US/China trade war back on track

Just as President Trump is buddying up with North Korea, the US relationship with China is about to tank again. On July 6 the US will officially introduce tariffs on Chinese goods entering the country.

The $50 billion of tariffs have been discussed in great detail over the last couple of months, the world is of course taking advantage of the always reasonable, consistently proportional and often timid US, so the news should come as little surprise. What we don’t know is how big this spat will become.

The 1300-strong list of products subject to tariffs was released back in April, and covers various different industries. The one we want to know about is of course telecommunications and technology, and while there are some very technical specifications, the Trump administration seems to be targeting next generation technology in the China’s Made in China 2025 strategic plan.

“My great friendship with President Xi of China and our country’s relationship with China are both very important to me,” Trump said in a statement. “Trade between our nations, however, has been very unfair, for a very long time. This situation is no longer sustainable.

“China has, for example, long been engaging in several unfair practices related to the acquisition of American intellectual property and technology. These practices, documented in an extensive report published by the United States Trade Representative (USTR) on March 22, 2018, harm our economic and national security and deepen our already massive trade imbalance with China.”

China has of course promised to retaliate, which will be met by further tariffs from the US. This is the unknown; how immature are these politicians prepared to be?

Christine Lagarde of the International Monetary Fund has already warned of the consequences of tariffs, believing there will only be negative consequences for all parties involved and global trade on the whole, however that seems to be of little concern. Trump wants to make a point, and this is not a man who is known for admitting a mistake. How far will this trade war escalate and for how much longer can these supposedly intelligent people ignore the advice of economic experts.

China has yet to take any notable actions in retaliation to Trump’s economic aggression, but we suspect it might not be too long.

Battered and bruised ZTE takes another 10% hit

Shares in ZTE have continued to tumble, with another 10% being wiped off share price on Friday, while the threat of a trade war lurks in the background.

Even meeting US demands of hiring a new board, new nominees were announced earlier in the week, and the announcement the team would be applying for a $10.7 credit line from Bank of China and China Development Bank can do little to stem the flurry of heavy-hitting punches. The share price decline is of course a significant worry, though Nomura believes the worst is yet to come, believing recovering from the fallout will be tougher than expected.

Aside from the new board members, ZTE is also proposing a motion at the Annual General Meeting on June 29 to remove a clause which states the Chairman has to have at least three years’ experience at the company. There are considerable concessions which will need to be made to get back into the good books of the US government, but bringing in executives who are not tarnished by the company’s reputation is certainly a good move. The credit line will also be a useful addition.

Despite the share price, this should be deemed progress. The sanctions imposed by the US Government in April as a punishment for ZTE’s Iran and North Korea dealings were crippling, but the company is now operating once again. The factories are open and employees have something to do now. It might be shell-shocked environment, but at least the lights are on. While this might be seen as good news to ease tensions between the US and China, it might only be a brief reprieve.

The source of the tension between the two countries is still lingering. The $50 billion list of goods and services which will be subject to the tariffs is yet to emerge from the White House, though rumours have been circulating it will be later on today (Friday 15). This piece of paper has the potential to reinvigorate the unease, as President Trump continues his question to isolate the US as much as possible.

Despite sounding incredibly negative, this is good news. ZTE might be damaged, but it still exists, which was by no means a guarantee over the last couple of weeks.