China tariff escalation rattles markets. Summit of the Americas raises Western Hemisphere policy concerns. Guatemala votes to move land dispute case to the ICJ. All in The Week Ahead.
UNITED STATES: China tariff escalation likely to rattle markets
- This week, global markets will look anxiously at the trade conflict between China and the United States. The conflict was precipitated by two policy moves by the United States. First, the Trump administration announced it would levy a 25% tariff on steel and 10 percent tariff on aluminum due to global pricing pressures (though commentary focused extensively on China). The second was an announcement that the administration would request trade agencies look for $50 billion worth of goods from China and subject them to a 25 percent tariff due to ongoing and established intellectual property theft by Chinese entities belonging to U.S. firms.
- The aluminum and steel announcement led to angry reactions from major U.S. allies with steel and aluminum production, many of whom were able to eventually secure exemptions. China’s immediately responded to the U.S. IP tariffs with $50 billion in tariffs for U.S. products, which shocked both U.S. markets and administration officials. The response by the president that the Department of Commerce seek an additional $100 billion in Chinese goods in retaliation led to deeper concerns from global markets and growing political opposition from major U.S. groups (particularly in the agriculture sector).
GRI Take: As none of these proposals have been implemented yet and the comment period will last for at least a few more weeks, an actual trade war does not yet appear likely. However, the escalation of rhetoric, paired with growing confidence from the Federal Reserve on U.S. employment levels, are likely to provoke a double whammy to the U.S. stock market, and likely shake stock markets around the world.
PERU: Summit of the Americas to raise policy questions for the Western Hemisphere
- This Friday, leaders from Canada to Chile will meet in Lima to discuss geopolitical and economic issues. The gathering will have large, politically sensitive issues to discuss: the recent inauguration of Peru’s new president Martin Vizcarra (following the resignation of his predecessor Pedro Pablo Kuczynski due to a likely impeachment and removal on corruption charges) will be chief among them. Additionally, Venezuelan president Nicholas Maduro has suggested he may attend the Summit despite clear objections from nearly all major attendees due to the degradation of Venezuela’s political and economic environment and refusal to hold free and fair elections.
- President Trump’s attendance is likely to complicate matters as well. The administration has indicated its plans to advance the United States rather than China as a trading partner of choice. That will be a difficult task to accomplish for many reasons: first, the President’s comments about Latin Americans (particularly from Mexico and Central America) have erased any good will from local populations and strongly discouraged politicians from working with the president. Second, the U.S. withdrawal from the Trans-Pacific Partnership, which included Mexico, Peru, and Chile (among others) as well as the struggling NAFTA re-negotiations, have convinced many Latin American nations that the United States is not a consistent or stable negotiating partner.
GRI Take: In addition to China’s relative economic and political stability, China’s government frequently offers improved trade relations and development aid and loans without the stronger human rights and labor provisions frequently required in U.S. agreements, making negotiations easier for Latin American countries. Pending any major new initiatives from the Summit, China will likely remain many Latin American country’s trade partner of choice.
GUATEMALA: ICJ land dispute vote
- On Sunday, Guatemala will hold a national referendum to determine whether to take a territorial dispute with neighboring Belize to the International Court of Justice and abide by whatever ruling the ICJ makes in the case. The dispute has existed since Belize was granted its independence in 1821. Guatemalan governments have subsequently claimed parts or all of the country as its own. The case was partially adjudicated by a 2008 agreement between the two countries that agreed to host a binational referendum to provide the ICJ with the authority to settle the dispute. Since then, however, successive Guatemalan and Belizean governments have hesitated on actually holding the referendum and several deadlines have been missed.
- The issue may be partially resolved if the Guatemalan citizenry votes to proceed with the case. However, there is a potential for several complications. First, Guatemalans could vote no (polling has been scant) and foreclose the option entirely. Second, Belizeans (who are expected to vote by early 2019) could vote no or refuse to follow through with holding a vote.
GRI Take: Even if the ICJ does eventually take the case, the Guatemalan or Belizean governments could refuse to abide by its decision. This vote, though, could be the first step in resolving a nearly 200 year dispute that has affected the politics of both countries over the past dozen years.
Stay ahead of the news cycle with GRI. Drawing on expert knowledge and local sources, The Week Ahead provides analytical foresight on the consequences of key upcoming political developments.