US opposition pushes trade court to brink of collapse

GENEVA - The World Trade Organization's capacity to settle international disputes, a core function throughout the body's 25-year history, is on the brink of collapse following relentless US opposition.

The appellate branch of the WTO's Dispute Settlement Body (DSB), sometimes dubbed the supreme court of world trade, was a target of US criticism before President Donald Trump took office.

His predecessor Barack Obama's administration began a policy of blocking the appointment of appeals judges over concerns that their rulings violated American interests.

Trump's trade team has both extended that policy and escalated the fight.

Barring a shock breakthrough in the coming days, the court will cease functioning on Wednesday.

The WTO appellate branch normally counts seven judges but has just three left -- the minimum required to hear an appeal. Two more judges are due to retire on Tuesday.

WTO Director General Roberto Azevedo warned on Friday that the organization was facing a stark choice.

"You could restore the impartial, effective, efficient two-step review that most members say they want," he said.

"Alternatively, your choices could open the door to more uncertainty, unconstrained unilateral retaliation -– and less investment, less growth, and less job creation."

Various reform proposals have secured broad support.

But according to EU trade commissioner Cecilia Malmstrom, there can no solution without US buy-in because the WTO works on consensus.

"This is a dispute between the 163 members of the WTO and the US," she told the European parliament last month.

US WTO envoy Dennis Shea argued on Friday that Washington had "engaged constructively over the past year" to resolve the crisis, but would not relent until its concerns were fixed.

"This is not an academic question; we will not be able to move forward until we are confident we have addressed the underlying problems and have found real solutions to prevent their recurrence," he told a WTO meeting.

TRUMP 'KILLED' IT

US concerns regarding the WTO appeals court include allegations of judicial overreach, delays in rendering decisions and bloated judges' salaries.

But top American trade officials have also insisted that the US Constitution does not permit a foreign court to supersede an American one -- and that WTO appellate judges assert such superiority in international trade law.

Washington reportedly threatened to block the WTO's 2020 budget over the dispute, raising the prospect of a January 1 shutdown.

The US ultimately backed a provisional budget compromise on Thursday but it included substantial appellate body cuts.

"There is no question the Trump administration has killed the appellate body," said Edward Alden, a trade expert at the Council of Foreign Relations think-tank.

"That was its intention, and it has succeeded."

WHAT NEXT?

The appellate body's demise will place international trade disputes in legal limbo.

Countries will still be able to file grievances and dispute panels can issue rulings, but nations unhappy with those rulings can simply delay enforcement by filing an appeal to a non-functioning court.

The European Union, Canada and others have reaffirmed their commitment to a two-step dispute process, arguing that the right of appeal is essential in any legal system.

Brussels and Ottawa have agreed to set up a temporary appellate process, which mirrors the WTO court, and would handle any bilateral disputes that arise during the impasse. Norway has joined that accord.

Leading WTO members also say they are open to wider reform.

"We have made clear that we are fully committed to tackling the root causes of the discontent around the existing system," the EU ambassador to the WTO Aguiar Machado told AFP.

Another Western diplomat who requested anonymity told AFP the European Union was willing to tackle concerns about the court's "excesses" but said the US must first agree to begin recruiting new judges -- a non-starter for Washington.

Some have suggested that a solution might have to wait until after next year's presidential election in the United States.

In the meantime, the WTO has been left diminished.

Since its founding in 1995, the organization has been tasked with promoting liberal international trade through a rules-based system backed by a dispute settlement process.

Trade promotion has faltered as the body has struggled to agree any major new deals and Alden of the Council on Foreign Relations predicted: "There will never be another big, liberalising trade round."

Certainly, court-backed rule enforcement appears certain to suffer a heavy blow next week.

"The WTO needs both its legs, litigation and negotiation" said Elvire Fabry of Jacques Delors Institute.

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IMF warns United States against protectionist trade policies

WASHINGTON -- The International Monetary Fund warned on Thursday that US President Donald Trump's new import tariffs threaten to undermine the global trading system, prompt retaliatory responses from other countries and damage the US economy.

The IMF, in a review of US economic policy, also said that while the country's economic growth was expected to be strong this year and next, recent tax and spending measures could cause greater risks from 2020 onwards.

Trump has riled key allies by pursuing protectionist trade policies, including the imposition of steel and aluminum tariffs on the European Union, Canada and Mexico.

"These measures...are likely to move the globe further away from an open, fair and rules-based trade system, with adverse effects for both the US economy and for trading partners," the IMF said in its report.

Trump stunned his counterparts by backing out of a joint communique agreed by Group of 7 leaders in Canada last weekend that mentioned the importance of free, fair and mutually beneficial trade.

German Chancellor Angela Merkel has said the EU would implement counter-measures against US tariffs, as did Canada and Mexico.

The IMF said a cycle of retaliation on trade would likely dampen national and international investment, interrupt global and regional supply chains and undermine a system that has supported US growth and job creation.

"The US and its trading partners should work...to reduce trade barriers and resolve trade and investment disagreements without resorting to tariff and non-tariff barriers," the IMF said.

It added that targeting specific levels on bilateral trade balances was counterproductive.

The Trump administration's trade dispute with China has also yet to be resolved. The United States is expected on Friday to unveil revisions to an initial tariff list targeting $50 billion of Chinese goods.

China urged Washington on Thursday to make a "wise decision" on trade, saying it was ready to respond in case Washington chose confrontation.

Elsewhere in its analysis, the Washington-based international lender stuck to its April forecast that the US economy will grow at a 2.9 percent pace in 2018 and 2.7 percent in 2019.

The US economy is being juiced by the administration's $1.5 trillion package of corporate and income tax cuts as well has higher government spending.

In line with the US Federal Reserve, the IMF expects growth to slow considerably in 2020. It forecasts the annual pace of growth falling back to 1.9 percent.

It noted that the US government's tax and spending policies during a time when the economy is already experiencing strong growth and low unemployment "increases the range and size of future risks" including higher public debt and greater likelihood of recession.

"The output gap could close more abruptly, through a policy-induced recession, with negative spillovers for the global economy," the IMF said.

The IMF also expressed concern about the growing market power of some of the largest US "superstar" corporations and said that there was a "clear role" for applying antitrust policies or increased regulation.

It did not name any firms, but IMF officials in the past have cited concerns with the market concentration wielded by large technology firms such as Alphabet Inc's Google, Amazon.com Inc Apple Inc and Facebook.

The IMF said the United States needed to combat price discrimination, supply restrictions or predatory pricing that could arise from increased market concentration, and should fairly tax "supernormal" profits resulting from such power.

"It may also sometimes be appropriate for the entity providing the service to be regulated," the IMF said.

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World economy at risk from trade, investment restrictions: opinion

LONDON - Trade and investment restrictions are proliferating around the world, driven by a combination of security concerns and protectionist pressures.

In each instance, policymakers can usually cite a justification of why trade and investment restrictions are necessary.

But taken together, a thickening web of restrictions on cross-border transactions is imposing a growing burden on business as well as complicating supply chains.

The United States and China have threatened to hit each other with tariffs covering up to $300 billion of bilateral trade in a dispute over intellectual property and technology transfers.

The United States has already imposed anti-dumping and countervailing duties on imports of steel, aluminium and solar panels from China, citing concerns about unfair trade.

China has responded with its own anti-dumping duties on imported sorghum from the United States and is investigating other products.

US officials have raised security concerns about telecommunications switch gear from Chinese firm Huawei and sought to exclude it from the United States market.

The United States has also suspended export licenses linked to Chinese telecoms company ZTE, while Britain has warned companies not to install any more ZTE equipment on the country’s network.

ZTE is accused of violating secondary sanctions on the supply of equipment to Iran and North Korea, but there are also broader concerns about its equipment being used for spying and cyber-warfare.

The US government has pledged to restrict Chinese investment and acquisitions in sensitive high-technology sectors.

The Committee on Foreign Investment in the United States (CFIUS) has already been applying heightened scrutiny to transactions involving Chinese firms.

In turn, China’s antitrust authorities have started to slow down merger approvals involving western companies operating in the Chinese market.

The United States has also hit Russian companies and individuals with multiple rounds of sanctions in a dispute over Ukraine.

In many cases, the United States has imposed secondary sanctions, which apply extraterritorially and aim to catch businesses for transactions that occur wholly outside the country.

The European Union has implemented its own sanctions on Russia, though it has generally refrained from extraterritorial application.

The United States and the EU are both readying further sanctions on Iran in response to its ballistic missile programme and regional activities.

The US, the EU, China and other nations are enforcing sanctions on North Korea (including secondary sanctions) for nuclear-related activities.

The United States also appears to be preparing sanctions on Venezuela.

Enthusiasm for sanctions is spreading, with Saudi Arabia and the United Arab Emirates imposing an economic boycott on Qatar (including a secondary boycott).

Sanctions represent a relatively low-cost way of inflicting economic pain on an adversary and have become the instrument of choice for foreign policymakers ("The art of sanctions: a view from the field", Nephew, 2018).

The result is a rapidly growing sanctions-industrial complex led by the US Treasury’s Office of Foreign Assets Control, security services and financial regulators in the United States and the European Union.

The sanctions-industrial complex also includes a growing army of specialist compliance firms and compliance officers embedded within businesses.

In addition to the sanctions-industrial complex, a growing number of regulators and trade authorities show an increasing propensity to favour greater restrictions.

The Office of the United States Trade Representative, the U.S. Department of Commerce, CFIUS, and the departments responsible for antitrust policy all show a rising preference for protection rather than openness.

HIGH-WATER MARK?

For most of the period since 1945 and especially since the end of the Soviet Union, the main thrust has been towards greater openness on trade and investment.

The dismantling of trade and investment barriers was embodied by eight rounds of successful trade negotiations under the General Agreement on Tariffs and Trade culminating in the ambitious Uruguay Round (1986-1994).

But the liberalization thrust has stalled in recent years with the failure to conclude any new multilateral trade agreement for almost a quarter of a century.

The high-water mark of globalization may have passed. Now trade and investment barriers are rising, rather than falling.

Liberalization, openness to trade and cross-border investment have few defenders within the US and European political class.

Left-wing politicians and labor unions blame trade liberalization for stagnating wages and incomes in the advanced economies.

Right-wing politicians and security hawks fear liberalization, investment and technology transfer is strengthening potential adversaries.

Sanctions experts, financial regulators, intelligence agencies and foreign policy specialists all increasingly employ trade and investment restrictions as their first-choice policy instrument.

Traditional mechanisms for resolving trade and investment disputes through the GATT/WTO are ill-equipped to handle the new round of restrictions citing national security and foreign policy concerns.

Complying with the ever-increasing number of restrictions is becoming increasingly difficult for businesses operating across national frontiers and is causing a growing number of distortions.

ECONOMIC IMPACT

Setting aside the question of whether restrictions are justified in individual cases, there are broader questions about the economic impact of the proliferating barriers:

(1) If increasing openness to trade and investment was a major driver of improved efficiency and living standards in the post-1945 period, does its retreat threaten to slow economic growth?

(2) Can the spreading web of trade and investment restrictions, often imposed at short notice, be consistent with a rules-based and predictable trading system that facilitates cross-border transactions?

(3) If the global trade and investment regime becomes less predictable, will the growth in international trade and investment slow or even go into reverse?

(4) Sanctions are generally treated as an extension of foreign policy, a traditional area reserved for executive authority, with minimal legislative and judicial oversight: does that raise concerns about due process?

Policymakers are rapidly embracing trade and investment restrictions for a range of reasons, ranging from trying to raise wages to protect strategic sectors and national security concerns.

But their enthusiasm for trade and investment barriers arguably threatens the foundations of the post-1945 international economic system and could end up doing more harm than good.

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China challenges US over steel, aluminum tariffs at WTO

GENEVA - Beijing has requested dispute consultations with the United States at the World Trade Organization over US tariffs slapped on imports of Chinese steel and aluminum products, according to a WTO document published Tuesday.

China's representative to the world trade body has requested "consultations" with Washington over its decision to impose "additional ad valorem rate of duty on imports of certain steel and aluminum products," according to the document, which stated that the complaint was filed on April 5.

US President Donald Trump decided in March to impose steep tariffs on steel and aluminum imports, primarily to target China.

China claims the duties of 25 percent and 10 percent on imports of its steel and aluminium products violate international trade rules.

The Chinese "request for consultations", which marks the first step in a full-blown legal challenge at the WTO's Dispute Settlement Body, is part of an escalating trade confrontation between Washington and Beijing. 

Early last week, Washington also published a list of $50 billion in Chinese goods to be hit by tariffs over what Washington says is widespread theft of intellectual property and technology.

China quickly launched a challenge against those proposed tariffs, also requesting that the WTO organize consultations. 

Beijing also retaliated by unveiling planned levies on $50 billion worth of major US exports including soybeans, cars and small aircraft. 

But Trump hit back again late Thursday, instructing trade officials to consider tariffs on an additional $100 billion in Chinese imports.

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China preparing list of retaliatory tariffs on US imports - Global Times

BEIJING - China will soon announce a list of retaliatory tariffs on United States exports to China to counter an expected announcement from the United States of proposed new tariffs on Chinese imports, the Global Times said Wednesday.

The Chinese list will target a large number of major U.S. imports to China, said the English-language editorial.

The widely-read state run Global Times is run by the ruling Communist Party's official People's Daily, although its stance does not necessarily equate with Chinese government policy.

Trade tensions between the two countries flared last week after US President Donald Trump imposed tariffs on steel and aluminium imports and targeted China by announcing plans for tariffs on up to $60 billion of Chinese goods.

Alarm over a possible trade war between the world's two largest economies has chilled financial markets as investors anticipated dire consequences should trade barriers go up due to Trump's bid to cut the US deficit with China.

Markets are now waiting for the US to publish a list of Chinese products that could be targeted with additional tariffs after a US inquiry found China guilty of intellectual property theft and unfair trade.

"Compared to China's list, the US list hurts itself more than China. The tougher the move, the stronger the impact on Washington," said the Global Times in its editorial.

"This will deal a heavy blow to Washington that aggressively wields the stick of trade war and will make the US pay a price for its radical trade policy toward China," the tabloid outlet said.

The Global Times said the United States was naive to think it could make China agree to unreasonable demands as China's economy is strong and stable, while it has "weathered bluster before from previous US administrations".

(Reporting by Elias Glenn; Editing by Michael Perry)

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Trudeau takes shot at Trump protectionism at Davos forum

DAVOS, Switzerland - Canadian Prime Minister Justin Trudeau criticized the protectionist policies of US President Donald Trump at the World Economic Forum in Davos on Tuesday while fervently defending the virtues of free trade.

In a speech alluding to Trump and his threat to pull the United States out of the North American Free Trade Agreement, Trudeau said his administration was "working very hard to make sure that our neighbor to the south recognizes how good NAFTA is, and that (NAFTA) has benefited not just our economy, but his economy and the world's economy."

Earlier Canada agreed at talks in Tokyo to join 10 other countries in resurrecting the Trans Pacific Partnership, now called the CPTPP.

This came on the heels of a free trade deal with Europe and amid difficult negotiations with the United States and Mexico to revamp the 1994 North American Free Trade Agreement.

"The agreement reached in Tokyo today is the right deal," Trudeau said, adding that the CPTPP deal marked "a great day for progressive trade around the world."

In addition to Canada, the CPTPP includes 10 countries: Australia, Brunei, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam.

Canada, which is the second-largest economy in the CPTPP, had walked away from a deal on the trade pact last November, holding out to maintain environmental and labor protections linked to freer markets.

A Canadian government official said "significant progress on the sticking points" had been made.

The agreement, said Trudeau, is now "more progressive and stronger for Canadian workers in the fields of intellectual property, culture and the auto industry".

At the same time, the prime minister raised concerns about a growing backlash against globalization.

"We're seeing a lot of trade skepticism around the world in general right now," he said.

"People are worried or become increasingly convinced that trade deals benefit the few, not the many, benefit a country's bottom line, benefit multinationals, but don't benefit ordinary workers."

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Britain's finance industry faces 'tipping point' over Brexit

LONDON - Britain will lose its status as Europe's top financial center unless it keeps borders open to specialist staff, improves infrastructure and expands links with emerging economies, TheCityUK said in a report published on Thursday.

The report from Britain's most powerful financial lobby group said continental Europe might eventually become the preferred destination for banks, insurers and asset managers as they relocate business there to retain access to the EU single market.

Although companies may begin by initially shifting a small number of jobs to Europe this may begin to accelerate when property leases expire, they carry out business reviews, or when the cost of capital becomes uneconomical.

"Shifts out of the UK may gradually erode the 'cluster effect' of the financial ecosystem, with the threat of a tipping point in the ecosystem being reached," the group said in a 83-page document outlining how the industry can thrive over the next decade.

Securing a favorable deal for financial services from the Brexit negotiations is one of the biggest challenges for the British government because it is its largest export sector and biggest source of corporate tax.

Britain's finance industry could lose up to 38 billion pounds ($49 billion) in revenue in a so-called "hard Brexit" that would restrict its access to the EU single market, according to some estimates.

The report said the government must ensure businesses can recruit people to fill skill gaps and must simplify the process of getting a visa.

Brexit has already made it harder to attract people to Britain and the government is introducing policies making immigration more restrictive and expensive, the report said.

It said the cost of hiring an employee on a five-year visa has risen by 250 percent to 7,000 pounds over the last year and the minimum salary a business may recruit staff for a visa has risen by almost half since 2015.

Aside from Brexit, the report also looks at broader issues that threaten the competitiveness of the City of London as financial services hub, including a need to invest in transport networks and technology.

It calls for government and financial services to work together closely to develop international trade policies and to improve the country's digital and physical infrastructure, including speeding up travel times between airports and different financial centers around Britain.

One financial services industry veteran who had independent access to the report said it lacked urgency and there was too little on the impact of Britain leaving the EU given that "Brexit is a catastrophe for the City."

Mark Hoban, a former financial services minister who chaired the report, said that Brexit was only one of several challenges facing financial services.

"The challenges facing financial services are much more than just about Brexit. It is about emerging financial centers and also, to a degree, about unmet needs in the UK as well," Hoban told Reuters.

"There is a very clear appetite to tackle these issues at various levels of government."

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Trump believes in 'reciprocal' free trade: Treasury chief

The United States, which is considering new protectionist policies, believes in "free and fair" trade, US Treasury Secretary Steven Mnuchin said Saturday.

"President Trump's agenda is to make sure that we have free and fair trade and I think, as you know, the United States is probably the most open trading market there is for both goods, services and investment," Mnuchin said.

But he said the United States expected to be treated as it treats others.

"The president believes in reciprocal trade deals and reciprocal free trade."

Mnuchin's comments came during a public conversation with Christine Lagarde, head of the International Monetary Fund, during the spring meetings of the IMF and World Bank, which are to wind down on Sunday.

With a nationalist economic agenda, the Trump administration has vowed to upend decades of prevailing trade policy by renegotiating or scrapping trade agreements, imposing tariffs and moving to bilateral trade agreements.

US pressure last month forced a Group of 20 finance ministers meeting in Germany to strike the routine commitment against protectionist policies from a closing statement.

The word "protectionism" also did not appear in the final statement of this week's meetings at the IMF.

"If our markets are open, there should be a reciprocal nature to other people's markets," Mnuchin said Saturday.

"What's not free and fair is if our market is open and other people either have high tariffs or have high import barriers."

dg/acb

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Asia stocks weaker, dollar slips as Fed continues to weigh

SINGAPORE - Asian stocks were slightly weaker early on Monday, following Wall Street's declines and the G20's decision to drop a pledge to avoid trade protectionism, while the Federal Reserve's seemingly dovish stance last week continued to drag the dollar lower.

MSCI's broadest index of Asia-Pacific shares outside Japan was fractionally lower. Japan is closed for a holiday.

On Friday, Wall Street was flat to negative, dragged lower by bank shares that fell along with Treasury yields.

Financial leaders from the world's biggest economies reiterated their warnings against competitive devaluations and disorderly foreign exchange markets at the meeting in the German town of Baden-Baden over the weekend.

But they failed to agree on a commitment to keep global trade free and open, highlighting a global shift towards protectionism.

"Essentially it's a result of the US protectionist stance, something (President Donald) Trump has been very clear on and the market is well aware of this," James Woods, global investment analyst at Rivkin Securities in Sydney, said.

"Importantly we saw other leaders such as (Japanese Prime Minister) Shinzo Abe and (German Chancellor) Angela Merkel come out publicly supporting free trade, and for now the protectionist stance remains constrained to the US It would be more concerning if this began spreading to other countries."

The dollar, however, didn't react to the statements from the meeting, hovering close to its near-three-week low touched on Friday. It traded 0.1 percent lower at 112.57 yen.

The dollar index, which tracks the greenback against a basket of six trade-weighted peers, inched lower to 100.26, having touched a 5 1/2-week low on Friday.

Markets are focused on a raft of speeches by Federal Reserve officials this week, including Chicago's Charles Evans on Tuesday and Friday, Chair Janet Yellen on Thursday and Dallas' Robert Kaplan and Minneapolis's Neel Kashkari on Friday and New York's William Dudley on Saturday.

The euro climbed 0.1 percent to $1.0748 after riding the relief over the Netherlands election defeat of anti-European Union candidate Geert Wilders to hit a near-six-week peak on Friday.

Attention now turns to the French election, with the first Presidential debate set to take place on Monday. Opinion polls show independent centrist Emmanuel Macron would lead far-right leader Marine Le Pen by a hair in first-round voting, before beating her in the run-off.

In commodities, oil prices continued their downward trend as doubts grew about the effectiveness of OPEC cuts in containing a supply glut as US inventories continue to climb.

US crude fell 0.6 percent to $48.50 a barrel.

The weaker dollar boosted gold, which added 0.2 percent to $1,230.50 an ounce in early trade.

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Markets welcome G20's foreign exchange stance, wary on trade split

LONDON - Financial leaders from the world's biggest economies found common ground on foreign exchange at a G20 meeting on Saturday but failed to agree on trade, highlighting a global shift towards protectionism and setting a cautious tone for financial markets this week.

The Group of 20 powers meeting in the German spa town of Baden-Baden reiterated their long-standing warnings against competitive devaluations and disorderly FX markets, allaying fears that the new US administration might have opened up a chink in the G20's united front on global currency policy.

For markets, no change to G20's stance on FX is welcome news. Having the world's financial and economic powers on the same page should help keep FX volatility low, a cornerstone for stable markets and rising asset prices more broadly.

But failure to agree on a commitment to keep global trade free and open will have negative consequences for financial markets, even if not dramatically so immediately.

"We may open on Monday with modest dollar weakness thanks to the failure to agree on trade, but it would have been a lot worse if there were major changes to the FX language on top of that," Tim Graf, managing director and head of macro strategy EMEA at State Street in London, said.

The dollar has slipped recently even though the Federal Reserve has raised US interest rates, because longer-term bond US yields have eased back. The dollar had its biggest weekly fall for two months last week.

Similarly, the upward momentum on Wall Street has fizzled out this month after a string of record highs, although European markets have continued to advance.

The pullback in longer-term yields despite a rise in shorter-term yields suggests investors think growth and inflation are not strong enough for the Fed to lift rates much further. This so-called "flattening" of the yield curve has weighed on stocks and the dollar.

An initial draft of the G20 communique earlier this month had removed almost all of the boilerplate language on FX from previous communiques. It had removed warnings against "excess volatility" and "disorderly" FX moves as well as a pledge to refrain from "competitive devaluations".

They were all reinstated.

G20 and G7 communiques have long stated that stable and strong growth is best fostered by stable and calm currency markets.

The level of implied volatility in the euro/dollar exchange rate over the next month fell last week to 6.075 percent , its lowest in two and a half years. One-month dollar/yen implied volatility hit its lowest in over a year.

According to economists at JP Morgan, one of the main reasons for the depressed volatility across financial markets currently is because volatility in global growth is now the lowest in at least half a century.

FREE TRADE

Yet one sentence from last year's G20 communique - the shortest and one of the most important - was omitted: "We will resist all forms of protectionism."

This points to a fundamental disagreement between the U.S. administration and the other 19 participants, particularly the Europeans, who flatly rejected any form of protectionism.

US Treasury secretary Steven Mnuchin said that the previous communique was not necessarily relevant to the current global economic climate from his point of view. He said he favored "free" trade but some agreements might need to be renegotiated.

Yet despite the isolationist and anti-globalization rhetoric from the US administration, the implementation of protectionist policies and reality of trade wars are not immediate concerns, analysts say.

"This G20 is not really a big deal for the market, partly because the language on FX was maintained," Kenneth Broux, head of corporate research, FX and rates at Societe Generale, said.

"The disagreement on trade and protectionism is new, but the meeting at a later date between US President Donald Trump and Chinese premier Li could be more pertinent to where trade negotiations are headed," Broux said.

Washington may have signed up to the language on FX, but it is widely believed that it wants a weaker exchange rate. It blames the persistent US trade deficit, manufacturing decline and lack of competitiveness on the dollar's strength.

In January a closely-watched measure of the dollar's trade-weighted value hit a 14-year high. President Trump and some of his key advisors have accused Germany, Japan and China - three of America's biggest trading partners - of exploiting weak exchange rates to their competitive advantage.

Some analysts warn that the US administration will soon bring exchange rates back to the top of its economic policy agenda.

"The U.S. administration's team is not yet in place, so its ​​foreign exchange policy is not yet settled. The signs don't look good ... and we need to be wary of discussions inside the US administration as well as remarks by its key people," Tsuyoshi Ueno, senior economist at NLI Research Institute, said.

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Trump victory shocks global firms reliant on open trade

HONG KONG/SHANGHAI - Donald Trump's victory in the U.S. election sent shockwaves through industries that rely on open trade, from airlines to cars and IT outsourcing, even though many executives remain unsure what his protectionist rhetoric will mean in practice.

Throughout his presidential campaign, Trump has vowed to revive the U.S. economy by slashing taxes, preventing companies from making products overseas, renegotiating trade accords and imposing tariffs on imports from countries like China.

"People are in shock. It seems commentators misread the mood of the country," said veteran U.S. aerospace consultant Jerrold Lundquist, managing director of The Lundquist Group.

In Asia, shares in airlines with significant exposure to global trade, such as cargo giant Korean Airlines, fell as much as 5 percent as Trump closed in on the White House. Air China's Hong Kong-listed shares tumbled to their lowest level since June, and automakers like Toyota, for whom the United States is a top market, fell 6.5 percent.

"This is part of a much broader problem that we've seen in the world, in which countries are turning inwards and reacting against globalization and open borders," said aerospace analyst Richard Aboulafia, vice president of Virginia-based Teal Group.

Investors at a major Airline Economics finance gathering in Hong Kong last week expressed alarm at a surge in unconventional politics from Britain to Washington and the Philippines - a trend that many expect will leave its mark regardless of how it translates into real policies.

That comes as an industry that depends entirely on the flow of goods and people faces doubts over its own economic cycle.

POPULIST POLITICIANS

"We have seen a large section of the population that has not benefited in the past decade and we are seeing support for populist politicians with simple answers," Brian Pearce, chief economist of the International Air Transport Association told Reuters ahead of the election.

"Unfortunately, a lot of those answers are for protectionist policy solutions and air transport flourishes with open borders, so that is quite a dangerous development."

International trips make up 64 percent of global air traffic, according to IATA.

Executives at U.S. auto companies said they were concerned about Trump’s stance on free trade, especially his tough talk on the North American Free Trade Agreement. They all have production sites in Mexico.

But industry executives and analysts said aviation had a history of riding out economic and political shocks. On average, plane makers insist, air traffic doubles every 15 years.

"If there are brakes on trade, there could be some impact on international travel. But you have seen more or less 5 percent annual growth in traffic for decades," Lundquist said.

And the defense industry could benefit, as a Trump administration spends more on the military and encourages even allies to shoulder more of the security cost. Defense stocks, including listed land mine manufacturer Ishikawa Seisaku, jumped.

REALITY BITES?

After a bitter election campaign, trade experts said it remained unclear how Trump's statements in favor of protectionist trade measures and tough immigration controls would translate into policy.

"The honest answer is that no one knows; even Trump himself doesn't know," said Bertrand Grabowski, a managing director at Germany's DVB Bank which specializes in financing trade.

"He campaigned not on ideas but on anger and frustration."

Tighter rules could impact Indian IT services firms supporting companies in the United States. Shares in companies like Infosys and Tata Consultancy Services were sharply down as Trump closed in on the White House.

But Narayana Murthy, co-founder of Infosys and a key figure in India's outsourcing industry, said realism would prevail.

"They may fine tune it here and there, but let’s remember that he is the president of 300 million U.S. people and I’m sure he’ll do what is in the best interest of America. And what is in the best interest of America is for its corporations to succeed, for its corporations to create more jobs," he said.

For now, acquisitions at least will cool off, especially Chinese purchases of U.S. companies, as a Trump presidency pushes up regulatory scrutiny.

"If he now requires a certain percentage of manufacturing parts to be made in America, it's going to be protectionist... and that increases the risk and cost of doing business," said Stephanie Yuen, an M&A lawyer in Singapore.

"He's not just building a Mexican wall, he builds an economic wall around America."

And for key sectors, competition will heat up. Europe's Airbus and U.S. rival Boeing in the $100 billion annual jet market could become even fiercer with more government lobbying support, adding stridency to efforts to compete for jobs.

Trump's victory may also raise questions over plans to sell over 200 Western airplanes to Iran under a deal to lift sanctions that the president-elect has severely criticized.

Airbus is seen close to finalizing a tranche of 17 jets, but needs U.S. approval to complete plans for another 80 or so because the jets are built with many U.S. parts.

Boeing has U.S. approval to finalize a deal for some 100 jets but Middle East sources say progress has been slow so far.

"It further reduces the prospect of the deals going ahead," Aboulafia said.


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