Hello from Washington, where the streets are lined with armed soldiers and police officers and the entirety of the downtown area is soon to be shut down to prepare for the inauguration of Joe Biden.
On which note, our main piece gathers up some more thoughts from outgoing US trade chief Robert Lighthizer, who delivered quite a few zingers aimed squarely at the World Trade Organization when we spoke to him late last Friday, including the line that the broken appellate body has no effect on trade.
Our person in the news is Janet Yellen, one of the first of Biden’s incoming officials to get a Senate confirmation hearing, who warned US trading partners that she would not tolerate currency manipulation.
“As a negotiator, it doesn’t help to be tweeting all the time,” Bob Lighthizer, Donald Trump’s top man on trade told Trade Secrets late last week. It’s a strategy that seems to have worked for him, if not his boss. Four years of avoiding the limelight have seen Lighthizer end up as one of the longest-serving officials in a White House renowned for, among other things, its revolving door.
We can’t help but imagine that Lighthizer’s aversion to Twitter might have led to some quiet resentment of the loquacious Mr Trump, who has been perhaps the most influential keyboard warrior ever, and has been known to launch new tariffs by tweet as he waged his trade wars from afar.
If it did, though, he doesn’t let on. In an interview which took place last Friday afternoon, an often spiky Lighthizer would not be drawn on whether his boss’s tirades were unhelpful when he — Lighthizer — was on the ground in Beijing, painstakingly negotiating with officials there and trying to win both valuable economic concessions and shiny things Trump would be pleased with as the president battled to keep his political base onside with his trade war.
It’s China — specifically “changing the dialogue on China” — that Lighthizer ranks among his top achievements in office. “We really changed the way we related to that state capitalist system, and I think changed the way most Americans and many other people around the world think about it,” he said.
He may have a point.
The Trump political machine has shown that there are votes to be won by tapping into rustbelt discontent when it comes to trade — and over the course of the past year plenty of educated union workers have told the Financial Times that China joining the WTO was the start of things going wrong. Jobs were quickly offshored and manufacturing employment across several industries declined.
Trump quickly got to work, advancing a protectionist agenda that early in his tenure saw a 25 per cent tariff placed on imported metals, and on billions of dollars of Chinese imports. The goal was to revive the stagnating pockets of industrial America that our globalised world had economically left for dead. Trump’s success in achieving that goal is open to debate. Yet, while the Biden administration may conduct its trade war in a different way, nobody expects it to be any less hawkish.
The consensus on the strategy on China is, of course, by no means total.
The Phase 1 deal, under which Washington and Beijing struck a limited trade accord, was supposed to be a big part of cementing the protectionist agenda. But even before Lighthizer has left office, it has come under heavy pressure. Including from Trump, whose increasingly ferocious public attacks on China on everything from human rights abuses in Xinjiang to its handling of coronavirus were accompanied by the threat of fresh tariffs of Chinese imports, even though the Phase 1 deal had been signed and sealed. In May, he threatened to “terminate the deal” if Beijing did not buy more US produce.
The deal has survived up until now, but comes under monthly scrutiny from reporters and trade wonks who point out that Beijing really does not — to put it bluntly — have much hope of actually buying as much US stuff over two years as it promised, given its current rate of imports. (China promised to buy $200bn more in US goods than it did in 2017, the baseline before the start of the trade war, over the course of two years). Lighthizer has previously grumbled about the media focusing too much on the purchasing commitments extracted from Beijing — and dodges our question on whether they were just put in place to appease Trump. While he admits that he is “disappointed” with how those commitments have performed in the first year, he points out: “It’s quite unfair for people to act like Covid didn’t happen.”
Lighthizer — who elsewhere in our conversation said that trade negotiators were never pessimists — stresses the value of the Phase 1 deal in other areas. There were “an awful lot of changes” that China had made to IP protections, he says; there are new and clear rules that China cannot force the transfer of technology from US companies to Chinese companies, and they’ve done some work towards opening up their financial services.
Divisions within Beijing allowed Lighthizer to make progress in his trade negotiations even as the Trump administration took various national security actions against China, including putting telecoms company Huawei on a government blacklist and using export controls to cut off Chinese companies from crucial US technology. Lighthizer said that while occasionally Chinese officials would register “disagreement” with those actions, he was able to appeal to officials who wanted more openness on trade.
“China is a lot of different things and people vying for different policies, and I think that there are people over there who are hardliners, and for whom the whole thing is about security and trying to get an advantage,” he said. “And then there are others who are not liberal in the sense that we use that word at all, but they think that there’s an advantage to China in having more commerce and a somewhat less regimented economy.”
Continuing the dialogue with China will be one of the top priorities for the incoming administration and its new US trade representative, Katherine Tai (of whom Lighthizer speaks highly — “a good person, smart and knows her stuff”). Lighthizer says he has no insight into whether and how quickly new talks can happen, but that he expects that Chinese officials will look to quickly begin discussions “with the objective of accomplishing nothing”. So trade negotiators can be pessimists after all, it seems.
George Steer and Valentina Romei wrote an excellent piece that delved into surging freight rates between China and Europe. Prices have more than quadrupled in the past eight weeks, on the back of a shortage in containers and unexpectedly strong manufacturing output and consumer demand. That is also having an impact on how long suppliers are having to wait for goods to be delivered.
The chart is based on the purchasing managers’ index, an influential bellwether of activity, and charts a sub-index based on delivery times. Readings of more than 50 signal purchasing managers are, on the whole, reporting an improvement in conditions, those below 50 the opposite. In all parts of the world — apart from Asia — waiting times are now at their worst level since the spring.
As chair of the US Federal Reserve, Janet Yellen was the world’s most powerful central banker. So the incoming Treasury Secretary knows all about markets’ capacity to pounce on the pronouncements of top financial officials — especially when those pronouncements mention the dollar.
The dollar dominates world trade and remains the global reserve currency of choice, despite the efforts of eurozone officials to convince investors otherwise (see Don’t miss below). A Wall Street Journal story earlier in the week saying that Yellen would state in a Senate Finance Committee hearing that the US would not seek a weak currency led to a rise in the greenback.
The hearing took place on Tuesday. So what did Yellen say? In line with her predecessors, she took a swipe at China’s currency manipulation and warned US trading partners against currency manipulation and touted the importance of market-based exchange rates. Yellen said that “the intentional targeting of exchange rates to gain commercial advantage is unacceptable”, and that she would “oppose any and all attempts by foreign countries to artificially manipulate currency values to gain an unfair advantage in trade.”
All of which is as one might expect — a weak renminbi after all would benefit Chinese exporters. But with some investors forecasting a slump in the dollar, even pronouncements as seemingly predictable as these can have the power to move markets.
The best trade stories from Nikkei Asia