YCLOAK

The financial leaders of the world’s 20 biggest economies meet in Buenos Aires this weekend for the first time since long-simmering trade tensions burst into the open when China and the United States put tariffs on $34 billion of each other’s goods.

The United States will seek to persuade Japan and the European Union to join it in taking a more aggressive stance against Chinese trade practices at the G-20 meeting of finance ministers and central bank presidents, according to a senior U.S. Treasury Department official who spoke on condition on anonymity.

But those efforts will be complicated by frustration over U.S. steel and aluminum import tariffs on the EU and Canada. Both responded with retaliatory tariffs in an escalating trade conflict that has shaken markets and threatens global growth.

“U.S. trading partners are unlikely to be in a conciliatory mood,” said Eswar Prasad, international trade professor at Cornell University and former head of the International Monetary Fund’s China Division. “[U.S.] hostile actions against long-standing trading partners and allies have weakened its economic and geopolitical influence.”

At the close of the last G-20 meeting in Argentina in March, the financial leaders representing 75 percent of world trade and 85 percent of gross domestic product released a joint statement that rejected protectionism and urged “further dialogue,” to little concrete effect.

Since then, the United States and China have slapped tariffs on $34 billion of each other’s imports and U.S. President Donald Trump has threatened further tariffs on $200 billion worth of Chinese goods unless Beijing agrees to change its intellectual property practices and high-technology industrial subsidy plans.

Trump has said the U.S. tariffs aim to close the $335 billion annual U.S. trade deficit with China.

U.S. Treasury Minister Steven Mnuchin has no plans for a bilateral meeting with his Chinese counterpart in Buenos Aires, a U.S official said this week.

Growth concerns

Rising trade tensions have led to concerns within the Japanese government over currency volatility, said a senior Japanese G-20 official who declined to be named. Such volatility could prompt an appreciation in the safe-haven yen and threaten Japanese exports.

Trump’s metals tariffs prompted trade partners to retaliate with their own tariffs on U.S. goods ranging from whiskey to motorcycles. The United States has said it will challenge those tariffs at the World Trade Organization.

The EU finance ministers signed a joint text last week that will form their mandate for this weekend’s meeting, criticizing “unilateral” U.S. trade actions, Reuters reported. The ministers will stress that trade restrictions “hurt everyone,” a German official said.

In a briefing note prepared for the G-20 participants, the International Monetary Fund said if all of Trump’s threatened tariffs — and equal retaliation — went into effect, the global economy could lose up to 0.5 percent of GDP, or $430 billion, by 2020.

Global growth also may have peaked at 3.9 percent for 2018 and 2019, and downside risks have risen due to the tariff spat, the IMF said.

“While all countries will ultimately be worse off in a trade conflict, the U.S. economy is especially vulnerable,” IMF Managing Director Christine Lagarde wrote in a blog post. “Policymakers can use this G-20 meeting to move past

self-defeating tit-for-tat tariffs.”

Trade is not on host country Argentina’s published agenda for the July 21-22 ministerial, which focuses on the “future of work” and infrastructure finance. But it will likely be discussed during a slot devoted to risks facing the global

economy, much as in March, according to an Argentine official involved in G-20 preparations, who asked not be named.
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The number of Americans filing for unemployment benefits dropped last week to its lowest point in more than 48 years as the labor market strengthens further, but trade tensions are casting a shadow over the economy’s outlook.

Other data on Thursday showed manufacturing activity in the mid-Atlantic region accelerated in July amid a surge in orders received by factories. But the Philadelphia Federal Reserve survey also showed manufacturers paying more for inputs and less upbeat about business conditions over the next six months.

Fewer manufacturers planned to increase capital spending, suggesting trade tensions, marked by tit-for-tat import tariffs between the United States and its trade partners, including China, Canada, Mexico and the European Union, could be starting to hurt business sentiment.

The survey came on the heels of the Federal Reserve’s Beige Book report on Wednesday, showing manufacturers in all districts worried about the tariffs and reporting higher prices and supply disruptions, which they blamed on the new trade policies.

“Yesterday’s Beige Book and the recent decline in the investment intentions balance in the Philly Fed survey show that escalating trade tensions are starting to have a material impact on companies’ confidence about the future,” said Brian Coulton, chief economist at ratings agency Fitch.

Increase had been forecast

Initial claims for state unemployment benefits dropped 8,000 to a seasonally adjusted 207,000 for the week ended July 14, the lowest reading since early December 1969, the Labor Department said. Economists polled by Reuters had forecast claims rising to 220,000 in the latest week.

The second straight weekly decline in claims, however, likely reflects difficulties in adjusting the data for seasonal fluctuations around this time of the year, when motor vehicle manufacturers shut assembly lines for annual retooling.

The four-week moving average of initial claims, considered a better measure of labor market trends as it irons out week-to-week volatility, fell 2,750 to 220,500 last week.

The dollar firmed against a basket of currencies. Stocks on Wall Street were lower, while prices for U.S. Treasury securities rose.

​Worker shortage

The claims data covered the survey week for the nonfarm payrolls component of July’s employment report. The four-week average of claims dipped 500 between the June and July survey periods, suggesting solid job growth this month.

The economy created 213,000 jobs in June, with the unemployment rate rising two-tenths of a percentage point to 4.0 percent as more Americans entered the labor force, in a sign of confidence in their job prospects.

Federal Reserve Chairman Jerome Powell told lawmakers this week that with appropriate monetary policy, the job market will remain strong “over the next several years.”

The labor market is viewed as being near or at full employment. There were 6.6 million unfilled jobs in May, an indication that companies cannot find qualified workers.

That was reinforced by the Beige Book, which showed worker shortages persisting in early July across a wide range of occupations, including highly skilled engineers, specialized construction and manufacturing workers, information technology professionals and truck drivers.

Thursday’s survey from the Philadelphia Fed showed its business conditions index jumped to a reading of 25.7 in July from 19.9 in June. The survey’s measure of new orders increased to 31.4 from a reading of 17.9 in June.

Prices paid index jumps

But its gauge of factory employment fell, as did the average workweek. Manufacturers also continued to report higher prices for both purchased inputs and their own manufactured goods. The survey’s prices paid index soared to 62.9 this month, the highest level since June 2008, from 51.8 in June. The index has risen 30 points since January. Sixty-three percent of manufacturers in the region reported paying more for inputs this month compared with 54 percent in June.

The price increases are likely related to tariffs on steel and aluminum imports, which were imposed by the Trump administration to protect domestic industries from what it says is unfair foreign competition.

Wednesday’s Beige Book mentioned a machinery manufacturer in the Philadelphia area who described the effects of the steel tariffs as “chaotic to its supply chain, disrupting planned orders, increasing prices and prompting some panic buying.”

The Philadelphia survey’s index for future activity decreased for the fourth straight month. Capital spending plans over the next six months also fell as did intentions to hire more factory workers. 

“Further escalation could create worse conditions and this remains a downside risk to the otherwise positive outlook over the next year,” said Adam Ozimek, a senior economist at Moody’s Analytics in West Chester, Pennsylvania.
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Commerce Secretary Wilbur Ross said Thursday it was “too early” to say if the United States would impose tariffs of up to 25 percent on imported cars and parts, a suggestion that has been met with harsh criticism from the industry.

The department opened an investigation in May into whether imported autos and parts pose a national security risk and was holding a hearing on the probe Thursday, taking testimony from auto trade groups, foreign governments and others.

Ross’ remarks came at the start of the public hearing, which he said was aimed at determining “whether government action is required to assure the viability of U.S. domestic production.”

A group representing major automakers told Commerce on Thursday that imposing tariffs of 25 percent on imported cars and parts would raise the price of U.S. vehicles by $83 billion annually and cost hundreds of thousands of jobs.

Automakers say there is “no evidence” that auto imports pose a national security risk, and that the tariffs could actually harm U.S. economic security.

They are also facing higher prices after tariffs were imposed on aluminum and steel.

The Alliance of Automobile Manufacturers, whose members include General Motors Co, Volkswagen AG and Toyota Motor Corp, warned on the impact of the tariffs.

“Higher auto tariffs will harm American families and workers, along with the economy” and “would raise the price of an imported car nearly $6,000 and the price of a U.S.-built car $2,000,” said Jennifer Thomas, a vice president for the group.

She noted that the U.S. exports more than $100 billion of autos and parts annually to other countries, while “there is a long list of products that are largely no longer made in the U.S., including TVs, laptops, cellphones, baseballs, and commercial ships.”

No automaker or parts company has endorsed the tariffs, and they have pointed to near-record sales in recent years.

Warnings

Jennifer Kelly, the United Auto Workers union research director, noted that U.S. auto production has fallen from 12.8 million vehicles in 2000 to 11.2 million in 2017 as the sector has shed about 400,000 jobs over that period, with many jobs moving to Mexico or other low-wage countries.

“We caution that any rash actions could have unforeseen consequences, including mass layoffs for American workers, but that does not mean we should do nothing,” she said, suggesting “targeted measures.”

Many firms that sell vintage vehicles also warned that the tariffs could devastate the industry because many older cars need parts that are only made outside the United States. Polaris Industries Inc warned that off-road vehicles could also be inadvertently covered by the tariffs.

A study released by a U.S. auto dealer group warned that the tariffs could cut U.S. auto sales by 2 million vehicles annually and cost more than 117,000 auto dealer jobs, or about 10 percent of the workforce.

President Donald Trump has repeatedly suggested he would move quickly to impose tariffs, even before the government launched its probe.

‘Tremendous retribution’

“We said if we don’t negotiate something fair, then we have tremendous retribution, which we don’t want to use, but we have tremendous powers,” Trump said Wednesday. “We have to — including cars. Cars is the big one. And you know what we’re talking about with respect to cars and tariffs on cars.”

The European Union, Japan, Canada and Mexico, along with many automotive trade groups, are among 45 witnesses scheduled to testify during the daylong hearing.

The Commerce Department said earlier this week it aimed to complete the investigation “within a couple months.”
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U.S. President Donald Trump said Thursday that he was not pleased about the U.S. Federal Reserve’s decision to increase interest rates.

“I’m not thrilled,” Trump said in a CNBC interview that aired Friday. His remarks followed two interest rate hikes this year and Fed suggestions of two more increases before the end of the year.

“Because we go up and every time you go up, they want to raise rates again. I don’t really — I am not happy about it,” he said. “But at the same time, I’m letting them do what they feel is best.”

Presidents rarely intervene in developments involving the Fed, which sets the benchmark interest rate. Higher interest rates make it more expensive to borrow money, which slows economic activity. The rate hikes are intended to keep inflation from damaging the economy. Earlier, during a severe recession, the Fed slashed interest rates nearly to zero in a bid to boost economic growth.

Trump expressed frustration in the interview that the central bank’s actions could disrupt U.S. economic expansion.

Trump sought to give the economy a boost when he signed into law a major tax cut late last year. The law cut the corporate rate from 35 percent to 21 percent and lowered taxes on individual incomes as well.
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Luxury air travel faster than the speed of sound: A US start-up is aiming to revive commercial supersonic flight 50 years after the ill-fated Concorde first took to the skies.

Blake Scholl, the former Amazon staffer who co-founded Boom Supersonic, delivered the pledge this week in front of a fully-restored Concorde jet at the Brooklands aviation and motor museum in Weybridge, southwest of London.

The company aims to manufacture a prototype 55-seater business jet next year but its plans have been met with scepticism in some quarters.

“The story of Concorde is the story of a journey started but not completed — and we want to pick up on it,” Scholl said at an event that coincided with the nearby Farnborough Airshow.

“Today … the world is more linked than it’s ever been before and the need for improved human connection has never been greater.

“At Boom, we are inspired at what was accomplished half a century ago,” he added, speaking in front of a former British Airways Concorde.

Boom Supersonic’s early backers include Richard Branson and Japan Airlines, and other players are eyeing the same segment.

Speaking to AFP at Farnborough on Wednesday, Scholl indicated that the air tickets could be beyond the reach of some.

“What we’ve been able to do thanks to advances in aerodynamics and materials and engines is offer a high speed flight for the same price you pay in business class today,” he said. 

He said this works out to around $5,000 (4,300 euros) round-trip across the Atlantic.

“Now I know that might sounds like a lot, because it is, but it’s actually the same price you pay for a lay flat bed on airlines today,” he said.

‘Baby Boom’

Boom Supersonic’s aircraft, dubbed Baby Boom, is expected by the company to fly for the first time next year.

The company is making its debut at Farnborough and hopes to produce its new-generation jets in the mid-2020s or later, with the aim of slashing journey times by half.

The proposed aircraft has a maximum flying range of 8,334 kilometres (5,167 miles) at a speed of Mach 2.2 or 2,335 kilometres per hour.

If it takes off, it would be the first supersonic passenger aircraft since Concorde took its final flight in 2003.

The Concorde was retired following an accident in 2000 in which a Concorde crashed shortly after takeoff from Paris, killing 113 people.

“The one accident that did happen on Concord actually happened on the runway,” Scholl told AFP on Wednesday.

“It had nothing to do with high-speed flight so there’s no actual barrier to creating a highly safe, efficient supersonic airplane and we have super high standards for safety.

“We’ll be going through the same safety testing process that every other aircraft goes through and the FAA (US Federal Aviation Administration) and EASA (European Aviation Safety Agency) will not let our airplane fly unless we pass a very high safety bar.”Some analysts meanwhile remain sceptical over the push back into supersonic, with consumer demand booming for cheap low-cost carriers.

“Supersonic is not what passengers or airlines want right now,” said Strategic Aero analyst Saj Ahmad.

Ahmad said supersonic jets were “very unattractive” because of high start-up development costs, considerations about noise pollution and high prices as well as limited capacity.

‘Untried and untested’

Independent air transport consultant John Strickland noted supersonic travel was unproven commercially.

“If there is an economic downturn or something happens where the market for business class traffic drains away, then you have nothing else left to do with that aircraft,” Strickland said.

“I think it’s going to be some time before we see whether it can establish a large viable market … in the way that Concorde never managed to do.”

These concerns have not stopped interest from other players.

US aerospace giant Boeing had last month unveiled its “hypersonic” airliner concept, which it hopes will fly at Mach 5 — or five times the speed of sound — when it arrives on the scene in 20 to 30 years.

And in April, NASA inked a deal for US giant Lockheed Martin to develop a supersonic “X-plane.”
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China bolstered ties with the European Union this week with more large markets in the pipeline to keep its exports healthy as the United States levies import tariffs, analysts say.

 

At the 20th China-EU leaders’ meeting Monday in Beijing, Chinese President Xi Jinping said his country stands ready to promote bilateral economic development. Premier Li Keqiang noted at the summit China had recently cut import tariffs on autos, medicine and consumer goods from the EU.

 

The 28-member European Union, including some of the world’s wealthiest countries, received $437 billion in exports with China last year, which accounted for 20 percent of the bloc’s total shipments from overseas.

 

Officials in Beijing have also pledged to ease trade friction with India this year.

 

“The EU is the second largest trading partner to China,” said Felix Yang, an analyst with the financial advisory firm Kapronasia in Shanghai. “While Trump’s tariffs hit the prospects of the Chinese economy, the EU is becoming a more important market for China.”

 

A reserve in case of trade war

 

China and the United States have headed toward what economists call a “trade war” for much of the year. U.S. President Donald Trump believes China trades unfairly, giving it a $375 billion trade surplus in 2017.

 

This month Trump approved import tariffs of 25 percent on more than 800 Chinese products. The taxes, already in effect, hit Chinese goods worth about $34 billion. Trump has threatened tariffs on goods worth another $450 billion, and China’s commerce ministry said it would make a “necessary counterattack.”

China counts the United States as its No. 1 trading partner, but major markets such as the EU, India and Southeast Asia are high on the list. The summit on Monday with EU leaders should help China solidify EU trade, economists say.

 

“You have to explore opportunities to grow your next largest set of trading partners, and this is where it’s really all about,” said Song Seng Wun, an economist with the private banking unit of CIMB in Singapore. “In case the trade fight with the U.S. were to escalate, it’s good your trading relationship with your remaining partners can improve and hopefully over time pick up some of the slack.”

 

China will need Europe to buy technology that the United States might sell if relations were better, said Liang Kuo-yuan, president of Taipei-based think tank Polaris Research Institute. The threat of a trade war now “slows” China’s acquisition of tech for R&D, he said.

 

“If they can’t develop their own, they would still look for Western technology,” Liang said. “At that point, the EU becomes a major source. If the route to Europe hasn’t been blocked, then the slowdown wouldn’t be so slow.”

 

The European Union will avoid a trade war, European Council President Donald Tusk said after the summit. But the bloc that has its own trade deficit with China advocates new global trade rules and World Trade Organization reforms.

 

Europe, like the United States, worries about China’s protection of technology and other intellectual property rights. In April the EU brought a case to the World Trade Organization against Chinese legislation that it said “undermines the intellectual property rights” of European companies.

The EU wants to “bravely and responsibly reform the rules-based international order,” Tusk was quoted saying on the EU’s website. “This is why I am calling on our Chinese hosts… to jointly start this process from a reform of the WTO.”

 

China voiced support for the WTO reforms at the Monday summit, the European side said in a statement.

 

India and Southeast Asia

 

China’s commerce minister said in April his country would keep working with India to ease trade differences caused by market access issues — resulting in a deficit for India.

Southeast Asia might be next for lighter treatment, Song said. China and the 10-member Association of Southeast Asian Nations are finishing talks on a 16-nation Regional Cooperation Economic Framework, a trade pact that some see as an antidote to the Trans Pacific Partnership deal that Trump exited in 2017.

 

Eventually other countries may join China in facing the United States as many expect trade problems, said Zhao Xijun, associate dean of the School of Finance at Renmin University of China. A tariff battle with China could spill into other parts of Asia, and Trump has rattled other countries with an “America First” policy that’s often regarded abroad as protectionist.

 

China’s trade ties with Japan, South Korea, India and Southeast Asia will “continuously be promoted,” Zhao said. Those countries link to the same supply chain with its own “rules” that cannot be broken by a single country, he said.

 

“It’s not such a simple matter,” Zhao said. “The supply chain has its own rules. It’s not something the American government can break because it says it wants to break it.”
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Boeing has received a $3.9 billion contract to build two 747-8 aircraft for use as Air Force One by the U.S. president, due to be delivered by December 2024 and painted red, white and blue, officials said on Tuesday.

The Pentagon announced the decision on Tuesday, saying Seattle-based Boeing’s previously awarded contract for development work had been expanded to include design, modification and fielding of two mission-ready presidential 747-8 aircraft.

The contract followed the outlines of the informal deal reached between Boeing and the White House in February. That agreement came after President Donald Trump objected to the $4 billion price tag of a previous Air Force One deal, complaining in a Twitter post that “costs are out of control” and adding “Cancel order!”

The White House said in February the new deal would save taxpayers more than $1.4 billion, but those savings could not be independently confirmed.

Air Force budget documents released in February for fiscal year 2019 disclosed a $3.9 billion cost for the two-aircraft program. The same 2018 budget document, not adjusted for inflation, showed the price at $3.6 billion.

The Boeing 747-8s are designed to be an airborne White House able to fly in worst-case security scenarios, such as nuclear war, and are modified with military avionics, advanced communications and a self-defense system.

A congressional official briefed on Tuesday about the deal indicated it was little changed from the informal agreement reached in February, calling for two 747-8 aircraft to be built for $3.9 billion and delivered by December 2024.

Trump told CBS in an interview that aired on Tuesday that the new model Air Force One would be updated on the inside and have a different exterior color scheme from the current white and two shades of blue dating back to President John F. Kennedy’s administration.

“Red, white and blue,” Trump said. “Air Force One is going to be incredible. It’s going to be the top of the line, the top in the world. And it’s going to be red, white and blue, which I think is appropriate.”
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