TOKYO (AP) — World share benchmarks were mixed on Friday, with Asia mostly advancing while several European markets lost ground after President Donald Trump announced new tariffs on steel and aluminum imports. South Korea’s Kospi jumped 1.1 percent on news Trump plans to meet with North Korea’s leader.
KEEPING SCORE: France’s CAC 40 slipped 0.2 percent to 5,243.37. Germany’s DAX lost 0.5 percent to 12,295.99 while Britain’s FTSE 100 edged 0.1 percent higher to 7,207.03. Dow futures were little changed at 24,924.00, while S&P 500 futures also were flat at 2743.90.
ASIA’S DAY: Japan’s benchmark Nikkei 225 gained 0.5 percent to finish at 21,469.20. Australia’s S&P/ASX 200 added 0.3 percent to 5,963.20. South Korea’s Kospi jumped 1.1 percent to 2,459.45. Hong Kong’s Hang Seng also rose 1.1 percent, to 30,996.21. The Shanghai Composite index added 0.6 percent to 3,307.17.
TARIFFS IMPACT: Wall Street rallied following reports that Canada and Mexico will be exempted indefinitely from the tariffs and that other countries will be invited to negotiate for exemptions as well. Although the tariffs are likely to hurt some Asian nations, the impact may be not that damaging to countries like Japan that export more to other Asian countries such as China.
ANALYST’S VIEWPOINT: Junichi Makino, analyst at SMBC Nikko said the tariffs were more damaging to free trade in principle than to the actual realities of economic growth. The tariffs will lower the profitability of Japan’s major companies by 0.02 percent only, he said. “When protectionism grows, this can lead to a trade war.”
NORTH KOREA: Trump agreed to meet with North Korean leader Kim Jung Un by May to negotiate an end to Pyongyang’s nuclear weapons program, South Korean and U.S. officials said Thursday. No American president has ever met with a North Korean leader while still in office.
ASIAN CENTRAL BANKS: The Bank of Japan kept its ultra-lax monetary policy intact, as expected, at a policy meeting that ended Friday. Meanwhile, People’s Bank of China Gov. Zhou Xiaochuan told reporters China can be bolder about opening its financial markets following progress in developing financial regulation, improving management of financial institutions and Beijing’s efforts to promote use abroad of its tightly controlled currency, the yuan.
ENERGY: Benchmark U.S. crude added 27 cents to $60.39 barrel in electronic trading on the New York Mercantile Exchange. It fell $1.03 to $60.12 a barrel in New York overnight. Brent crude, used to price international oils, rose 39 cents to $64.00 a barrel in London.
CURRENCIES: The dollar rose to 106.72 yen from 105.97 yen late Thursday. The euro fell to $1.2316 from $1.2408.
— Ever a deal-maker, President Donald Trump is making a bold gamble by inviting the countries of the world to negotiate their way out of heavy new taxes on steel and aluminum imported to the United States.
When Trump announced Thursday that he was slapping tariffs of 25 percent on imported steel and 10 percent on aluminum, he temporarily exempted big steel producers Canada and Mexico — provided they agree to renegotiate a North American trade deal to his satisfaction.
Other countries, too, could be spared, the president said, if they can convince the administration that their steel and aluminum exports don’t threaten American industry.
By offering countries a way to escape the tariffs, Trump might have eased the risk of a destructive trade war. At least for now.
But “it introduces a lot of uncertainty,” says Wendy Cutler, a former U.S. trade official now at the Asia Society Policy Institute. “You’re going to see countries camping out in Washington and trying to figure out who they need to talk to.”
Here’s a closer look at what Trump’s action does, how it would work and whether it’s likely to succeed.
WHY IMPOSE TAXES ON IMPORTED STEEL AND ALUMINUM?
Trump dusted off an obscure section of American trade law: It says the president can impose tariffs on imports that pose a threat to U.S. security. The president has “huge leeway because it’s national security,” says Amanda DeBusk, a trade lawyer and partner at Hughes Hubbard & Reed LLP. “He can impose tariffs as high or low as he wants.”
The administration argued that healthy steel and aluminum industries are vital to the national defense. The tariffs, to take effect in 15 days, are designed to reinvigorate those industries.
WHY DO STEEL AND ALUMINUM MAKERS NEED HELP?
U.S. steel and aluminum producers — and their counterparts around the world — have been hammered by overproduction by China. Beijing’s explosive output has depressed global metals prices and forced U.S. domestic companies to reduce production and cut jobs.
“The American aluminum and steel industry has been ravaged by aggressive foreign trade practices,” Trump declared at a White House ceremony, surrounded by steel and aluminum workers holding white hard hats. “It’s really an assault on our country.”
SO IF CHINA IS THE PROBLEM, WILL IT BE HARDEST HIT BY THE TARIFFS?
Nope. Chinese metal imports to the United States are already heavily restricted. China is just America’s 11th-biggest supplier of foreign steel and the fourth-biggest supplier of aluminum. As it happens, a staunch U.S. ally, Canada, is by far the biggest foreign supplier of both metals to the United States and therefore stood to be hurt the most by the tariffs.
The administration had come under intense pressure to exempt Canada. Critics called it absurd to claim that Canadian imports threatened U.S. national security. So Trump agreed to indefinitely exempt Canada and Mexico, another ally and metals supplier.
BUT THERE’S A CATCH?
Yes. Canada and Mexico could lose the exemption — and be slapped with the tariffs — if negotiations to overhaul the North American Free Trade Agreement collapse. As a presidential candidate, Trump had campaigned against NAFTA as a job-killing disaster that he said encouraged American companies to move factories to Mexico to exploit cheap labor. Renegotiations over NAFTA began last summer. But they’ve stalled over tough U.S. demands, including the administration’s insistence that more auto production be shifted to America.
Critics say Trump has undercut his own justification for the tariffs by linking them to NAFTA.
“I think that’s incredibly cynical and misguided,” says Edward Alden, senior fellow at the Council on Foreign Relations. “If this is indeed critical for national security, it should not be used as a bargaining chip.”
Likewise, Trump’s invitation to countries to plead their case for being exempted from the tariffs might prove a tough sell. DeBusk says she suspects that “other countries don’t want to come to the U.S. as beggars (seeking) mercy.”
WON’T THE EXEMPTIONS WEAKEN PROTECTIONS FOR U.S. MANUFACTURERS?
Possibly. The more countries that are spared from the tariffs, the tougher the choice for the administration: Offer America’s metals industries less and less protection. Or jack up the tariffs even higher on the countries that still must pay them.
HOW WILL U.S. TRADING PARTNERS LIKELY RESPOND?
Even before Thursday’s announcement, Europeans were vowing to retaliate with tariffs of their own on a range of American products — Harley-Davidson motorcycles, Levi’s jeans and bourbon, among them. Those warnings intensified fears of a destructive tit-for-tat trade war — especially when Trump threatened to respond to European sanctions with further U.S. tariffs on auto imports from Europe.
By giving countries a potential sanctuary from tariffs, Trump might have temporarily lowered the temperature. But analysts still worry about the fallout from the tariffs.
The World Trade Organization, the Geneva-based institution that rules on trade disputes, gives countries wide leeway to determine their national security interests. Still, many European officials argue the American national security case is so flimsy — just 3 percent of U.S. aluminum and steel production goes to military purposes— that it still violates WTO rules.
Being forced to rule on the Trump tariffs “would put the WTO in a tough spot,” DeBusk says.
If the WTO threw out the U.S. tariffs, the president — already critical of WTO rulings against America — might be tempted to pull out of the organization. Doing so would torpedo the system of rules that has underpinned global trade for decades.
But if the WTO affirms Trump’s justification for tariffs, it could encourage other countries to follow the U.S. example: They could use national security as a pretext for tariffs of their own. That could unleash a protectionist free-for-all, damaging to the global economy — something the WTO was created to prevent.
– Here are the top five things you need to know in financial markets on Friday, March 9:
1. Attention to shift to wages in jobs report
The U.S. Labor Department will release the nonfarm payrolls report for February at 8:30AM ET (1330GMT) on Friday, and it will be watched more for what it says about wages than hiring.
Most of the focus will likely be on average hourly earnings figures, which are expected to rise 0.2%, slightly less a month earlier. On an annualized basis, wages are forecast to increase 2.8%, slowing slightly from 2.9% in January, which was the largest annual gain in more than 8-1/2 years.
A pickup in wages could be an early sign for higher inflation, supporting the case for higher interest rates in the year ahead.
2. U.S. stocks hold steady ahead of NFP
After Wall Street breathed a sigh of relief on Thursday as U.S. President Donald Trump announced import tariffs on steel and aluminum but said Canada and Mexico would be exempt and that other countries could apply for exemptions, investors were cautious with stock futures registering slight gains as they turned their attention to the monthly employment report.
Earlier, Asian stocks celebrated Trump’s softer position on trade tariffs while also keeping an eye on developments surrounding North Korea. Kim Jong has committed to “denuclearization” and offered to hold the first-ever U.S.-North Korea summit, marking a potentially dramatic breakthrough in the North Korea nuclear standoff.
However, Trump promised to remain vigilant and maintain sanctions until a deal was penned. The U.S. President did accept an invitation to sit down with the North Korean leader with meeting preparations underway.
3. BoJ offers no surprises
The Bank of Japan stayed the course with its monetary stimulus at governor Haruhiko Kuroda’s final policy meeting before his new term begins next month.
The BOJ left interest rates unchanged and kept its yield-curve control settings and asset purchases unchanged, in line with market expectations.
Kuroda vowed to achieve the monetary authority’s 2% inflation as he prepared to embark on his second term.
“As we always spell out in our monetary policy statements, the BOJ will make appropriate policy adjustments taking account of developments in economic activity and prices as well as financial conditions, with a view to maintaining the momentum toward achieving the price stability target,” Kuroda said.
“If the momentum is not kept, then we will of course consider additional monetary easing,” he added.
4. Chinese inflation hits 4-year high
China’s inflation rose more than forecast in February, hitting its highest level since November 2013, although the strong reading was attributed to distortions from higher food prices due to the Chinese Lunar New Year celebrations.
On an annualized basis, the consumer price index rose 2.9%, nearly doubling the reading seen in the prior month and topping the consensus forecast for a 2.5% gain.
However, China’s producer price inflation eased to the slowest pace in 15 months in February, as the cost of raw materials and other inputs rose at a milder pace, pointing to a potential softening in industrial sector profit. The 3.7% gain in February’s PPI missed expectations for a 3.7% rise.
5. Oil pares weekly losses ahead of U.S. shale data
Crude oil prices regained some ground on Friday, as news of a U.S.-North Korea lifted market sentiment, although concerns over U.S. oil inventories and production levels continued to weigh.
The U.S. benchmark was still on track for losses of around 1%
Market participants will receive further input on the state of U.S. shale production later on Friday when Baker Hughes releases its most recent weekly rig count data.