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China Sanctioning Taiwan Like Moving a Stone, Dropping it on Your Own Foot

Ralph Jennings, Ji Siqi and Luna Sun wrote . . . . . . . . .

Mainland China could target hundreds of billions of dollars worth of Taiwanese investments and two-way trade if tensions with the self-ruled island worsen after a sharp slide this week due to US House Speaker Nancy Pelosi’s visit to Taipei, analysts said.

But they are targeting the ruling pro-independence Democratic Progressive Party and probably saving any moves against high-value exports or direct investments as a final move, the analysts added, as measures against Taiwan could ripple back to the mainland.

“[Taiwanese] companies are such an integral part of the Chinese value chain that it becomes difficult to put too much pressure on those trade routes,” said Zennon Kapron, the Singapore-based director of financial industry research firm Kapronasia.

The People’s Liberation Army kick-started large-scale military drills following Pelosi’s arrival on Tuesday night, while Beijing has already rolled out various economic sanctions.

Chinese customs suspended imports of Taiwanese citrus fruits, chilled white scallops and frozen mackerel from Wednesday, extending the list of banned items to more than 1,000 products as cross-Strait relations have deteriorated in recent years.

The Ministry of Commerce also suspended exports of natural sand, a raw material needed for the construction of transport infrastructure and water projects.

“China’s constant opinion has been that any unilateral economic sanctions are double-edged. However, Pelosi’s visit might well push China into restricting certain imports from Taiwan and the US, but I do think that such restrictions will be very limited,” said Tao Jingzhou, an international arbitrator who has practised in Beijing, Hong Kong and London.

“As retaliation, the US might increase export control measures for technology and also increase scrutiny of activities of Chinese companies in the US. This visit will further deteriorate the US-China relations across the board.”

Mainland China will probably strike at farming and small manufacturers in parts of southern Taiwan where President Tsai Ing-wen’s Democratic Progressive Party has its main strongholds, said Chen Yi-fan, an assistant professor of diplomacy and international relations at Tamkang University in Taiwan.

Beijing hopes to influence Taiwan’s local elections in November, Chen said, with the party that wins most seats often shaping the outcome of the presidential race two years later.

Tsai’s ruling party takes a guarded view toward China, while its main opposition prefers a more conciliatory stance.

Beijing is expected to release sanctions “bit by bit” to gauge responses in Taiwan, said Yu Xiang, an adjunct fellow at the Centre for International Security and Strategy at Tsinghua University.

Export bans can be cancelled as quickly as they are announced and some have called the existing suspensions largely symbolic because farming and fishery exports make up just a fraction of Taiwan’s US$765 billion economy.

China had already banned imports of Taiwanese confectionery, biscuits, bread and aquatic products in the lead up to Pelosi’s visit.

“Processed food is not even in the top 10 items that Taiwan exports to China, so China’s move is currently only symbolic,” said Darson Chiu, a fellow with the Taiwan Institute of Economic Research’s international affairs department in Taipei.

Taiwan’s export economy runs on shipments of semiconductors and consumer electronics, followed by machinery and petrochemicals.

But to penalise key goods would hurt numerous Taiwanese people, stoking anti-Chinese sentiment, and strike at the mainland’s own economy, some analysts said.

“Taiwanese businesses are a major component of China investors, and Taiwan is part of China,” said Hong Hao, an author and independent China economist.

“Therefore, to sanction Taiwan is just like moving a stone and dropping it on your own foot, plus it deepens divisions between the two sides.”

The US-China trade war, which has been ongoing since 2018, has shown that sanctions aimed at one country hurt both sides, said Wang Huiyao, founder of Beijing-based think tank, the Centre for China and Globalisation.

“In the end, the US consumer and companies are paying the price for that. I don’t think that the economic sanctions are going to work,” Wang said.

“In the long run, we really have to find a way not to dissolve the status quo and really keep the peace and prosperity in the region.”

Any ban on imports of Taiwanese petrochemicals, machinery, transport goods and textiles would also violate the Economic Cooperation Framework Agreement trade deal signed by the two sides in 2010 when political relations had reached a peak, Chiu added.

Taiwanese investors have put money into mainland Chinese since the 1980s, and their 4,200 enterprises employ numerous staff, while they also help to drive economies near Shanghai and in the Pearl River Delta.

Taiwan-based Foxconn Technology and Pegatron make equipment for US multinational technology company Apple at mega factories in mainland China.

Lu Xiang, a researcher on US studies with the Chinese Academy of Social Sciences, said sanction will not be used as a major tool and that Beijing will refrain from escalating to a full-scale economic war.

“The mainland still aims for economic integration with the island over the long run. Companies which support pro-independence and some industries will be sanctioned or hit, but the impact will be limited. Mainland China is one of the only few trading partners that Taiwan has maintained a trade surplus with,” said Lu.

Chinese smartphone makers particularly depend on Taiwanese semiconductors, which the Boston Consulting Group said makes up 92 per cent of world’s capacity.

“I think the challenge for mainland China is the fact that it is so heavily reliant on the high-end chips and technology that’s coming out of Taiwan,” Kapron added.

Beijing views Taiwan as a breakaway part of its territory and has vowed to take back control of the island, by force if necessary, while it also resents US influence in Taiwan’s military or political space.

But Taiwanese leaders will make no policy changes in response to sanctions, according to Chen from Tamkang University, as neither side wants to look weak.

Tsai opposes China’s goal of unification with Taiwan and has courted foreign support for her cause since taking office in 2016.

“Now there is a deep distrust across the strait, so nothing Tsai does will bring comfort to the other side,” Chen said.

The Taipei government made no immediate comment in response to Wednesday’s trade bans, but Lo Ping-cheng, minister without portfolio and spokesman, said the cabinet would help business operators “respond appropriately” to any fallout from Pelosi’s visit.


Source : Yahoo!

South Korea’s Chip Stockpile Swells in Warning Sign for Exports

Sam Kim wrote . . . . . . . . .

South Korea’s semiconductor stockpiles expanded at the fastest pace in more than six years, adding to concern about the outlook for exports that drive the country’s economic growth.

Nationwide inventory soared 79.8% in June from a year earlier, the statistics office said Friday, up from a 53.8% jump in May. At the same time, both production and shipments decelerated, suggesting a slowdown in the nation’s most profitable industry.

The result casts a pall over the outlook for an economy where the central bank is in the midst of a yearlong tightening cycle. Memory chips are sold worldwide and underpin the strength of the won, which has been one of Asia’s worst performing currencies this year as trade deficits mount.

South Korea was in the midst of a two-year export slump when chip inventories soared by 104.1% in April 2016.

The accumulation in stockpiles comes as Samsung Electronics Co. and SK Hynix Inc., two of the world’s largest memory-chip producers, warn future sales may weaken, adding to concerns about a global slowdown as inflation spurs global central banks to tighten.

The two firms’ shares prices have still gained in recent weeks as investors bet the companies will cut capital spending, a move that would eventually tighten supply. The tiny components are used in everything from smartphones to laptops and cars.

South Korea’s overall industrial production rose 1.4% in June from a year earlier, less than the 2.1% forecast by economists.


Source : BNN Bloomberg

Infographic: The Top U.S. Exports by State

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Source : Visual Capitalist

China Trade Surplus Surges to Record as Exports Accelerate

Joe Mcdonald wrote . . . . . . . . .

China’s monthly trade surplus soared to a record $97.9 billion in June as export growth picked up after anti-virus controls that shut down Shanghai were lifted and shippers moved a backlog of cargo.

Exports rose 17.9% over a year ago to $331.2 billion, up from May’s 16.9% growth, customs data showed Wednesday. In a sign of Chinese economic weakness, imports rose just 1% to $233.3 billion, pushing up the trade surplus by 90% from a year ago.

Imports from Russia, mostly oil and gas, rose 56% over a year ago as Beijing took advantage of price cuts offered by the Kremlin after Washington and Europe suspended most of their own purchases to punish Moscow for its invasion of Ukraine.

China’s trade already was depressed by weak global demand before Shanghai, site of the world’s busiest port, and other cities shut down starting in late March. Cargo handling is back to normal, but economists warn the shock will be felt abroad for months.

“Exports rebounded strongly as shipping bottlenecks eased,” said Julian Evans-Pritchard of Capital Economics in a report. “But we think this may be the last hurrah for China’s pandemic export boom before shipments drop back on cooling demand.”

Weak import demand reflects a slump in construction, a major customer for foreign iron ore and other raw materials, after the government launched a crackdown on debt that has chilled the vast real estate industry.

Forecasters have cut estimates for China’s economic growth to as low as 2% this year, well below the ruling Communist Party’s target of 5.5%.

China’s economy grew by a weak 4.8% over a year earlier in the quarter ending in March. That was an improvement over the 4% rate in the final three months of 2021.

Some believe it shrank in the quarter ending in June before beginning a gradual recovery. Surveys show that might be under way as manufacturing and service activity accelerates.

If that lasts, “the outlook for the second half of 2022 is for stronger imports,” Rajiv Biswas of S&P Global Market Intelligence said in a report.

Exports to the United States surged 19.3% over a year earlier to $56 billion despite lingering tariff hikes in a trade war over Beijing’s technology ambitions. Imports of American goods edged up 1.7% to $14.6 billion.

China’s politically volatile trade surplus with the United States widened by 26% from a year earlier to $41.4 billion. It was among irritants that prompted then-President Donald Trump to launch the trade fight and hike import taxes.

Envoys from the two governments have talked by phone and video link but have yet to announce a date to resume face-to-face negotiations.

Exports to the 27-nation European Union rose 17.1% from last June to $50.5 billion, while imports of European goods climbed 9.7% to $25 billion. China’s trade surplus with Europe widened by 65% to $25.4 billion.

Imports from Russia rose 56% over a year ago to $9.7 billion.

China’s growing purchases of Russian energy are irritating Washington and its allies but don’t violate sanctions on Moscow.

Beijing declared ahead of the attack that it had a “no limits” friendship with Moscow. It criticizes the sanctions but has avoided helping Putin for fear of losing access to Western markets and the global banking system.

The Biden administration last month accused five Chinese companies of dealing with the Russian military before the Feb. 24 invasion. They added them to a trade blacklist but officials did not say if they were accused of supplying goods after the attack.

Last year, China bought 20% of Russian crude exports, according to the International Energy Agency.


Source : AP

Chart: The U.S. – China Tariffs

Source : Bloomberg

Chart: The Biggest U.S. Importers and Exporters

Source : Statista

Infographic: Made in America Goods Exports by State

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Source : Visual Capitalist

EXPLAINER: What’s in Biden’s Proposed New Asia Trade Pact?

Josh Boak and Aamer Madhani wrote . . . . . . . . .

President Joe Biden faced a dilemma on trade in Asia: He couldn’t just rejoin the Trans-Pacific Partnership that his predecessor had pulled the U.S. out of in 2017. Many related trade deals, regardless of their content, had become politically toxic for U.S. voters, who associated them with job losses.

So Biden came up with a replacement. During Biden’s visit to Tokyo, the U.S. on Monday announced the countries that are joining the new Indo-Pacific Economic Framework. In the tradition of trade deals, it’s best known by its initials: IPEF. (Pronounced EYE-pef.)

WHO’S IN?

The framework has 13 members, including the U.S., that account for 40% of global gross domestic product: Australia, Brunei, India, Indonesia, Japan, South Korea, Malaysia, New Zealand, the Philippines, Singapore, Thailand and Vietnam.

WHAT WOULD IPEF DO?

That’s still to be figured out. Monday’s announcement signals the start of talks among participating countries to decide what will ultimately be in the framework, so the descriptions for now are largely aspirational. In a broad sense, it’s a way for the U.S. to lay down a marker signaling its commitment to remain a leading force in Asia.

“We’re writing the new rules for the 21st century economy,” Biden said at the announcement. “They’re going to help all our countries’ economies grow faster and fairer. We’ll do that by taking on some of the most acute challenges that drag down growth.”

White House national security adviser Jake Sullivan said IPEF is “focused around the further integration of Indo-Pacific economies, setting of standards and rules, particularly in new areas like the digital economy, and also trying to ensure that there are secure and resilient supply chains.”

The idea that new standards for world trade are needed isn’t just about discontent among U.S. voters. It’s a recognition of how the pandemic disrupted the entire scope of supply chains, shuttering factories, delaying cargo ships, clogging ports and causing higher inflation globally. Those vulnerabilities became even clearer in late February after Russian President Vladimir Putin ordered the invasion of Ukraine, causing dangerously high jumps in food and energy costs in parts of the world.

WHO’S GOING TO FIRM UP THE DETAILS?

The negotiations with partner countries will revolve around four pillars, or topics, with the work split between the U.S. trade representative and the Commerce Department.

The U.S. trade representative will handle talks on the “fair” trade pillar. This would likely include efforts to shield U.S. workers from job losses as China’s entrance into the World Trade Organization in 2001 led to severe manufacturing layoffs. Those job losses gutted parts of the U.S., angered voters and helped power the political rise of Donald Trump, who, as president, pulled the U.S. out of the Trans-Pacific Partnership almost as soon as he took the oath of office in 2017.

The Commerce Department will oversee negotiations on the other three pillars: supply chain resiliency, infrastructure and climate change, and tax and anti-corruption. Commerce Secretary Gina Raimondo flew with Biden on Air Force One to Japan. She was also by the president’s side during his time in South Korea, where he highlighted investments in U.S. factories by automaker Hyundai and the electronics behemoth Samsung.

An added wrinkle is that countries can choose which pillars they want to belong to, according to an administration official. They are not required to back all four.

WHO ELSE CAN JOIN THE CLUB?

The White House has said IPEF will be an open platform. But it has faced criticism from the Chinese government that any agreement could be an “exclusive” clique that would lead to greater turmoil in the region.

And there are sensitivities to China, the world’s second-largest economy, in setting up IPEF. The self-ruled island of Taiwan, which China claims as its own, is being excluded from the pact. This exclusion is noteworthy since Taiwan is also a leading manufacturer of computer chips, a key element of the digital economy that will be part of IPEF negotiations.

White House national security adviser Jake Sullivan said Sunday that any trade talks with Taiwan would be done one to one.

HOW LONG WILL IT TAKE?

Once talks start, negotiations are expected to go 12 to 18 months, an aggressive timeline for a global trade deal, according to an administration official. The official insisted on anonymity to discuss plans and added that building consensus inside the U.S. will also be key.


Source : AP

Infographic: U.S. and Russia’s Biggest Arms Trading Partners

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Source : Visual Capitalist

Chart: Vietnam’s Export Recovery Outpaces China

Source : Caixin