Allan von Mehren
Danske Bank A/S
Geopolitics
First shots have been fired in trade war: While it took more than a year before the trade war starting in the first term of US President Donald Trump's, it only took 10 days this time. A 10% tariff rate was put on China related to Fentanyl coming to the US via Mexico. China was quick to retaliate with tariffs on energy, export controls on metals and targeting several US companies.
It is interesting that China throws export controls into the mix in its retaliation as it has normally only been used in the 'tech war' in response to US export controls on microchips. Several commentators have interpreted China's retaliation as moderate as the tariffs only cover a small part of imports coming from the US. However, I would argue the export controls on key metals are more painful for the US and the same goes for measures towards single US companies. PVH Corp dropped 15% since the retaliation was announced. China sends a clear signal it could hurt other major US companies and thus US stock market performance in case of a further escalation. PVH Corp may not move the overall market but if China goes after big US tech companies, and potentially Tesla, it could have a wider impact. Nvidia is already under an anti-trust investigation and China looks into a similar move on Intel. China likely knows that Trump may be more sensitive to how US stocks perform than tariffs on US trade.
Xi-Trump call cancelled, tariffs just an 'opening salvo': A call between Xi and Trump was apparently planned to take place on Tuesday this week but cancelled after China retaliated. On Tuesday afternoon, Trump said he was in no hurry to speak to Xi and that the tariffs was only an 'opening salvo'. He added that "If we can't make a deal with China, then the tariffs would be very, very substantial". As I wrote last week the 'real' trade war will probably not start until the US trade study looking into China's unfair practices etc. is done by 1 April. Our baseline scenario is still that US average tariffs on China will ultimately end up of around 40% over the next 1-2 years from currently just below 25% (including the latest 10% increase).
Panama leaves Belt and Road Initiative, US claims victory: Panama is officially leaving the Chinese Belt and Road Initiative following US pressure. The news came few days after US Secretary of State Marc Rubio visited the country and Rubio called the decision a "victory". China's ambassador to UN Fu Cong called the decision "regrettable" and said that "The smear campaign that is launched by the US and some of the other Western countries on the Belt and Road Initiative is totally groundless". An audit by Panama of the Hong Kong company that operates two of the five ports in the Panama Canal has been launched and a law suit has also been filed against the Hong Kong company. It seems likely the company will end up having to end the port operations.
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