Trump officials send mixed signals on
China investment curbs, markets sink
Send a link to a friend
[June 26, 2018]
By David Lawder
WASHINGTON (Reuters) - Conflicting signals
from the Trump administration over proposed restrictions on foreign
investment in U.S. technology companies, along with news that recently
imposed import tariffs are starting to disrupt supply chains, sent
global stock markets tumbling on Monday.
Proposed restrictions on foreign investment in U.S. technology would not
just be confined to China, according to U.S. Treasury Secretary Steven
Mnuchin. The forthcoming restrictions would apply "to all countries that
are trying to steal our technology," he said.
The U.S. Treasury is due to issue its recommendations on Chinese
investment restrictions on Friday.
Late Monday White House trade and manufacturing adviser Peter Navarro
sought to downplay Mnuchin's remarks, telling CNBC television that the
restrictions on investments in U.S. technology companies would just
target China.
Benchmark Wall Street stock indexes suffered their worst losses in two
months on Monday, while safe haven Treasury debt yields fell.
U.S. technology stocks were worst hit. Alphabet, the parent of Google,
fell 2.6 percent, Apple lost 2.75 percent, and Amazon dropped 3.0
percent.

TARIFFS IMPACT SUPPLY CHAINS
The recent imposition of import tariffs by the U.S., and
counter-measures by other countries, are also starting to affect global
production and supply chains. Some U.S. steel and aluminium tariffs went
into effect in April and additional tariffs begin in July.
Harley-Davidson, the dominant player in the U.S. motorcycle market said
on Monday it would not pass on the cost of EU tariffs to customers and
instead focus on shifting some U.S. production to other countries.
Harley shares closed down 5.0 percent and analysts cut their profit
forecasts on concerns about how quickly the company would be able to
adapt to the 25 percent import duties the European Union began charging
on June 22.
Other companies likely to feel the impact of recent U.S. tariffs on
imported steel which raise costs for manufacturers, and the
counter-measures by China which may hit U.S. exports, include heavy
machinery maker Caterpillar and aircraft maker Boeing. Caterpillar stock
lost 3.7 percent and Boeing fell 7.7 percent on Monday.
TRUMP ADMINISTRATION DIVISIONS
The conflicting signals on trade policy from the Trump administration
reflect deep divisions among policymakers over how hard to push China on
demands for changes in trade, technology transfers, and industrial
policies.
U.S. Treasury Secretary Mnuchin has been reluctant to back steep tariffs
on Chinese goods, fearing the impact on global supply chains. Goods
assembled and exported in one country often depend on components
manufactured in another, after being designed in yet a third country,
making the national trade deficit focused on by President Trump an
unreliable guide.
Last month, Mnuchin said a trade war with China was "on hold" after
officials of the world’s two largest economies held talks in Beijing
that were focused on opening more sectors of China's economy and
increasing purchases of American goods.
But trade policy advisor Navarro, the administration's harshest China
critic, has advocated a far more confrontational approach with Beijing.
[to top of second column]
|

United States Secretary of the Treasury Steven Mnuchin holds a news
conference after the G7 Finance Ministers Summit in Whistler,
British Columbia, Canada, June 2, 2018. REUTERS/Ben Nelms

“The market is perceiving that politics will become policy," said
Brian Battle of Performance Trust Capital Partners in Chicago. "The
market is starting to price in that the tariffs will start to become
real. The rhetoric is getting stronger rather than weaker."
"A trade war means lower global GDP. It's bad for growth," he said.
CFIUS LANGUAGE
Derek Scissors, a China scholar at the American Enterprise Institute
who consults regularly with the administration, said that he
believes Mnuchin would prefer to apply the text of a bill working
its way through Congress to strengthen national security reviews of
U.S. acquisitions to investments by China.
The bill would allow the Committee on Foreign Investment in the
United States (CFIUS) to review transfers of minority interests in
companies dealing with critical infrastructure or critical
technology as opposed to full acquisitions.
"I would not, on the investment side, be betting against the
Treasury Department," Scissors said, noting that Treasury would
control implementation of such rules.
Export controls, on the other hand, are the purview of the U.S.
Commerce Department and the National Security Council. Trump
administration officials have said they are considering the use of
the 1977 International Emergency Economic Powers Act to impose new
restrictions on China, an act widely used to freeze assets after the
9/11 attacks in 2001.
Spokespersons for the Treasury and the Commerce Department did not
respond to requests for comment on their investment and export
control plans.


On Wall Street, the Dow Jones Industrial Average fell 328.09 points,
or 1.33 percent, to 24,252.8, the S&P 500 lost 37.81 points, or 1.37
percent, to 2,717.07, and the Nasdaq Composite dropped 160.81
points, or 2.09 percent, to 7,532.01.
Earlier policymakers in China moved quickly to temper any potential
impact on economic growth from Beijing's trade dispute with the
United States. Its central bank said on Sunday it would cut the
amount of cash some banks must hold as reserves by 50 basis points
to spur lending to smaller firms.
(Reporting by David Lawder and David Shepardson in Washington, and
Caroline Valetkevitch in New York; editing by Clive McKeef)
[© 2018 Thomson Reuters. All rights
reserved.]
Copyright 2018 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |