March 12th - The BESA Times
Forty-eighth Edition - Monday, 12th
Every week, a complete snapshot of what happened around the world in the past seven days
World convergence of free trade might be at serious risk now that US President Trump has announced a combination of tariffs that will hurt steel with a 25% and aluminium with a 10% import tariff. The measure is allegedly aimed at preventing cheap Chinese steel to flood the US market and is justified as a protection for national security purposes. “A strong steel and aluminium industry are vital to our national security,” Mr Trump said. This move is meant to fulfil Mr Trump’s promise to protect US steel industries, which were severely hit by last crisis and saw a sharp decrease in their output from 8 million tonnes to 4 million tonnes in 2009 and are strong in swing state that helped elect Mr Trump in 2016.
While some read future contracts for key commodities drops on the Chinese markets as a response to the notice of American protectionist manoeuvre, the picture may be more complex. Analysts at Nomura expect US tariff to have “little impact” on China’s exports, for the moment, even if they envisage future difficulties in the trade relationship between the two superpowers. Chinese steel, in fact, accounts for only 2% of the US market, and the tariff were expected to have a much larger impact on Canada and Mexico, which are the biggest steel exporters to the US.
The decision was received with great protest even within Republican circles, and as a result Mr Trump promptly softened the measure tweeting it will include an exemption for “real friends”, supposedly Mexico and Canada. While the UK and Japan claimed they will try to work to obtain exemptions, EU commissioners warn that tariffs cannot discriminate EU countries and must treat the entire Union as a trading bloc.
European Central Bank meeting cooled Euro currency growth, which has now fallen almost 2% against the dollar, after having hit a $1.25 high in early February. Investors expected a more definitive signal by Mario Draghi towards end the expansionary monetary policy, which will finally mean a return for interest rates in positive territories, giving renovated vigour to banks’ margins which suffered a lot from hard regulation and low rates. However, Draghi declared the asset purchases will continue at the current pace of €30 billion per month until the entire Euro block achieves price stability, which is believed to mean a stable inflation rate of just below 2%. These announcements combined with concerns over Italian political stability cast doubt over single currency future recovery, with EU member countries which struggle to ensure influence over the next Governor nomination.
Chinese National People congress approves an amendment eliminating two-term limit for the president and allows Xi Jinping to lead for life. Even though the constitutional change was widely anticipated, it still raised some opposition from liberal intellectual and middle-class families, after more consensus-based system that characterized Deng Xiaoping terms led China to a flourishing growth. Advocates claim the change will allow a more centrally-controlled economy that can restructure highly-indebted state-owned enterprises and local governments and will ensure economic reforms for continued growth are promoted. A lot of concern, however, is cast over a leader which severely censors opposition and ensures 99.8% of the votes in the NPC congress, a sign he is more feared than loved even by his party comrades.
What to remember of last week's news?
Italian elections resulted in a completely stagnant equilibrium, with no party or coalition having enough seats in the parliament to ensure stability to a one-coloured government. Both big winners, Lega and the centre-right coalition on the one hand and the Five Star Movement on the other, are courting the Democratic Party into an alliance that is likely to be very unstable. The broad divergence about programs and policies that oppose the anti-establishment vision of both Salvini and Di Maio, and the pro-European reformatory Democratic Party, whose President Matteo Renzi, is however under attack by most of the party leaders due to the embarrassing result gathered at the election. President Sergio Mattarella is expected to indicate a candidate to form a government within the next few weeks.
McKinsey, the prestigious global consulting firm, declared that Kevin Sneader will become the next global managing partner, succeeding to Dominic Barton, who successfully doubled annual revenues in his 9-year leadership. Mr Sneader is expected to maintain and improve McKinsey’s focus on its traditional business, strategic consulting, but he will have to modernise McKinsey’s hiring processes, as the business world deals with a growing attention to diversity. The biggest challenge Mr Sneader will have to take care of, however, is McKinsey’s reputation in South Africa, where the firm lost many of its key clients because of its involvement in a corruption scandal.
Did you know?
Eon will acquire Innogy in a €43 billion deal with RWE, a transaction which is expected to reshape drastically German energy sector. The German utility will focus exclusively on providing energy network to retail consumers, while RWE will acquire Eon and Innogy renewable businesses for €1.5bn in cash. This move is the result of a profound transformation undertaken by Eon, after the German government decided to move away from traditional fossil fuels. Energy giants responded with sharp cost cuts and suffered even more when the government imposed a tax to nuclear energy, to restrain incentives of investing in that technology after the Japanese nuclear disaster. The big turn came after German constitutional court declared the nuclear tax to be illegal, as companies were able to obtain at least €6.3 billion in reimbursement. Eon, which gathered its fossil fuels activities into a spin-off company, Uniper, further ameliorated its financial position after selling it to the Finnish Fortrum last January.
Our Homemade Article
What to expect for next week
After extending Xi’s tenure, China is expected to respond to US aggressive tariff and economic policies. Trump has asked Beijing to draft a plan to cut US-China trade deficit by $1 billion, and announced further moves on intellectual property rights safeguard. Experts believe tariffs foreshadow a much tougher action toward China, which for the moment is not being severely hit by Trump’s protectionist measures
WRITTEN BY RICCARDO FUSARI
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