Political Disruption Weekly Update, May 27, 2024
EU-China and EU-US trade relations, Israel boycott, and tensions in India-US relations after the India-Iran deal.
Hi, today we start with a weekly update on where political disruption is happening and where it might occur in the future.
In this weekly update, we provide insights into evolving economic sanction programs and trade conflicts impacting businesses. This week we focus on EU-China relations, US-China relations, Turkey, India, and the potential boycott of Israel.
EU-China Relations
Tariff Preparations: Brussels is preparing to impose tariffs on Chinese electric cars, with an announcement expected soon.
Tariffs of 15-30% are expected according to an analysis of the Rhodium Group. However, tariffs of 45-55% might be needed to make Chinese imports unappealing.
Retaliation Threats: Beijing has been vocal about retaliating against these tariffs, signaling a potential escalation in the trade conflict. China threatens tariffs of 25% on EU (and US) car imports in retaliation.
Industry Impact: German automakers face threats from China, with potential tariffs on cars with large combustion engines.
Innovation Gap: The trade war highlights the need for the West to catch up with China's advancements in technology and innovation.
Car Chips Battleground: Europe is eyeing car chips as the next battleground with China, potentially leading to further trade tensions.
US-China Relations
President Biden will impose a wide range of tariffs on Chinese products, including 100% tariffs on Chinese EVs (now 25%), 50% on semiconductors (now 25%), solar cells, medical products, steel and aluminum, batteries… (see the White House Statement for a complete list).
Export Restrictions: The US has tightened export restrictions on Huawei, affecting semiconductor sales from companies like Qualcomm and Intel.
Anticipated Retaliation: China stated that it would retaliate. It did not yet declare where that would be. Potential targets might be US agricultural exports (US soybean producers still feel the bruises of 2018 when China virtually stopped importing US soybeans) machinery and chemicals. China might also focus its retaliation on swing states of the US elections to put more pressure on the Biden administration.
Turkey
Trade Ban on Israel: The Turkish Ministry of Trade announced a complete export and import ban targeting Israel, adding complexity to regional trade dynamics.
US Antiboycott Advisory: US companies in Turkey are cautioned to be alert to requests related to importing or exporting goods to or from Israel, highlighting compliance challenges.
Sanctions Evasion Hub: Turkey has emerged as a hub for relabeling and re-exporting sanctioned Russian fuels to the EU, potentially generating up to €3 billion for Russia over the past year by exploiting loopholes in the sanctions regime.
India
Iran Port Deal: India signed a 10-year agreement to operate and develop Iran's Chabahar port, meant to expand agriculture exports to Afghanistan and Central Asia while bypassing Pakistan. However, this move risks US sanctions, as Washington warned of potential penalties for doing business deals with Tehran.
Diplomatic Clash: India's decision to pursue its own strategic interests by partnering with Iran may test the limits of its willingness to defy Western allies, setting up a potential diplomatic clash with the US over sanctions.
Boycott and sanctions of Israel
Turkish Sanctions: Turkey announced a complete export and import ban against Israel, effective immediately. The restrictions cover 54 categories, including iron and steel products, jet fuel, construction equipment, and more. Israel has stated its intention to retaliate.
EU Sanctions: The EU has imposed sanctions on violent Israeli settlers, and there have been loud calls for a boycott of Israel, especially in some US universities. However, the impact has been limited thus far.
Potential Invasion Response: Discussions have arisen regarding potential EU sanctions on Israel in the event of an invasion of Rafah. While no other countries have followed Turkey’s lead, the situation remains dynamic and may lead to further diplomatic tensions.
That’s it for this week, more trade and sanctions news next week!
Think of anyone who might find a weekly update on trade and sanctions issues useful for his or her business, feel free to forward this issue to them!
See you next week!
Hans