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Daily Picks Friday: $50bn China Tariff Threat Signals Worse to Come

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Bread, Brexit, and the power of the third option

From: http://timharford.com/2018/06/breadbrexitthirdoption/

  • A BMG opinion poll in January found 52% of people in favour of staying in the single market, and only 14% of people against, but both Prime Minister Theresa May and the leader of the opposition, Jeremy Corbyn, have rejected the single market option, making it unlikely.
  • The single market is very much like being in the EU, except just a little bit worse. If it becomes a salient possibility, it makes staying in the EU look rather attractive by comparison.
  • A hard Brexit will probably go quite badly for the UK, but it does have the merit of being a very different path to remaining in the EU. A Norway-option Brexit might well work out smoothly, but it is almost guaranteed to under-perform the option of not leaving at all.
  • Brexiteers may realise that if the British public decides that staying in the single market is a plausible plan, they might eventually reach the conclusion that staying in the EU itself would be even wiser.
  • A hard Brexit offers temptations to many voters: control over immigration; an independent trade policy; no more membership fees to Brussels. It also offers obvious risks: leaving the largest single market in the world; damage to the political settlement in Northern Ireland; setbacks to scientific and diplomatic collaboration. Staying in the EU merely offers business as usual.
  • During the referendum campaign, the opportunities opened by Leavers seemed expansive, while the costs (“lower GDP by 2030!”) were vague and dull. During the negotiation process, it is the opportunities that are starting to seem vague while the costs are becoming vivid, at least to the small number of people who are paying attention.
  • It was always clear that asking an absurdly simple question about an absurdly complicated decision was unlikely to work out well.

Trump's $50 Billion China Tariff Threat Signals Worse to Come

From: https://www.bloomberg.com/news/articles/2018-06-15/trump-s-50-billion-china-threat-only-signals-worse-to-come

  • The Trump administration is preparing to release a refined list of Chinese products to be hit with tariffs that focus on technologies where China wants to establish itself as a leader.
  • The White House has said the duties will be implemented “shortly” after the release of Friday’s list, though no date has been set.
  • There have been three rounds of negotiation with Beijing which have failed to delay or prevent this outcome.
  • Ultimately a negotiated solution is likely -- and this is what both the U.S. and China are aiming for. But the risks are high and the tariffs could well be implemented before the issue is resolved.

Trump Targets $50 Billion in China Goods, Vows More If Needed

From: https://www.bloomberg.com/news/articles/2018-06-15/trump-targets-50-billion-in-china-goods-vows-more-if-needed

  • China has vowed to retaliate if the tariffs are implemented.
  • Trump pledged additional tariffs if China follows through on the retaliation threats.
  • China, the world’s No. 2 behind the U.S., has pledged to retaliate on U.S. exports including soybeans and pork.
  • The U.S. imported $505 billion of goods from China last year and exported about $130 billion, leaving a 2017 deficit of $376 billion, according to government figures.
  • Trump has frequently cited such an imbalance as the justification for a punitive trade policy toward China, Canada, Mexico, the European Union and other trading partners.