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Some of the currency notes in Singapore are made of plastic, which are not easy to tear, compared to paper. Perhaps, given Trump’s predilection for tearing things up, it may be an idea worth considering to print international agreements on plastic! He withdrew from global agreements on climate change, from JCPOA(Iran nuclear deal), and is also threatening to destroy America’s relationship with Canada, the largest trading partner of the US.
And now Trump has taken to Spar Wars (which, hopefully, will not escalate into Star Wars) with China’s Xi Jinping, with each taking turns to hike import duties on items imported from the other country. Merchandise trade contributes around 20 per cent of global GDP; so any disruption due to such rants will harm global GDP growth, and consequently, stock markets.
Chinese trump cards
Such an escalation may well be part of the Art of the Deal by Donald Trump, who feels he can, and feels compelled to, improve the terms in favour of America. But it’s not just trade. China can hurt American business interests in other ways. Several large American companies have facilities in China, including Apple, Walmart, GM, Starbucks, and others. These can be subjected to regulatory actions, penalties, etc.
An article in Bloomberg , titled, ‘Xi can make life tough for US companies from Apple to Walmart’, states that if trade plus sales (of products made by American companies in China) are combined, the US actually has a surplus of $20 billion with China. But these details escape a ‘shoot first, inquire later’, Trump.
An example of retaliatory action by a miffed China is in what happened to South Korean retailer, Lotte Shopping Co. China was miffed at South Korea deploying an anti-missile system and laid charges on Lotte for alleged violation of fire safety rules. Unable to fight a hostile government, Lotte shut down, and paid a penalty of $1.8 billion. That’s a lot!
US firms’ assets in China
Imagine what could be done to the much larger American companies. American companies have, according to the Bloomberg article, $627 billion in assets invested in China, with $167 billion in sales, compared to China’s $167 billion invested in the US, having $26 billion in sales. Trump hasn’t probably read this article.
Trade flows will, over time, adjust themselves. Other countries, such as India, can benefit. China, for example, after hiking import duties on US Farm products, making them more expensive, is looking to source cotton from India. Indian cotton shipments to China are expected to quintuple to five million bales.
Absurd demands
Alas, in their quest for increased tax revenue, financially strained governments, globally, are making absurd demands. Tax authorities in India, for example, are seeking to tax Accor-owned FRHI Hotels for its income from Indian operations from Swissotel in Kolkata. Accor sought an advance ruling from AAR on income from providing services such as global reservation service. However, AAR went beyond the query and held that due to exclusive control held by Accor, it has a permanent establishment in India, and is, thus, liable to tax on Indian income under Indian tax laws. This appears illogical, and, if upheld, would impact several foreign hotel contracts for other hotels.
(The writer is India Head — Finance Asia/Haymarket. The views are personal.)
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