At the beginning of September, Chinese president Xi Jinping incensed Donald Trump by imposing a flurry of new import duties on US goods, including semiconductor chips and mobile phones.
It was a retaliation too far for the US president, especially when the stock market reaction was to send shares in America’s second most valuable company at the time, Apple, tumbling by almost 5%. For many observers it was just another skirmish in the tit-for-tat trade war that had rumbled on for 20 months. But in Washington it came as a shock, and was the driving force behind Trump’s premature announcement the following month of an interim deal – one that after much wrangling finally came to fruition, or at least appeared to, last week.
Trump said his administration would cancel a new round of 15% tariffs on Chinese goods including toys, phones and clothing that was set to take effect this weekend. In tweets, he added that the White House would halve duties already in place on $120bn (£90bn) of Chinese imports to 7.5%, while leaving 25% tariffs on $250bn of goods imposed earlier this year.
Trump probably expected US stock markets to soar as investors thanked him for calming the rhetoric on trade and appearing to move towards a more comprehensive deal next year. That simply didn’t happen, and for two very good reasons. The first lay in the response of vice-minister of finance Liao Min, whose main, underwhelming, concession was that he would buy $50bn of US agricultural produce and consider cancelling retaliatory tariffs also set for this weekend.
Then there was what Trump’s hardline anti-China constituency, which is large and cuts across Republican and Democrat party lines, see as the real prize. This involves extracting commitments from Xi to open up China’s financial services sector, crack down on intellectual property theft and block demands from Chinese companies for technology transfers as the price of new contracts. There was not much evidence of this.
Robert Lighthizer, Trump’s chief trade negotiator, said in a statement: “President Trump has focused on concluding a phase one agreement that achieves meaningful, fully enforceable structural changes and begins rebalancing the US-China trade relationship.”
Except that sentence was pretty much all that was said about a crucial aspect of the talks. Some Republicans, including Senator Marco Rubio, have criticised Trump for potentially winding down import tariffs before the Chinese had agreed to any meaningful structural changes. Without a commensurate sweep of tariff cuts from the Chinese and a lack of commitment from Beijing to tackle domestic governance abuses, the markets were left to ask the obvious question: are we any further forward?
The answer must be yes, but it could be that it’s actually the Chinese who can claim to be further forward, and the reason goes back to the US economy and the New York stock market. Beijing knows that Trump faces an election next year, and that to win he must lay claim to a buoyant economy and, to his mind, a soaring stock market.
Trump’s problem is that the tariff war has hurt US businesses by raising their costs, and materially harmed US farmers, who have found themselves shut out of Chinese agricultural markets.
These developments have played a big part in the halving of US economic growth over the past year. It has also severely dented China’s growth rate – though by how much it is hard to tell, thanks to the smokescreen of state-published financial data.
Beijing, though, doesn’t need to worry about elections and is playing a careful game. However, the world must hope Xi offers some real concessions and that the battle of the past two years calms further.
The US/China trade war has proved to be the biggest drag on global growth. It has limited the income growth of billions of people, and that is something most countries can ill afford.
The vote was kind to the water industry. So Ofwat must be tough
The threat of nationalisation disappeared with the Labour party’s election defeat, but here comes a more familiar foe for the English water companies: regulator Ofwat, which on Monday will unveil its pricing regime for the next five years.
“Foe” hasn’t always been an apt description of Ofwat over the years. The regulator stands accused of twiddling its thumbs while the water industry loaded up with debt, paid billions to shareholders in dividends and failed to prevent pollution and leaks.
That lenient regulatory stance is about to change, or so we’re told. The early drafts of the new regime demanded that household bills be cut by an average of £50 in real terms over five years and that targets on leaks, pollution and flooding become more demanding. Ofwat says it wants a “step-up” in efficiency.
We wait to see if this bolder rhetoric and the tougher draft proposals will be carried into the final determination. The indications suggest it will. Ofwat officials themselves, in a semi-acknowledgment that life was too easy in the past, have described this review as “not business as usual” and called for an end to “financial game playing”.
For a few companies – those at the top of performance league table – none of this will sound threatening. The interesting part is how the laggards will react if a demand for higher standards implies substantially lower financial returns for owners. Some have muttered about Ofwat having become “politicised” but Monday is the day when they’ll either have to accept Ofwat’s rulings or appeal to the Competition and Markets Authority.
It’s their choice, but a series of CMA investigations might be a very good thing if Ofwat were to prevail. It could finally close an era in which it was too easy for investors to get rich on the back of bill-payers. In that analysis, Labour was essentially correct.
US regulators face a long haul to regain trust after Boeing crashes
Risk is always a numbers game. A one in a million chance of disaster might sound reasonable; until the calculation that, for example, with 5,000 planes taking off twice a day, only a few months will elapse until one crashes.Risk is always a numbers game. Given the aviation industry’s mantra that safety is its top priority, it was startling to hear that US regulators had worked through some chilling calculations with the Boeing 737 Max in the wake of its first fatal crash in October 2018. Their analysis found that, without intervention, the plane would suffer a fatal crash every two or three years – but they let it continue flying nonetheless.
Given that one such plane had crashed in Indonesia just a month earlier, killing 189 people, perhaps the Federal Aviation Administration thought time was on its side.
The FAA’s inaction was followed in March this year by the Ethiopian Airlines disaster, which killed 157 people. Revelations in last week’s House committee hearings in Washington have further eroded trust in the regulator’s determination to do its primary job of cutting risk, rather than looking to preserve Boeing’s licence to fly its new, bestselling plane.
The head of the FAA, Stephen Dickson, is pledging reform, as critics damn its relations with the manufacturing giant as classic regulatory capture. The way Boeing was allowed to “self-certify” some safety requirements, and the FAA’s reluctance to join the world in grounding the Max after the Ethiopian crash, will not quickly be forgotten.
Boeing has stepped up its efforts to convince the world that its reprogrammed 737 Max is safe, but it will be for regulators to decide. However eager airlines are to see the cheaper model return to the skies, this process should not be rushed.
If Canadian, European or Chinese regulators disagree with the FAA’s assessment, there should be no question of bringing back the Max into local service. Safety cannot be partial or geographic. The reciprocal faith regulators have hitherto shown in each other’s judgment – and the trust that engenders in the global flying public – will in the long term prove far more valuable than the tens of billions invested in the Max.