US and China extend trade truce | East Asia Tonight (Aug 12)

East Asia Tonight - Summary

Key Concepts: US-China trade truce, tariffs, trade imbalances, rare earth exports, soybean purchases, multilateralism, BRICS, US sanctions on Russian oil buyers, ASEAN summit, APEC leader summit, investor sentiment, soybean prices, opening up China's market, Nvidia chip exports, revenue sharing arrangement, national security concerns, Japan's key indices, Hong Kong commercial property loans, South Korean politics, US-South Korea alliance, North Korea military drills, Pacific island nation of Nau, South China Sea, Japan Airlines Flight 123 crash, Intel CEO, Singapore humanitarian aid to Gaza, Malaysia-Bangladesh relations, Sri Lanka stock market.

US-China Trade Truce Extension

• Extension Details: The US and China have extended their trade truce by 90 days, until November, to resolve differences over duties. This follows a period of escalating tit-for-tat tariffs.
• Tariff Status: US tariffs on Chinese goods remain at 30%, while China maintains a 10% levy on American shipments.
• US Objectives: Washington aims to address trade imbalances, citing a nearly $300 billion trade deficit with China last year. They also want China to increase its purchase of US soybeans.
• China's Objectives: Beijing hopes Washington will remove "unreasonable trade barriers."
• Negotiation History: Talks in Geneva resulted in a 90-day tariff pause. Discussions in London covered Chinese rare earth shipments to the US. Stockholm talks yielded no breakthroughs, but the US Treasury Secretary remains optimistic.
• Potential Summit: A deal before the deadline could lead to a summit between the two nations' leaders. Potential venues include the ASEAN summit and the APEC leader summit.
• China-Brazil Ties: China and Brazil are strengthening ties against the backdrop of US tariff policies. President Xi Jinping called for "self-reliance for the global south." They agreed on the role of G20 and BRICS in defending multilateralism and combating climate change.
• US Tariffs on Brazil: The US imposed a 50% tariff on Brazilian exports, leading to concerns from President Lula.

US-China Relations: Beyond Tariffs

• Negotiating Table Issues: The 90-day extension allows negotiators to address fundamental issues like US curbs on high-tech product sales to China and China's purchase of Russian oil.
• US Sanctions: The US has not backed down on sanctioning buyers of Russian oil, having slapped 25% tariffs on India.
• Soybean Trade: China, the world's largest soybean buyer, has not committed to buying US soybeans, instead purchasing more from Brazil.
• Impact on Allies: How the US and China handle their relationships with their respective allies will influence tariff talks.
• Potential Trump-Xi Meeting: Both sides are paving the way for a potential Trump-Xi meeting, possibly at the ASEAN or APEC summits.
• Easing Trade Practices: The extension creates space to set aside aggressive trade tactics. Tariffs have come down from three-digit figures, and some countermeasures have rolled back. China is reviewing quicker approvals for rare earth exports to the US, and Nvidia chips are resuming exports to China.

Market Reaction and Investor Sentiment

• Market Response: Markets rose as investor optimism was boosted by the trade truce extension.
• Indices: Hong Kong's Hang Seng Index was up a quarter of 1%. The Shanghai Composite closed half a percent higher.
• Bond Yields: 30-year bond yields rose to their highest since April.
• Soybean Prices: Soybean prices fell back below $10 a bushel.
• Investor Perspective (Tiwang, OBK here): It's too early to call a win for either side. Both have a lot at stake.
• Possible Trade Deal: A deal might involve China opening its markets to US companies, which would be unprecedented and tough due to intense domestic competition.
• US Softening Stance: The US is softening its stance, as seen in the Nvidia deal.
• China's Rare Earth Card: China's access to rare earth is a bargaining chip.
• Long-Term Implications: The negotiation is expected to drag on. China's strategy is to wait until the midterm election. Long-term impacts are uncertain, with risks of higher inflation and lower growth.

Nvidia and Chip Rivalry

• Nvidia Chip Exports: Donald Trump signaled he might allow Nvidia to sell more advanced AI chips to China despite national security concerns.
• Revenue Sharing Arrangement: Under an unprecedented deal, Nvidia and AMD would give 15% of revenue from sales in China to secure export licenses.
• Concerns: This arrangement raises alarm bells due to trade, legal, and national security implications. It might be deemed an export tax and set a dangerous business precedent.
• China's Response: China is reportedly discouraging companies from using Nvidia's H20 chips, questioning their security and suggesting domestic alternatives.
• SMIC's Rise: China's leading semiconductor foundry SMIC rose on the news.

Hong Kong Commercial Property Market

• HSBC's Concerns: HSBC says almost three-quarters of its commercial property loans in Hong Kong are under stress.
• Loan Classification: Over $18 billion of loans are classified as having a significant increase in credit risk, nearly 2.5 times more than a year ago.
• Impairment: More than $5 billion are displaying evidence of impairment, up nearly 60%.
• Market Slump: Hong Kong's commercial property market is suffering from a prolonged slump. Prime office rents are down more than a fifth since 2022, with nearly a fifth of office space vacant.

South Korea and Regional Security

• Former First Lady Arrest: South Korea awaits a court ruling on a request to arrest former first lady Kim Kyongi over charges ranging from stock fraud to bribery.
• Presidential Summit: South Korean President EJ Mong and US President Donald Trump will hold their first summit in Washington to discuss strengthening their bilateral alliance.
• Trade Deal: Trump announced a trade deal subjecting South Korean goods to 15% import duties and a $350 billion investment commitment from Soul.
• North Korea Military Drills: North Korea carried out artillery firing drills to boost combat readiness, ahead of US-South Korea joint military exercises.
• US-South Korea Exercises: The Uchi Freedom Shield exercises will run from August 18th to 28th.

Pacific Island Influence and South China Sea

• China's Pledge to Nau: A Chinese government agency has pledged $650 million for the Pacific island nation of Nau.
• US Pledge: America is making a $60 million pledge to the Pacific Islands region.
• Australia's Plan: Australia is moving ahead with a $320 million infrastructure and economic development deal in Vanuatu.
• Solomon Islands Meeting: Solomon Islands has blocked 21 donor countries from attending a meeting following pressure from Beijing to exclude Taiwan.
• South China Sea Incident: The Philippine Coast Guard released a video showing a Chinese Coast Guard vessel colliding with another Chinese warship near the contested Scarbor Shaw.

Other Regional News

• Japan Airlines Flight 123: Japan marked 40 years since the crash of Japan Airlines Flight 123, the world's deadliest single aircraft accident.
• Intel CEO: US President Donald Trump praised Intel CEO Lip Bhutan after previously calling for his resignation.
• Singapore Humanitarian Aid to Gaza: Singapore sent its ninth tranch of humanitarian aid to Gaza.
• Malaysia-Bangladesh Relations: Malaysian Prime Minister Ano Ibrahim called for stronger ties with Bangladesh.
• Sri Lanka Stock Market: Sri Lanka's stocks closed near the flat line, but the market has been one of the world's best performers.

Conclusion

The East Asia Tonight broadcast covered a range of significant developments in the region, from the extension of the US-China trade truce and its implications for global markets and political alliances, to regional security concerns, humanitarian efforts, and economic trends. The US-China trade relationship remains a central focus, with ongoing negotiations and potential shifts in trade dynamics impacting various countries and industries. Other key stories included the political situation in South Korea, military activities in North Korea, and the competition for influence in the Pacific Islands.