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UK PM Johnson makes final Brexit offer to cool EU reception

By Elizabeth Piper, William James and Kylie MacLellan

MANCHESTER, England (Reuters) – Prime Minister Boris Johnson made a final Brexit offer to the European Union on Wednesday and said that unless the bloc compromised, Britain would leave without a deal at the end of this month.

In what supporters cast as a moment of truth after more than three years of crisis, Johnson stuck to his hard line on Brexit, giving some of the first, albeit vague, details of what he described as “constructive and reasonable proposals”.

With the Oct. 31 Brexit deadline moving closer, Johnson’s aides cast the proposals to be delivered to Brussels as London’s final gambit to try to break the deadlock – principally over arrangements for the Irish border – and find a path to a smooth departure from the EU.

“We are coming out of the EU on October 31, come what may,” Johnson told party members, after expressing “love” for Europe in a speech that focused mostly on domestic issues such as health, the economy and crime.

“We are tabling what I believe are constructive and reasonable proposals which provide a compromise for both sides,” Johnson said. “Let us be in no doubt that the alternative is no deal.”

Many diplomats fear the United Kingdom is heading towards a no-deal or another delay as they say the British proposals are not enough to get an agreement by Oct. 31. Johnson said further delay was “pointless and expensive”.

The initial reaction from other European capitals was cool. Berlin and Paris said they were awaiting details.

EU diplomats and officials in Brussels were less polite with one calling the reported proposals “fundamentally flawed”.

“If it’s take it or leave it, we better close the book and start talking about the modalities of an extension,” a senior EU official told Reuters.

“Essentially it is a non-runner,” said another EU diplomat.

NO DEAL?

Quitting the EU is Britain’s most significant geopolitical move since World War Two. It is, though, still uncertain if it will leave with a deal or without one – or even not leave at all.

Deutsche Bank said it saw a 50 percent chance of a no-deal Brexit by the end of the year. This would spook financial markets, send shockwaves through the global economy and divide the West. It could also bring chaos to British ports and disrupt supply lines in goods from food products to car parts.

Despite Johnson’s repeated promises to deliver Brexit on Oct. 31, parliament has passed a law stating that Britain must request a delay if it does not have a deal by Oct. 19. Johnson has repeatedly refused to say how he will get around the law.

A senior British official said: “The government is either going to be negotiating a new deal or working on no deal – nobody will work on delay.”

Ireland, whose 500 km (300 mile) land border with the United Kingdom, will become the frontier of the EU’s single market and customs union, is crucial to any Brexit solution.

The problem is how to prevent Northern Ireland becoming a back door into the EU market without erecting border controls that could undermine the 1998 Good Friday Agreement that ended decades of sectarian violence in Northern Ireland in which more than 3,600 people were killed.

The Withdrawal Agreement that former Prime Minister Theresa May struck last November with the EU says the United Kingdom will remain in a customs union “unless and until” alternative arrangements are found to avoid a hard border.

Johnson said Britain had compromised in putting forward a proposal to try to change that so-called backstop, an insurance policy to ensure there is no return to a hard border.

Giving little detail on his proposals, Johnson said there would be no checks at or near the Irish border. He said London would respect the 1998 peace agreement. He did not explain how.

IRELAND

Britain would “protect the existing regulatory arrangements for farmers and other businesses on both sides of the border” while Northern Ireland would leave the bloc alongside the rest of the United Kingdom, he said.

“By a process of renewable democratic consent by the executive and assembly of Northern Ireland,” Johnson said. “We will go further and protect the existing regulatory arrangements for farmers and other businesses on both sides of the border.”

He said the United Kingdom “whole and entire” would withdraw from the EU, with London keeping control of its own trade policy from the start. Technology could offer a solution, he said, without giving details.

“I hope very much that our friends understand that and compromise in their turn,” said Johnson, who took office in July after May stood down.

With the EU already pouring cold water on some of the reports of his proposal, the likelihood of a no deal appears to be rising – something Johnson’s opponents say they believe is the prime minister’s overriding goal.

John McDonnell, finance policy chief for the opposition Labour Party, described Johnson’s proposals as “a cynical attempt to force through a no-deal Brexit”.

Johnson has repeatedly said he wants a deal.

(Additional reporting by John Chalmers and Gabriela Baczynska in Brussels; Writing by Elizabeth Piper and Guy Faulconbridge; editing by Angus MacSwan)

Trump moves to cool tension over China, Iran as G7 summit wraps up

French President Emmanuel Macron and U.S. President Donald Trump attend a joint press conference at the end of the G7 summit in Biarritz, France, August 26, 2019. REUTERS/Christian Hartmann

By Jeff Mason and Richard Lough

BIARRITZ, France (Reuters) – U.S. President Donald Trump on Monday offered an olive branch to China after days of intense feuding over trade that has spooked financial markets and he opened the door to diplomacy with Iran, easing tensions on the last day of a strained G7 summit.

The leaders of the world’s major industrialized nations, meeting in the French coastal resort of Biarritz, agreed on a deal to provide $20 million in emergency help to Brazil and its neighbors stop the Amazon forest fires.

While they were not expected to leave Biarritz with a more comprehensive set of agreements or even a joint communique, Trump and his Western allies appeared to have at least agreed cordially to disagree on issues dividing them.

These ranged from Washington’s escalating trade war with China, which many fear could tip the slowing world economy into recession; how to deal with the nuclear ambitions of both Iran and North Korea; and the question of whether Russian President Vladimir Putin should be readmitted to the group.

Trump, a turbulent presence at last year’s G7 gathering, insisted during the Biarritz meeting that he was getting along well with other leaders of a group that also comprises Britain, Canada, France, Germany, Italy and Japan.

The trade war between the United States and China, the world’s two largest economies, escalated last Friday as both sides leveled more tariffs on each other’s exports.

On Sunday, a White House spokeswoman said that when Trump told journalists that he had had second thoughts about last week’s tariff blow against China, they were regret for not raising them more.

However, the mood-music changed abruptly on Monday, hours after China’s yuan fell to an 11-year low against the dollar amid fears that the quickening Sino-U.S. trade war would inflict more damage on the world’s largest economies.

Speaking on the sidelines of the G7 summit on Monday, Trump said he believed China wanted to make a trade deal after it contacted U.S. trade officials overnight to say it wanted to return to the negotiating table.

Trump hailed Chinese President Xi Jinping as a great leader and said the prospect of talks was a very positive development.

“He understands, and it’s going to be great for China, it’s going to be great for the U.S., it’s going to be great for the world,” he said.

In Beijing, Foreign Ministry spokesman Geng Shuang said he had not heard that a phone call between the two sides had taken place.

“MAKE IRAN RICH AGAIN”

Trump also backed away from confrontation over Iran on Monday, a day after French President Emmanuel Macron stunned other leaders by inviting Iran’s foreign minister to Biarritz for talks on the stand-off between Washington and Tehran.

Trump told journalists that they had been wrong to report that he was blindsided by the five-hour visit of Mohammad Javad Zarif to the summit’s sidelines, and said that while he thought it was too soon for a meeting he had no objections to it.

European leaders have struggled to calm a confrontation between Iran and the United States since Trump pulled his country out of Iran’s internationally brokered 2015 nuclear deal last year and reimposed sanctions on the Iranian economy.

Macron has led efforts to defuse tensions, fearing a collapse of the nuclear deal could set the Middle East ablaze.

Trump indicated an openness to discussions with Iran on a nuclear deal and said he was not looking for regime change.

“I’m looking at a really good Iran, really strong, we’re not looking for regime change,” he said. “And we’re looking to make Iran rich again, let them be rich, let them do well.”

Trump and Macron met over a long lunch on the first day of the summit and, as they gathered with other leaders for further talks on Monday, they greeted each other warmly and smiled.

DIGITAL TAX

Taking more heat out of the annual meeting, French and U.S. negotiators meeting behind the scenes reached a compromise agreement on France’s digital tax, a levy that had prompted Trump to threaten a separate tax on French wine imports.

The row had threatened to open up a new front in the trade spat between Washington and the EU as economic relations between the two appeared to sour.

France’s 3% levy applies to revenue from digital services earned by firms with more than 25 million euros in French revenue and 750 million euros ($830 million) worldwide.

Trump skipped a session of G7 leaders on climate change at which they agreed to the $20 million technical and financial help for the Amazon. Macron said Trump agreed on the initiative but could not attend because of bilateral meeting engagements.

A record number of fires are ravaging the rainforest, many of them in Brazil, drawing international concern because of the Amazon’s importance to the global environment.

Macron shunted the blazes fires to the top of the summit agenda after declaring them a global emergency. Last week he accused Brazilian President Jair Bolsonaro’s government of not doing enough to protect the area and of lying about its environmental commitments.

(Reporting by Richard Lough, John Irish, Crispian Balmer, Marine Pennetier, John Chalmers, Jeff Mason, William James, Andreas Rinke and Michel Rose; Writing by John Chalmers; Editing by Alison Williams)

China warns of retaliation after Trump threatens fresh tariffs

By Andrea Shalal, Alexandra Alper and Huizhong Wu

BEIJING/WASHINGTON (Reuters) – China on Friday said it would not be blackmailed and warned of retaliation after U.S. President Donald Trump vowed to slap a 10% tariff on $300 billion of Chinese imports from next month, sharply escalating a trade row between the world’s biggest economies.

Trump stunned financial markets on Thursday by saying he plans to levy the additional duties from Sept. 1, marking an abrupt end to a truce in a year-long trade war that has slowed global growth and disrupted supply chains.

Beijing would not give an inch under pressure from Washington, Chinese Foreign Ministry spokeswoman Hua Chunying said.

“If America does pass these tariffs then China will have to take the necessary countermeasures to protect the country’s core and fundamental interests,” Hua told a news briefing in Beijing.

“We won’t accept any maximum pressure, intimidation or blackmail. On the major issues of principle we won’t give an inch,” she said, adding that China hoped the United States would “give up its illusions” and return to negotiations based on mutual respect and equality.

Trump also threatened to further raise tariffs if Chinese President Xi Jinping fails to move more quickly to strike a trade deal.

The newly threatened duties, which Trump announced in a series of tweets after his top trade negotiators briefed him on a lack of progress in talks in Shanghai this week, would extend tariffs to nearly all Chinese goods that the United States imports.

The president later said if trade discussions failed to progress he could raise tariffs further – even beyond the 25 percent levy he has already imposed on $250 billion of imports from China.

Senior Chinese diplomat Wang Yi told reporters on the sidelines of an Association of Southeast Nations event in Thailand that additional tariffs were “definitely not a constructive way to resolve economic and trade frictions”.

U.S. Secretary of State Mike Pompeo, who was also in Bangkok, decried “decades of bad behavior” by China on trade and said Trump had the determination to fix it.

The news hit financial markets hard. On Friday, Asian and European stocks took a battering and safe-haven assets such as the yen, gold and government bonds jumped as investors rushed for cover.

Retail associations in the United States predicted a spike in consumer prices, hitting consumer stocks on Thursday on Wall Street, where Target Corp tumbled 4.2%, Macy’s Inc fell 6% and Nordstrom Inc was down 6.2%.

Asked about the impact on financial markets, Trump told reporters: “I’m not concerned about that at all.”

Moody’s said the new tariffs would weigh on the global economy at a time when growth is already slowing in the United States, China and the euro zone.

The tariffs may also force the Federal Reserve to again cut interest rates to protect the U.S. economy from trade-policy risks, experts said.

CHINESE RETALIATION?

One Chinese official told Reuters it was not the first time Trump had “flip-flopped”, and that though the time between the talks being declared constructive and Trump’s threat of new tariffs was short, officials in Beijing were already prepared.

“Discussion followed by a fight has become the normal pattern,” the official said.

Possible retaliatory measures by China could include tariffs, a ban on the export of rare earths that are used in everything from military equipment to consumer electronics, and penalties against U.S. companies in China, analysts say.

So far, Beijing has refrained from slapping tariffs on U.S. crude oil and big aircraft, after cumulatively imposing additional retaliatory tariffs of up to 25% on about $110 billion of U.S. goods since the trade war broke out last year.

China is also drafting a list of “unreliable entities” – foreign firms that have harmed Chinese interests. U.S. delivery giant FedEx is under investigation by China.

“China will deliver each retaliation methodically, and deliberately, one by one,” ING economist Iris Pang wrote in a note.

“We believe China’s strategy in this trade war escalation will be to slow down the pace of negotiation and tit-for-tat retaliation. This could lengthen the process of retaliation until the upcoming U.S. presidential election,” Pang said.

FRUSTRATED

U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin briefed Trump earlier this week on their first face-to-face meeting with Chinese officials since Trump met Xi at the G20 summit at the end of June and agreed to a ceasefire in the trade war.

“When my people came home, they said, ‘We’re talking. We have another meeting in early September.’ I said, ‘That’s fine, but until such time as there’s a deal, we’ll be taxing them,” Trump told reporters.

A source familiar with the matter said Trump grew frustrated and composed the tweets shortly after Lighthizer and Mnuchin told him China made no significant movement on its position.

Previous negotiations collapsed in May, when U.S. officials accused China of backing away from earlier commitments.

American business groups in China expressed disquiet over the latest round of U.S. tariffs. The U.S.-China Business Council said on Friday it was concerned the action “will drive the Chinese from the negotiating table, reducing hope raised by a second round of talks that ended this week in Shanghai”.

“We are particularly concerned about increased regulatory scrutiny, delays in licenses and approvals, and discrimination against U.S. companies in government procurement tenders,” said the U.S.-China Business Council’s President Craig Allen in an e-mail.

Ker Gibbs, the president of the American Chamber of Commerce in Shanghai, said that as market access in China “remains unnecessarily restricted”, the United States should continue its dialogue with Beijing, and “also work with like-minded countries to persuade China that fair and reciprocal trade and investment benefits all.”

CROPS AND DRUGS

Trump said Beijing had failed to fulfill promises to stop sales of the synthetic opioid fentanyl to the United States, which U.S. officials say was to blame for most of more than 28,000 synthetic opioid-related overdose deaths in the United States in 2017.

He also said Beijing had not followed through on a goodwill pledge to buy more U.S. agricultural products.

The U.S. Department of Agriculture on Thursday confirmed a small private sale to China of 68,000 tonnes of soybeans in the week ended July 25.

The United States also has yet to ease restrictions on U.S. companies’ sales to Chinese telecommunications giant Huawei, which Trump had pledged as a goodwill gesture to Xi after meeting at the G20 in Osaka.

(Reporting by Andrea Shalal, Alexandra Alper, Steve Holland, David Lawder, Tim Ahmann, Susan Heavey, Makini Brice, Nandita Bose and Jonathan Landay in Washington; and Huizhong Wu, Xu Jing, Stella Qiu, Se Young Lee, and Min Zhang in Beijing; and Brenda Goh in Shanghai; Writing by Ryan Woo and Michael Martina; Editing by Grant McCool, Shri Navaratnam and Alex Richardson)

Hong Kong police fire rubber bullets as extradition bill protests turn to chaos

Demonstrators remove metal barricades during protests against a proposed extradition bill in Hong Kong, China June 12, 2019. REUTERS/Thomas Peter

By James Pomfret and Clare Jim

HONG KONG (Reuters) – Hong Kong police fired rubber bullets and tear gas at demonstrators who threw plastic bottles on Wednesday as protests against an extradition bill that would allow people to be sent to mainland China for trial descended into violent chaos.

Tens of thousands of protesters had gathered peacefully outside the Chinese-ruled city’s legislature before tempers flared, some charging police with umbrellas.

Police warned them back, saying: “We will use force.”

Ambulances sped toward the protest area as panic spread through the crowd, with many people trying to flee the stinging tear gas, according to a Reuters witness. More than 10 people were wounded in the clashes, Cable TV reported.

Police used pepper spray, tear gas and batons to force the crowds back. Some shops put up their shutters at the nearby IFC, one of Hong Kong’s tallest buildings.

Civil Human Rights Front, which organized a protest on Sunday that it estimated saw more than a million people take to the streets in protest against the extradition bill, accused police of using unnecessary violence.

The protesters, most of them young people dressed in black, had erected barricades as they prepared to hunker down for an extended occupation of the area, in scenes reminiscent of pro-democracy “Occupy” protests that gridlocked the former British colony in 2014.

The violence had died down by early evening under light rain, but tens of thousands still jammed the streets in and around Lung Wo Road, a main east-west artery near the offices of embattled Hong Kong Chief Executive Carrie Lam.

“Didn’t we say at the end of the Umbrella movement we would be back?” pro-democracy lawmaker Claudia Mo said, referring to the name often used for the 2014 demonstrations, whose trademark was the yellow umbrella.

“Now we are back!” she said as supporters echoed her words.

Others once again called for Lam to step down.

Protesters march along a road demonstrating against a proposed extradition bill in Hong Kong, China June 12, 2019. REUTERS/Athit Perawongmetha

Protesters march along a road demonstrating against a proposed extradition bill in Hong Kong, China June 12, 2019. REUTERS/Athit Perawongmetha

CHINESE MEDDLING

Opposition to the bill on Sunday triggered Hong Kong’s biggest political demonstration since its handover from British to Chinese rule in 1997 under a “once country, two systems” deal guaranteeing it special autonomy, including freedom of assembly, free press and independent judiciary.

But many accuse China of extensive meddling since, including obstruction of democratic reforms, interference with local elections and of being behind the disappearance of five Hong Kong-based booksellers, starting in 2015, who specialized in works critical of Chinese leaders.

Lam has vowed to press ahead with the legislation despite deep concerns in the Asian financial hub, including among business leaders, that it could undermine those freedoms and investor confidence and erode the city’s competitive advantages.

In a brief evening televised address, Lam “strongly condemned” the violence and urged the city to return to normal as soon as possible.

In a separate interview recorded earlier on Wednesday before the worst of the violence, she repeatedly stood by the introduction of the bill, and said the time was right for it to be debated.

“I have never had any guilty conscience because of this matter, I just said the initial intention of our work is still firmly right.”

She added that “perhaps it is impossible to completely eliminate worry, anxiety or controversy”.

Protesters stand behind metal barricades during a demonstration against a proposed extradition bill in Hong Kong, China June 12, 2019. REUTERS/Tyrone Siu

The government said debate on the bill that was due to take place in the city’s 70-seat Legislative Council on Wednesday would be delayed until further notice.

The legislature is controlled by a pro-Beijing majority.

“We won’t leave till they scrap the law,” said one young man wearing a black mask and gloves.

“Carrie Lam has underestimated us. We won’t let her get away with this.”

Financial markets were hit. The benchmark Hang Seng Index closed 1.7% lower, having lost as much as 2% in the afternoon, while Chinese companies in Hong Kong ended down 1.2%.

British Prime Minister Theresa May said extradition rules in Hong Kong had to respect the rights and freedoms set out in the 1984 Sino-British agreement on Hong Kong’s future.

“We are concerned about potential effects of these proposals particularly obviously given the large number of British citizens there are in Hong Kong,” May told parliament.

“But it is vital that those extradition arrangements in Hong Kong are in line with the rights and freedoms that were set down in the Sino-British joint declaration.”

China reiterated its support for the legislation.

“Any actions that harm Hong Kong’s prosperity and stability are opposed by mainstream public opinion in Hong Kong,” Chinese foreign ministry spokesman Geng Shuang told reporters.

Asked about rumors that more Chinese security forces were going to be sent to Hong Kong, Geng said that was “fake news”.

The rally was within sight of the Hong Kong garrison of China’s People’s Liberation Army, whose presence in the city has been one of the most sensitive elements of the 1997 handover.

FOOD, GOGGLES AND BRICKS

The protesters, who skipped work, school or university to join the rally, rallied just a stone’s throw from the heart of the financial center, where glittering skyscrapers house the offices of some of the world’s biggest companies, including HSBC.

Lam has sought to soothe public concerns about the bill and said her administration was creating additional amendments to the bill, including safeguarding human rights.

Under the proposed law, Hong Kong residents, as well as foreign and Chinese nationals living or traveling through the city, would all be at risk if they were wanted on the mainland.

The failure of the 2014 protests to wrest concessions on democracy from Beijing, coupled with the prosecutions of at least 100 mostly young protesters, initially discouraged many from returning to the streets. That changed on Sunday.

Human rights groups have repeatedly cited the alleged use of torture, arbitrary detentions, forced confessions and problems accessing lawyers in China, where courts are controlled by the Communist Party, as reasons why the Hong Kong bill should not proceed.

China denies accusations that it tramples on human rights and official media said this week “foreign forces” were trying to damage China by creating chaos over the extradition bill.

 

(Reporting by Clare Jim, James Pomfret, Greg Torode, Jessie Pang, Twinnie Siu, Jennifer Hughes, Felix Tam, Vimvam Tong, Thomas Peter and Joyce Zhou; Additional reporting by Ben Blanchard and Gao Liangping in Beijing and William James in London; Writing by Anne Marie Roantree and Nick Macfie; Editing by Robert Birsel and Clarence Fernandez)

Trump says no hurry to sign China deal as trade war escalates

A general view of Kwai Tsing Container Terminals for transporting shipping containers in Hong Kong, China July 25, 2018. REUTERS/Bobby Yip

By Susan Heavey and Yawen Chen

WASHINGTON/BEIJING (Reuters) – U.S. President Donald Trump on Friday said he was in no hurry to sign a trade deal with China as Washington imposed a new set of tariffs on Chinese goods and negotiators entered a second day of last-ditch talks to try to salvage an agreement.

The United States early on Friday increased its tariffs on $200 billion in Chinese goods to 25% from 10%, rattling financial markets already worried the 10-month trade war between the world’s two largest economies could spiral out of control.

The move, which is expected to lead China to retaliate, went into effect just hours after U.S. Trade Representative Robert Lighthizer, U.S. Treasury Secretary Steven Mnuchin and Chinese Vice Premier Liu He ended a first day of talks in Washington without a deal.

They resumed negotiations on Friday morning.

In a series of morning tweets, Trump defended the tariff hike and said he was in “absolutely no rush” to finalize a deal, adding that the U.S. economy would gain more from the levies than any agreement.

“Tariffs will bring in FAR MORE wealth to our country than even a phenomenal deal of the traditional kind,” Trump said in one of the tweets.

Despite Trump’s insistence that China will absorb the cost of the tariffs, U.S. businesses will pay them and likely pass them on to consumers.

Global equities sagged after his comments. MSCI’s All-Country World Index, which tracks stocks across 47 countries, was down 0.8% in London. U.S. stock indexes, which have fallen sharply this week, opened lower again

Trump, who has adopted protectionist policies as part of his “America First” agenda and railed against China for trade practices he labels unfair, said the trade talks, originally due to last two days, could drag on beyond this week.

“We will continue to negotiate with China in the hopes that they do not again try to redo deal!” said Trump, who has accused Beijing of reneging on commitments it made during months of negotiations.

Following the U.S. tariff hike, China’s Commerce Ministry said it would take countermeasures but did not elaborate.

The ministry said it “hopes the United States can meet China halfway, make joint efforts, and resolve the issue through cooperation and consultation.”

‘RUSSIAN ROULETTE’

Under the latest U.S. action, U.S. Customs and Border Protection imposed a 25% duty on more than 5,700 categories of products leaving China after 12:01 a.m. EDT (0401 GMT) on Friday.

Seaborne cargoes shipped from China before midnight were not subject to the new tax as long as they arrived in the United States prior to June 1. Those cargoes will be charged the original 10% rate.

“This delay might create an unofficial window during which the U.S. and China can continue to negotiate,” investment bank Goldman Sachs wrote in a note, adding that it was a “somewhat positive sign” that talks were continuing.

Trump gave U.S. importers less than five days notice about his decision to increase the rate on $200 billion worth of goods, which now matches the rate on a prior $50 billion category of Chinese machinery and technology goods.

He has also threatened to impose new tariffs on another $325 billion in Chinese imports.

Investors worry that an escalating trade war could further damage a slowing global economy. The higher tariffs could reduce U.S. gross domestic product (GDP) by 0.3% and China’s by 0.8% in 2020, consultancy Oxford Economics said.

“There is no greater threat to world growth,” French Finance Minister Bruno Le Maire said on Friday.

Many business groups have opposed the tariffs, saying they will be disastrous for companies and lead to higher prices for consumers across a range of products.

Gary Shapiro, chief executive of the Consumer Technology Association, said the tariffs would be paid by American consumers and businesses, not China, as Trump has claimed.

“Our industry supports more than 18 million U.S. jobs, but raising tariffs will be disastrous,” Shapiro said in a statement.

It may take three or four months for American shoppers to feel the pinch but retailers will have little choice but to raise prices to cover the rising cost of imports before too long, economists and industry consultants say.

Mats Harborn, president of the European Union Chamber of Commerce in China, said: “European companies are watching aghast as the U.S. and China play Russian roulette with the world economy.”

RETALIATE HOW?

The biggest Chinese sector affected by the latest tariff increase is a $20 billion-plus category of internet modems, routers and other data transmission devices, followed by about $12 billion worth of printed circuit boards used in a vast array of U.S.-made products.

Furniture, lighting products, auto parts, vacuum cleaners and building materials also are high on the list of products subject to increased duties.

Just hours after the U.S. move, which will add pressure on an already slowing Chinese economy, China’s central bank said it was fully able to cope with any external uncertainty.

On Monday, the People’s Bank of China cut the amount of reserves that some small and medium-sized banks need to hold, freeing up funds for lending to cash-strapped businesses.

James Green, a senior adviser at McLarty Associates who until August was the top USTR official at the embassy in Beijing, said he expected China would increase non-tariff barriers on U.S. firms, such as delaying regulatory approvals.

“I think the Chinese, in the end, will want to keep negotiations going. The question is: ‘where do they go for retaliation?'” he said.

Even without the trade war, China-U.S. relations have continued to deteriorate, with an uptick in tensions over the South China Sea, Taiwan, human rights and China’s plan to re-create the old Silk Road, called the Belt and Road Initiative.

(Reporting by David Lawder in Washington, and Yawen Chen, Michael Martina, Ryan Woo, Ben Blanchard and Kevin Yao in Beijing, and Xihao Jiang in Shanghai; Writing by Paul Simao; Editing by Simon Cameron-Moore, Kim Coghill and Bill Trott)

Fed’s Williams expects further U.S. rate increases into next year

President and Chief Executive Officer of the U.S. Federal Reserve Bank of San Francisco, John Williams, gestures as he addresses a news conference in Zurich, Switzerland September 22, 2017. REUTERS/Arnd Wiegmann

By Jonathan Spicer

NEW YORK (Reuters) – One of the most influential Federal Reserve policymakers said on Tuesday he expects further interest-rate hikes continuing next year since the U.S. economy is “in really good shape,” reinforcing the Fed’s upbeat tone in the face of growing doubts in financial markets.

Even as New York Fed President John Williams told reporters he expects the U.S. expansion to carry on and surpass its previous record around mid-2019, stock markets headed lower Tuesday morning while a potentially worrying trend of “inversion” continued to grip Treasury markets.

The Fed is expected to raise its policy rate another notch this month and, according to policymakers’ forecasts from September, aims to continue tightening monetary policy three more times next year. Futures markets, however, are betting a slowdown overseas and in sectors like U.S. housing will force the Fed to stop short.

Yet Williams, a permanent voter on policy and close ally of Fed Chair Jerome Powell, said lots of signs point to a “quite strong” and healthy labor market, and he predicted economic growth of around an above-potential 2.5 percent in 2019.

“Given this outlook I describe of strong growth, strong labor market and inflation near our goal – and taking into account all the various risks around the outlook – I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion and a sustained achievement of our dual mandate,” Williams said at the New York Fed.

(Reporting by Jonathan Spicer; Editing by Chizu Nomiyama)

Fed interest rate hike expected next week, three hikes expected in 2018/poll

The Federal Reserve headquarters in Washington September 16 2015. REUTERS/Kevin Lamarque/File Photo

By Shrutee Sarkar

BENGALURU (Reuters) – The U.S. Federal Reserve is almost certain to raise interest rates later this month, according to a Reuters poll of economists, a majority of whom now expect three more rate rises next year compared with two when surveyed just weeks ago.

The results, from a survey taken just before the U.S. Senate voted to pass tax cuts that are expected to add about $1.4 trillion to the national debt over the next decade, show economists were already becoming more convinced that rates will need to go even higher.

While about 80 percent of economists surveyed in October said such tax cuts were not necessary, the passage of the bill, President Donald Trump’s first major legislative success, means the forecast risks have shifted toward higher rates, and faster.

The poll’s newly raised expectations for three rate rises next year are now in line with the Fed’s own projections. But they come despite a split among U.S. policymakers on the outlook for inflation, which has remained persistently low.

That is a similar challenge faced by other major central banks, who are generally turning away from easy monetary policy put in place since the financial crisis, looking through still-weak wage inflation and overall price pressures for now.

The core personal consumption expenditures price index (PCE), which excludes food and energy and is the Fed’s preferred inflation measure, has undershot the central bank’s 2 percent target for nearly 5-1/2 years.

The latest Reuters poll results suggest it is expected to average below 2 percent until 2019.

While the U.S. economy expanded in the third quarter at a 3.3 percent annualized rate, its fastest pace in three years, the latest Reuters poll – taken mostly before the release of that data – suggested that may be the best growth rate at least until the second half of 2019.

The most optimistic growth forecast at any point over the next year or so was 3.7 percent, well below the post-financial crisis peak of 5.6 percent in the fourth quarter of 2009.

Still, all the 103 economists polled, including 19 large banks that deal directly with the Fed, said the federal funds rate will go up again in December by 25 basis points, to 1.25-1.50 percent.

“This is about just getting back to a neutral level where monetary policy is neither encouraging growth or pushing against growth,” said Brett Ryan, senior U.S. economist at Deutsche Bank, which recently shifted its view to four rate rises next year.

“The Fed is still accommodative at the moment and we are still some ways away from the neutral fed funds rate which would in the Fed’s view be closer to 2.75 percent. The Fed can hike without slowing the economy.”

Financial markets are also pricing in over a 90 percent chance of a 25 basis-point hike in December, largely based on the falling unemployment rate and reasonably strong economic growth this year.

Asked what is the primary driver behind the Fed’s wish to raise rates further, over 40 percent of respondents said it was to tap down future inflation.

However, almost a third of economists said it is to gather enough ammunition to combat the next recession.

“At some point we are going to have a downturn and they (the Fed) are going to need to react and it is harder to do that when rates are closer to zero,” said Sam Bullard, an economist at Wells Fargo.

The remaining roughly 30 percent had varied responses, including some who said higher rates were needed to avoid risks to financial stability.

Over 90 percent of the 66 economists who answered another question said that the coming changes at the Fed – a new Fed Chair along with several new Fed Board members – will also not alter the current expected course of rate hikes.

“Both the rate tightening outlook and balance sheet reduction program will remain in place as the Fed officials fill open seats. Easing of financial regulation is likely the area that has the most forthcoming changes,” Bullard said.

 

(Additional reporting and polling by Khushboo Mittal and Mumal Rathore; Editing by Ross Finley and Hugh Lawson)

 

Brexit vote hits pound and markets, political crisis deepens

Workers walk in the rain at the Canary Wharf business district in London, Britain

By William James and Jamie McGeever

LONDON (Reuters) – Britain’s vote to leave the European Union sent new shockwaves through financial markets on Monday, despite efforts by the country’s leaders to end the deep political and economic uncertainty unleashed by the decision.

Finance minister George Osborne said the British economy was strong enough to cope with the volatility caused by Thursday’s referendum, the biggest blow since World War Two to the European goal of forging greater unity.

But the pound later sank to its lowest level against the U.S. for 31 years and British shares continued the fall that began last week when Britons confounded expectations by voting to end 43 years of EU membership.

Chinese Premier Li Keqiang said uncertainties over the global economy had heightened and called for a “united, stable EU, and a stable, prosperous Britain”.

But with the ruling Conservatives looking for a new leader after Prime Minister David Cameron’s resignation on Friday and lawmakers from the opposition Labour party stepping up a rebellion against their leader, Britain sank deeper into political and economic turmoil.

“There’s no political leadership in the UK right when markets need the reassurance of direction,” said Luke Hickmore of Aberdeen Asset Management, expressing the view of many in the City of London financial center.

Although Cameron is staying on until October as a caretaker, he refused to start formal moves immediately to pull Britain out of the EU. This prompted many European leaders to demand quicker action by Britain, the EU’s second largest economy after Germany before the vote.

“France like Germany says Britain has voted for Brexit. It should be implemented quickly. We cannot remain in an uncertain and indefinite situation,” French finance minister Michel Sapin said on France 2 television.

Guenther Oettinger, a German member of the EU’s executive European Commission, also issued a warning.

“Every day of uncertainty prevents investors from putting their funds into Britain, and also other European markets,” he told Deutschlandfunk radio. “Cameron and his party will cause damage if they wait until October.”

German Chancellor Angela Merkel has taken a softer line, underlining the need to continue a positive trade relationship with Britain, a big market for German carmakers and other manufacturers.

But a Merkel ally, Volker Kauder, made clear the exit negotiations would not be easy.

“There will be no special treatment, there will be no gifts,” Kauder, who leads Merkel’s conservatives in parliament, told ARD television.

FINANCIAL MARKETS’ MISJUDGMENT

Financial markets misjudged the referendum, betting on the status quo despite abundant signs that the vote would be close.

When reality dawned, the reaction was brutal. Sterling fell as much as 11 percent against the dollar on Friday for its worst day in modern history, while $2.8 trillion was wiped off the value of world stocks – the biggest daily loss ever.

That trumped even the Lehman Brothers bankruptcy during the 2008 financial crisis and the Black Monday stock market crash of 1987, according to Standard & Poor’s Dow Jones Indices.

Osborne tried to ease investors’ concerns in his first public comments since the referendum. He said he was working closely with the Bank of England and officials in other leading economies for the sake of stability as Britain reshapes its relationship with the EU.

“Our economy is about as strong as it could be to confront the challenge our country now faces,” he told reporters at the Treasury. “It is inevitable after Thursday’s vote that Britain’s economy is going to have to adjust to the new situation we find ourselves in.”

Boris Johnson, a leading proponent of a Brexit and likely contender to replace Prime Minister David Cameron who resigned on Friday, praised Osborne for saying “some reassuring things to the markets.”

The former London mayor said outside his home in north London that it was now clear “people’s pensions are safe, the pound is stable, markets are stable. I think that is all very good news.”

But financial markets took a different view, with sterling sliding Monday, shedding more than 3 percent against the dollar to $1.3221

The yield on British 10-year government bonds fell below one percent for the first time due to investors betting that the Brexit vote would trigger a Bank of England interest rate cut aimed at steading the economy.

Many economists have cut economic growth forecasts for Britain, with Goldman Sachs expecting a mild recession within a year.

But the risks affect economies far beyond Britain.

“Against the backdrop of globalization, it’s impossible for each country to talk about its own development discarding the world economic environment,” China’s Li told the World Economic Forum in the city of Tianjin.

Japanese Prime Minister Shinzo Abe instructed his finance minister to watch currency markets “ever more closely” and take steps if necessary.

At the weekend, the policy chief of Abe’s LDP party held open the possibility of currency intervention to weaken the yen and temper “speculative, violent moves”.

DIVIDED PARTIES

The referendum has revealed social as well as economic stresses in divided Britain. Immigration emerged as one of the main themes of the referendum campaign, with those who backed a British exit saying the EU had allowed uncontrolled numbers of migrants to arrive from eastern Europe.

Police said offensive leaflets targeting Poles had been distributed in Huntingdon, central England, and graffiti had been daubed on a Polish cultural center in central London on Sunday, three days after the vote.

According to a local newspaper, the Cambridge News, the leaflets said: “Leave the EU/No more Polish vermin” in English and Polish.

The Polish embassy in London said it was shocked by the “recent incidents of xenophobic abuse directed against the Polish community and other UK residents of migrant heritage.”

With Britain now facing uncertainty over how its trade relationship with the EU will unfold, Johnson tried to calm fears by writing in the Daily Telegraph newspaper that there would be continued free trade and access to the single market.

He did not set out any details but suggested Britain would not accept free movement of workers, saying it could implement an immigration policy which suited business and industry.

However, single market rules stipulate that countries must accept the free movement of people as well as goods. Yielding on immigration would anger many Britons who voted to leave, believing this would halt a tide of workers from eastern Europe.

Johnson is expected to declare soon that he is running to lead the Conservatives, who have been divided for decades between pro- and anti-EU factions.

Divisions within the opposition are also deep. A wave of Labour lawmakers resigned from leader Jeremy Corbyn’s team on Monday, adding to the 11 senior figures who quit on Sunday.

They say Corbyn, a veteran left-winger who has strong support among ordinary party members, is not fit to lead the party and point to his low-key campaign to keep Britain in the EU.

If repeated at the next parliamentary election, due in 2020, they fear Labour faces disaster following its near wiping out in Scotland last year. Corbyn has said he is going nowhere.

(Additional reporting by Kevin Yao, Costas Pitas, Bate Felix, Andrea Shalal, Michael Holden, Guy Faulconbridge, David Milliken, Patrick Graham, Anirban Nag, Conor Humphries, Minami Funakoshi and Tetsushi Kajimoto, Writing by David Stamp, Editing by Timothy Heritage)

Federal Reserve swimming against global tide of easier rates

Federal Reserve Chair Janet Yellen speaks at the Radcliffe Institute for Advanced Studies at Harvard University

By Jamie McGeever

LONDON (Reuters) – Rarely has the world’s most important and powerful central bank been so isolated.

As the Federal Reserve prepares the ground for another interest rate hike, most other central banks are moving in the opposite direction. And the divergence is widening.

No fewer than 53 central banks have eased monetary policy since the start of last year, almost all by lowering rates. Indeed, the pace of policy easing nearly everywhere is accelerating even as the Fed nears its second hike of the cycle.

This raises several questions. If the global recovery is firmly rooted, why are so many central banks cutting rates? Can the global economy handle rising U.S. rates, and perhaps a stronger dollar that follows? Will the Fed be forced – again – to slow the pace of tightening or even abandon it altogether?

“I can’t ever remember a situation when we’ve seen anything like this before,” said Torsten Slok, chief international economist at Deutsche Bank in New York and a former International Monetary Fund economist.

“When I was at the IMF there was only one global business cycle. In the late 1990s and early 2000s it would have been impossible to imagine the kind of decoupling we have today,” he said.

The divergence can drive business costs and trade flows, lead to outsized exchange rate moves and highlight vulnerabilities in the global financial system, casting doubt on whether the world can cope with relatively higher U.S. borrowing costs and dollar.

Deflationary forces from the oil price plunge to $50 from $115 in the second half of 2014 kick-started central banks into action at the beginning of last year. Fourteen eased policy in January 2015, 11 in February and 12 in March. Denmark’s central bank cut rates four times in as many weeks.

The number of monthly rate cuts dwindled as the year progressed, troughing at three each in August and October, before the Fed delivered its first rate hike in a decade that December.

But even though oil has rebounded 75 percent from its multi-year lows, the pace of monetary easing is picking up. Twelve central banks loosened policy in March, 10 in April and 11 in May. Indeed, 11 central banks have begun easing cycles since the Fed raised rates in December.

At one level, the divergence suggests the U.S. economy is on a stronger footing than the rest of the world.

The U.S. economy is relatively closed, relying less on trade than many others. Imports and exports account for no more than 15 percent of U.S. growth, a proportion that’s more than twice that in most of the major developed and emerging economies.

Yet the Fed has already baulked at raising rates, both before and after its December move, precisely because of its fears over the global spillover effects from more tightening.

CONVERGENCE … BUT WHEN?

Financial markets and emerging economies are the main areas of concern. Both are potentially vulnerable to a rising dollar and higher U.S. bond yields that could follow from higher U.S. rates.

From mid-2014 to the end of last year the dollar rose around 25 percent against a basket of currencies, effectively a tightening of U.S. monetary policy which, according to Goldman Sachs, helped tighten U.S. financial conditions by almost 200 basis points.

There’s a view that this did more damage to the rest of the world through large-scale emerging market capital flight and China’s policy wobbles than the United States, where job growth and economic activity help up reasonably well.

The Organization for Economic Cooperation and Development on Wednesday urged governments to boost spending to lift the world economy out of a “low-growth trap”. It said global growth will meander along at 3 percent this year, its slowest pace since the financial crisis for a second year in a row.

Global conditions, China and the dollar have featured prominently in speeches by Fed chair Janet Yellen and other Fed officials over the last six months, a clear indication they are acutely aware of the global impact of higher U.S. rates.

But with dozens of other central banks in easing mode, conditions have abated around 100 basis points since the turn of the year, helping support global asset prices and giving the Fed leeway to raise rates again.

Francesco Garzarelli, co-head of global Macro and Markets Research at Goldman Sachs, said the Fed effectively participated in the global easing cycle this year by not following up last December’s hike with another increase.

“Markets have seen the Fed stop and go twice, but eventually the hike will come, maybe in June,” he said.

Garzarelli argued that inflation would need to pick up around the world for other central banks to change course. And echoing the OECD, he said the pressure on central banks to loosen monetary policy would lessen if governments shouldered more responsibility for boosting growth via fiscal policy.

“That transition is slowly underway, and the interplay between monetary and fiscal authorities may shift market expectations,” he said.

(Editing by Jeremy Gaunt)