The Weekly Rundown: U.S. Signs Initial Trade Deal With Japan, Fails to Ink One With India and Debates Delisting Chinese Stocks

8 MINS READSep 28, 2019 | 19:25 GMT
Israeli Prime Minister Benjamin Netanyahu speaks during a news conference in Jerusalem on Sept. 25, 2019.

Israeli Prime Minister Benjamin Netanyahu speaks during a news conference in Jerusalem on Sept. 25. President Reuven Rivlin asked Netanyahu to try to form a governing coalition after this month's deadlocked elections.


On the Record

The Chamber strongly urges the administration to hold fast to its commitment to achieve a comprehensive, high-standard trade agreement with Japan that addresses the full range of our trade priorities, including services, intellectual property protection, and regulatory barriers to trade.

U.S. Chamber of Commerce

On Our Radar

U.S. and Japan Sign a Limited Trade Deal. In the trade deal that it signed Sept. 25 with the United States, Japan failed to secure U.S. commitments on the thorny automotive issues that brought it to the negotiating table in the first place. Instead, the United States offered an oral agreement that it would not proceed with threatened 25 percent auto tariffs. Japan still gave widespread concessions on agriculture, opening its markets wider for U.S. beef, pork and grains. For U.S. President Donald Trump, the agreement is a political win and a welcome relief for American farmers reeling from both the U.S.-China trade war as well as increased competition within Japan from the Comprehensive and Progressive Trans-Pacific Partnership and soon European Union countries. However, this deal will not counterbalance the setbacks U.S. farmers have experienced in the massive Chinese market. For Japan, the limited agreement means it must trust the Trump administration will honor its assurances and refrain from imposing steeper tariffs and non-tariff barriers during the next phase of talks.

The U.S.-India Trade Skirmish Is Set to Endure. U.S. Trade Representative Robert Lighthizer met with Indian Commerce Minister Piyush Goyal on the sidelines of the U.N. General Assembly in New York this week, raising expectations of a limited deal after the United States revoked India's tariff benefits under the Generalized System of Preferences program in June, triggering Indian retaliatory tariffs on 28 U.S. imports. But no concrete agreement came to be. Even so, India counts the United States as a vital export market and will avoid escalating the dispute beyond tit-for-tat measures to stave off a larger trade war while President Trump eyes a victory in his various trade disputes ahead of next year's presidential elections.

Netanyahu Gets a Second Chance. Israeli President Reuven Rivlin asked Prime Minister Benjamin Netanyahu to form a governing coalition this week, but like the last time Netanyahu tried to assemble a coalition in the spring, he has no real path to build a government. So, the game is afoot to shift blame for what might lead to a third election, and for Netanyahu to get voters to punish Benny Gantz and his Blue and White alliance in such a circumstance. Deep compromises are still possible, but at the moment a third election, coming despite rising tensions with Iran, remains a viable outcome.

Iran Stalls U.S. Effort to Shift Away From the Middle East. The U.S. announcement on Sept. 26 that it is sending additional forces to Saudi Arabia in the wake of Iran's cruise missile and drone attacks on Saudi oil facilities this month highlights how the tensions with Tehran continue to serve as a considerable check on the U.S. effort to divert resources and forces toward its great power competition with Russia and China. In the Persian Gulf as elsewhere (Afghanistan, Syria, Iraq, etc.), the United States will continue to struggle to balance between maintaining enough forces to preserve its widespread interests and freeing up enough assets and resources to better compete in Europe and the western Pacific with the other great powers.

Fractures in the European Central Bank Become Harder to Hide. Sabine Lautenschlaeger, Germany's representative on the executive board of the European Central Bank (ECB), resigned Sept. 23 to protest the reintroduction of quantitative easing. Her resignation came after central bankers from countries such as Austria and the Netherlands also criticized ECB President Mario Draghi's policies, arguing that they damage savers and pensioners in their countries. But not everybody is a critic of the outgoing president: Italy's Fabio Panetta, who worked with Draghi on some ECB policies, will join the bank's executive board next month. This means that Cristine Lagarde, who will replace Draghi on Nov. 1 and supports his policies, will inherit a European Central Bank that is internally divided over how to deal with the eurozone's low growth and inflation rates.

On Our Minds

A Dramatic Option in the U.S. Campaign Against China. Just two weeks before U.S.-China trade talks are set to resume in Washington, Bloomberg and Reuters, citing sources familiar with the matter, reported another potential bombshell in the U.S.-China economic conflict: The Trump administration is considering delisting Chinese companies from U.S. stock exchanges. The White House has been weighing various maximum pressure tactics to try to alter China's economic and investment practices. If the idea of delisting Chinese companies moves forward, it would disrupt U.S. investment in Chinese firms and risk a broader decoupling of financial ties between the two economic powers. Even the threat itself could be enough to compel Beijing and some Chinese companies to reconsider whether their exposure to the U.S. stock market remains a reliable one. The White House discussions could be an attempt to gain leverage ahead of next months' trade talks, which could still result in a tariff truce. But there is the real prospect now that the economic competition between the United States and China will move far beyond any possible short-term trade deal.

Mass Protests in Egypt. Military corruption, failed trickle-down economic strategies and other unresolved problems from the Hosni Mubarak era have left Egyptians disenchanted with President Abdel Fattah al-Sisi's leadership, and last weekend saw large protests break out in several cities. There were calls for more protests this weekend but authorities enacted tight security measures in Cairo and elsewhere and appear to have thwarted additional demonstrations. Macroeconomic indicators are pointing in a positive direction, but since most Egyptians aren't seeing many benefits, Egypt's social contract is strained. How the Egyptian military and al-Sisi will continue to respond to any developing dissent will help determine whether last week's protests were an isolated event or the beginning of something bigger and more serious.

Saudi Arabia's Regional Foreign Policy Could Change Rapidly. The fallout from the Sept. 14 cruise missile and drone attacks on Saudi Arabia's oil sector is continuing and we are now seeing early signs that Riyadh is changing its regional strategy. Saudi officials continue to blame Iran for the attacks and have kept the option of a military response on the table; they have also said that sanctions on Iran will limit Tehran's ability to fund its regional strategy. On the other hand, Saudi Arabia has agreed to another partial cease-fire in Yemen. Now facing the threat of significant attacks from the north and the south, Riyadh could opt to try to freeze its intervention in Yemen at current levels or even try to reduce hostilities and negotiate with the Houthis more seriously. This move could drive further wedges between Houthi rebels wanting to distance themselves from Iran and those calling for closer ties with Iran. Many cease-fires in Yemen have ended as soon as they've begun. But this one merits watching closely.

Afghanistan's Presidential Election. Afghans went to the polls on Sept. 28 to choose their next president from a list of candidates led by incumbent Ashraf Ghani and his partner in Afghanistan's unity government, Abdullah Abdullah. The election will serve as a benchmark of the government's ability to ensure a smooth transfer of power. Eager to avoid the contentious recount of 2014, U.S. Secretary of State Mike Pompeo has asked Ghani to ensure government officials conduct a successful poll. Though the outcome is likely to be contested, the fact the election is taking place at all is beneficial for Ghani, who worried that U.S.-Taliban peace talks — which collapsed Sept. 7 — could have led to another delay if not outright cancellation of the twice-delayed elections. A stable, postelection government is important since the new president of Afghanistan will lead negotiations with the Taliban, a task of enormous consequence that would be complicated should a fractured mandate emerge. Preliminary results are expected Oct. 17 with final results on Nov. 7.

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