Four Years into The Trade War, Are the US and China Decoupling?

Economic

China-U.S. Relations

Summary:

US imports of some Chinese products have tanked. Others are higher than ever. How Trump's selective trade war continues to matter.

For many decades China and the United States have been locked in such a tight economic embrace that it is challenging to quantify whether, how, or why the embrace may be weakening. Are the mounting tensions, bordering on hostility, between the two superpowers causing their economies to "decouple"?

Yes and no. On the one hand, US imports of certain products from China—including semiconductors, some IT hardware, and consumer electronics—have fallen dramatically. Even clothing, footwear, and furniture imports are down.

But on the other, imports from China of laptops and computer monitors, phones, video game consoles, and toys are higher than ever. Demand for these products surged in response to the COVID-19 pandemic. Stuck at home, Americans switched their spending away from services and toward many of these goods manufactured in China.

US and Chinese policymakers certainly seem determined to reduce the two countries' economic interdependence, built over many decades but now buckling under the weight of their animosities. So far, the decoupling that is—and is not—occurring is partly the result of President Donald Trump's trade war, the selective way it was waged, and the continuation of many of those policies under the Biden administration. A more recent motivating factor that may be spurring decoupling is the desire for increased diversification of imports to make supply chains for certain goods more resilient. Other drivers include human rights, democracy, and geopolitical concerns.

But the data also show something else. Even if policymakers foresee long-run benefits in disentangling the two economies, their choices come with immediate costs. These costs include product shortages, as supply chains struggle to adjust, as well as inflation, as companies find it expensive to establish new suppliers. Firms and ultimately consumers need to prepare to pay the price for the new policy-induced reality.

Total Us Imports from China Have Been Down Since the Onset of The Trade War

For 15 months beginning in July 2018, the Trump administration applied tariffs to more and more imports from China. Thus far, the Biden administration has chosen to keep those duties in place.

Overall, the trade war has reduced US goods imports from China (figure 1). Imports declined immediately after tariffs were imposed, falling further beginning in March 2020 as global trade collapsed in the wake of the COVID-19 pandemic, and have since recovered only slowly. Today, US imports from China (red line) remain well below the pre-trade war trend (dashed line), as defined (conservatively) by US imports from the world, and have only recently returned to pre-trade war levels of June 2018. China is now the source of only 18 percent of total US goods imports, down from 22 percent at the onset of the trade war.

Four Years into The Trade War, Are the US and China Decoupling?_1

In comparison, current US imports from the rest of the world are 38 percent higher than pre-trade war levels and are even above trend (blue line). With a few exceptions, these imports were not hit with new US tariffs. They have also recovered strongly following the onset of the pandemic.

After conducting an investigation under Section 301 of the Trade Act of 1974, the Trump administration began by imposing tariffs of 25 percent on products covering roughly $34 billion of US imports from China in July 2018 (List 1) and on $16 billion of imports in August (List 2). When China retaliated, the trade war continued with Trump imposing 10 percent tariffs on an additional $200 billion of imports in September 2018 (List 3), increasing the rate of those duties to 25 percent in June 2019. In September 2019, Trump hit another $102 billion of imports (List 4A) with 15 percent tariffs, subsequently reducing them to 7.5 percent upon implementation of the US-China Phase One agreement in February 2020. (The administration identified another set of products covering most of the rest of US imports from China of more than $160 billion—List 4B—for which it scheduled tariffs to go into effect on December 15, 2019. It never imposed those duties and cancelled them upon the initial announcement of the Phase One agreement on December 13, 2019.)

Trump's Trade War Tariffs Affected Imports In Expected Ways

As expected, the trade war has had the largest impact on imports from China of products hit with the highest US tariffs. US imports from China of goods currently facing a 25 percent duty (Lists 1, 2, and 3) remain 22 percent below pre-trade war levels (figure 2). US imports of those same products from the rest of the world are now 34 percent higher. US imports from China of products currently subject to 7.5 percent tariffs (List 4A) remain 3 percent below levels in August 2019 (right before imposition of tariffs on those products), whereas comparable imports from the rest of the world are now 45 percent higher.

Four Years into The Trade War, Are the US and China Decoupling?_2

Yet, US imports from China of certain products have surged. Imports of products never hit with trade war tariffs are now 50 percent higher than immediately prior to the trade war (see again figure 2). (US imports from the rest of the world of those same products are also up but by only 38 percent.) Products not facing tariffs made up roughly 33 percent of total US imports from China before the trade war and have grown to 47 percent today (see appendix table).

US Imports Are Surging for Some Chinese Products Never Hit with Tariffs

Beginning in 2020, COVID-19 lockdowns led many Americans to work, school, and play from home, which sharply increased demand for certain products, many of which were imported predominately from China. Laptops and computer monitors, phones, video game consoles, and toys are examples—combined they made up 21 percent of total US imports from China before the trade war, growing to 27 percent today (see appendix table). Coincidentally, the Trump administration had earlier decided to not apply trade war tariffs on these and other selected products. US imports from China of these goods have grown rapidly (figure 3, panel a). Though there is some evidence of diversification and changes to foreign sourcing in these products' supply chains, US-China decoupling is not quite evident here.

Take laptops and computer monitors. Growth in US imports from both China and the rest of the world has been strong, with imports from each up roughly 50 percent since prior to the trade war (figure 3, panel b). Thus, shares of US imports have barely budged—China remains the source of 92 percent of US imports of laptops and computer monitors, with Taiwan and Vietnam each making up roughly 2 to 3 percent (panel c).

Four Years into The Trade War, Are the US and China Decoupling?_3

US imports of phones—including smartphones—have increased from both China (14 percent) and the rest of the world (70 percent). While declining in relative terms, 74 percent of US imports of phones are still sourced from China. Most noticeable is Vietnam's increased share of US phone imports from below 10 to 22 percent. In 2019, Samsung closed its last mobile phone plant in China, moving assembly to lower-cost locations like Vietnam (and India), in part, because it was reportedly also losing out in the Chinese market to Chinese firms like Huawei and Xiaomi. But Vietnam's gain in US imports has come not only at the expense of China. In 2019, LG also moved its smartphone assembly to Vietnam from South Korea. (Apple has also recently diversified some of its iPhone assembly by firms like Foxconn and Wistron away from China to India.)

Video game consoles tell a similar story. US imports from China have increased by 82 percent. In 2019, however, Nintendo indicated it was moving some of its Switch assembly from China to Vietnam. (The New York Times reported some Microsoft Xbox consoles are now being shipped from Vietnam in addition to China.) Indeed, US imports of consoles from the rest of the world have grown five-fold since the onset of the trade war. Yet, because that growth started from such a low base, the United States still imports 90 percent of video game consoles from China.

US imports of toys like board games—e.g., chess, checkers, and backgammon—as well as playing cards from both China and the rest of the world are up considerably. Vietnam has increased its share of US toy imports from 3 to 6 percent. But China remains the source of 83 percent of US imports of toys overall.

During the trade war, the Trump administration deliberately chose not to impose tariffs on these products—most of which were on List 4B—worried that, for such identifiable goods, consumers would suffer price increases and attribute them to the tariffs. Trump said as much in August 2019, "What we've done is we've delayed [tariffs on List 4B] so they won't be relevant in the Christmas shopping season…. Just in case they might have an impact on people." Trump first postponed tariffs on those products until December 15, 2019—long after shipments would have arrived to stock shelves before the 2019 holidays—and then ultimately canceled them altogether upon announcement of the Phase One agreement.

Chinese Products Hit With 25 Percent Tariffs Have Struggled

At the other extreme are the products that Trump hit with 25 percent tariffs. This group is dominated by intermediate inputs and capital equipment—much less visible to households—that firms use to make other consumer goods or to provide services. US imports of these products are down overall (figure 4, panel a). Some are lower despite surging US demand during the pandemic, contributing to shortages and higher costs for firms needing those inputs to continue their operations. Such companies were forced to either continue importing from China even with the tariff or spend to establish relationships with new suppliers elsewhere.

Four Years into The Trade War, Are the US and China Decoupling?_4

Take IT hardware and consumer electronics in higher demand with the pandemic lockdowns, such as network servers, modems, routers, as well as wireless headphones and smartwatches. US imports from China of these products are down 62 percent since the 25 percent tariffs were imposed, whereas imports from the rest of the world are now 60 percent higher (panel b). China's share of US imports of IT hardware and consumer electronics has been cut by nearly two-thirds, from 38 to 13 percent (panel c). Mexico is one sizeable alternate foreign supplier of such products. Taiwan has also substantially increased its share of the US import market.

Prior to the trade war, imported auto parts from China were a looming threat to the US industry. Imports from both China and the rest of world fell considerably during the early months of the pandemic, when the auto industry in North America suddenly halted production in response to the pandemic. US imports from the rest of the world have recovered and today are 20 percent higher, whereas imports from China subject to the tariffs have only just returned to pre-trade war levels. Nevertheless, China's share of US auto parts imports has only dropped from 15 to 13 percent. Unsurprisingly, Mexico and Canada continue to dominate the US market for parts due to the integrated North American auto supply chain.

Social distancing during the pandemic also led households to increase spending on home furnishings. US imports of furniture from the rest of the world have grown by 87 percent; imports from China hit with tariffs remain 21 percent lower. (China's share of US furniture imports has dropped from 57 to 36 percent.) Much of the new sourcing of US imports of furniture has come from Vietnam.

US Imports of Semiconductors from China Cratered with Us Tariffs

Semiconductors are perhaps the most telling example of product shortages during the pandemic. The scarcity of chips led automakers to reduce their output in 2021, impacting employment through furloughs in a politically and economically important sector. (In figure 4, panels b and c, data for semiconductors alone are in volume, as opposed to dollar value, terms.)

US imports of semiconductors from China remain 26 percent lower than before the imposition of 25 percent tariffs (panel b). Though imports have increased recently, as late as June 2021, US import volumes from China remained more than 50 percent below pre-trade war levels. Prior to July 2018, China had 47 percent of the US import market in volume terms (panel c). This share fell immediately after the tariffs were imposed, reaching only 39 percent today. Yet, import volumes from the rest of the world have expanded only by 5 percent (see again panel b).

This problem became clear when just one missing chip kept the manufacturing of products ranging from cars to refrigerators to washing machines from being finished. In volume terms, lost imports of semiconductors from China were not being fully replaced from elsewhere.

One reason was that production could not be substituted between Chinese and other chipmakers. China's foundries specialize in "more mature nodes," producing high volumes of "legacy" chips for low profit margins. Leading foreign firms like Taiwan Semiconductor Manufacturing Company (TSMC) or South Korea's Samsung manufacture more advanced (and profitable) semiconductors and both did not have idle capacity or an interest in switching to less profitable products. This likely explains why the US semiconductor industry also did not significantly expand production, in addition to the fact that it was running at close to historical levels of its capacity utilization rate. Given that legacy chips are not particularly profitable to manufacture, and if the United States does not want to import them from China, then who will produce them? That is the question facing America's industrial consumers—like the auto sector—of large volumes of legacy chips.

In dollar terms as well, US chip imports from China remain 22 percent below their pre-trade war levels (not shown in figure 4). However, import values from the rest of the world are up 32 percent, mostly due to the price increase caused by heightened US demand for chips, as opposed to increased volumes offsetting lost imports from China.

To summarize, in each of these four examples of products hit with 25 percent US tariffs, US imports from China declined. Reduced imports were sometimes offset by imports from other foreign sources, but not yet in other cases. Yet, these examples were not unique. In value terms, US imports from China of all other products subject to 25 percent tariffs have fallen by 17 percent, even though imports of those goods from the rest of the world are now 33 percent higher (not shown).

US Imports of Chinese Products Subject to Lower Tariffs Have Been Uneven

A final set of products, covering 20 percent of US imports from China at the onset of the trade war, were initially hit with 15 percent tariffs in September 2019, which were then reduced to 7.5 percent in February 2020. Overall, imports from China of these goods have only recently returned to their pre-trade war levels (figure 5, panel a). The smaller negative impact on these US imports was partly because the tariffs were imposed at lower rates at the outset, imposed later in the trade war, and subsequently reduced. Imports of these products from elsewhere are now 51 percent higher.

Four Years into The Trade War, Are the US and China Decoupling?_5

Clothing and footwear are one example, making up about 7 percent of total US imports from China before the trade war. They remain 11 percent below pre-trade war levels, whereas US imports from the rest of the world are 44 percent higher (panel b). The tariffs may have accelerated an ongoing shift in production of some of these goods out of China's market, as rising labor costs associated with China's economic development were already moving such industries elsewhere. China's share of US clothing and footwear imports has fallen from 34 to 24 percent, while the shares of Vietnam and Bangladesh have increased (panel c).

Personal protective equipment (PPE) and related COVID-19 medical products are a slightly different story. China was the source of roughly 50 percent of US imports of many such products before the trade war. That dipped once the tariffs were imposed in late 2019—jeopardizing the preparedness of the US health care system in the face of a pandemic in early 2020. Eventually, the Trump administration did exclude such products from its trade war tariffs, and by April 2020, US imports from China had resumed, before exploding over much of the rest of 2020, given the increase in US demand. (Price increases were the dominant cause of the sharp increase in values, though volumes increased as well.)

Exercise equipment and lithium batteries are two additional products where imports from China have jumped considerably, despite the trade war tariffs. For both, China is also the source of more than 50 percent of the US import market (panel c). The boom for products like exercise cycles, rowing machines, and treadmills may have been temporarily driven by the pandemic and the inability to access private gyms. The growth in lithium battery imports is partly due to the recent increased US demand for electric vehicles (EVs). However, this growth too may fade over time if the new supply chain sourcing requirements found in the August 2022 Inflation Reduction Act—explicitly offering subsidies for automakers that diversify their EV battery supply chains out of China—are successful.

These four examples show the additional difficulties of attempting to assess potential decoupling of US imports from China. This complexity is expected, given the size and diversity of the Chinese economy and its involvement in so many different types of products. (As for the other products on List 4A not shown, US imports from China remain 10 percent below pre-trade war levels, while imports from elsewhere are 50 percent higher.)

Benefits Of Any Us-China Decoupling Come with Costs

Numerous studies have documented the negative impact of the trade war tariffs on the US economy. Tariffs have hurt US manufacturing output, employment, and exports. While those duties may not have caused the inflation pressure that began in 2021, American importers did bear the costs of the tariffs, in the form of higher prices, when they were imposed beginning in 2018-19. (There is little evidence that the tariffs led Chinese exporters to reduce their prices to sell to US consumers.)

The US tariffs that remain in place continue to impede American companies' access to imports. The tariffs make those companies less attractive customers for Chinese firms, some of which may have had limited supplies to sell to other customers globally. Higher costs hurt American firms' competitiveness in the US and international markets, relative to their non-Chinese competitors operating outside the United States.

Interpret The Evidence with Caution

For some products, the evidence here shows the United States increasingly sourcing imports assembled in countries other than China. It is partly the result of "trade diversion"—i.e., the United States now buys more expensive imports from third countries that it once bought but no longer buys from China because of the tariffs. The changes in imports shown here are consistent with other evidence that countries like Vietnam, as well as others in East and South Asia, are now trading more, including with the United States, in response to the US-China trade war.

However, policymakers seeking to achieve "decoupling" need to carefully interpret the evidence documented here. Answers to the most important questions are still unknown.

US tariffs are not the only "cause" of the United States importing less from China. Some labor-intensive production closely associated with much of the clothing and footwear industry was likely relocating anyway, following a trend that was visible even before the trade war. China was losing competitiveness in this industry, relative to other emerging economies, as local wages have increased. (For other products, Vietnam may be rising as a source at the expense of other higher-income countries, such as South Korea.)

The full implications of any "movement" of economic activity that the data reveal also remain imperfect. For example, companies may be adding a separate assembly facility in Vietnam to service US consumers without having to pay the trade war tariffs. The same firms may also be keeping their Chinese facilities to continue to manufacture for the Chinese market as well as for other countries that have not imposed new tariffs on imports from China.

Such redundant investments may have complex and offsetting effects. On the one hand, such investments could improve resiliency if the diversification is useful. If the original US import arrangement involved single sourcing through concentrated suppliers in China, future buyers may find that adding non-Chinese assembly facilities lowers the risk of geographically concentrated disruptions due to climate change (floods, droughts, wildfires), health (pandemics), or geopolitics (military conflict).

On the other hand, redundant investments come with higher costs. There is the initial, one-time expenditure of establishing the new assembly plant. But there may also be additional (and ongoing) costs associated with operating two supply chains, each on a smaller scale than previously when it was all being done in China.

Lastly, these data at most reveal changes only in the final assembly facility that is the source of US imports of a good. Precious little is yet known about any changes to the value-added content of that good the United States is importing. As an extreme example, suppose the final assembly of a consumer electronic product moves from China to Vietnam. The workers involved in the final assembly would change, but if the product continues to derive the same amount of critical intermediate inputs from Chinese suppliers, who now ship to Vietnam for final assembly by, say, the subsidiary of a Chinese-headquartered firm, then how much is really different?

Policymakers therefore need to interpret even this preliminary evidence of some US-China "decoupling" with extreme caution. Policy decisions made today to reduce economic interdependence between the two countries will have profound implications for both economies, and neither will escape unscathed.

Source: PIIE

To stay updated on all economic events of today, please check out our Economic calendar

Risk Warnings and Disclaimers

You understand and acknowledge that there is a high degree of risk involved in trading. Following any strategies or investment methods may lead to potential losses. The content on the site is provided by our contributors and analysts for information purposes only. You are solely responsible for determining whether any trading assets, securities, strategy, or any other product is suitable for investing based on your own investment objectives and financial situation.

Comments

Add to Favorites

Kevin Du

Energy

The upcoming United Nations climate summit comes at a time of unprecedented high-level support for reducing global use of fossil fuels, after Russia's invasion of Ukraine snarled global flows of gas, coal and fuel and sent power prices soaring.

But as climate bigwigs gather to hash out how to reduce emissions across the planet, care must be taken to ensure every major region is properly equipped with both the funding and the know-how to tackle the enormous challenge of rapidly reducing emissions while sustaining vital economic momentum.

The COP27 meetings in Egypt will be the fifth COP (Conference of the Parties) in Africa. At the tip of the world's fastest-growing continent, its location acts as a reminder for policymakers - all countries must be able to come along for the decarbonisation ride without being burdened by constraints that may drain government budgets, thwart industry and halt job creation.

Primed For Growth

So far this century, Africa has produced the lowest amount of cumulative carbon dioxide (CO2) emissions of any region, accounting for just 3.6% of total global CO2 discharge during the 2000-2021 period, according to data from the 2022 edition of the BP Statistical Review of World Energy.

Africa's 24 billion tonnes of accumulated CO2 compares to Asia's 298 billion tonnes, North America's 139 billion tonnes, and Europe's 100 billion tonnes during the same span.

Africa Deserves a Fair Shake at Upcoming Climate Summit_1

After decades of emissions-heavy economic growth, industrial heavyweights like China, Germany and the United States are now keen to reduce their energy intensity by phasing out outdated smokestack plants and deploying government-subsidised green energy that will help meet emissions-reduction targets.

In contrast, many African nations are in need of a decades-long labour-intensive growth phase to make full use of surging populations, expected to swell by more than 1 billion across the continent to nearly 2.5 billion by 2050, according to United Nations forecasts.

Ambition Mismatch

Latin America, South Asia and elsewhere are also on course for growth in both workforces and economies in the coming decades. But Africa is expected to see the largest gain in working age population of any region by mid-century.

In addition, Africa is on course to be the only continent to see its population expand by the end of the century. Every other region is expected to see its numbers shrink by 2100, according to a study by The Lancet.

Africa Deserves a Fair Shake at Upcoming Climate Summit_2

This makes African businesses and governments especially hungry for opportunities to grow manufacturing and service sectors that are large employers and can help develop and cater to a wealthier populace.

To sustain the accompanying build-out in businesses, factories and supply chains, the continent must rapidly expand power and electricity to where it is needed.

But with 90% of primary energy currently coming from fossil fuels, according to the BP Statistical Review of World Energy, Africa must simultaneously retool its entire energy system to align with the goals of the COP27 crowd.

The dual challenge of decarbonising its energy sector while fostering the emergence of a constellation of job-creating industries would be a major challenge for any continent. For debt-laden African nations, some of which bear some of the highest public debt burdens in the world, according to The World Bank, it's especially tough.

Africa Deserves a Fair Shake at Upcoming Climate Summit_3

The region is also among the must vulnerable to the effects of climate change, and this year encountered severe droughts and floods that killed thousands and impoverished millions more.

Buy-Ins or bail outs?

With little surplus finance available to fund both its energy transition and manufacturing sector expansion, Africa as a continent will require substantial international support on both fronts if it is to reach its potential as a thriving, low-carbon economy.

Yet the international community has also had its coffers drained by the one-two punch of COVID-19 followed by the fallout from the Russia-Ukraine war. Moscow calls its actions "a special operation".

This lack of funding may result in Africa being short-changed by its international peers as countries prioritise their own energy transition plans while trying to rein in inflation that has decimated government budgets the world over.

Leaders in Asia, Europe and North America need the vision to look beyond those near-term challenges and see that it is in their own interest to help Africa emerge as an affluent market and future global economy driver. Only then can countries in Africa secure the support they need to fulfil their potential to emerge as the global leaders for the second half of the 21st century.

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

Samantha Luan

Commodity

Energy

Europe needs its industrial companies to save energy amid soaring costs and shrinking supplies, and they are delivering - demand for natural gas and electricity both fell in the past quarter.

It is far too early to rejoice, though. The drop is not just because industrial companies are turning down thermostats, they are also shutting down plants that may never reopen.

And while lower energy use helps Europe weather the crisis sparked by Russia's war in Ukraine and Moscow's supply cuts, executives, economists and industry groups warn its industrial base may end up severely weakened if high energy costs persist.

Energy-intensive industries, such as aluminium, fertilisers, and chemicals are at risk of companies permanently shifting production to locations where cheap energy abounds, such as the United States.

Even as an unusually warm October and projections of a mild winter helped drive prices lower, natural gas in the United States still costs about a fifth what companies pay in Europe.

"A lot of companies are just quitting production," Patrick Lammers, management board member at utility E.ON told a conference in London last month. "They actually demand destruct."

That could lead to Europe de-industrialising very quickly, he added.

Euro-zone News Story this month hit its weakest level since May 2020, signaling Europe was heading for a recession.

Energy Crisis Chips Away at Europe's Industrial Might_1

The International Energy Agency estimates European industrial gas demand fell by 25% in the third quarter from a year earlier. Analysts say widespread shutdowns had to be behind the drop because efficiency gains alone would not produce such savings.

"We are doing all we can to prevent a reduction in industrial activity," an European Commission spokesperson said in an email.

But when the weather turns colder and households crank up heating, the industrial sector will be the first to face cuts in case of shortages, economists warn.

Exodus Fears

European industry has been shifting production to locations with cheaper labour and lower other costs for decades, but the energy crisis is accelerating the exodus, analysts said.

"If the energy prices stay so elevated that part of European industry becomes structurally uncompetitive, factories will shut down and move to the U.S. where there is an abundance of cheap shale energy," said Daniel Kral, senior economist at Oxford Economics.

For example, EU primary aluminium output was halved, cut by 1 million tonnes, over the past year.

Trade figures compiled by Reuters show all nine zinc smelters in the bloc have either cut or stopped production, which was replaced by imports from China, Kazakhstan, Turkey, and Russia.

Reopening an aluminium smelter costs up to 400 million euros ($394 million) and is unlikely given Europe's uncertain economic outlook, Chris Heron at industry association Eurometaux said.

"Historically, when these temporary closures happen, permanent closures come as a consequence," he added.

Western efforts to secure supplies not just for energy but also for key minerals used in electric vehicles and renewable infrastructure are also at risk from high energy prices.

Brussels is expected to propose new legislation early next year - the European Critical Raw Materials Act - to build up reserves of minerals indispensable in the transition to green economy, such as lithium, bauxite, nickel, and rare earths.

But without more renewable power and lower costs, companies are unlikely to invest in Europe, Emanuele Manigrassi, climate and energy senior manager at European Aluminium, warned.

Packing Up

The feared industrial erosion is already underway. Europe became a net importer of chemicals for the first time ever this year, according to Cefic, the European Chemical Industry Council.

More than half of European ammonia production, a key ingredient in fertilisers, has shut, and has been replaced by imports, according to the International Fertilizer Association.

Norwegian fertiliser maker Yara has cut two-thirds of its European ammonia production and has no immediate plans to ramp it back up.

"We are watching the situation in the gas market closely and are making contingency plans," CEO Svein Tore Holsether told Reuters via email.

Last week, the world's largest chemical group BASF questioned whether there was a business case for new plants in Europe.

The company has also warned it would have to shut production at its main Ludwigshafen site - Germany's single-biggest industrial power consumer - if gas supplies fall below half of its needs.

Some firms, including German viscose fibre maker Kelheim Fibres which supplies Procter & Gamble, are looking to other energy sources. This year, the German company has cut output twice at its factory in Bavaria.

"From Jan. 1, we will be able to switch to oil," company executive Wolfgang Ott said, as the company seeks government help to cushion energy costs. It is even pondering a 2-megawatt solar project.

German industries have been seeking speedier approvals to switch from gas to more polluting fuels, warning that otherwise they would be forced to cut production to meet Berlin's savings targets.

In Greece, Selected Textiles, a small cotton yarn producer, has cut output as orders mainly from northern Europe have fallen.

At its plant in Farsala, central Greece, CEO Apostolos Dontas estimated production would fall 30% this year.

"We see our clients (...) are seriously concerned whether there will be an equivalent consumption of finished products in Europe and whether northern European manufacturers themselves will have access to natural gas," he told Reuters.

Tata Chemicals, which usually operates on a five-year plan, is now working on a quarterly basis, its Europe managing director Martin Ashcroft said.

"If this is a structural change and gas prices stay high for three or four years, the real risk is industry investment will be directed elsewhere to places with lower energy prices," Ashcroft added.

($1 = 1.0164 euros)

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

Kevin Du

Political

Something truly remarkable is happening in Britain. And no, I am not talking about the fact that we have had three prime ministers this year (so far). Nor am I thinking about the first person of Asian background to be prime minister of the UK, Rishi Sunak, though his rise is indeed is remarkable. Nor, even, am I thinking about the seven weeks of total madness that was the government of Liz Truss. This short-lived period of self-harm caused so much economic and political dislocation that Mr Sunak and his Chancellor of the Exchequer Jeremy Hunt are being forced to take another few weeks to figure out how to repair the damage caused by their own Conservative party.

These changes are indeed remarkable, yet more astonishing than all of them – and underpinning every one of them – is the fact that the B-word is back in the British political vocabulary. The B-word is Brexit. It has largely been removed from British political discussions for some time. Former British Prime Minister Boris Johnson claimed Brexit was "done," and so we shouldn't talk about it any more. The Labour leader Keir Starmer decided that re-fighting Brexit was at best a waste of time and at worst would alienate Brexit supporting Labour voters. He therefore says very little about Brexit at all.

Television news reports often discussed all kinds of problems – long queues of trucks at British ports, trade dislocation, lines of British travellers at airports, lower growth than other European countries, the weakness of the pound and price rises for imported goods – with only occasional mentions of the B-word. But now, slowly, it has begun to sink in to the British political consciousness that not only is Brexit not "done", it is also a failure at every level – an economic, political and constitutional failure, with different parts of the UK (Scotland and Northern Ireland, most obviously) resenting Brexit for the damage that has been caused, and with more to come.

In the case of Northern Ireland, the result of Brexit has already been serious. It will get worse. The Democratic Unionist Party (DUP), which used to be Northern Ireland's biggest party, enthusiastically supported Brexit without ever explaining what the reality of their supposedly ideal Brexit would look like. They were against every Brexit idea put to parliament, yet still remain in favour of the idea of leaving the European Union.

The result of their confusion is the Northern Ireland Protocol – which they loathe, yet their political manoeuvring helped create. The Protocol in effect treats Northern Ireland as if it were still in the EU in terms of trade. But that means a border in the Irish sea between Northern Ireland and the rest of the UK. The DUP have now brought down the devolved Stormont government in Northern Ireland. The result is talk of new elections, but new elections will solve nothing, except perhaps alienate voters even more. The DUP has already lost its position as the biggest party in Northern Ireland to the Irish Republican party, Sinn Fein. Historians will note that Northern Ireland was created in 1922 specifically to avoid an Irish Republican party ever holding power in Belfast.

The sad fact is that Northern Ireland has not ever appeared high on the priority list of some of our many recent post-Brexit prime ministers. Mr Johnson agreed the Northern Ireland Protocol. Ms Truss had so little time in office she did nothing of substance about the problem. And now Mr Sunak has so many other things to think about, specifically the economy, that he appears to be too busy even to attend Cop27.

But if Northern Ireland is barely on his radar, Mr Sunak is also unlikely to admit that Brexit has been a disaster, even if others are beginning to do precisely that. The Brexit silence is over. The Financial Times has released an excellent half hour video on the impact of successive government failures. As they put it: "The UK's recent disastrous "mini" Budget can trace its origins back to Britain's decision to leave the European Union. The economic costs of Brexit were masked by the Covid-19 pandemic and the crisis in Ukraine. But six years after the UK voted to leave, the effect has become clear." The FT film had three million views in a week.

A short factual BBC film on the same subject had more than a million views after a day or two. The political omerta, the silence about the core issue which has undermined four prime ministers since 2016, divided the Conservative party and led to a lack of leadership in the Labour opposition, is slowly being broken. Of course, merely talking about a problem does not solve that problem. But at least honestly recognising that Brexit is indeed a problem, and one so significant that it has now undermined a series of British governments, opens the way to minimising future damage. There is an opportunity here for Mr Starmer. In order to seize it, he has to break his own relative silence and start saying the B-word.

Source: The National News

Risk Warnings and Disclaimers

Comments

Add to Favorites

King Ten

The Death of Risky Assets

If We Said that the Strong Dollar is to Blame for the Deep Fall of All Other Assets some Time Ago. Then What about the Roots of This Time? Perhaps It is The Reinforcement of Self-Protection under the Fear of Crisis. The Result of Investors' Self-Protection is a Frenzied Sell-Off, while Suppliers are Going to Reduce Production Capacity to Survive the Downturn.

In Fact, Raising Interest Rates is Only a Necessary Way, the Price is the Increase in Economic Pressure, of Which the Greatest Pressure Must Belong to Risk Assets, Especially the Real Estate.

Another Black Tuesday, CIFI Holding Group, Sunkwan Real Estate, and Greenland Holding Group All Announced Debt Defaults or Extensions. "Honors Student" CIFI is the Most Eye-Catching, It Stayed Up for two Months, and Finally "Knelt Down", and Wu Yajun Quickly Handed over the Power to Exit. "Self-Discipline Student" LongFor Group also Experienced an Unprecedented Double Kill of Stocks and Bonds, and Its Stock Price once Plummeted by 40%. This Can't Help but be Reminiscent of the "Five Golden Flowers" of Real Estate Private Enterprises, and Now only Country Garden, Midea Real Estate, and New Town Remain. Even if Their Financial Situation is Relatively Healthy at Present, They may Encounter the Problem of Stampede, or They may be the Last Line of Defense for Private Housing Companies in the Cold Real Estate Winter.

Looking for the Dawn Through the Smog

Real Estate has Two Legs, One is Financing, the Other is Sales, the Leg of Financing is Basically Abolished, and the Leg of Sales is also Faltering. In the Past, the Sales Department was in Full Swing, and Now Visitors are Few and Far Between. On the One Hand, It is the Change of Consumers' Own Confidence under the Epidemic.Lively Streets have Disappeared, Replaced by Sparse Passers-By Now; But the Major Reason is the Shaking of Faith in the Property Market. Once a House, Buying is Earning, after the Ebb Tide, the Current House is Like a Hot Potato.

This is the Reality in Front of Us, but Investment is to Find Bright Spots, We Don't Know How Far Away the Smog is, but We Need to See the Dawn.

First of All, the Real Estate Financing Environment is Quietly Improving, the Financing cost of New Bonds of Housing Enterprises are Declining, and the Financing Channels are also Greatly Expanding.

In September this Year, Midea Property, New Town, Country Garden and CIFI Issued Medium-Term Notes, with Coupon Rates Lower than Those Issued by Relevant Private Enterprises in the Previous Period, which was Basically the Same as the Interest Rate Issued by State-Owned Enterprises.

Secondly, the Profits of Housing Companies in the Third Quarter are also Retrograde. The Third Quarterly Report Shows that among the 95 A-Share Housing Companies, 38 have Achieved Year-On-Year Revenue Growth, Accounting for 40%; 24 Companies Achieved a Year-On-Year Increase in Net Profit Attributable to the Parent, Accounting for 25.27%. Among these Two Sets of Data, There are 12 Housing Companies that Increase both Revenue And Profit, Accounting for 12.63%, which Shows that There are Still Many Housing Companies that are Going Against the Wind.

As an Ordinary Investor, You Can't Go Against the Trend, but as an Excellent Investor, You must have Insight into the Trend that Ordinary People Can't Detect, Create Momentum, and Turn the Ordinary into Magic. It is Easy to Follow the Trend, But it is Hard to Build Momentum. In this Real Estate Recession Transaction, the Trading Opportunity is a Short Opportunity for Investors to Panic and Sell, Resulting in a Decline in Asset Prices, which is the Trend; While the Opportunity to Go Long Below the Actual Value after the Price is Stampeded, that is the Momentum. It Depends on Your Vision and Pattern, and When the Smog Clears, You Will Witness the Dawn.

Risk Warnings and Disclaimers

Comments

Add to Favorites

Cohen

Political

The European Council recently confirmed that little, if anything, in the European Union moves without consent between France and Germany.

French-German controversies have been at the core of the energy issue for weeks now. But it's not unusual for these two countries to adopt different stances at the onset of an EU crisis — nor for them to criticize each other. One might even argue that initial French-German differences are a precondition for later European compromises, as the two nations often represent the overall spectrum of member countries' preferences.

What is disturbing in the present case, however, is that policymakers from both countries are debating bilateral disagreements publicly — and in an aggressive manner.

Facing an escalating energy crisis, national leaders professed solidarity and pledged common action at the European Council last month. Their conclusions, however, remain full of vague and ambiguous formulations, notably on the "dynamic" price corridor for gas, essentially instructing the European Commission to come up with proposals for more ambitious and concrete measures.

Meanwhile, French President Emmanuel Macron went so far as to call Germany "isolated," and in return, German Chancellor Olaf Scholz cancelled a planned bilateral meeting of ministers.

What a difference compared to the COVID-19 crisis of just two years ago!

Back in early 2020, France and Germany were again in disagreement, this time on the bloc's fiscal response to the pandemic. While France called for the joint issuing of government bonds, Germany at first insisted on using existing financial instruments instead. Importantly, however, then Chancellor Angela Merkel and Macron came to recognize that a common European response was imperative — not only financially but also to send a signal of political unity — and they later presented the blueprint for what would become the EU's NextGeneration recovery plan.

The current energy crisis, by contrast, seems to be a more complicated task, as it involves several policy dimensions, including geopolitical questions and matters of energy security, supply and prices. And historically speaking, French-German bilateralism — as well as its potential to forge larger European compromises —has always had a more difficult time when several policy dimensions are involved.

In this instance, one cannot help but recall the 1973 oil crisis, where French-German clashes similarly prevented a coordinated European response.

Following the outbreak of the Arab-Israeli "Yom Kippur" War in early October 1973, the West's oil-consuming countries — including the European Economic Community (EEC) — faced rising prices thanks to production cuts. Arab countries sought to use oil as a weapon to divide the EEC and push its member countries to take a more critical stance toward Israel.

Strategically distinguishing between "friendly," "neutral," and "unfriendly" countries, the Arab nations subjected the Netherlands to a full oil embargo as the only EEC member country, which led the Dutch government — along with the European Commission — to plead for European solidarity and the sharing of oil.

However, members couldn't agree on an oil-sharing mechanism. More concerned about securing oil supplies, Germany echoed Dutch calls for greater solidarity, while France advocated for bilateral contracts with oil-producing countries. It argued that any intra-European sharing would only provoke the Arab countries and lead to further price hikes. And at the Washington Energy Conference just a few months later, German Finance Minister Helmut Schmidt bluntly told French Foreign Minister Michel Jobert his country had the necessary financial means and was willing to pay higher prices.

One finds remarkable parallels to current discussions here, as much like today, different French and German approaches, priorities and economic philosophies prevented a European agreement. And next to energy itself, the 1973 oil crisis had an important foreign policy dimension too.

France suggested a common European front and direct dialogue between Arab producer countries and European consumer countries. Initiating the Euro-Arab dialogue, it insisted on a common mandate for the Washington Energy Conference. Germany, meanwhile, favored the idea of a transatlantic consumer cartel, as suggested by United States President Richard Nixon and his Secretary of State Henry Kissinger. And although speaking in his capacity as president-in-office of the EEC Council, then German Foreign Minister Walter Scheel publicly supported the U.S. proposals, leading Jobert to designate his European colleagues as "traitors."

Without France joining the U.S.-sponsored International Energy Agency — which was formally established in November 1974 — the Continent was perfectly split on energy and foreign policy.

Of course, the lack of European coordination and action was costly. Although hindsight suggests the EEC didn't face an existential shortage in supply, oil prices still quadrupled. Political unity proved elusive too. Angry at the lack of solidarity, the Netherlands threatened to reduce the export of gas to European partners from the Groningen fields. And in a climate of distrust, planned integration projects — such as the transition to a European monetary union and the creation of a regional fund supporting the poorer areas of Europe — proved unrealistic.

The experience of the 1973 oil crisis shows that energy challenges can hugely undermine European unity, and the popular notion of Europe emerging stronger from every crisis is far from certain. Thus, it's important that member countries — France and Germany in particular — develop a common vision and objective for addressing the current energy crisis.

Europe needs bilateral initiatives, followed by compromises. Concretely speaking, this means determined and fast attempts to limit gas prices — and on this, primarily Germany must move. At the same time, France should withdraw its resistance to a true European energy market — including pipelines crossing its territory — while joint purchasing of gas would help too.

But before anything else, the public bashing needs to stop.

Source: Reuters

Risk Warnings and Disclaimers

Comments

Add to Favorites

Thomas

Political

For decades, Malaysians have been used to three things being true about their elections. There were two sides, with the sprawling Barisan Nasional (BN) coalition being opposed by what was often a combination of Chinese, reformist Malay, and Islamist parties. The BN always won. But it did so with a sufficiently convincing majority of the vote that no matter what the complaints, it could not be denied that these were fiercely fought democratic elections.

That changed slightly in 2013, when the then opposition won the popular vote but not a majority in parliament; and drastically in 2018 when the new Pakatan Harapan (PH) coalition led to the first ever defeat for the BN.

This general election on November 19, however, will be totally different to any the country has ever experienced. Firstly, the electorate has increased enormously, as nearly seven million people have been automatically registered to vote under a new law that also lowered the voting age to 18 from 21. No one can be certain for whom the young will cast their ballots, if they do so at all.

Secondly, in peninsular Malaysia, which is home to 166 of the 222 parliamentary seats, there will be a competitive three way split for the first time. BN, led by current prime minister Ismail Sabri, will be fighting PH, led by the former deputy prime minister Anwar Ibrahim, but also the Perikatan Nasional (PN) alliance, composed chiefly of Bersatu, the party headed by Mr Ismail's predecessor as premier, Muhyiddin Yassin, and the Islamist party PAS.

Two state elections over the past year, in Melaka and Johor, show what can happen when the three face off against each other. In Melaka, BN won 38 per cent of the vote, and 21 out of the 28 seats in the state assembly. PH won 36 per cent of the vote, but only five seats, while PN took 24 per cent of the vote and a mere two seats. In Johor, BN won 43 per cent of the vote, which resulted in 40 out of the 56 seats available. PH won 26 per cent, and 12 seats. PN won 24 per cent, but only three seats, with the final seat going to a youth party linked to PH.

Significantly, although the approval rating of the Mr Ismail's interim government is 38 per cent, according to the independent Merdeka Centre pollsters – and that is one per cent lower than what they found just before the 2018 election that ousted the BN for the first time – this time there is no united opposition.

Malaysians are so used to the idea that you win elections by having 50 per cent or more of the vote, that when I once told my former colleagues at the country's Institute of Strategic and International Studies that Tony Blair won his last UK general election with 35 per cent, they almost fell off their chairs. They may be about to see, however, just how much the first past the post election system can produce results that are wildly at odds with the number of votes cast. With a three way split, if the Melaka and Johor results were reproduced nationally, BN could win an overall majority without even needing the support of its traditional allies in the Borneo states of Sabah and Sarawak. That is unlikely. PH will expect to hold on to its urban strongholds, while PN should do well in the northern and eastern rural areas where PAS has often ruled at the state level.

Outside observers may be wondering though how it has come to pass that the BN returning to power after being convincingly booted out in 2018 is now a serious prospect. Part of the answer is that that was an exceptionally polarised election. PH supporters painted the then BN government of Najib Razak – whose economic transformation programme earned consistent praise from the World Bank and the International Monetary Fund – as being on a par with the forces of the Dark Lord Sauron in JRR Tolkien's Lord of the Rings. They, on the other hand, were supposedly corruption-free reformists who would bring about an array of changes, some liberal, some populist. But they could not deliver. As PH's prime minister, Dr Mahathir Mohamad, admitted a few months after their victory: "We made a thick manifesto with all kinds of promises" because, "actually we did not expect to win."

That may win marks for candour, but can hardly be expected to retain the trust of voters who expected better than the constant arguments, the failure to ratify accords such as the UN International Convention on the Elimination of All Forms of Racial Discrimination, and what one chief executive described to me as the "witch hunt" of all corporate and government figures, no matter how talented, who had any association with the Najib government.

The PH government fell in February 2020, with one of its parties, Bersatu, then joining BN and PAS in the government headed by Mr Muhyiddin, which then changed again in August 2021 when Mr Ismail took over while presiding over essentially the same administration. Just about everyone has been in power at one point or another over the past four years, so there is no serious contender that can claim the purity of opposition. Disappointed liberals, always a tiny minority in any case, have no serious party to flock to that has not been tarnished by the compromises of government.

The political instability of the past few years may well, however, have resulted in too many compromises, notwithstanding the chaos the pandemic caused both globally and locally. What Malaysia needs – and this applies whichever coalition wins – is a return to stability. That is what the country had under the BN from 1957 to 2018, when "Who will save Malaysia?" was PH's pitiful cry. BN supporters asked why the country needed saving from years of sterling growth, record foreign direct investment, a history of punching above its size in organisations such as the Association of Southeast Asian Nations and the Organisation of Islamic Co-operation, and a series of economic and political reforms that increased prosperity and, to a degree, personal freedom.

Whichever government can return to that track – regardless of whether it is the BN, PH or PN – will be doing what the country requires. Otherwise, as many have said, Malaysia faces the dire prospect of a "lost decade", permanently stuck in the middle income trap, and adrift from the model of a moderate, multiracial, successful and harmonious society that it once was.

Source: The National News

Risk Warnings and Disclaimers

Comments

Add to Favorites

Daily News

Remarks of Officials

Central Bank

Forex

FastBull Events

FastBull Featured

Devin

Mohammad Omar

Recent Searches

Top Searches

Markets

News

Analysis

User

24/7

Economic Calendar

Education

Data

Four Years into The Trade War, Are the US and China Decoupling?

Total Us Imports from China Have Been Down Since the Onset of The Trade War

Trump's Trade War Tariffs Affected Imports In Expected Ways

US Imports Are Surging for Some Chinese Products Never Hit with Tariffs

Chinese Products Hit With 25 Percent Tariffs Have Struggled

US Imports of Semiconductors from China Cratered with Us Tariffs

US Imports of Chinese Products Subject to Lower Tariffs Have Been Uneven

Benefits Of Any Us-China Decoupling Come with Costs

Interpret The Evidence with Caution

Source: PIIE

Africa Deserves a Fair Shake at Upcoming Climate Summit

Primed For Growth

Ambition Mismatch

Buy-Ins or bail outs?

Source: Reuters

Energy Crisis Chips Away at Europe's Industrial Might

Exodus Fears

Packing Up

Source: Reuters

The Brexit Buzz in the UK is Back

Source: The National News

OPPORTUNITIES Always Hidden in the Crisis and DANGER

The Death of Risky Assets

Looking for the Dawn Through the Smog

The Difficult Quest for A Common Energy Policy

Source: Reuters

Malaysia's General Election This Month Will Be Unlike Its Others

Source: The National News

Risk Disclosure