NEWS WRAP

Kurds cut deal with Damascus

• The United States' former Kurdish allies in Syria announced Sunday that they had struck a new deal with the Russian-backed government in Damascus after President Trump ordered the withdrawal of American forces from northern Syria. For five years, US policy relied on collaborating with a Kurdish-led militia both to fight ISIS and to limit the influence of Iran and Russia in the region. Senior Fellow Bruce Wolpe spoke to Sky News about Trump's decision to withdraw US troops. WATCH HERE.
   

• President Trump's personal lawyer, Rudy Giuliani, is being investigated by federal prosecutors in New York for possible lobbying violations in his dealings in Ukraine, according to two people familiar with the inquiry. The New York Times reports that investigators are examining Giuliani’s attempts to undermine then-US ambassador to Ukraine, Marie L. Yovanovitch. READ MORE HERE.
   
• The backlash over a social media post by Houston Rockets general manager Daryl Morey supporting Hong Kong’s protests has escalated, with the conflict now a battleground for divergent narratives around the concept of freedom of speech. Senior Advisor Jared Mondschein spoke to the South China Morning Post about what's at stake for the NBA and the growing Chinese influence in corporate affairs. READ MORE HERE.
   
• US Commerce Secretary Wilbur Ross held talks in Canberra with Resources Minister Matt Canavan last week on the potential development and funding of Australian critical minerals projects to diversify rare earths production away from China. The Australian Financial Review reported on the meeting and the USSC's recent report on the subject. READ MORE HERE.
   
• A violent doctored video depicting President Trump shooting, stabbing and setting on fire critics and the media in a church was played at a conference held by a pro-Trump group at the president's Miami resort. White House Press Secretary Stephanie Grisham said in a tweet Monday morning that Trump had yet to see the video but that he condemns the contents based on reports. She said he would see it shortly. Trump has yet to respond directly. READ MORE HERE.

ANALYSIS

Trump's fake trade deal comes at a high price for global economy

Stephen Kirchner
Director, Trade and Investment Program

The Trump administration’s tentative trade deal with Chinese negotiators is not worth the paper it is not printed on. It is just another instalment in the cycle of stop-start negotiations and tit-for-tat tariffs that has inflicted enormous damage on the US and world economies.

The best that can be said for the prospective deal is that it forestalls the next US tariff increase scheduled for October 15, which would have seen the 25 per cent tariff on US$250 billion ($368 billion) of Chinese imports raised to 30 per cent. The proposed increase would have taken the average tariff rate on Chinese imports to the United States to 23.8 per cent. However, the planned 15 per cent tariff on another US$160 billion in Chinese imports scheduled for December 15 will still go ahead.

Together, the proposed tariffs would have raised the average tariff rate to nearly 27 per cent, covering nearly 97 per cent of China’s imports. Even if the proposed agreement makes it onto a signed piece of paper, the average tariff rate will remain at 21 per cent, covering only 69 per cent of Chinese imports.

For its part, China has raised the average tariff rate on US imports to nearly 22 per cent. In return for the partial stay on tariffs, China will increase its purchases of US agricultural products by US$50 billion. But these purchases were always among the most trivial elements of any deal and have been on the table for months. It will do little to compensate US farmers, many of whom have been reduced to federal welfare recipients, costing the US Treasury more than it is collecting in tariff revenue.

The currently proposed tariffs are among the biggest tax increases in US history. However, their full force won’t be apparent until after the December 15 tariff hike. US importers have already stockpiled goods ahead of the tariff increase, so the burden on US consumers and business, already substantial, won’t be fully apparent until next year.

The United States has also secured the outlines of a currency accord, which will likely borrow from similar provisions in the new US-Mexico-Canada free trade agreement. Whereas the United States previously advocated flexible exchange rates as conducive to free trade, the United States will be asking China to manage its exchange rate in US interests.

The United States has already designated China a ‘currency manipulator’ for accommodating the market forces pushing its exchange rate against the US dollar lower. But for Chinese intervention to support its currency, the depreciation would have been even more dramatic.

The United States and China will likely take different views on whether China’s exchange rate management is consistent with the deal. Because the deal is effectively an executive memorandum of understanding, it will have none of the dispute settlement and enforcement mechanisms found in properly negotiated and legislated free trade agreements. In the absence of these mechanisms, the currency accord and other provisions are likely to occasion future punitive tariffs and retaliation.

The deal includes some progress on strengthening intellectual property protections, but omits a wide range of key issues, most notably China’s state subsidies and state-directed lending to Chinese firms and forced technology transfer. The US blacklisting of Huawei and other Chinese entities is out of scope. Meanwhile, the United States is opening up new fronts in the trade war targeting cross-border capital flows.

The proposed deal will take weeks to turn into an agreed text. The plan to sign it at the APEC summit meeting in Chile in November would seem ambitious. The deal may fall over on the detail between now and then. Given the 15 months it has taken to reach a trivial ‘phase one’ deal, progress on more substantive issues is going to be tough. Significant damage to the world economy has already been done. It comes not so much from the direct impact of the tariffs, but the uncertainty they have generated.

That uncertainty has prompted a global capital strike and decline in business investment, including in Australia. Global manufacturing is in recession and trade volumes are contracting, even before the full effect of tariffs is felt. The outlook for the US and world economies would have been much better but for Donald Trump’s trade war, even with the Chinese economy slowing. A fully-fledged and properly legislated accord between the United States and China covering the substantive issues between them would take many years to negotiate and implement.

Trump’s preference for an executive agreement, which he calls ‘fast and clean’, means that the United States can dispose of any or all of the provisions at Trump’s choosing. The Trump administration has indicated that tariffs will remain a key compliance and enforcement mechanism.

China’s interests are best served by pushing the worst of the trade war into the 2020 presidential election year, when Trump will have to explain to the American people what he has to show for the damage he has inflicted.

DIARY

The week ahead

• Wednesday, 16 October: President Trump is scheduled to hold a bilateral meeting with Italian President Sergio Mattarella.
   

• Thursday, 17 October: President Trump is scheduled to hold a rally with supporters in Dallas, Texas.
   

• Thursday, 17 October: US Ambassador to the European Union Gordon Sondland and Counselor of the State Department Ulrich Brechbuhl are scheduled to appear before the House Intelligence, Oversight and Foreign Affairs committees as part of the impeachment inquiry.
   

• 21-24 October: Australian Senate Supplementary Budget Estimates.

EVENT

Mia Love on Trump, race and the future of the Republican Party

For most of America's history, race has powerfully shaped its politics. Today, race is as relevant as it has been since the Civil Rights era, perhaps the single most important political fault line in the US electorate, destined to feature prominently in the 2020 election cycle.

Charges of racism have dogged Donald Trump's presidency. Republican members of Congress have also been accused of cowardice in not supporting these criticisms of the president, of abandoning the best traditions of the Grand Old Party in favour of populism, nativism and racism.  

To discuss these recent developments in American politics — and how they will figure in the 2020 campaign — the United States Studies Centre is pleased to host Mia Love, the first black Republican woman to be elected to the US Congress. She'll be joined in conversation by the ABC’s US politics analyst and presenter of Planet America John Barron and United States Studies Centre CEO Professor Simon Jackman for a discussion guided by new USSC-YouGov polling on attitudes to race and immigration in the United States and Australia.

DATE & TIME
Monday, 21 October 2019
5.30pm–7.15pm

LOCATION
Harbourside Room, Level 6, Museum of Contemporary Art, 140 George St, The Rocks

COST
$25

VIDEO

Elizabeth Warren asked how she'd respond to someone who believes marriage is not for same-sex couples

THE WEEK IN TWEETS

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