Counting the Cost

What’s the endgame in the US-China trade war?

As the US and China impose tariffs on thousands of products in an escalating trade war, we ask what’s next.

The ongoing and protracted tit-for-tat trade dispute between China and the United States has intensified this week – so much so that it prompted a warning from the Organisation for Economic Cooperation and Development (OECD).

The Paris-based think-tank says the world’s economy can’t keep growing if things don’t improve on the trade front.

China has now slapped tariffs on nearly $6bn-worth of US goods in retaliation for the latest round of US tariffs on $200bn-worth of Chinese products.

The increased tensions will likely scuttle the renewal of trade talks between Beijing and Washington, reports Al Jazeera’s Scott Heidler from Beijing. While about 5,000 Chinese products, including household goods from vacuum cleaners to bikes, will be targeted, many US businesses are expected to suffer as well.

He (Trump) has somewhat lost the narrative or the messaging battle because it looks like the US is provoking a trade war, when, in fact, he's trying to fix something that needs to be fixed.

by Greg Swenson, founding partner of Brigg Macadam

“Just before the tariffs were announced in Washington, the Chinese commerce secretary said US protectionism won’t only impact the two countries involved in the trade war, but it will hurt the global economy as well,” says Heidler.

Beyond US protectionism, “I don’t think the goal has been demonstrated or articulated well by the [US] president,” explains Greg Swenson, the founding partner of London-based Brigg Macadam, a merchant banking house for emerging and frontier markets.

“What he (Trump) seems to dwell on is the trade deficit and he picks these arbitrary numbers or targets for trade deficit reduction, which is a mistake. What he should focus on is that China is violating all kinds of free-market and open-market policies and rules. The US has taken China to the WTO 16 times in the last couple of years, and they’ve won all 16 times, but that doesn’t seem to be fixing the major problems, which are theft of IP and the complete disregard for free-market principles.”

Swenson says that Trump has “somewhat lost the narrative or the messaging battle because it looks like the US is provoking a trade war, when, in fact, he’s trying to fix something that needs to be fixed.”

“I don’t think these tariffs will stay in place because they’re self-defeating. It’s not really going to hurt the American consumer or the American economy. In many ways, the president’s playing with the house’s money; the economy is kicking on all cylinders.”

“The Chinese have a lot more to lose if they are in a trade war,” Swenson says, explaining that Americans are importing $500bn-worth of goods from China, whereas the Chinese are only importing $130bn from the US. “So, the US has a much better ability to punish China and that’s obvious.”

Why does India’s rupee continue to fall?

While India is often referred to as world’s fastest-growing large economy, its currency has fallen by more than 12 percent this year against the US dollar. The Indian rupee is now the worst-performing currency in Asia – despite efforts by Prime Minister Narendra Modi to turn the tide.

The country’s finance minister has blamed the depreciation of the rupee on global factors, including the US-China trade war.

So what is behind India’s currency crisis?

Why does India’s rupee continue to fall?

Gregor Irwin, chief economist at Global Counsel, says there are a number of factors contributing to it.

“The price of oil has gone up and, for a country like India which imports much of its energy, that pushes up the import bill,” he says.

“Above all, there are concerns about a divergence in global monetary conditions, US interest rates are rising and that has exposed vulnerabilities in quite a few countries like Argentina, Turkey … so India has not been immune to that.”

As the rupee devalues, the price of fuel increases because the government buys energy in dollars and that “really does squeeze living standards,” explains Irwin.

“It’s also a political concern … that not a whole lot the government can do about that, other than try and address other factors that are helping to put down the pressure on the rupee – such as raising interest rates…”

Also on this episode of Counting the Cost:

Afghan ice cream: Since the United States invaded Afghanistan in 2001, one song has echoed across Kabul’s neighbourhoods. “Happy Birthday” blasts from the speakers of hundreds of ice cream carts across the capital, but the recent surge in violence before the upcoming elections has caused their profits to plummet, as Charlotte Bellis reports from Kabul.

Australia strawberries: A sabotage scare is threatening to hurt Australia’s strawberry growers. They’ve warned about an overreaction after several people found sewing needles inside the fresh fruit. While some reports turned out to be hoaxes, the devastating effect on the industry is the same, as Andrew Thomas reports from Sydney.

SpaceX passenger: There is now a face and a name for the man who hopes to become the first paying passenger to fly to the moon. US company SpaceX has said Yusaku Maezawa, a Japanese billionaire, is its first customer. The 42-year-old online retailer said it has been his lifelong dream to go to space, as Victoria Gatenby reports.

Qatar-Japan electric cars: Qatar and Japan are teaming up to manufacture electric cars. The new $9bn project involves building several factories from scratch and is supposed to be up and running by 2024. The first car to roll off the assembly line will be called ‘Katara’, and will be launched in conjunction with the FIFA World Cup in 2022. The project is backed by ARM of Japan.

Turkey’s economic plan: Emerging market currencies have been a big focus in the past few months. This week, Turkey unveiled its long-awaited plan to find a way out of the crisis. Finance minister Berat Albayrak was put in charge of the economy two months ago by his father-in-law, President Recep Tayyip Erdogan. He sharply cut its growth forecasts for this year and next. He also promised to slash public spending by nearly $10bn and blamed some of Turkey’s problems on a spat with the US.