Good morning π§οΈπͺοΈ. A typhoon passed through ππ°& it's gloomy outside, just like the mood of markets after:
a) JPO said hedgy words "act as approprioate"
b) Carney speech on the dollar & digital $
c) China raising tariffs to 30% from 25% on 75bn
d) Trump raised 300bn tariffs to 15%
Facts of tariffs so far:
a) China imports from the US roughly 120bn & tariffed 110bn so got 10bn left & so to ESCALATE it needs to raise the level as volume limited
b) That happened w/ 75bn raising by 5% so items like US crude went from 25% to 30%
c) US imported ~550bn & so far
Events leading to today:
June '18: πΊπΈ25% tariffs on 34b; π¨π³ retaliates w/ 25% on 34
Aug '18: πΊπΈ25% on 16b; π¨π³ same
Sept '18: πΊπΈ10% on 200b that'll be raised to 25% (1 Jan)
π¨π³ retaliates w/ 5% on 60b
Truce
May '19: πΊπΈ raises 10% to 25% on 200b
June '19: π¨π³ raises 5-25% on 60bn
Not yet tariffed by both sides but WILL starting 1 September 2019, yes this Sunday:
a) πΊπΈ tariffs on the remaining (see chart ππ») 300bn by 10% that later exempt 156bn (mostly consumer goods till 15 December)
b) China retaliates w/ raising 5% on existing tariffs of 75bn so +5% ππ»
ππ»:
c) πΊπΈ Raising 5% on existing to 250bn to 30% on 1 October 2019.
By 1 October 2019: China tariffs on the US ranging from 10-30% of 110bn of goods & the US got 30% on 250bn of goods & 15% on 300bn of goods (w/ 156bn delayed til 15 Dec)
Basically all of trade b/n US&China ππ»ππ»
d) By 15 December, unless there are efforts to delay tariffs, there will massive front-loading for fear of this happening & guess what?
WE WILL HAVE TARIFFS ON ALMOST ALL OF US CHINA TRADE.
But that never ends there. Watch investment.
70th anniversary of the People's Republic of China led by the CCP is on, wait for it:
1 October 2019, which is the same date that the 25% of 250bn goes to 30% & obvs a month before on 1 September 15% on 144bn (156bn to be applied on 15 December 19.
About that September talkπ¬..
As a recap: Notice that the "bark" much stronger than "bites" to manage expectations & actions always surprise u w/ lower magnitude but trend is escalation.
Meaning, worst case scenario now new normal & u rejoice when it escalates but less than "bark"ππ»
As in the 10% to 15% of 144bn of goods on 1 September 19 (15% on 156bn of consumer goods 15 December) & 25% to 30% for 250bn of mostly intermediate goods on 1 October may not be realized, which u'll rejoice but only b/c ur expectations are managed. Don't forget that norms change
Trump: Non-committal in China tariff delay. Told you. He just puts it out there so you price the WORST & then takes a bit away & then when it happens you will think it is GOOD NEWS.
True story. This is what happened since late Jan 2018. SPX futures up 1% vs -1% this morning.
Do you know what happens after every escalation so far for trade-war? Deescalation by both China & the USA (yep, true story), albeit short-term reprieve until it escalates again, kind of like a dance to get to know each other's limit...
Same script still plays to buy timeππ»
#Breaking Mofcom's Gao (de-escalating): Trade escalation not good for π¨π³, πΊπΈ; πΊπΈ & π¨π³ in effective contact; π¨π³won't discriminate against foreign firms; Won't crack down on foreign firms; discussing πΊπΈ visits in Sept; π¨π³ has ample tools to respond but thinks should discuss removal
β’ β’ β’
Missing some Tweet in this thread? You can try to
force a refresh
Who likes higher fuel prices in Asia??? Well, no one except Indonesia and Malaysia and by that I mean exporters.
The biggest deficit as a share of GDP goes to Thailand but mostly in LNG. Second is South Korea.
Obvs this is as a share of GDP. Higher fuel costs = higher import costs = someone has to pay for it & eg higher inflation or higher fiscal costs.
Who likes higher food prices? Well, a few - Thailand, Malaysia, Indonesia, Vietnam and India. Obvs this is EXPORTERS only who gain. EM has high food as a share of consumption basket. But net food exporters have levers to pull. They can BAN exporting of food.
Who is most vulnerable? The Philippines. South Korea imports a lot too.
Putting food and fuel together as a share of GDP: Who is most exposed?
Well, South Korea and the Philippines. KRW doesn't like this news.
PHP doesn't like it. One caveat is that SK is much richer so can afford it more than say PH where this will hurt more.
Did you know that South Korea exports more to the US now than it does to China?
Actually, it isn't alone. A lot of Asian countries, due to supply chain reshuffling and also geopolitics and industrial policies, are exporting now more to US than China.
Why is South Korea doing more trade with a country far away than a country next door?
First, growth of exports to the US is faster than exports to China. In fact, China hasn't been importing much more and it is Korea that has been importing more from China for goods such as intermediate goods etc.
This has raised a big concern in Korea that China is a competitor & it's hard for SK to compete with its industrial policy and subsidies.
And so South Korea has 1 lever it can pull that is better than China - GEOPOLITICS. South Korea is an ally to the US. And as a country w/ a US FTA, it is being favored.
Whether it's the Chips Act or the Inflation Reduction Act (IRA), the whole point is to exclude China.
Indonesia elects a new president in a week. The leading candidate is riding high on Jokonomics, or the continuation of his policy & popularity, as Jokowi's eldest son is VP.
Prabowo promises 8% average GDP growth or Jokonomics. How realistic & what is Jokonomics anyway?
While people believe that Prabowo is the best bet of doing more of what popular Jokowi has done for Indonesia in the past decade & he promises the highest growth, Jokowi 10-year only produced 4.2% GDP growth on average. Stripping out 2020 (Covid), it's 4.9%. No where near 8% π
Indonesia elects a new president next week to replace Jokowi. The leading candidate - Prabowo - is riding the president's coat tail as many hope that he is the best hope for continuation. But what is Jokonomics exactly? From 2014 to 2023, Indonesia grew on average 4.2% per yrπ.
If we strip out 2020, which economy contracted, then under Jokowi, the economy grew 4.9% on average (4.2% if we don't strip it out).
So that's sub 5%. In fact, GDP barely deviates from 5% level. So why do people think that Prabowo is the key to escape the middle income trap?
Pres Jokowi's biggest accomplishments come from the fiscal side. Indonesia got investment grade in 2017. By weaning Indonesia slowly off expensive energy subsides, the expenditure side was contained. And with the commodity boom, Indonesia fiscal positions were leaner than most.
As we bid adieu to 2023, which was an abysmal economic year for EM Asia (India an exception), hope springs eternal as we look to 2024 with key drags dissipating.
The great expectations of China lifting the region via imports and tourism disappointed as demand faded, weighed down by property market woes & weak investment.
From Korea to Vietnam, exports to China crashed, dragging down overall shipment, hurting big traders the most.
The goods deflation felt globally, especially in ICT, hit big traders hard. Commodity exporters such as Indonesia too didn't like the downward price trend.
Despite stronger US growth, China downward import growth dragged Asian exports.