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WASHINGTON — President Donald Trump said in his State of the Union address on Tuesday that he plans to rebuild the U.S. military by increasing the Pentagon’s budget and by reassessing military alliances and agreements with foreign nations.

The Trump administration has approved two defense-friendly budget bills that have elevated the Pentagon’s spending power to $700 billion in 2018 and $717 billion in 2019.

“We are also getting other nations to pay their fair share,” Trump said pivoting to the defense budgets of NATO allies.

“For years, the United States was being treated very unfairly by NATO, but now we have secured a $100 billion dollar increase in defense spending from NATO allies,” Trump said.

In July, Trump threatened to reduce U.S. military support if allies did not increase defense spending and pushed for the 28 other members to spend more money.

In 2017, the U.S. accounted for 51.1 percent of NATO’s combined GDP and 71.7 percent of its combined defense expenditure. In short, the U.S. contributed more funds to NATO than Germany, France, Italy, Spain, the United Kingdom and Canada combined.

While U.S. spending in constant dollar terms has risen slightly since 2014, its share of NATO’s overall spending has fallen. When measured as a share of gross domestic product, the U.S. still spends more than the 2 percent target. But its contribution has fallen from 4.78 percent of GDP in 2011 to 3.50 percent this year, according to figures provided by NATO.

In all, the U.S. spent $685.9 billion on defense in 2017.

Acting Secretary of Defense Patrick Shanahan said of Trump’s speech: “In his State of Union address tonight, President Trump reaffirmed his unwavering commitment to support our troops and to protect American national security interests at home and abroad. Under President Trump’s leadership, we are focused on the full implementation of the National Defense Strategy: increasing lethality, strengthening alliances and partnerships, and reforming the way we do business.”

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US to give Huawei another 90 days to buy from American suppliers

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Signage is displayed at the Huawei Technologies Co. booth at the MWC Shanghai exhibition in Shanghai, China, on Thursday, June 27, 2019.

Bloomberg | Getty Images

The U.S. Commerce Department is expected to extend a reprieve given to Huawei Technologies that permits the Chinese firm to buy supplies from U.S. companies so that it can service existing customers, two sources familiar with the situation said.

The “temporary general license” will be extended for Huawei for 90 days, the sources said.

Commerce initially allowed Huawei to purchase some American-made goods in May shortly after blacklisting the company in a move aimed at minimizing disruption for its customers, many of which operate networks in rural America.

An extension will renew an agreement set to lapse on August 19, continuing the Chinese company’s ability to maintain existing telecommunications networks and provide software updates to Huawei handsets.

The situation surrounding the license, which has become a key bargaining chip for the United States in its trade negotiations with China, remains fluid and the decision to continue the Huawei reprieve could change ahead of the Monday deadline, the sources said.

U.S. President Donald Trump and Chinese President Xi Jinping are expected to discuss Huawei in a call this weekend, one of the sources said.

Huawei did not have an immediate comment. China’s foreign ministry did not immediately respond to a faxed request for comment.

When the Commerce Department blocked Huawei from buying U.S. goods earlier this year, it was seen as a major escalation in the trade war between the world’s two top economies.

The U.S. government blacklisted Huawei alleging the Chinese company is involved in activities contrary to national security or foreign policy interests.

As an example, the blacklisting order cited a criminal case pending against the company in federal court, over allegations Huawei violated U.S. sanctions against Iran. Huawei has pleaded not guilty in the case.

The order noted that the indictment also accused Huawei of “deceptive and obstructive acts”.

At the same time the United States says Huawei’s smartphones and network equipment could be used by China to spy on Americans, allegations the company has repeatedly denied.

The world’s largest telecommunications equipment maker is still prohibited from buying American parts and components to manufacture new products without additional special licenses.

Many Huawei suppliers have requested the special licenses to sell to the firm. Commerce Secretary Wilbur Ross told reporters late last month he had received more than 50 applications, and that he expected to receive more.

Out of $70 billion that Huawei spent buying components in 2018, some $11 billion went to U.S. firms including Qualcomm, Intel and Micron Technology.

The Commerce Department late on Friday declined to comment, referring to Ross’s comments to CNBC television earlier this week in which he said the existing licenses were in effect until Monday.

Asked if they would be extended he said: “On Monday I’ll be happy to update you.”

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China unveils rate reform to steer funding costs lower for firms

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China’s central bank unveiled a key interest rate reform on Saturday to help steer borrowing costs lower for companies and support a slowing economy that has been hurt by a trade war with the United States.

The People’s Bank of China (PBOC) said it will improve the mechanism used to establish the loan prime rate (LPR) from this month, in a move to further lower real interest rates for companies as part of broader market reforms.

Analysts say the move, which came after data that showed weaker than expected growth in July and followed a cabinet announcement on Friday, underscores the government’s attempts to use reforms to support a slowing economy.

“By reforming and improving the formation mechanism of LPR, we will be able to use market-based reform methods to help lower  real lending rates,” the PBOC said in a statement published on its website.

The central bank will “deepen market-based interest rate reform, improve the efficiency of interest rate transmission, and lower financing costs of the real economy,” it said.

Chinese banks’ new LPR quotations will be based on rates of open market operations, and the national interbank funding center will be authorised to publish the rate from Aug. 20, the PBOC said. It added the rate will be published every month on the 20th, effective this month.

Banks must set rates on new loans by mainly referring to the LPR and use LPR as the benchmark for setting floating lending rates, the PBOC said, adding that banks will be barred from setting any implicit floor on lending rates in acoordinated way.

The central bank said five-year and longer tenors will be added to the existing one-year LPR, which will help banks set rates on long-term loans such as mortgages.

China will add eight small banks, including two foreign-funded banks, to the existing 10 nation-wide banks that will be allowed to submit LPR quotations, the central bank said.

The move followed pledges from China’s State Council on Friday that the country will rely on market-based reform measures to help lower real interest rates for companies.

The central bank said that it will strengthen its supervision on banks’  rate quotations and punish banks for irregularities that disrupt the market order.

The central bank will incorporate LPR application into its macro-prudential assessment (MPA) to urge banks to use LPR pricing.

Sharper Slowdown

This week’s data broadly showed China’s economy stumbled more sharply than expected at the start of the third quarter, as the intensifying trade war with the United States took a heavier toll on businesses and consumers.

Second-quarter economic growth slowed to a near 30-year low. Tang Jianwei, an economist at Bank of Communications in Shanghai, said the reform could be seen as a guided rate cut as PBOC can guide rates of its open market operations, which will be closely followed by the LPR.

“The tool (LPR quotation reform) equals to a guided rate cut, and is only pushed out by the PBOC at crucial moments,” said Dai Zhifeng, analyst with Zhongtai Securities Co.

The central bank has pledged to gradually unify two interest rate “tracks” – its market-based rates developed in recent years and its benchmark bank deposit and lending rates.

Analysts say the new LPR rate will be lower than the current level, but they are divided over the scope of reductions on borrowing costs for firms.

To free up funds for lending and to accommodate local government project financing, most analysts still expect the central bank will cut banks’ reserve requirement ratios (RRR) further in coming months, on top of six reductions since early 2018.

Sources have told Reuters that more aggressive action such as interest rate cuts are a last resort, as it could fuel a sharper build-up in debt.

In July, central bank head Yi Gang said China would keep its benchmark deposit rate for a relatively long time, but would phase out its benchmark lending rate in the push to unify the benchmark lending rate and market-based rates.

China’s banks currently price their loans based on the benchmark lending rate that has been kept unchanged since October 2015, hampering the central bank’s efforts to lower borrowing costs.

The PBOC launched the LPR in 2013 to reflect rates that banks charge their best clients. But the LPR has been reacting little to market demand and supply, with the one-year rate currently at 4.31%, versus benchmark one-year lending rate of 4.35%.

China’s short-term money market rates have been falling more quickly in recent months due to the central bank’s cash injections.

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US issues warrant to seize Iranian tanker off Gibraltar

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The United States has issued a warrant to seize an Iranian oil tanker caught in the standoff between Tehran and the Westin a last ditch effort to prevent the vessel from leaving Gibraltar.

The Grace 1 was seized by British Royal Marines at the western mouth of the Mediterranean on July 4 on suspicion of violating European Union sanctions by taking oil to Syria.

Gibraltar lifted the detention order on Thursday after the British territory’s chief minister said he had secured written assurances from Tehran that the cargo would not go to Syria.

But with the vessel and its 2.1 million barrels of oil free to leave, the United States launched a separate legal appeal to impound the ship on the grounds that it had links to Iran’s Islamic Revolutionary Guard Corps (IRGC), which it designates as a terrorist organization.

A federal court in Washington issued a warrant to seize the tanker, the oil it carries and nearly $1 million.

“A network of front companies allegedly laundered millions of dollars in support of such shipments,” the U.S. attorney for the District of Columbia, Jessie Liu, said in a news release.

“The scheme involves multiple parties affiliated with the IRGC and furthered by the deceptive voyages of the Grace 1.”

The U.S. State Department did not immediately respond to a request for comment on how the warrant, which was addressed to “the United States Marshal’s Service and/or any other duly authorized law enforcement officer,” may be enforced.

The Pentagon declined to comment, as did Britain’s Foreign Office.

Asked on Friday about the U.S. intervention, Gibraltar’s chief minister, Fabian Picardo, said that would be subject to the jurisdiction of Gibraltar’s Supreme Court. “It could go back to the court absolutely.”

The Gibraltar Chronicle newspaper reported that the vessel was unlikely to sail before Sunday, citing an unnamed source who added that it was waiting for six new crew members including a captain to arrive.

The Grace 1 had its name erased and it was no longer flying a Panama flag.

Iranian state television had quoted Jalil Eslami, deputy head of the country’s Ports and Maritime Organisation, as saying the tanker would depart for the Mediterranean after being reflagged under the Iranian flag and renamed Adrian Darya.

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