By Shawn Donnan
It’s not often you can say this. But we’ve just witnessed a potentially historic weekend for the world economy. So it’s worth thinking through how the history books might record it. Here’s a first draft:
“As President Donald Trump flew to Japan at the end of June 2019 for a make-or-break trade meeting with China’s leader Xi Jinping, European officials were quietly working on a blockbuster deal of their own to announce at the same Group of 20 summit in Osaka.
In the end Trump and Xi agreed to a truce and more talks, and markets initially cheered the armistice. But the two countries seemed no closer to bridging wide differences that wouldn’t soon be settled.
Meanwhile, the European Union was taking advantage of the void left by the Trump-led U.S.’s retreat from its role as chief defender of western liberalism. For two decades Europe had been trying to nail down a pact with Brazil, Argentina and the two other members of Mercosur, a bloc traditionally known for its nationalist approach to industrial policy and protectionism. But hours before Trump and Xi met, the EU announced the deal was finally done.
The message was stark. European industrial giants such as Airbus and Siemens would gain an advantage over their U.S. competitors in Latin America. Argentinian and Brazilian farmers would win an edge in Europe over U.S. competitors, adding to the decline of America as an agricultural export power.
The EU-Mercosur talks had been a prime example of stalled liberalization efforts. Yet with Trump threatening the global order, officials in Brussels, Brasilia and Buenos Aires had spied an opportunity to forge the new economic alliance — just as the EU and Japan had in a deal that took effect earlier in 2019. A day after the leaders left Osaka summit, the EU signed a deal with Vietnam, a nation Trump just days earlier lambasted as ‘almost the single worst abuser of everybody.’
After Japan, Trump went to the only country where he could claim a sealed trade agreement: South Korea. There he toasted the deal as evidence he’s winning. But in Washington officials were confronting a grim new reality for U.S. economic power. When Trump dialed up the heat with tariffs and threats, the rest of the world looked elsewhere for opportunities. The early results were not going in America’s favor.”
Charting the Trade War
From Europe to Asia, global manufacturing took another knock at the end of the second quarter, according to reports that signaled a softening growth outlook as U.S.-China trade talks drag on.
Today’s Must Reads
China’s industrial slump | An official manufacturing index stayed below the dividing line between contraction and expansion and was worse than economists forecast.
Economists doubt truce | Financial markets have smiled on signs of warmer relations between the U.S. and China, but economists say threats of a growth-damaging escalation will linger.
Good news for Huawei | Technology stocks were big early winners in a relief rally in Asia after the world’s largest economies declared a truce in their year-long trade war.
Japan-Korea tensions | Japan is planning to slap export restrictions on some tech items sent to South Korea, a sign of escalating tensions between the two Asian trading partners.
Rate cuts coming? | While the positive signs from the G-20 will help investors’ risk appetite, uncertainties over the dispute could cloud sentiment and worry central bankers.
Huawei wins reprieve | Trump signaled an easing of restrictions that may help the tech sector
Exports Down Under | Australian central bank weighs rate cuts amid tough external environment
July 3: U.S. releases trade data for May, 8:30 a.m. in Washington