China’s Recovery and Trade Links to Europe

Weakness from China’s economy depressing European exports has been one factor triggering concern about Eurozone manufacturing growth among both markets and the European Central Bank, contributing to the bank’s recent dovish tilt. Improving momentum within China’s industrial sectors in early 2019—already apparent in our proprietary measures—may provide more support to European exports later this year relative to 2018, while US-China tariff actions also support stronger-than-projected European exports. However, expectations that policy support in China will generate the same level of activity demand and corresponding import growth as in previous economic cycles will likely be disappointed.

Posted April 24, 2019
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Assessing the Costs of Tariffs on the US ICT Industry

In recent years both China and the United States have moved beyond threats to start closing doors to one another in high technology. In a new report titled “Assessing the Cost of Tariffs on the US ICT Competitiveness: Modeling US-China Tariffs,” commissioned by the United States Chamber of Commerce, we offer a quantitative assessment of the impact of barriers to US-China ICT trade based on bilateral tariff escalation under the US Section 301 case. In this note, we offer key conclusions from our analysis. Even if some of those tariffs are lifted in a trade deal in coming weeks, barriers to bilateral tech trade and investment are likely to remain in place if not intensify.

Posted March 18, 2019
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China’s Current Account: Living on the Edge

Preliminary data show China’s 2018 current account surplus fell to $49.1 billion, the lowest level since 2003. Should the current account continue declining, the exchange rate would face long-term depreciation pressure as more capital inflows would be needed to stabilize China’s international payments. Several trends will weigh on China’s current account balance this year, including the US-China trade dispute. Based on a global trade model simulation, we expect bilateral tariffs to reduce China’s imports more than its exports over the next five years, suggesting a net positive impact on the current account. More important for a balance of payments-driven view on the currency this year are levels of capital inflows and monetary policy divergence between the United States and China.

Posted March 7, 2019
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