With growing occurence of negative prices amid renewable penetration, more battery storage capacity will be needed Wide intra-day spreads to remain top revenue option for BESS, but margins can tighten as more capacity comes online Cross-markets optimization, battery degradation among key challenges for operators LONDON (ICIS)–Batteries can help mitigate negative wholesale power prices and wide intraday spreads but there is currently not enough capacity installed to eliminate them, Pierre Lebon, director of analytics at cQuant.io, told ICIS in an interview. Nevertheless, as new battery energy storage system (BESS) capacity comes online, it is likely that the occurrence of negative power prices will decrease, the expert noted. ICIS Analytics showed increased flexibility will be crucial in the long-run to improving solar capture prices, though expansion of battery and electrolyser capacity will remain far below the level of renewable expansion in the next few years. The latest ICIS analytics models predict 63.3GW battery storage capacity for EU countries by 2035. The European resource adequacy assessment, ENTSO-E’s annual assessment of the risks to EU security of electricity supply for up to 10 years ahead, showed Germany would be a leader in battery capacity growth across the bloc, while outside EU, the UK has the highest available capacity. It is difficult to identify an optimal ratio of renewable capacity to BESS, as many factors must be taken into account and the supply balance will ultimately depend on each country’s generation mix and demand profile, as well as variable weather conditions. As of September, the number of hours with negative prices in Germany more than doubled to 373 compared to 166 in 2023.  These could have been mitigated by an adequate battery storage capacity, in turn reining in some price spikes in times of lower renewable supply. DURATION The vast majority of battery systems in Europe are currently two- to four-hour batteries and “that’s mostly for economic reasons,” Lebon said. “If you have a four-hour battery, if you divide the power by two, you get an eight-hour battery. So you can change the duration if you change the capacity, it then becomes a matter of financial optimization,” he explained. There are currently new technologies such as iron salt battery (ISB) – also known as iron redox flow  battery (IRFB) – which can allow to build battery storage plants with a duration of up to 12-24 hours, however Lebon noted that, while the market is already looking into these technologies, they are still in early development. This seems confirmed by calculations from ICIS based on ERAA data, showing short (one hour) and medium (four hour) duration batteries will remain the preferred technology for the coming years.   REVENUES OPTIONS Operators don’t necessarily need to have a negative power price to have a profitable battery, since BESS make money on the spread between the lowest price of the day or based on the duration that they can capture, Lebon explained. “It [negative power prices] adds the extra cherry on top of the cake, which is that you get paid to actually charge the battery,” he said. In markets with a strong ‘duck-shaped’ intra-day curve, the battery operators “can see a lot of value in intra-day trading” and less so on the ancillary services markets, Lebon added. Ancillary services like frequency regulation, voltage control, reserves and black start capabilities are needed to maintain power grids stability and guarantee an uninterrupted supply of electricity. Lebon noted that while battery operators typically consider the potential revenue from both intraday power markets and ancillary services, the stability of the revenue structures associated with the ancillary markets is often questioned. This is because transmission system operators (TSOs) and regulators tend to frequently change the rules and conditions of these markets. While cross-markets optimization – operating both on intraday and ancillary markets to maximize revenue sources – is possible, technical constraints or the legal paperwork needed to access ancillary markets can lead some operators to prioritize only one of these depending on the company’s structure and resources, the expert noted. INVESTING NOW? Penetration of batteries into European markets can reduce intra-day spreads, tightening margins for battery operators. Experts have previously told ICIS that early investors could benefit more from current wide power prices spreads than waiting for cheaper technologies. “The longer it takes for that technology to come in, the more likely it is that this technology will come [online] at a time where the spreads are crushed [by more battery storage capacity being installed],” Lebon added. BATTERY DEGRADATION The degradation of current lithium-ion utility-scale battery systems depends on several factors, including technology, number of cycles and temperatures. ICIS understands the typical yearly degradation can range between 2-5% and plants lifespan between 10-20 years, as reported in the lifetime warranty provided by some producers. A study by the US National Renewable Energy Laboratory indicated 15 years as the median lifespan based on several published values. Degradation is a key challenge in the optimization of battery assets, Lebon noted, adding that operators need to ensure their cycles strategy is compatible with manufacturers’ instructions and warranty.

LONDON (ICIS)–Germany’s controversial gas storage fee may be rolled forward into January 2025 as plans to scrap it may not be approved following the fall of the coalition government. The German government announced earlier in June the charge levied on gas exported from the country would be scrapped from January 1, 2025. But the fee abolishment has not been formally approved by the German parliament yet, and traders now fear that following the collapse of the government on 7 November, and plans for snap elections, proposals to scrap the fee would drop off the agenda before the end of the year. The fee was introduced in 2022 and has been increased every six months, raising discontent from regional countries pinning their hopes on imports from or via Germany. It was raised from €1.86/MWh to €2.5/MWh from 1 July 2024. The German Federal Ministry for Economic Affairs and Climate Action did not immediately reply to ICIS’s questions related to proposals to scrap the fee. It is unclear whether the proposals were part of a wider Ukraine assistance package, which was expected to be adopted in the upcoming weeks. “This is already having an impact on a decision involving gas flows,” Doug Wood, gas committee chair at Energy Traders Europe, told ICIS on 7 November. “We hope this can be resolved before the end of the year.” Wood said that if the proposal to scrap the fee is included in the Ukraine assistance package it may have greater chances to be approved before the end of the year. The fee was strongly opposed by companies and regulators in central and eastern Europe, because since its introduction, the cost to import gas from or via Germany had risen significantly, Markus Krug, deputy head of gas department at the Austrian regulator E-Control, told ICIS the watchdog was “very much concerned in which direction the situation is going. ” He said E-Control may have to take a decision to approach the European Commission and the Agency for the Cooperation of Energy Regulators once again and raise their concerns about the impact of the fee on gas flows in central and eastern Europe.

HOUSTON (ICIS)–Oil and gas production, the main source of the feedstock and energy used by the petrochemical industry, should benefit from policies proposed by President-Elect Donald Trump, while hydrogen and renewable fuels could lose some of the support they receive from the federal government. Trump expressed enthusiastic and consistent support for oil and gas production during his campaign. He pledged to remove what he called the electric vehicle (EV) mandate of his predecessor, President Joe Biden. Trump may attempt to eliminate green energy subsidies in Biden’s Inflation Reduction Act (IRA) BRIGHTER SENTIMENT ON ENERGYRegardless of who holds the presidency, US oil and gas production has grown because much of it has taken place on the private lands of the Permian basin. Private land is free from federal restrictions and moratoria on leases. That said, the federal government could indirectly restrict energy production, and statements from the president could sour the sentiment in the industry. During his term, US President Joe Biden antagonized the industry by accusing it of price gouging, halting new permits for LNG permits and revoking the permit for the Keystone XL oil pipeline on his first day in office. By contrast, Trump has pledged to remove federal impediments to the industry, such as permits, taxes, leases and restrictions on drilling. WHY ENERGY POLICY MATTERSPrices for plastics and chemicals tend to rise and fall with those for oil. For US producers, feedstock costs for ethylene tend to rise and fall with those for natural gas. Also, most of the feedstock used by chemical producers comes from oil and gas production. Policies that encourage energy production should lower costs for chemical plants. RETREAT FROM RENEWABLES, EVsTrump has pledged to reverse many of the sustainability policies made by Biden. Just as Trump did in his first term, he would withdraw from the Paris Agreement. For electric vehicles (EVs), Trump said he would “cancel the electric vehicle mandate and cut costly and burdensome regulations”. He said he would end the following policies: The Environmental Protection Agency’s (EPA) recent tailpipe rule, which gradually restricts emissions of carbon dioxide (CO2) from light vehicles. The Department of Transportation’s (DoT) Corporate Average Fuel Economy (CAFE) program, which mandates fuel-efficiency standards. These became stricter in 2024. The EPA was expected to decide if California can adopt its Advanced Clean Car II (ACC II) program, which would phase out the sale of combustion-based vehicles by 2035. If the EPA grants California’s request, that would trigger similar programs in several other states. Given Trump’s opposition to government restrictions on combustion-based automobiles, the EPA would likely reject California’s proposal under his presidency or attempt to reverse it if approved before Biden leaves office. According to the Tax Foundation, Trump would try to eliminate the green energy subsidies in the Inflation Reduction Act (IRA). These included tax credits for renewable diesel, sustainable aviation fuel (SAF), blue hydrogen, green hydrogen and carbon capture and storage. In regards to the UN plastic treaty, it is unclear if the US would ratify it, regardless of Trump’s position. The treaty could include a cap on plastic production, and such a provision would sink the treaty’s chances of passing the US Senate. For renewable plastics, much of the support from the government involves research and development (R&D), so it did little to foster industrial scale production. WHY EVs AND RENEWABLES MATTERPolicies that promote the adoption of EVs would increase demand for materials used to build the vehicles and their batteries. Companies are developing polymers that can meet the heat and electrical challenges of EVs while reducing their weight. Heat management fluids made from base oils could help control the temperature of EV batteries and other components. If such EV policies reduce demand for combustion-based vehicles, then that could threaten margins for refineries. These produce benzene, toluene and xylenes (BTX) in catalytic reformers and propylene in fluid catalytic crackers (FCCs). Lower demand for combustion-based vehicles would also reduce the need for lubricating oil for engines, which would decrease demand for some groups of base oils. Polices that promote renewable power could help companies meet internal sustainability goals and increase demand for epoxy resins used in wind turbines and materials used in solar panels, such as ethylene vinyl acetate (EVA) and polyvinyl butyral (PVB). Insight article by Al Greenwood

SAO PAULO (ICIS)–Brazil’s central bank monetary policy committee (Copom) voted unanimously late on Wednesday to hike the main interest rate benchmark, the Selic, by 50 basis points to 11.25%, to fend off rising inflation and a depreciating Brazilian real. Central bank urges government to put fiscal house in order H1 October inflation data reveals that upward trend continues Despite high borrowing costs, car sales at decade-high in October The 50 basis point increase is a double-down on the first 25 basis point increase in September which put an end to the monetary policy easing which started in August 2023 after a post-inflation crisis. Copom did not mention the market fallout which followed US Republican candidate Donald Trump’s victory in the presidential election, as global investors are wary about radical changes in US trade policy via higher import tariffs, among others. Instead, Copom focused on the healthy domestic economy and strong labor market which has put upward pressure on prices. After a small fall in August, the annual rate of inflation ticked higher in September – an upward trend that started May – to stand at 4.4%. Indicators for H1 October showed inflation ticking up further to 4.5%. The Banco Central do Brasil’s (BCB) own inflation expectations reflect this trend, with inflation expected to end this year at 4.6% before falling to 4.0% in 2025. The BCB’s mandate is to keep inflation at around 3%. “The scenario remains marked by resilient economic activity, labor market pressures, positive output gap, an increase in the inflation projections, and deanchored expectations, which requires a more contractionary monetary policy,” said Copom. “[Copom] judges that this decision [increase in the Selic] is consistent with the strategy for inflation convergence to a level around its target throughout the relevant horizon for monetary policy. Without compromising its fundamental objective of ensuring price stability, this decision also implies smoothing economic fluctuations and fostering full employment.” Petrochemical-intensive industrial companies have repeatedly said high interest rates have harmed sales as consumers think twice before purchasing durable goods on credit due to high borrowing costs. One vocal opponent to high rates is automotive trade group Anfavea, although its own figures this week showed sales riding at a high not seen since 2014, regardless of high borrowing costs. The automotive industry is a major global consumer of petrochemicals, which make up more than one-third of the raw material costs of an average vehicle, driving demand for chemicals such polypropylene (PP), nylon, polystyrene (PS), styrene butadiene rubber (SBR), polyurethane (PU), methyl methacrylate (MMA) and polymethyl methacrylate (PMMA), among others. Meanwhile, Brazilian president Lula’s cabinet is looking to strengthen the country’s industrial sectors to fulfil his Workers Party (PT) electoral promise to create more and better paid industrial jobs. As a result, Lula and several of his  officials have repeatedly and publicly criticized the BCB for its interest rates policy. Meanwhile, central bank governor Roberto Campos Neto, appointed by the previous center-right Jair Bolsonaro administration, will end his term in December, when Lula appointed Gabriel Galipolo will succeed him. It is a move that has put some investors on alert due to his closeness to Lula, as he may prioritize the cabinet’s demands instead of the bank’s inflation target, its main mandate. But as global markets increasingly look at Brazil, Galipolo has fallen in line and also voted to increase rates in the last two Copom meetings. CABINET URGED TO END DEFICITThe Brazilian cabinet, presided over by Luiz Inacio Lula da Silva, was expected to run a fiscal deficit this year in an attempt to expand public services without increasing taxes. Investors and analysts have been piling pressure on the government by punishing the Brazilian real (R), which has depreciated sharply in the past few months against the US dollar, making dollar-denominated imports into Brazil more expensive and ultimately filtering down in the form of higher inflation. At the start of 2024, the real was trading at $1:4.85. But the exchange rate stood at $1:5.69 on Wednesday, a depreciation of nearly 15%. On Wednesday, Copom joined the chorus of voices asking for stricter fiscal policy, arguing that to stop the real losing ground it is necessary a “credible fiscal policy committed to debt sustainability, with the presentation and execution of structural measures” in the public accounts. The Brazilian cabinet is reportedly working against the clock this week on those measures, and Finance Minister Fernando Haddad even cancelled an official trip to Europe this week to focus on this. “The perception of agents [in the market] about the fiscal scenario has significantly impacted asset prices and expectations, especially the risk premium and the exchange rate. [A credible fiscal policy] will contribute to the anchoring of inflation expectations and to the reduction in the risk premia of financial assets, therefore impacting monetary policy.” Analysts at Capital Economics on Wednesday also highlighted the diplomatic but very clear request from the central bank to the government – without stricter fiscal policies aiming to reduce the deficit, investors will continue making the central bank’s work on inflation harder as they bet against Brazilian assets, including its currency. “[The hike] has more to do with the domestic macro backdrop and shoring up monetary policy credibility than a response to the market fallout following Trump’s victory … [Copom’s] Concerns will have only been amplified by recent data and developments, with the accompanying statement reiterating that ‘economic activity and labor market continues to exhibit strength’,” the analysts said. “Alongside all of this, Copom members are probably also feeling compelled to tighten policy in order to shore up their credibility amid investor concerns about politicization of monetary policy. This strikes at an important point – the central bank is responding to Brazil-specific factors rather than the financial market fallout from Trump’s victory, especially given that the real is up by around 1% against the dollar today [6 November].” Capital Economics said Copom’s intention to raise rates further if necessary is likely to become a reality in coming months, expecting the Selic to rise further by 75bps more to reach 12% in early 2025. “That said, the risks are skewed to the upside, particularly if the government fails to soothe investors’ concerns about the fiscal position.” they concluded. Focus article by Jonathan Lopez 

LONDON (ICIS)–The Bank of England (BoE) on Thursday cut its key interest rate for the second time this year, instituting a 25 basis point fall as inflation continues below target. The bank cut its core interest rate to 4.75% in the wake of a steeper-than-expected decline in inflation in September, from 2.2% to 1.7%. Eurozone inflation also declined that month, dropping to 1.7%, but is expected to have increased last month, bouncing back to 2% according to preliminary Eurostat data, driven by higher food and services pricing and weaker energy cost declines. Both the BoE and the European Central Bank have inflation targets of levels close to but not exceeding 2%. The BoE move also follows the announcement of the UK’s autumn budget, which pledged higher borrowing, taxes and spending to generate funds for areas such as the country’s health service. The UK Office for Budget Responsibility (OBR) projects that the budget will drive inflation higher in the short term, to a quarterly peak of 2.7% in mid-2025.

SINGAPORE (ICIS)–China’s oxo-alcohols market will face a supply glut in the face of intensive new plant start-ups and tepid downstream demand. Net import volumes may plunge in the short term because of overseas plant turnarounds and rising domestic supply, whether this can sustain depends on overseas plant operations and import arbitrage opportunities. New oxo-alcohols capacities hit 1.3 million tonnes/year in July-Oct 2024 Oxo-alcohols supply to rise steadily in short term on few maintenance outages Oxo-alcohols net imports to decline on overseas plant turnarounds, rising domestic output

Biden’s permit pause likely cut short by US election result Trump’s victory may lead to quicker Department of Energy permits Expected FID on Port Arthur expansion moves ahead of Cameron HOUSTON(ICIS)–Just hours after the US re-elected former US President Donald Trump on 5 November, US LNG export plant developer Sempra Infrastructure updated expectations around the timing of its next federal LNG permit. The second phase of Sempra’s Texas project Port Arthur LNG should receive authorization to export to countries outside the US Free Trade Agreement (FTA) from the Department of Energy (DOE) in the first half of 2025, Sempra executives said 6 November. “LNG is a very, very important tool of American foreign policy,” said Jeffrey Martin, CEO of Sempra Infrastructure’s parent company, during its third-quarter earnings call. “I think we have growing confidence in getting the permits we need for Port Arthur, phase two in the first half of next year.” No US LNG export projects have received a non-FTA permit from the DOE since 2023. In January, current President Joe Biden’s administration paused issuance of the permits. While campaigning, Trump said that if elected, he would immediately lift the pause on federal LNG permitting. France’s Technip Energies previewed the electoral result during its third-quarter earnings call on 31 October with CEO Arnaud Pieton’s statement that a Trump victory could faster lift the moratorium on DOE permits than if opponent Kamala Harris had won. COMMERCIAL TALKS Of the two expansion projects under development – the 13mtpa second phase of Port Arthur LNG, and a fourth production train at Cameron LNG that would add 6.75mtpa – CFO Karen Sedgwick said the company expects to make an FID on Port Arthur’s phase two first. “The timing of an FID decision on the Cameron expansion is uncertain at this point,” Sedgwick said. “We continue to work with our partners on the optimal timing for expansion.” Previously, the Cameron expansion FID was delayed in November 2022 and November 2023 . Port Arthur’s 13mtpa second phase requires the non-FTA permit to reach a final investment decision, in addition to lining up more long-term customers and securing financing. The expansion project has been under consideration since at least November 2022. Saudi Arabia’s state-backed Aramco agreed in June to purchase 5mtpa from Port Arthur’s second phase over 20 years, and that it would consider taking a 25% stake in the project. In August, Sempra Infrastructure CEO Justin Bird said the company hoped to have additional heads of agreements to discuss on Sempra’s Q3 call. “As noted in our Q2 call, we saw an increased interest in Port Arthur 2, and I’m happy to say that interest has further increased since the call and momentum continues to build,” Bird said. “Commercial discussions for offtake and project equity are ongoing, and I think we’re seeing better terms.” CONSTRUCTION UPDATES Construction at Sempra’s Energia Costa Azul LNG export project faced delays due to local workforce shortages in Sonora, Mexico, executives said in August. In the latest call, Sempra stuck with its most recent estimate that ECA would start commissioning in spring 2026. Sempra hired engineering company TechnipFMC in 2020 to handle engineering, procurement and construction for ECA with a lump-sum contract. Technip Energies split off from TechnipFMC in 2021. Rival EPC contractor Bechtel leads construction on Port Arthur LNG’s first phase – also 13mtpa – which remains on budget and on schedule, executives said 6 November.

SINGAPORE (ICIS)–Donald Trump’s return to the White House could intensify trade frictions with China, fostering decoupling of the world’s two biggest economies, with Chinese exporters looking at making advance shipments to the US before new tariffs are imposed. Hefty US tariffs to drag down China exports, GDP growth China may accelerate relocation of manufacturers Heavy flow of Chinese exports to US likely in H1 2025 In his election campaign, Trump has vowed to take four major actions against China upon winning, namely, revoke China’s Permanent Normal Trade Relations (PNTR) or most favoured nation status; impose tariffs of 60% or more on all Chinese goods; stop importing Chinese necessities within the four years of his second term as US president; and crack down on Chinese goods imported through third countries. In Trump’s first term as US government head in 2016-2020, Washington had launched five rounds of tariffs on around $550 billion worth of Chinese imports, raising the average duties on Chinese goods by more than fivefold to 15.4% from 2.7%. Based on calculations by investment bank China International Capital Corp (CICC), those tariffs had reduced China’s exports to the US by around 5.5% and dragged down China’s overall GDP by one percentage point. If a 60% tariff is imposed on Chinese goods in Trump’s second term, China’s overall export growth would be shaved by 2.1-2.6 percentage points and its GDP growth by 0.2-0.3 percentage points, CICC said in a research note. Most Chinese exporters, especially those which rely heavily on the US market, will face the fallout in terms of significant drop in export volumes and profits, CICC said. “Only those in high value-added and very competitive sectors can sustain that high tariff. This will accelerate the trend of Chinese companies moving manufacturing sites to third countries like Vietnam and Mexico to finally get into US markets,” it added. China has been actively expanding trade relations with partner countries in its belt-and-road project within Asia as well as Africa, as buffer against growing US import curbs on its goods. In 2023, ASEAN replaced the US as China’s biggest export destination. “That demonstrated resilience and competitiveness of Chinese products in global markets,” said Li Xunlei, chief economist at Hong Kong-based brokerage China Zhongtai International. China, however, is currently faces huge challenges, including slowing domestic demand, high debt, a property slump, and decoupling from western countries, he said. “One major headache now is that currency depreciation is difficult to implement this time, because [a] weakening yuan could trigger capital outflow,” Li said. In 2018-2019, China was able to offset the US tariffs by allowing the Chinese yuan (CNY) to depreciate by around 10%. This time, mitigating the ill-effects of a 60% US tariff would need the yuan to fall by 18% against the US dollar, which meant exchange rate of CNY8.5 to $1.0, which was not seen since the 1997 Asian financial crisis, Li pointed out. Some Chinese exporters have been looking to pre-ship goods to the US ahead of the potential imposition of new tariffs. A Guangdong-based shipping broker has received increasing inquiries for Q1 2025 container spaces from China to North America, because traders are trying to move cargoes as early as possible to avoid the tariff issue. These could mean a strong flow of Chinese exports – including consumer electronics, plastics, home appliances, among others – to the US in the first two quarters of next year. Insight article by Fanny Zhang ($1 = CNY7.16)

SINGAPORE (ICIS)–Donald Trump’s re-election as US president sets the stage for economic turbulence in Asia as regional businesses brace for significant increases in US tariffs. Trump set to impose levies of 60% or more on Chinese goods US tariffs on China to accelerate economic decoupling China must counteract fallout from potential US trade protectionism Asian financial markets opened mixed on Thursday as investors assessed Trump’s return to the White House after winning the 5 November US presidential election, with focus turning to the potential long-term impact of his economic and foreign policies. The other prominent victory for the Republican Party was re-taking of the US Senate, with the possibility of retaining control of the House of Representatives as well, which would give Trump unified control of the government. At 02:40 GMT, Japan’s Nikkei 225 slipped 0.39% to 39,335.52, South Korean benchmark KOSPI composite was 0.21% lower at 2,558.25 and Hong Kong’s Hang Seng Index edged 0.48% higher to 20,635.64. China’s mainland CSI 300 index was up 0.38% at 4,038.85. Chinese energy major PetroChina was up 0.52% in Hong Kong, LG Chem was down 3.11% in Seoul and Mitsui Chemicals rose 1.78% in Tokyo. POTENTIAL TARIFFS Trump has pledged to impose blanket tariffs of up to 20% on imports from all countries, with even steeper levies of 60% or more on Chinese goods, citing unfair trade practices that have contributed to US economic decline. China is expected to remain the primary target of additional US tariff measures due to its significant trade surplus with the US. The US has also become the top target of China’s anti-dumping cases for chemical imports, underscoring growing trade barriers between the world’s two biggest economies. While China will likely retaliate against new trade policies, its response will likely be measured to avoid escalating tensions. “Trump has the legal authority to implement tariffs without Congressional approval, and we expect trade restrictions will be imposed quickly,” Japan’s Nomura Global Markets Research said in a note on Thursday. According to Nomura’s forecasts, 60% tariffs on Chinese imports are likely to take effect by mid-2025. Additionally, a blanket 10% tariff may be imposed on all countries next year, although Canada and Mexico are expected to be exempt due to existing free-trade agreements. “The most pronounced impact on Asia will likely be through Trump’s policy on trade,” UOB Global Economics & Markets Research economists said in a note on Thursday. “It remains to be seen when and whether Trump will be able to carry through his tariff threats in their entirety.” Higher US tariffs on Chinese imports would likely speed up the economic separation of the world’s two largest economies and significantly disrupt supply chains across Asia, according to analysts. Imposing new tariffs also increases the risk of China taking retaliatory measures, potentially jeopardizing crucial collaborations on pressing global issues like climate change and artificial intelligence (AI). “US-China relations are already frosty, and trade tariffs (if implemented) may exacerbate the situation,” Singapore-based bank OCBC said in a note. “However, Trump is also a negotiator and may be inclined to cut a deal if he gets what he wants. Hence, the question is whether there will be a deal. The strategic industries most at risk remain advanced manufacturing, especially semiconductors, EVs [electric vehicles], solar panels etc.” In 2023, US imports from China hit a 14-year low of $427 billion, equivalent to 2.4% of China’s nominal GDP. Since 2021, trade tariffs on China have been ratified and extended under US President Joe Biden. As a result, China lost its status as the US’ main trade partner for goods. The proportion of Chinese imports to the US fell significantly in the past two years from almost 19% at the start of 2022 to only 13.5% at the end of 2023, according to ratings firm Moody’s. The proposed 60% tariffs on Chinese goods would substantially impact China’s growth, effectively cutting off US demand for a large portion of Chinese imports. “Given the structural slowdown in its economy, China needs to offset the negative impact from any potential new trade protectionist measures with stronger domestic policy responses in order to stabilize growth,” UOB said. SPOTLIGHT ON CHINA’S NEXT MOVES The ongoing National People’s Congress Standing Committee meeting on 4-8 November is under intense scrutiny as market observers await announcements on China’s fiscal policy support. Key decisions expected include an additional yuan (CNY) 6 trillion ($836 billion) bond issuance to address hidden local government debts and CNY1 trillion for bank recapitalization. The upcoming Politburo meeting in early December and the Central Economic Work Conference (CEWC) will outline China’s economic agenda for 2025. These gatherings will set the stage for the National People’s Congress (NPC) in March 2025, where pivotal economic targets will be unveiled, including GDP growth, fiscal deficit, and local government special bonds issuance quota. These announcements will provide crucial guidance on China’s economic direction for the year ahead. While China is a primary focus, other regions including ASEAN are also exposed to potential policy risks due to their significantly increased trade surpluses with the US since 2018. This surge is largely attributed to supply chain diversification aimed at evading tariffs and trade restrictions implemented during Trump’s first term. “In ASEAN, there continues to be positive spillovers from the supply chain shifts leading to a brighter trade outlook this year while import demand strengthened across key Asian countries amid improving job market and domestic policy support,” UOB said. Asian exports will face more scrutiny, there will more regulatory headaches, but the region’s scale, excellence in manufacturing and logistics, strong corporate and public sector balance sheets will hold them in good stead during Trump 2.0, Singapore-based bank DBS said in note. With more Chinese companies offshoring export-focused production to southeast Asia, a second Trump administration may start to target these countries for trade-related violations, risk and strategic consulting firm Control Risks said. “One area to watch would be southeast Asia’s automotive sector, where Chinese players are flooding and dominating the original equipment manufacturer industry as the region gears up to fulfil ambitions of being a hub for the production, assembly and export of electric vehicles in the coming decade.” “Tariffs are an unambiguous negative for the region, but Asia’s strong ties with the US and China would survive Trump,” DBS said. “The region’s openness to trade and commerce makes it more attractive to investors, especially as the contrast with an inward-looking West becomes stark. This election marks a firm rightward shift of the US; Asia has to learn to live with it.” Insight article by Nurluqman Suratman ($1 = CNY7.18) Thumbnail image: At Lianyungang port in China on 25 October 2024.(Costfoto/NurPhoto/Shutterstock)