What happened in the world economy this week and what it means

Shots were finally fired in the skirmish over commerce between the US and China, but fears of an all-out trade war abated as the Trump administration and Beijing indicated they’re willing to negotiate and the US even pushed for an early deal on the North American Free Trade Agreement.

The international frictions lead our wrap of the week’s major economic events.

Tit-For-Tat
 

A plethora of products from Chinese-made cars to flamethrowers are in Trump’s sights with the US allowing 60 days for public feedback on the proposed tariffs. China responded with a threat to levy an additional 25 per cent levy on about $50 billion of US imports including soybeans and chemicals. While the exchange rattled stock investors, economists are for now calm about the economic hit the current skirmish will inflict on the US although Federal Reserve officials are concerned about the uncertainty. President Donald Trump’s advisors and Chinese officials indicated they are willing to talk with the Chinese, easing fears of a full-blown trade war. Trump is also pushing for a preliminary Nafta deal to announce at a summit in Peru next week and softened a key demand for more North American content in car manufacturing, according to Bloomberg scoops this week.

Swapping Coasts
 

The Federal Reserve’s eyes and ears on Wall Street named monetary policy veteran John Williams as its new president. Williams, currently the head of the Fed’s San Francisco branch, will run its New York outpost from June 18, succeeding William Dudley. He recently said he favors increasing interest rates three to four times this year and has proposed a rethink of how policy makers set long-term policy. In picking Williams, Fed officials ignored calls for the central bank to embrace greater diversity.

From Warsaw to Riga, governments are starting to bump against the limits of an economic model that lured western foreign investors for almost three decades, based on lower-paid, less-skilled labor. With wages rising and unemployment in major countries around 4 per cent, politicians now realize they must invest more in research and education. Meantime, in Russia, a shrinking population is threatening President Vladimir Putin’s economic goals for the next six years just as a pullback in military spending also bites.

Central Bank Surprises

The central banks of Sri Lanka and Bangladesh unexpectedly cut their key interest rates in shifts aimed at supporting their economies as inflation slows. Romania surprised investors by leaving its key interest rate unchanged while Australia, Nigeria and India met forecasts by doing the same. The Bank of Japan is likely to raise its yield target within a year, according to the central bank’s former chief economist, who says inflation is accelerating faster than expected.