The Volkswagen T-Cross model stands on a lifting platform in a car tower on the Volkswagen factory premises.
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President Donald Trump’s next trade battle could involve the U.S. slapping steep tariffs on auto imports from Europe — but that wouldn’t really be the White House’s ultimate goal, one expert said Wednesday.
Instead, such a move may well prove to be a “Trojan horse” for a bigger deal on agriculture, according to David Hauner, head of cross-asset strategy and economics for Europe, the Middle East and Africa at Bank of America Merrill Lynch.
Now that Trump has imposed more tariffs on Chinese goods, all eyes are turning to a potentially brewing trade war between the U.S. and Europe. The president had threatened as early as last year that he would slap a 25% tariff on car imports from the European Union. So far, however, the tariffs have not been imposed — but Trump is due to make a decision on European auto imports by May 18.
According to Hauner, however, the White House may have a tough road ahead.
“We think there will at least be an attempt by the U.S. to push for some sort of concessions from Europe. It’s gonna be very difficult particularly if Trump actually starts a discussion about agriculture,” he told CNBC’s “Squawk Box.”
He added: “Some say that car tariffs might … be a Trojan horse to actually start discussions about agriculture, because that’s where really the big business for the U.S. and Europe would be. Agriculture and Europe is politically very very sensitive when it comes to allowing American imports.”
Farmers — a key political constituency for Trump — have seen their fortunes suffering from the trade war with China, and that’s potentially a concern for the president ahead of his 2020 re-election bid.
Since his tariff threat against European autos, Trump has met the president of the European Commission, the EU’s executive body, and both decided to seek an agreement over trade and avoid tariffs. Nearly a year since their meeting, both sides have yet to start those official trade talks.
But analysts have pegged the tariffs on Chinese goods as a sign of what’s to come for Europe. Last Monday, European auto stocks fell more than 3% following Trump’s tariffs announcement over the weekend.
There could still be a deal as long as the U.S. keeps the trade discussions with the European Union to autos only, according to Hauner.
But, he said, “If the discussion will include agriculture, then it gets really, really dicey.”
“Europe is really collateral damage here because Europe has not enough domestic growth. It really depends so much on trade and that is now really its Achilles’ heel,” Hauner added.
According to the Office of the United States Trade Representative, U.S. imports for consumed agricultural products from EU countries totaled $23.9 billion in 2018, while U.S. agricultural goods exports to the EU was $13.5 billion.
Auto imports from EU countries were worth $56.4 billion. Overall, the U.S. goods trade deficit with EU countries was $169.3 billion in 2018, an 11.8% increase over 2017, according to the USTR.
Any U.S. tariffs on European cars would hit Germany’s important automobile industry particularly hard. The United States is Germany’s most important single export destination after the bloc of EU countries.
— Reuters and CNBC’s Yen Nee Lee contributed to this report.
Adidas and Nike supply tactics abuse market dominance
An Adidas Store is shown at the Galleria Mall in Houston.
Earl Gibson III | WireImage | Getty Images
The sales and supply strategies of big sports brands such as Adidas and Nike should face government investigations, U.K. retail giant Sports Direct claimed.
In a statement on Monday, the British firm accused global sports apparel brands of abusing their dominance in the market by constantly chopping and changing the availability of their products to retailers.
“These ‘must have’ brands hold an extremely strong bargaining position vis-a-vis the retailers within their supply networks and use their market power to implement market wide practices aimed at controlling the supply and, ultimately, the pricing of their products,” the company claimed.
Sports Direct said Adidas and other big brands regularly employed an array of unfair trade practices, such as “segmentation policies” that restricted the range of products available to retailers, the withdrawal of the supply of products, and in most cases, “an outright refusal to supply.”
The retailer added that brands had regularly withdrawn its supply of key products, such as soccer merchandise, or refused to supply key products with no justification.
“Sports Direct believes that the industry as a whole would benefit from a wide market review by the appropriate authorities in both the U.K. and Europe,” the statement said.
Adidas and Nike response
“Nike continually evaluates the marketplace and competitive landscape to understand how we can best serve consumers,” said a Nike spokesperson in an emailed statement to CNBC. “As part of this, from time to time we do make adjustments to our sales channels, in order to optimize distribution.”
Meanwhile, a spokesperson for Adidas told CNBC via email on Tuesday that ” a strong partnership with retail partners” was key to serving buyers in the best way but added that “in an increasingly digital world, the consumer decides where to go for information and where to purchase.”
Sports Direct’s statement came in response to an article in The Sunday Times, which claimed Nike had unexpectedly terminated supply agreements with dozens of the U.K.’s independent retailers.
IMF says trade war will cut global growth to lowest since financial crisis a decade ago
The U.S.-China trade war will cut 2019 global growth to its slowest pace since the 2008-2009 financial crisis, the International Monetary Fund warned on Tuesday, adding that the outlook could darken considerably if trade tensions remain unresolved.
The IMF said its latest World Economic Outlook projections show 2019 GDP growth at 3.0%, down from 3.2% in a July forecast, largely due to increasing fallout from global trade friction.
The forecasts set a gloomy backdrop for the IMF and World Bank annual meetings this week in Washington, where the Fund’s new managing director, Kristalina Georgieva, is inheriting a range of problems, from stagnating trade to political backlash in some emerging market countries struggling with IMF-mandated austerity programs.
The World Economic Outlook report spells out in sharp detail the economic difficulties caused by the U.S.-China tariffs, including direct costs, market turmoil, reduced investment and lower productivity due to supply chain disruptions.
The Hapag-Lloyd AG Leverkusen Express sails out of the Yangshan Deepwater Port, operated by Shanghai International Port Group Co. (SIPG), in this aerial photograph taken in Shanghai, China, on Wednesday, Aug. 7, 2019.
Qilai Shen | Bloomberg | Getty Images
The global crisis lender said that by 2020, announced tariffs would reduce global economic output by 0.8%. Georgieva said last week that this translates to a loss of $700 billion, or the equivalent of making Switzerland’s economy disappear.
“The weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods,” IMF Chief Economist Gita Gopinath said in a statement.
Services were still strong across much of the world, but there were some signs of softening in services in the United States and Europe, Gopinath said.
For 2020, the Fund said global growth was set to pick up to 3.4% due to expectations of better performances in Brazil, Mexico, Russia, Saudi Arabia, and Turkey. But this forecast was a tenth of a point lower than in July and was vulnerable to downside risks, including worse trade tensions, Brexit-related disruptions and an abrupt aversion to risk in financial markets.
Investment, trade stall
The IMF said foreign direct investment abroad by advanced economies came to “a virtual standstill” in 2018 after increasing in earlier years to average more than 3% of global gross domestic product annually – or more than $1.8 trillion.
The institution said the decline of some $1.5 trillion between 2017 and 2018 reflected purely financial operations by large multinational corporations, including in response to changes in U.S. tax law.
Global vehicle purchases fell by 3% in 2018, reflecting a drop in demand in China after expiration of tax incentives and production adjustments after adoption of new emissions standards in Germany and other eurozone countries.
Global trade growth reached just 1% in the first half of 2019, the weakest level since 2012, weighed down by higher tariffs and prolonged uncertainty about trade policies, as well as a slump in the automobile industry.
After expanding by 3.6% in 2018, the IMF now projects global trade volume will increase just 1.1% in 2019, 1.4 percentage points less than it forecast in July and 2.3 percentage points less than forecast in April.
Trade growth was expected to rebound to 3.2% in 2020, however risks remained “skewed to the downside,” the IMF said, with a significant drag on both the U.S. and Chinese economies.
For a table showing IMF country and regional forecasts, see
Tariff, reshoring losses
New IMF projections show China’s GDP output falling 2 percent in the near term under the current tariff scenario and 1 percent in the long term, while U.S. output would decline 0.6 percent over both time spans.
“To rejuvenate growth policymakers must undo the trade barriers put in place with durable agreements, rein in geopolitical tensions and reduce domestic policy uncertainty,” Gopinath said.
But she was cautious about President Donald Trump’s announcement on Friday of a “Phase 1” U.S. trade deal with China, saying that more details were needed about the “tentative” deal.
The IMF also modeled what would happen if multinational firms in the United States, euro area and Japan reshored enough production to reduce nominal imports by 10%. The lender found that it would drive up consumer prices and reduce domestic demand, while throttling the spread of technology to emerging economies.
“At 3% growth, there is no room for policy mistakes and an urgent need for policymakers to cooperatively deescalate trade and geopolitical tensions,” it said. “Further escalation of trade tensions and associated increases in policy uncertainty could weaken growth relative to the baseline projection.”
Researchers develop drones that can inspect and fix wind turbines
Researchers in the U.K. have developed autonomous drones that can inspect offshore energy sites.
The drones were developed by the Offshore Robotics for the Certification of Assets (ORCA) Hub.
Launched in 2017, the ORCA Hub is a consortium of five universities working with partners from industry sectors such as energy and technology. It’s led by the Edinburgh Centre for Robotics, which is in itself a partnership between the University of Edinburgh and Heriot-Watt University. Imperial College London, the University of Liverpool and University of Oxford are also involved.
In a statement Monday, Imperial College London’s Mirko Kovac said that drones were currently used to inspect offshore wind turbines, but that such inspections were “remotely controlled by people on-site at the offshore location.”
“Should an area of concern be found, technicians are required to carry out further inspection, maintenance or repair, often at great heights and therefore in high-risk environments,” Kovac, who is director of Imperial’s aerial robotics laboratory, added.
“Our drones are fully autonomous. As well as visually inspecting a turbine for integrity concerns, ours make contact, placing sensors on the infrastructure, or acting as a sensor itself, to assess the health of each asset. Our technology could even deposit repair material for certain types of damage.”
Kovac explained that the autonomous drones could remove the need for humans to carry out dangerous and costly tasks such as abseiling down wind turbines and cut the number of ships going to and from wind farms.
As technology develops, drones are being deployed in a wide range of industries and locations. In the energy sector, Air Control Entech and the Oil & Gas Technology Centre launched three drones last year which can live stream offshore inspections and undertake three-dimensional laser scanning and ultrasonic testing. Led by industry, the center describes itself as a “research and knowledge organisation” and is backed by the U.K. and Scottish governments.
In September 2019, autonomous drone technology was used to deliver diabetes medication to a location off the west coast of Ireland. The contents of the delivery were insulin and glucagon, while the drone also collected a patient’s blood sample.
The National University of Ireland in Galway said the drone’s journey between Connemara Airport and Inis Mór, which is part of the Aran Islands, showed “the possibility of future deliveries of this kind within planned drone corridors.”
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