China’s exports to the US fall for first time since crisis ( GFC ) in 2008 - Financial Times

China’s exports to the US are set to fall this year for the first time since the height of the global financial crisis.

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InvaThe value of US merchandise imports from the Middle Kingdom has fallen 4.7 per cent this year, based on annualised data for the first 10 months of 2016, according to Standard Chartered, putting them in line for their first annual decline since 2009, as the first chart shows.

The figures come ahead of the inauguration as US president of Donald Trump, who has threatened to impose tariffs of up to 45 per cent on imports from China, a country he considers a “currency manipulator”, suggesting that China’s exports to the US could decline still further in the coming years.

This year’s decline marks a sharp turnround from the period between 2010 and 2015, when Chinese exports to the US rose at a compound annualised growth rate of 5.6 per cent, according to StanChart, outstripping nominal US gross domestic product growth of 3.7 per cent a year.

Although the renminbi has fallen 5.9 per cent against the dollar so far this year, Thomas Costerg, senior US economist at StanChart, does not believe it was a factor in the declining dollar value of China’s exports to the US, arguing that these exports tended to be priced in greenbacks, not redbacks.

Instead, he says a decline in exports of electronic goods was the “main culprit” behind the overall fall in trade.

Exports of Chinese mobile phones, tablets, laptops and related accessories to the US have fallen in value by 4.8 per cent this year. These categories accounted for 28 per cent of China’s total merchandise exports to the US in 2015, worth some $132bn, giving China a 40.8 per cent market share for such products, according to analysis by Mizuho Securities Asia.

This year’s fall appears to be driven by a declining American appetite for new electronic gadgets, with imports of mobile phones (from all countries) falling 4.9 per cent in unit terms in the first 10 months of the year, to 176m, according to figures from the US Department of Commerce and US International Trade Commission. 

“We have seen a drop in phone sales recently in the US,” says Mr Costerg, who speculates this is linked to the product cycle, with few “must-buy” gadgets being launched.

“We have seen a huge increase in demand for phones, which seems to be coming to an end. It’s unlikely to accelerate [again]. I think the US market is saturated in terms of phones and tablets,” he adds, arguing that a recovery in US electronics imports may be reliant on a new mass-market product emerging, with drones one possibility cited by some commentators. 

The decline in Chinese exports to the US has been far more pronounced in areas such as clothing and footwear, however. 

Chinese footwear sales to the US have slumped 14.4 per cent year to date in 2016 (compared with January-October 2015), from $14.9bn to $12.7bn, far outstripping the 7 per cent decline in American boot and shoe imports in general.

As of 2015, China accounted for 62.5 per cent of US footwear imports, but its market share is being rapidly eroded by Vietnam, which has enjoyed a 12.4 per rise in YTD exports to $4.1bn in the 10 months to October, as the second chart illustrates. Third-placed Indonesia has retained its sales at $1.1bn in a declining market

A similar story is unfolding for apparel and clothing accessories, where China’s exports to the US are down 9 per cent to $27bn year to date, again a bigger fall than the 5.7 per cent decline in the overall market.

Here, too, China’s market share, some 36.4 per cent in 2015, is being eroded by Vietnam, which has seen a 2.3 per cent rise in exports year to date to $9.2bn, as well as Bangladesh, Indonesia and India, as the third chart indicates.

“It does surprise me that clothing and footwear are struggling. [Chinese exports] have been weak for the past two to three years, but they seem to be falling more quickly [now], and that’s not just the exchange rate,” says Mr Costerg.

He believes this is a long-term structural shift, with heightened competition from Vietnam and other low-wage Asian economies increasingly meaning Chinese goods are “crowded out”.

China has also been attempting to move up the value chain as part of its government’s strategy to lessen the country’s reliance on low value-added exports.

This may also be behind weakness in Chinese toy exports to the US, which have fallen 2.2 per cent year on year, according to StanChart. The Middle Kingdom accounted for 82.4 per cent of America’s toy imports in 2015, worth some $25.7bn, according to Mizuho. 

However Gareth Leather, senior Asia economist at Capital Economics, believes China’s exports to the US will bounce back in dollar terms in the coming months.

He argues that the price of many finished goods has fallen in the past couple of years because weak commodity prices have lowered the cost of raw materials, such as steel. 

But with most commodity prices now markedly above the lows they plummeted to early this year, “the dollar value [of Chinese exported goods] is going to rebound over the next few months as the base effect from falling commodity prices falls out,” Mr Leather says.

As for the longer-term outlook, he argues that Chinese exports to the US are likely to be bolstered by stronger US economic growth if Mr Trump pursues the expansionary fiscal policy he outlined on the campaign trail, suggesting that the president-elect may turn out be good news for China’s exporters, rather than bad.

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What Is America Without Influence? Trump Will Find Out - New York Times

What Is America Without Influence? Trump Will Find Out.
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By ANTONY J. BLINKEN
DECEMBER 13, 2016
WASHINGTON — In February 1945, in the twilight of World War II, Franklin D. Roosevelt, Joseph Stalin and Winston Churchill convened in Yalta, a Russian resort town in the Crimea, to deliberate on the direction of the war and the peace to follow. They agreed to a postwar order managed by Roosevelt’s “Four Policemen” — the United States, Britain, Russia and China.
Roosevelt was convinced he could cajole Stalin into keeping his Yalta commitments to collective security and an undivided Europe. Stalin had a very different vision: a world shaped by spheres of influence within which the will of the strongest prevails. In the Soviet sphere, darkness descended on Eastern Europe for 45 years.
It fell to President Harry Truman to contain Soviet expansionism. He built America’s first peacetime alliances, starting in Western Europe, then in Asia. The United States took the lead in shaping the norms, rules and institutions of what became the liberal international order, including the United Nations, the international financial institutions and the Marshall Plan.


From left, Winston Churchill, Franklin Roosevelt, and Josef Stalin in 1945, at Yalta.
ASSOCIATED PRESS
The liberal order led by the United States favored an open world connected by the free flow of people, goods, ideas and capital, a world grounded in the principles of self-determination and sovereignty for nations and basic rights for their citizens. It did fall short of its ideals, often in Latin America and Southeast Asia. Yet despite the hair-trigger tensions of the Cold War, it produced decades of peace between the great powers while building shared prosperity.
The postwar order that America built now is facing acute challenges, including from old competitors. Russia’s president, Vladimir Putin, is no Stalin and Russia is no Soviet Union. But Mr. Putin does seek to recreate a Russian sphere of influence while picking apart the liberal international order that prevailed in the Cold War. China remains focused on stability at home, but the “new model of great power relations” it has proposed to the United States would have us stick to our side of the Pacific and let China play the pre-eminent role on its side.
America’s allies in Europe and Asia are fixated on whether the Donald Trump administration will reject the re-emergence of spheres of influence or embrace them. They worry that, in his campaign, Mr. Trump seemed to approve of the “strong” leadership of autocrats and favor a transactional approach to Mr. Putin. He showed little concern about Russia’s cybermeddling in our election or aggression in Ukraine while suggesting that NATO is “obsolete.” He argued that the United States should get out of the business of “defending the world” and described Japan and South Korea as free riders that should pick up the burden of their own defense and nuclear deterrence.
He has promised to jettison the Trans-Pacific Partnership trade agreement, ceding to China economic leadership and strategic influence in Asia. For many Europeans and Asians, these proclamations translate into a world in which the United States retreats into its cocoon, and Russia and China dominate them in both political and economic spheres.
The United States must not see China or Russia through a zero-sum prism. The Obama administration has deepened areas of cooperation with Beijing, from the Paris climate agreement, the handling of the Ebola epidemic, the Iran nuclear deal and North Korea to joint projects in developing countries. It negotiated the New Start nuclear arms reduction treaty with Moscow and championed Russia’s admission into the World Trade Organization.
Yet when Russia or China challenge the principles of the liberal international order, the United States must stand up to them. In Ukraine, Mr. Putin has sought to change the borders of Russia’s neighbor by force while denying its people the right to decide with which countries, unions or alliances they associate. It is why American support for Ukraine matters.
So does our resolute support for international law in the South China Sea. There, China’s conduct in claiming vast territorial waters and building military outposts on artificial islands risks undermining the freedom of navigation and free flow of commerce upon which our prosperity depends, the peaceful resolution of disputes that undergirds stability and the rights of allies we have vowed to defend.
A sphere-of-influence world would not be peaceful or stable; the United States will not be immune to its violent disruptions. Hegemons are rarely content with what they’ve got; the demand to expand their zones as well as cycles of rebellion and repression within them will lead to conflicts that draw us in. The United States would have to accept permanent commercial disadvantage as economic spheres of influence shut us out or incite a race to the bottom for workers, the environment, intellectual property and transparency.
America’s greatest contribution to peace and progress has been laying the foundation for an open, rules-based, connected world. Now we have to decide whether to continue to defend, amend and build upon that foundation or become complicit in dismantling it.
Antony J. Blinken is the deputy secretary of state.
New York Times

Four key points from the Fed’s meeting - Financial Times

Federal Reserve
Four key points from the Fed’s meeting
Policymakers’ ‘dot plot’ for 2017 overshadows expected decision to raise rates

© AP
4 HOURS AGO by: Eric Platt and Joe Rennison in New York
US government bond markets were jolted by the Federal Reserve’s unexpectedly hawkish turn on Wednesday, when the US central bank increased interest rates for the second time since the financial crisis and set a more aggressive path for tightening than investors had anticipated.
A sell-off accelerated into the close of trading, with the yield on the two-year note climbing 10 basis points to 1.263 per cent, the highest level since August 2009 shortly after the US emerged from recession. Yields rise as bond prices fall.
Losses were concentrated in the shortest-dated US Treasuries, with the three- and five-year Treasury yields rising 11 and 13 basis points, respectively. The dollar clinched its best daily performance in a month, rising 0.9 per cent against a basket of currencies, while commodities including oil and gold sank.
Stock markets weakened, led by declining shares of energy, utility and real estate companies, the latter two highly sensitive to changes in monetary policy expectations. The S&P 500 dipped 0.8 per cent and the Dow Jones Industrial Average, which at one point in the day was 34 points from eclipsing the 20,000 level, fell 0.6 per cent.
Several investors said they had expected a more dovish announcement, given the uncertainty of President-elect Donald Trump’splans to boost government spending and cut taxes that the incoming administration hopes will accelerate economic activity. But momentum in the US economy that began before the election won a vote of confidence from policymakers, with Fed chair Janet Yellen saying she expects progress to continue.
“The surprise and what the market is reacting to is that most people expected a wait-and-see stance from the [Fed] in terms of how they would consider the impact of Trump-enomics in the year ahead,” said Ian Lyngen, a strategist with BMO Capital Markets. “It was a bit of a surprise seeing the Fed buy into the market’s optimism.”
Four key points from the meeting . . .
Three not two
The widely anticipated decision to raise interest rates was overshadowed by the Fed’s policy projections. Along with its decision to lift the target range of federal funds futures to between 0.5 and 0.75 per cent, policymakers at the US central bank plotted a more aggressive path for 2017. The so-called dot plot — the individual projections of officials on the Federal Open Market Committee — showed policymakers projecting three quarter-point rate rises in 2017, up from the committee’s forecast for two when it met in September.
It is a signal from the Fed of confidence in the strength of the US economy, with firming inflation expectations and a healthy labour market, Ms Yellen said.
“We have opened the door” to a faster tightening cycle, said Scott Minerd, chief investment officer of Guggenheim Investments. “If the data continue to come in how we expect, the Fed will have to move faster than people were expecting.”
Beyond 2017, the Fed policymakers projected two increases a year through 2019 and lifted their long-term view of where rates will find equilibrium.
It is a signal from the Fed of confidence in the strength of the US economy, with firming inflation expectations and a healthy labour market, Ms Yellen said.
“We have opened the door” to a faster tightening cycle, said Scott Minerd, chief investment officer of Guggenheim Investments. “If the data continue to come in how we expect, the Fed will have to move faster than people were expecting.”
Beyond 2017, the Fed policymakers projected two increases a year through 2019 and lifted their long-term view of where rates will find equilibrium.

Fixed income pummeled
The sell-off was swift in government bond markets, with knock-on effects felt in investment-grade corporate bonds and emerging market debt.
Yields across the Treasury curve climbed as investors cut positions in US government debt, but this was concentrated on shorter-dated notes. The yield on the 10-year Treasury closed above 2.5 per cent for the first time since September 2014 while the five-year note passed 2 per cent for the first time since May 2011.
“We’re on our way to a 2.75 per cent [yielding] 10-year,” said Rick Rieder, BlackRock’s chief investment officer of fixed income. “I don’t subscribe to the thesis we’re moving to much higher interest rates, but it will be pretty hard until we get other information from the Fed for interest rates to do anything other than drift higher.”
US paper has suffered as investors prepare for faster economic growth and a more aggressive Fed, as well as with the concern that deficits could be funded with a spurt of new Treasury issuance. The yield curve flattened materially, with the difference between five and 30-year paper declining 9 basis points to 113bp, the lowest since September.
The weakness spread to Asian sovereign bond markets as they opened, with yields on 10-year Japanese, Australian and New Zealand government debt rising.

The boon to the dollar
The surge in yields have bolstered the greenback’s appeal, with the DXY dollar index hitting its highest level since 2003 on Wednesday.
The gain has been propelled by the accelerating divergence between US and global rates, with the attraction of higher yields on US sovereign bonds drawing investors to the country’s currency.
The difference between the yield on two-year Treasuries and the safe-haven two-year German Bund hit a high of 205 basis points on Wednesday, a level last touched in 2000. The premium to Japanese two-year notes surged to nearly 150bp, the highest since 2008.
The yen subsequently fell to a 10-month low while the euro slipped below $1.05. As central banks in Europe and Japan retool policy to jumpstart economic activity and inflation, they remain at stark odds with the Fed as the latter tightens policy.
“The US dollar may have been ahead of the Fed in digesting what the US election result might mean for growth, but it will still likely strengthen further on the Fed’s swifter than expected conversion to a possible fiscal reflation theme,” said Daragh Maher, a currency strategist with HSBC.

The market is now (mostly) in agreement with the Fed
The Fed has repeatedly overestimated how quickly it would raise interest rates, drawing the ire of investors and traders who last December put the odds on four quarter-point hikes — as the central bank then projected — at roughly 9 per cent.
On Wednesday traders put the odds on three 25bp rises in 2017 at roughly 45 per cent. Two or more? Traders put those odds at more than 76 per cent, according to calculations on federal funds futures by Bloomberg.
The alignment is visible in December fed funds futures contracts, which climbed to 1.165 per cent on Wednesday. The median of the Fed’s projection: 1.375 per cent.
“The Fed won’t feel constrained because the market isn’t pricing in the level of tightening that they wanted to deliver, which is what we saw in 2016,” Mr Lyngen added.

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