US-CHINA: USTR Defers Chip Tariffs In Effort To Maintain Recent Sino-US Calm
The office of US Trade Representative Jamieson Greer has confirmed in a filing to the Federal Register that, under Section 301 of the Trade Act of 1974, the imposition of additional tariffs on the import of Chinese semiconductors is appropriate. The document does not confirm the level of tariffs, but does say the additional tariffs will remain at zero until June 2027, at which point they will be imposed. In its reasoning, the filing claims that "China’s targeting of the semiconductor industry for dominance is unreasonable and burdens or restricts U.S. commerce and thus is actionable."
- Filing: "For decades, China has targeted the semiconductor industry for dominance and has employed increasingly aggressive and sweeping non-market policies and practices in pursuing dominance of the sector. China’s pursuit of its dominance goals has severely disadvantaged U.S. companies, workers, and the U.S. economy generally through lessened competition and commercial opportunities and through the creation of economic security risks from dependencies and vulnerabilities."
- While the language appears to be robust, the significant delay to any implementation of additional tariffs, combined with Trump's exemption for semiconductors (among other goods) from reciprocal tariffs earlier in the year, could be seen to point towards a desire in the White House to avoid a deterioration in trade relations with China.
- This follows the meeting between Presidents Donald Trump and Xi Jinping on the sidelines of the APEC summit in November, and ahead of the expectation for Trump to visit China in the spring and Xi to potentially engage in a state visit to the US in 2026 as well.
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RATINGS: Moody's Upgrades Italy To Baa2 From Baa3, Still A Notch Below Others
The Moody's upgrade to Italy's credit rating announced late Friday was the first from the agency since 2002 but shouldn't be considered a major surprise. Among the 3 major ratings agencies, Moody's had the lowest rating on Italy - by two notches (Fitch and S&P both BBB+).
- So this upgrade to Baa2 from Baa3 represents something of a closing of that gap rather than a major breakthrough for Italy.
- From the release:
- "The rating upgrade reflects a consistent track-record of political and policy stability which enhances the effectiveness of economic and fiscal reforms and investment implemented under the National Recovery and Resilience Plan (NRRP). It also points to prospects of further policy actions supporting growth and fiscal consolidation beyond the plan's deadline in August 2026. As a result, we expect that Italy's high government debt burden will gradually decline from 2027 onwards."
FED: Heading Into Its Final Weeks, QT Pace Remains At $20B/Month (2/2)
On the asset side of the Fed balance sheet, we saw a $25B drop in assets, of which just $2B could be attributed to QT in one of its final weeks (ends Dec 1).
- Instead it was a $6B drop in dealer repo operations vs a week earlier, and $17B in "other" areas that aren't related directly to monetary policy and typically don't have any significant impact on the size of the balance sheet (such changes are largely due to items such as bank premises, accrued interest, and other accounts receivable.)
- Discount window takeup edged up $0.3B to $6.1B but remains relatively low.
- QT has totaled just under $21B over the last month, around the expected pace, though as noted this will flatline in December with a pickup in net bills as MBS proceeds are rolled over into T-bills.
LOOK AHEAD: US Week Ahead: Retail Sales, PPI & Claims Headline Thanksgiving Week
A Thanksgiving-condensed week sees data highlights from delayed retail sales and PPI reports for September on Tuesday (Nov 25) before a Wednesday release for weekly jobless claims (Nov 26). Aside, the Fed’s Beige Book should also offer another important update on Wednesday for latest liaison reporting, with no Fedspeak currently scheduled around the holiday and the FOMC media blackout due to start on Saturday, Nov 29.
- As we regularly comment in this weekly publication, Redbook and Chicago Fed CARTS indicators point to solid nominal growth in retail sales, something broadly reflected in analyst consensus for the release.
- PPI inflation will offer a useful albeit not overly timely update on input cost pressures.
- Jobless claims will be watched particularly closely, both for latest initial claims for signs of layoffs and a notable update for continuing claims. The latter covers the payrolls reference period for November and will be an important reference point for FOMC members trying to get a sense of latest unemployment rate clues with the next payrolls reports coming after the Dec 9-10 FOMC decision (going into it with this week’s 0.12bp rise to 4.44% back in September).
