Trump hikes China tariffs but hits pause on other trade partners | East Asia Tonight (Apr 10)

Key Concepts

Tariff War: Escalating trade tensions between the US and China involving reciprocal tariffs.
Reciprocal Tariffs: Tariffs imposed by one country in response to tariffs imposed by another.
Stimulus Measures: Government actions to boost economic activity, such as increased spending or tax cuts.
Diversification: Reducing risk by investing in a variety of assets or markets.
Indo-Pacific Security: The security environment in the region encompassing the Indian and Pacific Oceans.
Euroatlantic Alliance: The security partnership between Europe and North America, primarily through NATO.
Minerals for Security Deal: An agreement where a country provides access to its mineral resources in exchange for security assistance.
Bond Vigilantes: Large institutional investors who sell bonds to protest government policies they believe are inflationary or unsustainable.
GDP Growth: The rate at which a country's economy is growing.
Multilateral Trading System: A system of international trade based on agreed-upon rules and principles.

US-China Trade War

Tariff Pause and Escalation

US President Donald Trump paused tariff increases for most nations but increased tariffs on Chinese goods to 125%, exceeding China's 84% rate on American imports.
The Chinese Commerce Ministry accused Washington of violating the rights of Chinese firms and destabilizing the global economy but expressed hope for a compromise.
Trump stated he doesn't anticipate further tariff increases on China, expressing confidence in President Xi's desire for a deal. "I think that uh President Xi is uh a man who knows exactly what has to be done... I think he's going to want to get to a deal."

China's Response and Sentiment

China is likely to hold its ground, assessing the potential impact of further retaliation.
Chinese social media reflects support for defending China's interests and readiness for a trade war.
Some netizens are urging increased domestic consumption to offset potential losses from the trade war.
The American Chamber of Commerce noted the "unprecedented upheaval" and called for dialogue and long-term solutions.

Economic Fallout for China

Immediate fallout includes reduced orders for Chinese exporters from the US.
Concerns exist about potential insolvencies and bankruptcies due to reduced revenue.
Companies with sufficient reserves may relocate overseas, particularly to ASEAN countries.
The Chinese leadership is reportedly considering further stimulus measures in areas like housing, consumer spending, and technological innovation.
Goldman Sachs has cut its forecast for China's GDP growth for the next two years, citing the impact of US tariffs. They expect China's GDP to grow 4% this year and 3.5% next year.

Diplomatic Efforts

China is signaling its intention to strengthen relationships with other countries, particularly in Southeast Asia.
President Xi Jinping is expected to visit Malaysia, Vietnam, and Cambodia.
China aims to present itself as a credible partner compared to the US.
Responses from other countries to China's call for stronger ties have been mixed.

Strategies for Firms

Firms dislike uncertainty and crave stability for long-term planning.
Diversification and partnerships with neutral countries are key strategies.
Regionalization efforts, particularly within ASEAN and CPTPP, present opportunities.

Potential for Talks

Economic pressure may eventually lead both sides back to the negotiating table.
A neutral third party, such as Singapore or Switzerland, may be needed to mediate.
Preliminary agreements may be possible, potentially leading to lower tariff levels.

East Asian Financial Markets

Stock Reversal

East Asian financial markets experienced a stock reversal with strong gains following Trump's pause on tariffs.
Taiwan's stocks ended the day 9.3% higher, marking its best rise on record.
Japan's Nikkei 225 added more than 2,800 points, its second-biggest point gain in history.
South Korea's Kospi climbed about 6%, its sharpest rise in more than 5 years.
China and Hong Kong shares also ended higher on expectations of additional stimulus measures.

Bond Market Turmoil

The US Treasury market experienced turmoil, with Wall Street traders dumping US government debt.
30-year borrowing costs rose to 5%, a 2-year high, with yields surging by the largest amount since 1982.
The sell-off signaled market fears of inflation and policy-driven instability.
Investors are demanding higher compensation to hold US debt, raising the cost of funding the US deficit.

Impact on Mergers and Acquisitions

Merger and acquisition deals are in limbo due to Trump's stance on tariffs.
Trump indicated disapproval of Nippon Steel's bid for US Steel.

Tik Tok Deal

The future of Tik Tok in the US remains uncertain amid the tariff tussle.
Trump has extended the deadline for ByteDance to sell its US operations.
He suggested he would consider lowering tariffs on China in exchange for its approval of a Tik Tok deal.

ASEAN and Trade

ASEAN's Response

ASEAN member states will not impose retaliatory measures in response to US tariffs.
The regional block wants to engage in a frank and constructive dialogue with the US on trade-related concerns.
ASEAN members unanimously refute the basis used in calculations by the US and agreed that the reciprocal tariffs by the US will have a profound impact to ASEAN's economic growth and development trajectories.
A special meeting also agreed on the establishment of an ASEAN geoeconomic task force which will serve as a platform for all ASEAN countries to discuss and formulate any coherent strategies moving forward.

NATO and Indo-Pacific Security

Enhanced Cooperation

NATO Chief Mark Rutter concluded a visit to Japan, securing a commitment to bolster defense cooperation.
Plans include cooperation in cyber defense and maritime security.
The NATO chief named China as a threat, citing its military buildup and destabilizing activities.

Japan's Perspective

Japan and European countries need to collaborate more to defend themselves.
Intelligence sharing and joint exercises are potential areas of cooperation.
Japan needs to balance competition and collaboration with China.

Strategic Competition

Confronting China is a key focus for both NATO and Japan.
Washington's flip-flop mentality is leading NATO and key allies to seek greater autonomy.
A new balance is needed, involving communication, cooperation, and competition with China.

Ukraine and Chinese Nationals

Allegations and Response

Ukrainian President Zilinski claimed that Beijing knows that its nationals are fighting for Russia.
He said he is prepared to exchange them for Ukrainian prisoners of war held in Russia.
The Chinese foreign ministry called for irrelevant parties to see China's role correctly.

Analysis

Chinese nationals fighting for Russia isn't entirely new.
Thousands of foreign mercenaries or volunteers have been fighting in Ukraine alongside Ukrainian regular militaries since the start of the conflict.

US and Democratic Republic of Congo (DRC)

Minerals for Security Deal

The US and the DRC have agreed on a way forward on a minerals for security deal.
American companies could receive exclusive rights to DRC's critical minerals in exchange for military assistance.
The US may provide military training equipment and possibly deploy boots on the ground.

Rationale

For the US, it's a chance to gain access to DRC's vast critical mineral deposits and curb China's influence.
For the DRC, it's a means to end the armed conflict in the east and stabilize the region.

South Korea

Presidential Race

Opposition leader EJong has announced his bid for presidency.
Ex-ruling party head Hanong Hun has also declared his presidential bid.
The presidential election is scheduled for 3rd of June.

Conclusion

The global landscape is marked by trade tensions, shifting alliances, and strategic competition. The US-China trade war continues to evolve, impacting economies and businesses worldwide. East Asian financial markets are experiencing volatility, and countries are adapting their strategies to navigate the uncertainty. NATO is expanding its focus to the Indo-Pacific, seeking to counter China's influence. The US is also pursuing minerals for security deals to secure access to critical resources. These developments highlight the complex and interconnected nature of global politics and economics.