CNA938 Rewind - Open for Business: U.S, China wrap up trade talks in London, keeping tariff truce alive
CNA938 Rewind
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United States and Chinese officials wrap up their talks in London, agreeing on a framework to put their trade truce back on track and remove China's export restrictions on rare earths while offering little sign of a durable resolution to longstanding trade differences. Andrea Heng and Hairianto Diman get the latest from Kevin Chen, Associate Research Fellow in the US programme at RSIS.
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Business Times
an hour ago
- Business Times
Greenback fades as Singapore dollar, ringgit, baht shine in Asean foreign exchange shift
[SINGAPORE] US-Asean foreign exchange (FX) markets were lukewarm as announcements of a China-US trade agreement revealed few details following talks in London on Wednesday (Jun 11), with widespread uncertainty now becoming the norm for investors. DBS analysts Eugene Leow and Philip Wee said: 'Implied volatility is now reflecting little to no stresses and is essentially back at pre-Liberation Day levels.' This hardly surprised market analysts, who observed that mere hints of favourable news – in a world where policy reversals have become the norm – are no longer as likely to move markets. Maybank analyst Saktiandi Supaat said: 'Markets now show a tendency to react less to sweeping headlines, and only a concrete agreement or something permanent can drive markets into a more lasting direction.' De-dollarisation Indeed, more permanent trends continue to work against the dollar as Asean currencies appreciate amid USD weakness. The dollar index traded at about 98.4 on Thursday morning, having fallen about 5 per cent since before Trump's 'Liberation Day' tariffs on Apr 2. Once-attractive USD deposits are beginning to unwind in Asean portfolios, with pairs such as USD and SGD declining about 4.5 per cent from before the tariff announcement, and the USD/Thai baht falling 5.5 per cent. A NEWSLETTER FOR YOU Friday, 8.30 am Asean Business Business insights centering on South-east Asia's fast-growing economies. Sign Up Sign Up Since around 2022, Asean corporates and investors have built up sizeable onshore US dollar deposits, said a Bank of America (BOA) report by FX strategists Abhay Gupta and Claudio Piron. 'FX deposits in most of Asean are near the highs, with a total of US$230 billion across the Asean-4 economies,' they said. Drawn to the greenback's relative strength, higher deposit rates and its reserve currency status, Asian exporters and other investors avoided converting their earnings into local currencies to maintain their dollar holdings. But now, this may be changing. A trend of 'de-dollarisation' has taken hold in global markets as the greenback loses its charm among Asean investors and corporates. 'The dollar is starting to be viewed as overvalued since the end of last year,' Gupta told The Business Times. 'Global corporations have been caught long (in the) US dollar as they held on to their export proceeds for far too long,' UOB said. Gupta said that institutional investors are likely to be the quickest to rebalance their deposits, as themes such as a weakening dollar, uncertainty towards Washington's escalating fiscal deficit, and waning confidence in US credibility prompt a rebalancing away from dollar deposits. Malaysia and Thailand, which run persistent current account surpluses, are likely to experience the strongest appreciation pressures as investors convert US holdings back into local currencies. The two countries feature prominent US holdings in pension funds and mutual funds, which are typically more risk-averse and adopt larger hedging ratios to defend their dollar positions, Gupta noted. Such hedging activity would place further buying pressure on local currencies as financial institutions lock in forward exchange rates, he noted. Together with the Singapore dollar, these three low-yielding currencies have led gains due to their exposure to global trade cycles, the BOA economists said. Corporates and retail investors are likely to rebalance as well, but will not do so as immediately as institutional investors, said Gupta. This will provide lagging tailwinds into Asean currencies such as Indonesia's rupiah and the Philippines' peso. He told BT: 'As the deposits mature, people realise that their total return has not been as attractive, so they gradually convert back to local currency deposits.' Unlike the much quicker drawdowns on the dollar by institutional investors, retail and corporate selling pressure could sustain tailwinds for Asean currencies well into 2026, he said. But others are less certain of the Asean wave's sustainability in the short-term, with UOB noting higher levels of implied volatility in the foreign exchange options markets. 'Historically, such periods of heightened foreign exchange volatility have often preceded phases of weakness in Asian currencies,' said UOB. The bank also cited tariff doubts and slower growth prospects for Asia, cautioning that the region's currency upside may be limited in the near term. UOB projected that most Asian pairs with the greenback would reverse their uptrend through Q3, before resuming their climb in 2026. Central bank moves For countries running high rates, such as the Philippines and Indonesia, the dollar's slide is a welcome shift. As both countries' central banks implement inflation targeting monetary policies, wrote Gupta and Piron, stronger currencies would further mitigate inflation by keeping import prices low. Yet, as uncertainty about tariffs and external demand remains, stronger regional currencies could hurt export competitiveness and have to be carefully managed by central banks, Gupta warned. 'Central banks have been easing, but in a measured way, due to uncertainty towards the final size of the tariffs,' he said.
CNA
an hour ago
- CNA
Trump throws curveball at Japan tea giant's US expansion swing
TOKYO :Top Japanese tea brand Ito En's latest push to win over health-conscious U.S. customers with its traditional unsweetened brew has hit a new road bump: President Donald Trump's trade tariffs. The company, which splashed out on a tie-up with Major League Baseball star Shohei Ohtani and launched a less bitter tea to capture a bigger slice of the lucrative growth market, is now debating whether to hike prices or move some production across the Pacific, executives said in interviews with Reuters. The dilemmas facing Ito En can be found across Japan, the biggest foreign investor in the United States, as Tokyo's trade negotiators return to Washington this week to try and strike a deal to cushion the blow to its fragile economy. Makoto Ogi, Ito En's general manager of international business development, told Reuters the company may raise prices of its products in the U.S. to compensate for Trump's 24 per cent levy on Japanese goods set to come into force next month. The problem is their retailers and distributors may resist for fear of losing sales. "We may not be able to ask them to raise our prices despite what Trump is saying," he said. The last time Ito En raised prices in the U.S. - by approximately 10 per cent in 2022 - sales dropped by around 5 per cent. The company said the decline reflected the price hike as well as factors such as COVID-19 that affected market conditions. The company is also considering making tea bags in the United States, and bottling drinks there rather than in Japan, Taiwan and Thailand as it does presently, Ogi and other executives explained during interviews in Tokyo. These details of the firm's potential plans to counter tariffs have not been previously reported. The executives did not disclose the costs of such moves. In its latest results released this month, Ito En reported its profit shrank by 8.2 per cent in the year to April, but forecast an 11 per cent jump this year. It set a modest 3.7 per cent profit growth target for its U.S. tea business, versus 20.7 per cent growth achieved last year, an outlook partly related to tariffs, a company spokesperson said. Its shares rose to nearly a four-month high in the wake of the results, with its president later telling investors the forecasts were "conservative". Many Japanese firms have set up war rooms to chalk out plans to restructure supply chains or cut costs to offset tariffs and keep their U.S. growth plans on track, said Mizuho Bank analyst Asuka Tatebayashi. A survey of 3,000 Japanese companies by export promotion organisation JETRO late last year before Trump's tariffs found the level of interest in U.S. markets at the highest in nearly a decade, with food and beverage companies like Ito En the most enthusiastic. "When you talk to companies in Japan, the U.S. comes first," said Tatebayashi, adding that they face shrinking domestic demand and are generally cautious about expanding into riskier emerging markets. GRAND PLANS For Ito En, the U.S. has long been a market it is eager to crack. Five years ago, Joshua Walker, the newly-appointed head of U.S. non-profit Japan Society, hosted Ito En's North America head Yosuke Honjo in his New York office. Honjo gestured to the green-coloured bottles of their flagship 'Oi Ocha' brand lining the shelves and said he wanted them to spread around the world like Coca-Cola's red bottle. "It was refreshing. Japanese companies would not normally have ambition of that type of grandeur," said Walker, recounting the executive's previously unreported remarks. Honjo, via a company spokesperson, confirmed the remarks. Founded in the 1960s by Honjo's father and uncle, Ito En has grown to dominate Japan's tea market, using around a quarter of the country's total crude tea production. Since expanding into the U.S. in 2001, it has dabbled in selling sweet and flavoured tea varieties familiar to Americans. But more recently it has focused on the unsweetened tea popular in its home market, hoping to tap health-conscious customers and a boom in Japanese food and cultural exports. Honjo said growth has also been aided by a sharp rise in Asian Americans, estimated at nearly 25 million in 2023, or around 7 per cent of the U.S. population, according to the Pew Research Center. Japan's exports of green tea surged 24.6 per cent to 36.4 billion yen ($251 million) last year, with nearly half destined for the United States, official data showed. Some equity analysts like Jiang Zhu of Tokyo-based rating agency R&I have highlighted the high marketing cost of Ito En's international push at a time it faces tough competition at home from tea brands such as Coca-Cola's Ayataka. The company said it has around a 2 per cent share of the U.S. market for tea beverages, ranking eighth largest, with Unilever's Pure Leaf leading the sector. But it has a long way to catch up with the 3.9 billion gallons of Coca-Cola's trademark Coke drinks sold in the U.S. last year, at only 3.1 million gallons by comparison, according to research firm Beverage Marketing Corporation. "Kikkoman's soy sauce is probably in every American household now, but it took about 50 years for it to become a part of the culture," said Akihiro Murase, Ito En's public relations manager, referencing the Japanese food manufacturer as a template for success. "We are not there yet but we would like to make unsweetened green tea a part of the food culture," he said.
CNA
2 hours ago
- CNA
Trump touts 'done' deal with Beijing on rare earths, allowing Chinese students in US universities
WASHINGTON: US President Donald Trump touted ties with China as "excellent" on Wednesday (Jun 11), saying the superpowers reached a deal after two days of talks aimed at preserving a truce in their damaging trade war. Trump said on his Truth Social platform that China would supply rare earth minerals and magnets - vital elements for US industries - while Washington would allow Chinese students to remain in US universities. His post came hours after top US and Chinese negotiators announced a "framework" agreement late Tuesday following two days of marathon talks in London. "Our deal with China is done," Trump wrote, adding that the agreement was still "subject to final approval with President Xi (Jinping) and me". US stock markets showed little enthusiasm despite Trump's latest statements, with the broad-based S&P 500 and the Dow flat while the tech-heavy Nasdaq edged higher in morning deals. "CANDID" TALKS The two sides had agreed to reduce their tit-for-tat, triple-digit tariffs during talks in Geneva last month, but cracks appeared in the detente after Trump accused China of violating the deal. Washington was concerned about slower supplies of rare earths after Beijing in early April began requiring domestic exporters to apply for a licence, widely seen as a response to US tariffs. Rare earths are used in everything from electric vehicles to hard drives, wind turbines and missiles. US Commerce Secretary Howard Lutnick said in London on Tuesday that US measures imposed when rare earths "were not coming" would likely be relaxed once Beijing moved forward with more license approvals. In his Truth Social post, Trump said China will supply "full magnets, and any necessary rare earths ... up front". Washington has infuriated Beijing by vowing to revoke the visas of Chinese students - a major source of revenue for US universities. On Wednesday, Trump said: "We will provide to China what was agreed to, including Chinese students using our colleges and universities." The US president also said that under the deal, the United States would apply 55 per cent tariffs on Chinese goods - a combination of his 30 per cent additional levies and the rough average of pre-existing duties, a White House official said. He said Beijing would charge 10 per cent duties on US goods. The rates are the same as those that were previously agreed in the truce, which brought US tariffs down from 145 per cent and those imposed by China from 125 per cent. In a Chinese state media readout of the talks released Wednesday, Vice Premier He Lifeng, who headed Beijing's team in London, stressed the need for the two sides to strengthen cooperation in future dialogue. "As a next step, the two sides should ... continuously enhance consensus, reduce misunderstandings and strengthen cooperation," He Lifeng said, according to state broadcaster CCTV. Speaking to reporters in London, China International Trade Representative Li Chenggang said: "Our communication has been very professional, rational, in-depth and candid." Trump's announcement came as an international rights group said several global brands are among dozens of companies at risk of using forced labour through their Chinese supply chains because they use critical minerals or buy minerals-based products sourced from the Xinjiang region of China. The report by the Netherlands-based Global Rights Compliance says companies including Avon, Walmart, Nescafe, Coca-Cola and paint supplier Sherwin-Williams may be linked to titanium sourced from Xinjiang, where rights groups allege the Chinese government runs coercive labour practices targeting predominantly Muslim Uyghurs and other Turkic minorities. The report found 77 Chinese suppliers in the titanium, lithium, beryllium and magnesium industries operating in Xinjiang. It said the suppliers are at risk of participating in the Chinese government's 'labour transfer programs', in which Uyghurs are forced to work in factories as part of a long-standing campaign of assimilation and mass detention. Asked about the report, the Chinese Foreign Ministry said that 'no one has ever been forcibly transferred in China's Xinjiang under work programs'.
