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Economy

Trump tariffs could blot out positive economic

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Just last week, solid economic numbers appeared to be helping President Donald Trump’s reelection prospects.

The United States had achieved its longest economic expansion. Stock prices were climbing. Job gains were steady. Consumers had scaled up spending. Growth was sturdy enough to presage a second term for a conventional president, according to election forecasts based on the economy.

But Trump was not content to play it safe.

He chose to magnify the trade war with China and almost instantly destabilized the economy in ways that could hurt his 2020 chances if the conflict persists.

Stocks tanked in response to his planned 10% tax on $300 billion of Chinese imports. Retailers warned of price hikes. The value of the Chinese currency fell and the spillovers from that could weaken U.S. growth. For the first time after six days of sell-offs, investors on Tuesday were catching their breath to consider the uncertain path ahead from an inflamed trade war between the world’s two largest economies.

Part of the challenge is that the president’s penchant for uncertainty — the opposite of what investors seek — makes it difficult to know just how much risk Trump is taking with an election 16 months from now. But what is clear is that the range of possible outcomes for the economy is greater than they were a week ago.

“The more that you deepen or broaden this conflict, the greater the risk of misunderstandings, miscalculations and unintended consequences,” said Mike Ryan, chief investment officer at Americas for UBS Global Wealth Management.

Among the many possibilities: Trump might be able to strong-arm China into a trade agreement that favours the United States; he might suffer politically if the tariffs hurt U.S. farmers, manufacturers and consumers; he might agree to a cursory deal and hope to ride a stock market rally to reelection; or, he could be setting up a global recession that could eventually engulf the United States.

Larry Kudlow, director of the White House National Economic Council, provided little clarity Tuesday about the new tariffs that are to be implemented Sept. 1.

The Trump administration already has a 25% tax on $250 billion worth of Chinese imports in addition to the upcoming tariffs. Kudlow told CNBC the tariffs “might get worse” if the trade talks scheduled for next month flounder or they might be delayed if progress is achieved.

The president’s chief economic adviser acknowledged that China might simply try to endure the tariffs on the hopes that Trump loses in 2020 and the taxes are lifted by his Democratic successor.

“China can wait, that’s up to them,” Kudlow said. “But I think they will continue to do great damage to their economy. The American economy is very strong. Theirs is not.”

Increasingly, the administration’s actions on China are driven by the president himself, with Trump taking more control of the direction of the negotiations and retaliations.

Trump, aides and advisers said, is caught between a desire to maintain the appearance of toughness toward China and the political and economic realities of an elongated trade war. While the president says that the Chinese economy is paying a steeper price than the United States, he is acutely aware of the political risks of a downturn.

In recent weeks Trump has adopted a two-pronged message. He is insisting that China badly wants a deal, but he also is the one holding out for more on behalf of the American people, and he is claiming China is looking to wait-out his administration so he’ll keep increasing pressure. White House aides suggested that the diametrically opposite arguments reflected the twin audiences of the president’s public statements, namely Chinese negotiators and his political base.

The reality, they said, is somewhere in the middle, with the president looking to find the quickest off-ramp from the trade war that doesn’t allow him to be portrayed as weak — competing priorities that may not be reconcilable in the short term.

Nor is the situation under Trump’s control because China could easily retaliate and apply direct pressure on U.S. companies.

Beijing has already responded by increasing import duties on $110 billion of U.S. goods. But regulators can delay customs clearances and delay government-required licensing, as well as create an “unreliable entities” blacklist of U.S. businesses.

Nearly half of Americans, 47%, approve of how Trump has handled the economy, according to a June survey by The Associated Press-NORC Center for Public Affairs Research. But tariffs, in particular, are a weakness for the president.

Only 15% of those surveyed said the import taxes launched by Trump would personally help them. Just 19% believed tariffs would help their local community, and 26% said the tariffs would aid the entire U.S. economy, down from 40% in August 2018. The survey shows that Republicans are becoming skeptical that the president’s tariffs will improve the economy.

Farmers have especially felt the brunt from the tariffs, as China has targeted U.S. agricultural exports as retaliation.

Dave Daniels, a dairy farmer in Wisconsin who voted for the president in 2016, said the Trump administration has helped by offsetting the cost of lost exports to China. But he said it was “a little disappointing” that the president chose to escalate.

“As long as they can keep talking I guess I am, I’m happy about that, but we’ll see what happens in the next few months,” he said.

Election models based on the economy are bullish on Trump’s reelection. These models do not necessarily account for the president’s personality or his willingness to campaign on divisive cultural issues such as immigration, abortion and race.

Yale University professor Ray Fair found that Democrats would only get 46.2% of the presidential vote based primarily on current economic conditions, down from the 48.2% that Democrat Hillary Clinton received in 2016.

An economic model developed by investor Donald Luskin suggests that Trump would receive 340 electoral votes, significantly more than the 270 needed to win the presidency.

But he cautioned that the new tariffs presented an “unlikely but credible nightmare scenario” in which China spiraled into a recession. That could then lead to a downturn in the United States and erode the president’s relative strength on the economy.

“It’s not that we can’t take China down,” Luskin said. “It’s that we can’t take China down without taking ourselves down.”

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Economy

EU incoming economy chief calls for less restrictive budget policies

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By Gavin Jones

ROME (Reuters) – The European Union needs looser budgetary policies and an overhaul of its fiscal rulebook, the bloc’s designated economics commissioner said in an article published on Sunday.

Writing in Italian financial daily Il Sole 24 Ore, Paolo Gentiloni said that while the EU’s deficit and debt rules must not be ignored, they needed to be “reviewed and updated”.

“It’s time for countries which have fiscal space to use it, in an overall context of less restrictive budgetary policies,” Gentiloni, due to replace Pierre Moscovici as economic and financial affairs commissioner on Nov. 1, said.

The former Italian prime minister warned that with the EU economy slowing, “the risks of a prolonged period of low growth must not be overlooked” and the task of stimulating the economy “cannot be left to monetary policy alone”.

Gentiloni will have an important role in scrutinizing Italy’s draft 2020 budget which was submitted to the Commission last week.

The budget plan raises next year’s structural deficit — which excludes the effect of GDP growth fluctuations — by 0.1% of gross domestic product, reversing a previous commitment by Rome to lower it by 0.6%.

EU Commission Vice President Valdis Dombrovskis told Reuters on Friday that Brussels would ask Italy for “clarifications” over its budget intentions.

However, even though the budget seems to flout EU rules, many analysts expect the Commission to take a lenient approach and avoid a prolonged dispute with Rome like the one that broke out last year when Italy had a less EU-friendly government.

Gentiloni, who comes from the pro-Europe Democratic Party which now governs with the anti-establishment 5-Star Movement, said it was crucial that the budget plan comes from a government that has a constructive approach toward the EU.

Among what he termed new instruments needed help growth and stability, Gentiloni cited an EU-wide unemployment insurance scheme, without going into details.

(Reporting by Gavin Jones; Editing by Canada News Media)

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Economy

Lebanese continue protests, demand government to fix economy

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Tens of thousands of demonstrators have gathered in Lebanon‘s streets on Sunday for a fourth day of anti-government protests that have led to the resignation of a Christian party from the government.

Demonstrators, who have been on the streets since Thursday, have pledged to continue marching despite the resignations late on Saturday of four government members from the key political party, Lebanese Forces.

Labour Minister Camille Abousleiman, one of the four to quit the government, told Al Jazeera shortly after the decision that they had “lost faith in the government’s ability to effect change and address the problem”.

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Lebanese citizens have been suffering from tax hikes and dire economic conditions in the heavily indebted country.

Lebanon’s public debt stands at around $86bn – more than 150 percent of gross domestic product, according to the finance ministry.

The grievances and anger at the government’s lack of solutions erupted into protests on Thursday, sparked by hikes in taxes including a proposed $0.2 tax on calls via messaging apps such as WhatsApp.

Such calls are the main method of communication for many Lebanese and, despite the government’s swift abandonment of the tax, the demonstrations quickly swelled into the largest in years.

“It is day four and protesters are back on the street. It’s not just in the capital Beirut, but across the country. The message they [protesters] are giving is of defiance and that they will continue to demand the resignation of the government,” said Al Jazeera’s Zeina Khodr, reporting from Beirut.

“While there are tens of thousands on the street protesting, there are still people who are backing the political parties, so it is not going to be easy to bring a change. These people out there want a nationalist leader whose loyalty is to Lebanon and not a political party.”

In an attempt to appease demonstrators, Lebanon’s finance minister, following a meeting with Prime Minister Saad Hariri, announced that they had agreed on a final budget that did not include any additional taxes or fees.

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“We want everybody to join us on Sunday and also Monday to topple the government,” one protester said.

On Friday, Hariri gave a 72-hour deadline to his partners in government to agree on a solution to the country’s economic woes without imposing new taxes.

Hezbollah chief Hassan Nasrallah, whose movement is part of the government, warned on Saturday that a change in government would only worsen the situation.

The army on Saturday called on protesters to “express themselves peacefully without harming public and private property”.

What is the solution to Lebanon’s economic and political crisis?

On Saturday evening, thousands were packed for a third straight night into the Riyadh al-Solh square in central Beirut, despite security forces having used tear gas and water cannon to disperse similar crowds a day before.

Amnesty International said the security forces’ reaction was excessive, pointing out that the vast majority of protesters were peaceful.

“The intention was clearly to prevent protesters gathering – in a clear violation of the right to peaceful assembly,” it said.

Small groups of protesters have also damaged shop fronts and blocked roads by burning tyres and other obstacles.

The Internal Security Forces said 70 arrests were made on Friday on accusations of theft and arson.

But all of those held at the main police barracks were released on Saturday, the National News Agency (NNA) said.

SOURCE:
Al Jazeera and news agencies

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Finance Officials Focus on Economy

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The IMF managing director, Kristalina Georgieva, said the threat from trade wars was a chief point of discussion for finance officials.

She said the IMF has estimated that the tariffs already imposed or threatened could shave 0.8% off global growth by the end of next year. Much of that stems from the fallout on business confidence.

In trade wars, “everybody loses,” she said. “Policymakers ought to take very seriously their obligations to international cooperation in trade.”

The World Bank’s president, David Malpass, said this week’s finance discussions had focused on how to address multiple challenges.

“Growth is slowing, investment is sluggish, manufacturing activity is soft and trade is weakening,” he said. “Climate change and fragility are making poor countries more vulnerable.”

He said the World Bank was committed to helping to address these challenges to provide a better life for the 700 million people in the world living in extreme poverty.

The IMF, in an updated economic outlook, projected the global economy would expand by 3% this year, the weakest in a decade, and said 90 percent of the world was experiencing a downshift in growth. But the IMF forecast growth will accelerate slightly to 3.4% in 2020, still below the 3.6% rate in 2018.

Jubilee USA, a religious organization fighting global poverty, said in a statement that while the IMF outlined a number of serious threats, the recommendations for dealing with them fell short.

“Risky investing, trade tensions and developing countries borrowing too much are serious concerns for financial stability,” said Eric LeCompte, the group’s executive director.

While Trump’s trade policies were a prime topic of discussion at the meetings, finance officials for the most part avoided direct criticism of the American president.

Christine Lagarde, who dealt with the Trump administration during her last three years as head of the IMF, was a bit more direct in an interview to be broadcast Sunday on CBS’s “60 Minutes.”

Asked about Trump’s trade war with China, she said it would give the world’s economy “a big haircut” and should be resolved by having all parties “sit down like big men, many men in those rooms and put everything on the table, and try to deal bit by bit, piece by piece, so that we have certainty.”

On Trump’s frequent Twitter attacks on Federal Reserve Chairman Jerome Powell, Lagarde said central bankers need to be independent to do their jobs well.

“Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions,” she said.

Lagarde is scheduled to take over on Nov. 1 as the head of the European Central Bank, which manages monetary policy for the 19 countries who use the euro currency.

(KR)

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