Banking News

As G20 trade war show down looms Citi customers adapt supply chain

(21 November 2018 – China) The mounting trade dispute between the US and China is set to come to a head at the Group of 20 (G20) summit according to White House economic adviser Larry Kudlow.

He believes there was "a lot of opposition to what the Chinese are doing, and the Chinese seem not to like it. It will come to a head at the G20 and I think that's the key point," Kudlow predicted. The average tariff rate in the United States was 1.4 percent, according to the latest data compiled by the United States International Trade Commission. That was nearly as low as it has ever been. But that figure only includes tariffs imposed in the administration's first year. In March, the White House added a 25 percent tariff to about US$31 billion worth of imported steel, and a 10 percent tariff to US$17 billion of imported aluminium. (This does not apply to imports from Argentina, Australia and Brazil.) In July and August, President Trump launched a trade war with China by imposing an extra 25 percent tariff on US$50 billion worth of imports from the country. China retaliated, so the US struck back, imposing an additional 10 percent tariff on US$200 billion in Chinese goods. These numbers suggest the average tariff rate in 2018 will rise by about 1.8 percentage points, to about 3.2 percent.

Trade talks between the two economic powers ended without any agreement at the Asia-Pacific Economic Cooperation (APEC) meeting last week. Chinese President Xi Jinping reportedly clashed with the US, calling on American officials to "reject arrogance and prejudice." The lack of progress is in contrast with President Trump's statements showing optimism that an agreement could be reached. Vice President Pence, who traveled to Asia, told reporters that the president still has hope that a deal can be struck. "President Trump believes that a deal is possible but we also believe we’re in a very strong position."

Citi reports that its corporate customers are actively making changes to their supply chains and other operations as a result of ongoing trade disputes. Citi’s Treasury and Trade Solutions (TTS) Asia division conducted a poll with 64 of its business customers to assess how they are reacting to ongoing trade tensions. The companies represent some of the bank’s largest corporate clients across Asia, Europe, the Middle East and the Americas. More than half of the businesses surveyed said they are planning to make adjustments to their supply chains. That could mean moving manufacturing sites or investing in forming new ones to bypass markets most impacted by trade tensions, adding that businesses are motivated by the effort to avoid extra trade tariffs that China, the US and European Union (EU) are introducing. Nearly three-quarters of corporates surveyed said they expect trade disputes to continue, and anticipate trade tensions to last more than a year. “This client poll underlines how companies are already proactively adjusting to the realities of the trade tensions,” said Citi Head of TTS for Asia Pacific Rajesh Mehta. According to Citi, the impacts of trade disputes are significant in the southeast Asia region. Citi published the survey weeks after announcing an integration with Oracle ERP, allowing businesses using the ERP Banking-as-a-Service (BaaS) Connector to initiate payments from within the ERP platform, with payment instructions then being sent straight to Citi.