Trump Tariff Delay Brings Global Tensions Back From the Brink

(Bloomberg) --

With the global economy on the precipice, the U.S. and China appear to be stepping back from the ledge.

On Wednesday, U.S. President Donald Trump said he was postponing the imposition of 5% extra tariffs on Chinese goods by two weeks, meaning officials in Beijing can celebrate their Oct. 1 national day without a fresh escalation. Meanwhile, China is considering whether to permit renewed imports of American farm goods including soybeans and pork, according to people familiar with the situation, potentially taking some pressure off U.S. states with large numbers of Trump supporters.

Whether this marks a sustained improvement in relations between the world’s two biggest economies or just a step forward that’s followed by another two back remains to be seen. But with face-to-face discussions coming up, news in the past 24 hours has certainly brightened prospects that things at least may not get much worse in the near term.

• Still, don’t count your chickens (or hogs) just yet. China hasn’t yet responded publicly to Trump’s postponement. And any further agricultural purchases are yet to be made and the volumes are still undecided, the people said. China had halted U.S. farm-product imports in August after negotiations deteriorated.
• Remember that on Wednesday, China had announced a range of U.S. goods would be exempted from 25% tariffs put in place last year, as the government seeks to ease the impact from the trade war. It didn’t exempt agricultural goods produced in key Trump-supporting states.
• Recent economic readings from both sides of the Pacific have shown the urgency for some kind of deal. China is facing factory-price deflation, falling exports and an uncertain path for government stimulus policy given the nation’s debt load. In the U.S., factory activity unexpectedly contracted in August for the first time in three years, underscoring how slowing global growth and an escalating trade war are taking an even bigger toll on domestic producers. 

Charting the Trade War

Luckily for China’s cows, the country is removing retaliatory tariffs on their favorite food — American alfalfa hay. Known as the king of herbs, the key cattle feed was listed among the 16 categories of U.S. products excluded from extra import tariffs China put in place last year. American alfalfa supplies to China, which once accounted for half of U.S. total exports, have been shrinking since last year. 

Today’s Must Reads

• Worst-case scenario | The U.K. government has published warnings of possible shortages of food, fuel and water, public disorder and severe border disruption if Britain leaves the European Union without a deal. Still, Norway is confident gas will keep flowing even in case of a no-deal Brexit. 
• Africa-U.K. deal | The five members of the Southern African Customs Union and Mozambique have reached a deal with the U.K. to govern trade between them after Brexit.
• Belt and Road fight | Chinese and U.S. diplomats are at loggerheads over Beijing’s insistence on including a reference to its Belt and Road Initiative in the text of a United Nations resolution on Afghanistan.
• Huawei’s Washington overtures | After having practically shut down its Washington operation, Huawei last month added a trio of well-connected lobbyists to a swelling corps of influencers. 
• Israel-China trouble | Trump’s trade war has ensnared his close ally Israel, which counts China as a top trade and investment partner, but now is being pressured to rethink its relationship.

Economic Analysis

• Nice gesture, but stay wary | The latest developments in the U.S.-China trade war raise some hope for progress in upcoming talks. However, the track record in the negotiations suggests it’s prudent to maintain a large dose of skepticism.
• U.S. wheat bottleneck | Some 100,000 tons of U.S. wheat is stranded on barges after a navigation lock was closed for emergency repairs at a dam along the Oregon-Washington border.

Coming Up

• Sept. 13: Euro zone trade balance
• Sept. 13-16: India trade balance
• Sept. 16: Indonesia trade balance
• Sept. 18: Japan, Italy trade balance

--With assistance from Ivan Levingston.

To contact the editor responsible for this story: Brendan Murray at brmurray@bloomberg.net, Zoe SchneeweissFergal O'Brien

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