Tue, Jul 16, 2019 @ 03:04 GMT

Bundesbank: Projection paints a picture of an ongoing economic boom

    In the Bundesbank’s June Monthly Report published today, it noted “all in all, the projection paints a picture of an ongoing economic boom, in which increasing supply-side bottlenecks are reflected in strong wage growth and in higher domestic inflation.” It projected German GDP growth to slow to 2.0% in 2018, 1.9% in 2019 and then 1.6% in 2020. HICP inflation is projected to be rather steady, at 1.8% in 2018, 1.7% in 2019 and 1.8% in 2018.

    But Bundesbank also warned that “risks outweigh opportunities”. President Jens Weidmann noted that “uncertainties regarding the prospects for the German economy are considerably greater than they were.” And, downside risks relating to the external environment outweigh the effects resulting from the probably more expansionary fiscal policy in Germany.

    In particular, exports and commercial investment are likely to see weaker growth. employment growth is dampened by growing lack of skilled workers. And that tens to “brake” the rise in household disposable incomes.

    Here is the link to the monthly report.

    Here is the Outlook for the German economy – macroeconomic projections for 2018 and 2019 and an outlook for 2020

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    Canadian retail sales dropped -0.3%, CPI ticked up to 1.5%

      Canadian Dollar weakens after weaker than expected retail sales data. Headline sales dropped -0.3% mom in January, below expectation of 0.4% mom. Ex-auto sales rose 0.1% mom, matched consensus.

      Headline CPI accelerated to 1.5% yoy, up from 1.4% yoy and beat expectation of 1.4% yoy. CPI core-common slowed to 1.8% yoy, down from 1.9% yoy, matched expectations. CPI core-media was unchanged at 1.8% yoy. CPI core-trim was unchanged at 1.9% yoy.

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      German Gfk consumer climate dropped 0.1 to 10.8. Increasingly insecure state of geopolitics influencing consumer mood

        German Gfk consumer climate dropped to 10.8 in May, down 0.1 from 10.9, met expectations.

        Quote from the release:

        “The increasingly insecure state of geopolitics now also seems to be influencing the mood of consumers. There is a tangible drop in economic expectations in April, while income expectations fell only slightly by comparison. In contrast, propensity to buy is still at a very high level.”

        “The escalation of the Syrian crisis and the protectionist trade policies of the United States are worrying consumers and could now also affect Germany’s previously excellent economic prospects.”

        “Further escalation of these conflicts would also have a long-term adverse effect on the consumer climate. Above all, increasing protectionism in international trade would hit Germany, as an export nation, resulting in employees fearing they may lose their jobs and again being more reluctant to buy. In this case, the consumer forecast would certainly be untenable.

        Full relesae here.

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        China MOFCOM confirmed trade meeting with US in Beijing on Jan 7-8

          China’s Ministry of Commerce confirmed in a brief statement that there will be US-China vice ministerial level trade talks in Beijing on Jan 7-8. The date is confirmed in a phone call today. There will be “positive and constructive discussions” in following up to the agreement of Xi and Trump in Argentina. Deputy U.S. Trade Representative Jeffrey Gerrish will lead the team on the US side.

          No further detail is provided at this point.

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          NATO pledged to spend more, but Trump wants double the target

            In a NATO summit statement “Brussels Declaration on Transatlantic Security and Solidarity”, the alliance pled to “share fairly the responsibilities of defending each other. ” It noted that “Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.”

            And, “even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.”

            That seemed to be a unified answer to Trump’s call for more spending from other NATO members.

            Separately, Bulgaria’s President Rumen Radev told reporters that “President Trump, who spoke first, raised the issue not only to achieve 2 percent, today, but (set) a new barrier – 4 percent.” Reuters also reported an unnamed UK official saying
            “He certainly said that he wanted more money to be spent on defense”, referring to Trump.

            Here is full NATO statement.

            Brussels Declaration on Transatlantic Security and Solidarity

            1. NATO guarantees the security of our territory and populations, our freedom, and the values we share – including democracy, individual liberty, human rights and the rule of law.  Our Alliance embodies the enduring and unbreakable transatlantic bond between Europe and North America to stand together against threats and challenges from any direction. This includes the bedrock commitment to collective defence set out in Article 5 of the Washington Treaty.  NATO will continue to strive for peace, security and stability in the whole of the Euro-Atlantic area, in accordance with the purposes and principles of the UN Charter.
            2. We face a prolonged period of instability. Russia is challenging the rules-based international order by destabilising Ukraine including through the illegal and illegitimate annexation of Crimea; it is violating international law, conducting provocative military activities, and attempting to undermine our institutions and sow disunity.  At the same time, a multitude of threats emanate from NATO’s Southern periphery. While significant progress has been made in defeating ISIS/Daesh, terrorism, in all its forms and manifestations, continues to threaten Allies and the international community and to undermine stability. Instability contributes to irregular migration, trafficking and other challenges for our countries. Allies stand firmly in unity and solidarity in the fight against terrorism.
            3. We will share fairly the responsibilities of defending each other.  Real progress has been made across NATO since our last Summit in Warsaw, with more funding by all Allies for defence, more investment in capabilities, and more forces in operations.  But even if we have turned a corner, we need to do more, and there will be further progress.  We are committed to the Defence Investment Pledge agreed in 2014, and we will report annually on national plans to meet this Pledge.
            4. Today we are strengthening further our deterrence and the collective defence of all NATO territory and populations, building on our Forward Presence and consistent with the decisions taken in Warsaw. Our deterrence and defence is based on an appropriate mix of nuclear, conventional and missile defence capabilities, which we continue to adapt.  We will increase the readiness of our forces and improve our ability to reinforce each other within Europe and across the Atlantic. As part of that, we have agreed an adapted and strengthened NATO Command Structure. We are also further reinforcing the cyber defence capabilities of Allies and of NATO itself.
            5. We are strengthening our capacity to prepare against, deter and respond to hybrid threats. Hybrid tactics increasingly target our political institutions, our public opinion and the security of our citizens.  Allies are making our societies more resilient against them, and we will respond with resolve when necessary.
            6. NATO poses no threat to any country. All these measures are defensive, proportionate and transparent, and within NATO’s legal and political commitments.  We remain fully committed to arms control, disarmament and non-proliferation.
            7. We remain ready for a meaningful dialogue with Russia to communicate clearly our positions and, as a first priority, to minimize risk from military incidents, including through reciprocal measures of transparency.  We continue to aspire to a constructive relationship with Russia, when Russia’s actions make that possible.
            8. We are boosting NATO’s contribution to the international fight against terrorism. We have decided, on request of the Iraqi Government and in coordination with the Global Coalition to Defeat ISIS, to establish a training mission in Iraq.  We will increase our assistance to the Afghan Security Forces, providing more trainers and extending financial support, as the Government makes an unprecedented political effort to seek a peaceful resolution to the conflict.   NATO will do more to help Allies, on their request, to tackle terrorism at home; to provide advice and support to partners, including through the new Hub for the South; and will continue to contribute to the Global Coalition.
            9. We are strengthening NATO’s contribution to projecting stability, because we know that our security is best assured if it is shared beyond our borders. We have agreed a Package on the South to deepen our political dialogue and practical cooperation with our partners in the region, including Jordan and Tunisia.  We provide tailored support to our eastern partners Georgia, the Republic of Moldova and Ukraine, as well as to Bosnia and Herzegovina.  We will also boost NATO’s cooperation with Finland and Sweden in the Baltic Sea, as well as with our partners in the Black Sea, Western Balkans and Mediterranean regions, each of which is important to Alliance security.  We are maintaining our important operation in Kosovo. And while remaining a transatlantic Alliance, NATO will retain its global perspective.
            10. The NATO-EU strategic partnership is essential for the security and prosperity of our nations and of the Euro-Atlantic area.  The European and North American Allies contribute significantly to European security and defence. We recognize that a stronger and more capable European defence will lead to a stronger NATO. We therefore welcome the Joint Declaration signed by the NATO Secretary General and the Presidents of the European Council and Commission, which sets out the unprecedented progress being made in NATO-EU cooperation, including on military mobility. We welcome the significant contributions of the members of both organisations to Euro-Atlantic security.
            11. We are committed to NATO’s Open Door policy because it strengthens the Alliance and contributes to Euro-Atlantic security, in keeping with the Bucharest Summit.  We warmly welcome the agreement between Athens and Skopje; this success will benefit both countries, the region and NATO.  We have decided to invite the Government in Skopje to begin accession talks to join the Alliance once the terms of the agreement are met.
            12. We continue to modernize the Alliance. To face evolving security challenges, we have taken steps to ensure that NATO can continue to act at the speed required. Our new policies on NATO’s support for Women, Peace and Security, and for the protection of civilians and children in armed conflict, demonstrate our determination to step up NATO’s role in these areas.
            13. We pay tribute to all the men and women who serve, and who have served, in NATO operations and missions.  Their service and sacrifice has been essential to keep our territories and populations safe.
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            NIESR expects no BoE hike until August 2020

              UK National Institute of Economic and Social Research (NIESR) pushed back their BoE rate expectation by a year in the new forecasts. NIESR economist Garry Young said “now we expect the first increase in Bank Rate to be next August rather than this August.”

              NIESR also noted that Brexit related uncertainty “has led to investment plans being deferred and increased stockbuilding.” Under the main scenario of “soft Brexit”, GDP growth will continue at around 1.5% in both 2019 and 2020. Unemployment rate will stay at around 4%. CPI will remain at around 2%.

              Regarding different Brexit scenarios, growth will be similar between staying in EU and “soft Brexit”. However, growth will be weaker is UK is to stay in the customs union, and even worse in a no-deal Brexit.

              Press release here.

              Prospects for the UK Economy” details.

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              ISM manufacturing dropped to 52.8; New orders, prices, employment declined

                Dollar is suffering more selling pressure after weaker than expected April ISM manufacturing report. The headline index dropped to 52.8, down from 55.3 and missed expectation of 55.0. Price paid index dropped sharply to 50.0, down from 54.3 and missed expectation of 55.7. Employment index dropped to 52.4, down from 57.5. New orders tumbled to 51.7, down from 57.4.

                ISM noted that:

                • Comments from the panel reflect continued expanding business strength, but at the softest levels since the fourth quarter of 2016.
                • Demand expansion continued, with the New Orders Index softening to the low 50s, the Customers’ Inventories Index remaining at a ‘too low’ status, and the Backlog of Orders Index improving its prior month performance.
                • Consumption (production and employment) continued to expand, but at lower levels, resulting in a combined decrease of 8.6 points.
                • Inputs — expressed as supplier deliveries, inventories and imports — were higher this month, primarily due to inventory growth exceeding consumption, resulting in a combined 1.5-percentage point improvement in the Supplier Deliveries and Inventories Indexes.
                • Imports contracted during the period.
                • Overall, inputs reflect a more stable business environment, confirmed by the Prices Index at zero price growth, or unchanged.
                • Exports orders contracted for the first time since February 2016. The PMI® trade elements are in contraction territory. The PMI® has been inching down since November 2018. The manufacturing sector is expanding, but at recent historic lows.

                Full release here.

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                European Update: Sterling soldoff on Brexit regress, Euro follows closely

                  Selloff in European majors, led by Sterling, intensify in European session today. It now looks like Brexit negotiation has not just stalled, but regressed. UK Prime Minister Theresa May’s spokesman James Slack said the Cabinet has backed May in Brexit and expects them to continue to do so. But apparently, May is starting to lose support even from the remain camp in her party. May is moving backward.

                  Euro is not far behind with EUR/USD taken out 1.13 key support firmly. EUR/JPY also broke 128.60 near term support. Italian Prime Minister office denied that there would be a cabinet meeting on budget today. Deputy Prime Minister Luigi Di Maio continued with populist rhetoric and said respecting EU budget limit is suicidal. We’ll see what revised plan they’re going to re-submit to the European Commission tomorrow.

                  For now, Canadian Dollar is trading as the strongest one for today. But that’s firstly because it’s digesting last week’s broad based loss. Secondly, Canada is not at the center of any storm for now. Third, WTI crude oil recovers today on Saudi Arabia’s export cut and is back above 60. Dollar is the second strongest, followed by Yen and both are showing promising technical developments.

                  In other markets, major European indices are soft today. At the time of writing:

                  • FTSE is flat
                  • DAX is down -0.70%
                  • CAC is down -0.16%
                  • German 10 year yield is down -0.0198, at 0.389, back below 0.4
                  • Italian 10 year yield is up 0.034 at 3.432. That is, spread with German is back above 300

                  Earlier in Asia:

                  • Nikkei rose 0.09% to 22269.88
                  • Hong Kong HSI rose 0.12% to 25633.18
                  • China Shanghai SSE rose 1.22% to 2630.52. But that’s seen mainly as gap covering.
                  • Singapore Strait Times dropped -0.32% to 3068.15
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                  European Update: Sterling recovers, bears refuses to commit

                    Sterling rebounds broadly today, except versus Kiwi, as bears refuse to commit further selling. Stronger than expected UK wage growth in September does provide some support. But more importantly, there are rumors flying around about an imminent Brexit deal with the EU. It’s reported that the “texts” are ready and they’re just waiting for the nod from UK Prime Minister Theresa May. We’ll see if both sides can really agree on something that paves the way to a November EU summit.

                    Australian and New Zealand Dollar are also strong on improved sentiment over optimism on US-China trade spat. China Vice Premier Liu He might travel to the US to meet with Treasury Secretary Steven Mnuchin shortly, to prepare for the meeting between Trump and Xi on November 30 at the G20 summit. Yen and Dollar are trading as the weakest ones, paring some of this week’s gain. Canadian Dollar is back under pressure as WTI crude oil resumes recent free fall and hit as low as 58.33.

                    In other markets, major European indices are trading higher at the time of writing:

                    • FTSE is up 0.23%
                    • DAX is up 0.91%
                    • CAC is up 0.54%
                    • German 10 year yield is up 0.003 at 0.404
                    • Italian 10 year yield is up 0.020 at 3.467. German-Italian spread is above 300

                    Earlier in Asia

                    • Nikkei closed down -2.06% at 21810.52
                    • Hong Kong HSI rose 0.62% to 25792.87
                    • China Shanghai SSE rose 0.93% to 2654.88
                    • Singapore Strait Times dropped -0.47% to 3053.6
                    • Japan 10 year yield dropped further by -0.0026 to 0.117
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                    Italian PM Conte: No exchange of concession with EU on budget talks

                      Italian Prime Minister Giuseppe Conte warned in a newspaper interview that it’s “unreasonable and profoundly unfair” to blame the current government for weak economic data. He referred to GDP data released on Tuesday which showed 0% growth in Q3. Also, Conte emphasized that budget talk with EU will not be an “exchange of concession”. He insist on sticking to the deficit target of 2.4% of GDP in 2019 despite EU rejection.

                      Indeed, Conte also said earlier this week that the weak economic performance is the reason for the “expansionary budget”. This was echoed by Deputy Prime Minister Matto Salvini who said “the slowing GDP is another reason to go full steam ahead with the budget.”

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                      Canada-US trade deal (NAFTA?) on track for conclusion by Friday

                        Canadian Dollar softens mildly in Asian session but remains the third strongest for the week, just behind Sterling and Swiss Franc.

                        Progress in Canada-US trade talks appears to be positive. Comments from Trump and Canadian Prime Minister Justin Trudeau suggested that the negotiations are on track to complete by the end of the week.

                        Trump told reporters that “they (Canada) want to be part of the deal, and we gave until Friday and I think we’re probably on track. We’ll see what happens, but in any event, things are working out very well.” That’s an about turn from his recent hostile comments on Canada.

                        Trudeau also said “there is a possibility of getting there by Friday”. But he also emphasized that it is only a possibility, because it will hinge on whether or not there is ultimately a good deal for Canada.” He reiterated that “no NAFTA deal is better than a bad NAFTA deal.”

                        Canadian Foreign Minister Chrystia Freeland, staying in Washington, said “our officials are meeting now and will be meeting until very late tonight. Possibly they’ll be meeting all night long”. And, “this is a very intense moment in the negotiations and we’re trying to get a lot of things done very quickly.”

                        Mexico’s President Enrique Pena Nieto also said in a local radio interview that “I am optimistic that a trilateral deal can be reached… we have from now until Friday for a deal in principle to be announced,”

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                        Sterling stabilized as May narrowly avoided defeat on Brexit trade bill

                          Sterling dropped sharply overnight after Prime Minister Theresa May suffered unexpected defeat on one amendment on the Brexit Trade Bill in the parliament. That amendment requires the government to take “all necessary steps” to join the European medicines regulatory framework. The Pound the stabilized after May narrowly defended the main amendment to the trade bill by 307 to 301 votes. That amended required the government to negotiate a customs union arrangement with EU if by January 21, 2019, it failed to negotiate a deal of frictionless trade for goods.

                          Sterling is holding above 1.3048 against Dollar for the momentum while EUR/GBP’s breach of 0.8901 was, so far, weak. At least for now, May’s position is still safe and she’s avoided a confidence vote. Nevertheless, the tight voting of Monday and Tuesday showed how divided the pro- and anti-EU camps are and it’s like an impossible task to bridge between them. A confidence vote on May could happen any time should she slip.

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                          Trump wants an unfair deal with China, but farmers just want level playing field

                            Trump revealed that he has been pushing for an unfair trade deal with China, before the negotiations collapsed. In an interview with Fox News Channel aired on Sunday, Trump said he told Xi the agreement “can’t be like a 50/50 deal”. And, ” you are so far ahead from presidents that allowed you to get away. This can’t be a 50/50 deal.”

                            He further claimed: “We had a very strong deal. We had a good deal, and at the end, they changed it. And I said, that’s OK, we’re going to tariff their products”. And, “it hurts China so badly.”

                            Trump also talked about his subsidy plan to farmers. He noted conversations with farmers as they said “Sir, we don’t want a subsidy. We just want a level playing field. And we also know that we’re being killed by these countries — by many of the countries, not just China.”

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                            BoE Broadbent warns sequence of Brexit events in the coming months could change economic outlook materially

                              BoE Deputy Governor Ben Broadbent reiterated in a CNBC interview that the central bank’s forecasts were “conditioned on an assumption that there will be a deal” on Brexit. In particular, there would be a “transition period agreed”. And to him, a Brexit deal is still “the most likely outcome”. However, he also emphasized that “the sequence of events over the next two to three months could change the outlook materially,”

                              On recent volatility in Pound exchange rate he noted “obviously, over time, every day there are headlines, positive, negative, which will send the currency in particular in one direction or the other.”

                              On the economy, He said that “even though GDP (gross domestic product) growth has been weaker than certainly pre-crisis rates, it’s been strong enough to allow the unemployment rate to fall further to reach 40-year lows and that in turn has been strong enough to push our wage growth which is momentarily higher since any time since the crisis,”

                              He added that “we’ve certainly seen stronger figures, not just in the official data but in many of the pay surveys, than we’ve seen for many years.” And, the MPC “always believed that the same old rules applied — that as the labor market tightened you would begin to see faster wage growth, and that’s indeed what we’ve seen.”

                              While Broadbent was still optimistic on Brexit deal, the developments from the weekend were negative. Prime Minister Theresa May has called off an special cabinet meeting on Brexit today, due to objections to her plan from within the party. Fresh selling is seen in the Pound on news that the extra EU summit is now ruled out as there won’t be enough progress to make it meaningful.

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                              Follow up on AUD/CAD long strategy

                                Following up on AUD/CAD long strategy here. The cross rose as expected and hit as high as 0.9924 so far today. There is still a bit of distance from our target at 61.8% retracement of 1.0241 to 0.9553 at 1.0066.

                                Looking at the action bias table, 6H action bias remains consistently upside blue, which support our bullish trade. The question is, from H action bias, there seems to be not enough upside momentum as AUD/CAD comes out of a consolidation.

                                So, we’d hold the long position, with target still at 1.0066, but raise the stop to 0.9860, slightly below 0.9862 support. This is for locking in some profits if the current rise is a false break.


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                                Fed Clarida: Case for more monetary accommodation increased

                                  Fed Vice Chair Richard Clarida said in a Bloomberg interview that he saw higher uncertainty in the last six to eight weeks. But he still expects economic expansion to continue. He noted “the economy’s baseline outlook is good” with “sustained growth, a strong labor market and inflation near our objective”.

                                  However, he also acknowledged “there was broad agreement around the table that the case for providing more accommodation has increased”. And, he said Fed has “the tools necessary to sustain expansion, a strong labor market and stable prices, and as appropriate we will deploy those tools to achieve those goals.”

                                  St. Louis Fed President James Bullard dissent in this week’s FOMC decisions to keep interest rate unchanged at 2.25-2.50%. He said today that “inflation measures have declined substantially since the end of last year and are presently running some 40 to 50 basis points below the FOMC’s 2% inflation target”.

                                  Bullard added, “I believe that lowering the target range for the federal funds rate at this time would provide insurance against further declines in expected inflation and a slowing economy subject to elevated downside risks.”

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                                  China to US: No trade talks under threats and pressure

                                    Chinese Vice Commerce Minister Wang Shouwen said at a news conference today that whether trade talk could restart depends on the “will” of the US. But he emphasized that trade meeting will not take place against the backdrop of “threats and pressure” from the US.

                                    He said, “now that the United States has adopted such a huge trade restriction measure … how can the negotiations proceed? It’s not an equal negotiation.”

                                    Wang also added that “if this continues, it will destroy in an instant the gains of the last four decades of China-U.S. relations.”

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                                    ECB Draghi: Medium term uncertainties increased, better placed for full assessment with December projections

                                      ECB President Mario Draghi said recent slowdown has raised questions on the strength of Eurozone growth outlook, and whether the the ongoing convergence of inflation towards target will be sustained. Back in October, Draghi said policymakers have “confirmed our confidence” in the outlook. And, inflation convergence could be maintained even after “gradual” winding-down of net asset purchase.

                                      However, the Governing Council also noted “uncertainties surrounding the medium-term outlook have increased.” The council will be “better placed to make a full assessment of the risks to growth and inflation” with the upcoming projections in December meeting.

                                      Draghi’s full speech here.

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                                      EU Barnier: Opposing no-deal Brexit won’t stop no-deal Brexit

                                        EU chief Brexit negotiator Michel Barnier  said today that no-deal Brexit is now the default, and “Preparing for a no-deal scenario is more important now than ever, even though I still hope that we can avoid this scenario.”

                                        He also warned that “Opposing no-deal will not stop no-deal from happening at the end of March. To stop no-deal, another majority will have to emerge.” And he added, “This is the objective of the political consultations that Theresa May has started and we hope, sincerely, we hope that this process will be successful”.

                                        Meanwhile, he also pointed out there are two possible ways to leave the EU. “Number one, an orderly withdrawal based on the agreement that we have built step by step with the UK over the last 18 months.” Or, “Number two, a disorderly withdrawal, leaving the EU without a deal, is a default scenario and there appears to be a majority in the House of Commons to oppose a no-deal.”

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                                        US to impose 25% tariffs on $200B in Chinese goods, joined forces with like-minded partners

                                          The US Trade Representative formally said in a statement that it’s considering to raise the proposed tariffs on USD 200B in Chinese imports from 10% to 25%. In the statement, it said “the Trump Administration continues to urge China to stop its unfair practices, open its market, and engage in true market competition.” And it emphasized that the US has been “very clear about the specific changes China should undertake” But China “regrettably” responded by ” illegally retaliated against U.S. workers, farmers, ranchers and businesses.”

                                          Also, USTR Robert Lighthizer said “the increase in the possible rate of the additional duty is intended to provide the Administration with additional options to encourage China to change its harmful policies and behavior and adopt policies that will lead to fairer markets and prosperity for all of our citizens.”

                                          More importantly, the USTR specifically said that the US has “joined forces with like-minded partners around the world to address unfair trade practices such as forced technology transfer and intellectual property theft, and we remain ready to engage with China in negotiations that could resolve these and other problems detailed in our Section 301 report.”

                                          Full statement here.

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