil in climate change, indigenous rights and the risk of spills has fueled opposition to other pipelines out of Alberta’s oil sands region. Opponents of TransCanada’s Keystone XL pipeline to Nebraska are still fighting that project in court. The Canadian government agreed last month to buy Kinder Morgan’s Trans Mountain pipeline across Canadian soil to the Pacific Coast for $4.5 billion Canadian (US$3.4 billion) to ensure completion of the company’s plan to triple the line’s capacity. 

Enbridge has already replaced the short segment of Line 3 in Wisconsin and put it into service. Construction is underway on the short segment that crosses northeastern North Dakota and on the longer section from Alberta to the U.S. border, and Enbridge plans to continue that work. Enbridge has estimated the overall cost of the project at $7.5 billion, including $2.6 billion for the U.S. segment.

 
…

A U.S. delegation traveled to Kenya on Thursday to attend the inaugural economic summit of the American Chamber of Commerce, Kenya.

About 500 delegates, including Kenyan President Uhuru Kenyatta and Gilbert Kaplan, U.S. undersecretary of commerce for international trade, other high-ranking government officials from both nations and representatives from nearly 30 major U.S. corporations, gathered at the summit, which was aimed at creating partnerships between the two nations’ public and private sectors in order to foster economic growth. 

The Kenyan agenda was centered on advancing Kenyatta’s “Big Four” priorities — universal health care, manufacturing, food security and affordable housing — that he set out after his re-election to a second term last year.

American companies in attendance were looking for opportunities to expand and to increase trade and investment in Africa.

Kaplan told VOA that increasing business and economic development in Africa would benefit many Americans, which aligns with the promises of President Donald Trump’s “Make America Great Again” agenda. 

“If we can export more and do more transactions here, do more investment here, that’s going to be incredibly helpful for the United States, for the people back home, because we’ll be making profitable ventures, and that will naturally help,” he said.

But the U.S. delegation also had a strong message for Kenya: Real, meaningful economic growth can’t happen unless Kenya commits to fighting corruption.

‘It’s got to stop’

“Corruption is undermining Kenya’s future,” said Robert Godec, U.S. ambassador to Kenya. “It’s clearly a major problem for the country. We welcome President Kenyatta’s commitment and the push recently to address this problem. Corruption is theft from the people, and it’s got to stop.”

In his speech to the delegation, Kenyatta pledged to “fight this animal called corruption and ensure that it is a beast that shall never infect or inflict future generations” of Kenyans. 

Kaplan told VOA that the U.S. government was providing support and training to the Kenyan government to help tackle corruption.

“We’ve dealt with that — the Foreign Corrupt Practices Act, rule of law and international standards,” he said. “I think we can convince Kenya that following those rules is ultimately to their benefit because it brings more businessmen and women into the system and being able to be successful.” 

Part of the objective of the Foreign Corrupt Practices Act is to make it illegal for companies and their supervisors to influence foreign officials with personal payments or rewards.

C.D. Glin, president and chief executive of the U.S. African Development Foundation, told VOA that the U.S. government’s and private sector’s support of businesses in Africa that had ramped up under the previous administration was being continued by Trump.

For instance, the President’s Advisory Council for Doing Business in Africa, begun under the Barack Obama administration and still in force, “really is looking at Africa from a business standpoint and from an opportunity standpoint so that Africans can benefit from U.S. support, but also can support the U.S.,” Glin said.

Major boost

Nicholas Nesbitt, chairman of the Kenya Private Sector Alliance, said the increased U.S. private sector investment had been hugely beneficial for the Kenyan economy.

“We see a lot more tourism coming to Kenya, a lot more trade and a lot more business,” he said. “We’re very excited to see the numbers of American companies — small, midsize and even large corporations — looking at Kenya as a destination. It’s also a gateway to east Africa, where there are 200 million potential consumers. So, the investments, the energy, the excitement is absolutely tremendous today at this summit between American and Kenyan business.”

Six commercial deals between Kenyan and American companies were signed at the summit. Maxwell Okello, chief executive of the American Chamber of Commerce, Kenya, called that a sign that significant economic change would be driven by private sector innovation.

“I think at the end of the day, with what we’re hearing today here, it’s really down to what the private sector wants to do from a commercial engagement,” he said. “And I believe conversations such as this is really where you spark that interest, where you create those linkages and the sort of engagement that you need. And the opportunities are there for anyone. They’re obvious.

“So, I think that various policies aside, from a commercial business engagement perspective, the sky is wide open.” 
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Importers of Iranian oil are facing pressure from the United States to find another energy source or be hit with sanctions.

The Trump administration is threatening other countries, including close allies such as South Korea, with the sanctions if they don’t cut off Iranian imports by early November, essentially erecting a global blockade around the world’s sixth-biggest petroleum producer.

South Korea accounted for 14 percent of Iran’s oil exports last year, according to the U.S. Energy Department. China is the largest importer of Iranian oil with 24 percent, followed by India with 18 percent. Turkey stood at 9 percent, and Italy at 7 percent.

A State Department official told reporters this week that the “vast majority” of countries will comply with the U.S. request. A group from the State Department and the National Security Council is delivering the president’s message in Europe. The official added that the group had not yet visited China or India.

President Donald Trump announced in May that he would pull the United States out of a 2015 agreement over Iran’s nuclear program, and would re-impose sanctions on Tehran. Previously, the administration said only that other countries should make a “significant reduction” in imports of Iranian crude to avoid U.S. sanctions.

European allies will reluctantly go along to avoid sanctions on their companies that do business in the U.S., said Jim Krane, an energy and geopolitics expert at Rice University. However, China, India and Turkey might be less likely to fully cut off Iranian imports, he said.

Antoine Halff, a researcher at Columbia University and former chief oil analyst for the International Energy Agency, said it’s not unusual for the U.S. government to seek cooperation from other importers of Iranian oil — President Barack Obama’s administration did it during a previous round of sanctions.

“The difference is that there was broad international support for the sanctions then,” while the move to restore sanctions now over Iran’s nuclear program “is a unilateral decision from the United States alone,” Halff said.

The Trump administration is counting on Saudi Arabia and other OPEC members to supply enough oil to offset the lost Iranian exports and prevent oil prices from rising sharply.

The State Department official, who spoke on condition of anonymity, said the U.S. will be talking in a week or so “with our Middle Eastern partners to ensure that the global supply of oil is not adversely affected by these sanctions.”

Members of the Organization of the Petroleum Exporting Countries agreed over the weekend to boost oil production by about 600,000 barrels a day. Iran exported about 1.9 million barrels a day during the first quarter of this year, according to OPEC figures. It is the world’s seventh largest oil exporter.

“It would not be a heavy lift for OPEC to replace Iran’s contribution to world oil markets — Saudi Arabia could probably do it on its own,” Krane said. “Saudi spare capacity protects the U.S. motorist from U.S. foreign policy.”
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