G20 calls for stepped-up trade dialogue; no agreement on path forward

BUENOS AIRES (Reuters) – Global finance leaders called on Sunday for stepped-up dialogue to prevent trade and geopolitical tensions from hurting growth, but ended a two-day G20 meeting with little consensus on how to resolve multiple disputes over U.S. tariff actions.

European Commissioner for Economic and Financial Affairs Pierre Moscovici speaks during a news conference at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, July 22, 2018. REUTERS/Marcos Brindicci

The finance ministers and central bank governors from the world’s 20 largest economies warned that growth, while still strong, was becoming less synchronized and downside risks over the short- and medium-term had increased.

“These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies,” the G20 finance officials said in a communique.

“We … recognize the need to step up dialogue and actions to mitigate risks and enhance confidence,” the communique said.

This marked a strengthening of language compared to their previous statement issued in March, in which they simply “recognize the need for further dialogue.”

“The latest language suggests a great deal of urgency about resolving these issues,” Australia Treasurer Scott Morrison told Reuters in an interview, adding that the ministers had made it clear in the discussion that they were concerned about “tit-for-tat measures” and that open trade was the goal.

“The language previously had been a bit ambiguous about that, a bit sheepish,” Morrison added.

The weekend talks in Buenos Aires came at a time of escalating rhetoric in the trade conflict between the United States and China, the world’s largest economies, which have so far slapped tariffs on $34 billion worth of each other’s goods.

U.S. President Donald Trump raised the stakes on Friday with a threat to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agrees to major structural changes to its technology transfer, industrial subsidy and joint venture policies.

U.S. Treasury Secretary Steven Mnuchin told a news conference on Sunday that he had had no substantive discussions on trade with China’s finance minister, Liu Kun, at the G20 gathering, engaging mainly in “chit-chat.”

“Any time they want to sit down and negotiate meaningful changes, I and our team are available,” Mnuchin added.

President of the European Central Bank Mario Draghi shakes hands with Bank of Korea Governor Lee Ju-yeol alongside Turkey’s Treasury and Finance Minister Berat Albayrak before posing for the official photo at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, July 21, 2018. Picture taken July 21, 2018. REUTERS/Marcos Brindicci

The Chinese delegation did not speak to media at the G20 meeting.

G7 TRADE OVERTURES

Mnuchin focused instead on other trade relationships at the talks, including those with the European Union, Canada, Mexico and Japan.

He said G7 allies were taking seriously his calls to eliminate tariffs, non-tariff barriers and subsidies among the group, and the Trump administration would pursue such ideas in trade talks next week with European Commission President Jean-Claude Juncker in Washington.

Canadian Finance Minister Bill Morneau called the dropping of barriers a “great idea” and an “aspirational target,” but said it would be challenging to execute because of historical economic differences.

Before any trade talks with the EU could begin, French Finance Minister Bruno Le Maire insisted that Washington first would need to drop its tariffs on steel and aluminum and stand down on a threat to impose auto tariffs.

Slideshow (6 Images)

European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters that the meeting was not tense, but produced little movement from entrenched positions on trade.

“We were in mutual listening mode and I hope that this is the beginning of something,” Moscovici said. “But still the positions are not similar.”

Finance ministers for both Mexico and Canada said they saw optimism from Washington that an agreement to modernize the trilateral North American Free Trade Agreement (NAFTA) could be reached in coming months after talks stalled.

ALLIES ANGERED

Trump has angered allies by imposing import tariffs of 25 percent on steel and 10 percent on aluminum, sparking retaliatory tariffs from the EU and Canada on a range of U.S. products.

Trump, who frequently criticizes Europe’s 10 percent car tariffs, is also studying adding a 25 percent levy on auto imports, which would hit both Europe and Japan hard.

Mnuchin said he did not feel isolated at the G20, holding numerous bilateral meetings with officials, and arguing that Trump’s trade stance was not based on protectionism, but on trying to make trade fairer.

“We very much support the idea that trade is important to the global economy, but it’s got to be on fair and reciprocal terms,” he said.

Hubert Fuchs, European Council representative to the G20, said he welcomed Mnuchin’s candid approach, but said the United States “understands something different under fair and free trade.”

Reporting by Daniel Flynn, Luc Cohen, David Lawder, Eliana Raszewski and Scott Squires; Editing by Lisa Shumaker and Rosalba O’Brien

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G20 calls for greater dialogue on trade tensions

BUENOS AIRES (Reuters) – Finance ministers and central bankers from the world’s largest economies said on Sunday that heightened trade and geopolitical tensions risk derailing global growth, and called for greater dialogue, according to the final communique of a G20 meeting.

European Commissioner for Economic and Financial Affairs Pierre Moscovici speaks during a news conference at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, July 22, 2018. REUTERS/Marcos Brindicci

The weekend talks in Buenos Aires come at a time of escalating rhetoric in the trade conflict between the United States and China, the world’s largest economies, which have so far slapped tariffs on $34 billion worth of each other’s goods.

U.S. President Donald Trump raised the stakes on Friday with a threat to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agrees to major structural changes to its technology transfer, industrial subsidy and joint venture policies.

The communique noted that global economic growth was robust and unemployment was at a decade low. However, it warned that growth was becoming less synchronized among major economies and downside risks over the short- and medium-term had increased.

“These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies,” said the communique.

The ministers reaffirmed the conclusions from G20 leaders at their most recent summit in Hamburg last July, when they emphasized that trade was an engine of global growth and that multilateral trade agreements were important.

“We … recognize the need to step up dialogue and actions to mitigate risks and enhance confidence,” the communique said.

The language marked an incremental toughening from the communique issued at the previous ministerial meeting in March, which had only noted that the leaders “recognize the need for further dialogue.”

“The latest language suggests a great deal of urgency about resolving these issues,” Australia Treasurer Scott Morrison said in an interview, adding that the ministers had made it clear in the discussion that they were concerned about “tit-for-tat measures” and that open trade was the goal.

Slideshow (7 Images)

“The language previously had been a bit ambiguous about that, a bit sheepish.”

ALLIES ANGERED

Trump has angered European allies by imposing import tariffs of 25 percent on steel and 10 percent on aluminum, causing the European Union to retaliate with similar amounts of tariffs on Harley-Davidson Inc (HOG.N) motorcycles, bourbon whiskey and other products.

Trump, who frequently criticizes Europe’s 10 percent car tariffs, is also studying adding a 25 percent levy on automotive imports, which would hit both Europe and Japan hard.

“We were in mutual listening mode and I hope that this is the beginning of something,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters on Sunday, referring to the G20 negotiations. “But still the positions are not similar.”

U.S. Treasury Secretary Steve Mnuchin has sought to use the meeting to woo Europe and Japan with the offer of free-trade deals, as Washington tries to gain leverage with allies in its dispute with China.

European Council representative to the G20 Hubert Fuchs said the United States’ removal of tariffs was not a necessary precondition for trade talks to begin and he welcomed the candid approach adopted by Mnuchin at the meeting.

“Even the (Treasury secretary) of the United States says that he’s in favor of fair and free trade, but the problem is that the United States understands something different under fair and free trade,” he said.

Canadian Finance Minister Bill Morneau said Mnuchin had over the weekend expressed a goal for all G7 countries to “drop all tariffs, non-tariff barriers and subsidies,” which Morneau characterized as a “great idea” and an “aspirational target” but difficult to execute.

The communique emphasized that structural reforms were needed to enhance growth, and reaffirmed commitments from March’s ministerial meeting to refrain from competitive devaluations that could have adverse effects on global financial stability.

Reporting by Daniel Flynn; Additional reporting by Luc Cohen, David Lawder, Eliana Raszewski and Scott Squires; Editing by Lisa Shumaker and Rosalba O’Brien

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Wall Street braces for tariff fallout as S&P 500 companies report

SAN FRANCISCO (Reuters) – Tariffs are starting to bite big manufacturers and Wall Street could get another bout of caution and uncertainty from major industrial companies when a swath of reports comes in over the next week.

Traders work on the floor of the New York Stock Exchange (NYSE) in New York, U.S., July 11, 2018. REUTERS/Brendan McDermid

Investors are worried about the impact on earnings should the United States’ trade war with China and other major trading partners escalate. Deutsche Bank in June estimated that an escalation of the dispute to include $200 billion of imports would hit earnings growth by 1-1.5 percent.

“If today’s political rhetoric intensifies and translates into actual protectionist policies, it will be a negative for all businesses in the U.S. and abroad, including ours,” Hamid Moghadam, chief executive of supply chain management company Prologis, warned on a conference call on Tuesday.

Manufacturers across the country are concerned about Washington’s recent trade policies, with some saying that uncertainty related to tariffs was already hitting them, according to anecdotes collected by the U.S. Federal Reserve in its Beige Book, released on Wednesday.

That is starting to show up in early reports by companies. Earnings from Honeywell International (HON.N), General Electric (GE.N) and Stanley Black & Decker (SWK.N) show companies facing higher costs due to already enacted tariffs, and uncertainty about tariffs on as much as $500 billion in Chinese goods threatened by Trump.

GE said it expects tariffs on its imports from China to raise its costs by up to $400 million and Alcoa (AA.N) said the tariffs led to an extra $15 million in costs.

Second-quarter corporate earnings seasons kicks into gear starting on Monday, with results on tap from companies including Corning (GLW.N), Ford Motor (F.N), 3M Co (MMM.N) and Boeing (BA.N), which has fallen nearly 2 percent since the start of March.

The United States in March said it would impose tariffs on steel and aluminum, and on July 1, Washington and Beijing applied tariffs on $34 billion worth of each other’s goods. Trump has threatened additional tariffs, possibly targeting more than $500 billion worth of Chinese goods – roughly the total amount of U.S. imports from China last year.

Since March 1, S&P 500 industrials .SPLRCI have fallen nearly 3 percent, reflecting the sector’s dependence on international commerce. The S&P 1500 steel index .SPCOMSTEEL has lost 1 percent since March 1, as investors worry that a slowdown in global demand could offset U.S. steelmakers’ benefits from tariffs against their foreign competitors.

Many of the roughly 180 S&P 500 companies reporting their results next week are not directly exposed to China, but they may still have reasons for concern.

“There are companies that might not be significantly impacted by tariffs from a cost perspective, but from the uncertainty around it,” said Kurt Brunner, a portfolio manager at Swarthmore Group in Philadelphia, Pennsylvania. “They could see customers holding off on spending because they don’t know what is going to happen.”

Harley-Davidson (HOG.N), which said last month it would move some of its motorcycle production abroad as a result of the European Union’s retaliatory tariffs, reports its results on Tuesday.

Qualcomm, reporting on July 25, depends on China for two thirds of its revenue. The U.S. chipmaker is also facing a drawn-out wait for Chinese regulators to approve its $44 billion takeover of NXP Semiconductors (NXPI.O), a delay widely seen as connected to the trade conflict.

A strong U.S. economy and deep corporate tax cuts have fueled a 5 percent increase in the S&P 500 this year, even as Wall Street worries about the tariffs’ impact.

Super-charged by deep corporate tax cuts, S&P 500 earnings are expected by analysts to grow 22 percent in the June quarter and 23.1 percent in the September quarter, according to Thomson Reuters I/B/E/S. Estimates for the September quarter are likely to change as companies provide their outlooks over the next few weeks.

“The market is looking through Trump’s trade negotiations and governing style because of this strength. However, we are more cautious on the trade overhang and think headline risk, both to the upside and downside, will remain high,” EventShare Chief Investment Officer Ben Phillips wrote in report on Thursday.

Reporting by Noel Randewich, editing by Megan Davies

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G20 calls for greater dialogue on trade tensions: communique

BUENOS AIRES (Reuters) – Finance ministers and central bankers from the world’s largest economies said on Sunday that heightened trade and geopolitical tensions risk derailing global growth and called for greater dialogue, according to the final communique of a G20 meeting.

European Commissioner for Economic and Financial Affairs Pierre Moscovici speaks during a news conference at the G20 Meeting of Finance Ministers in Buenos Aires, Argentina, July 22, 2018. REUTERS/Marcos Brindicci

The weekend talks in Buenos Aires come amid an escalation in rhetoric in the trade conflict between the United States and China, the world’s largest economies, which have so far slapped tariffs on $34 billion worth of each other’s goods.

U.S. President Donald Trump raised the stakes on Friday with a threat to impose tariffs on all $500 billion of Chinese exports to the United States unless Beijing agrees to major structural changes to its technology transfer, industrial subsidy and joint venture policies.

The communique noted that global economic growth was robust and unemployment was at a decade low. However, it warned that growth was becoming less synchronized among major economies and downside risks over the short- and medium-term had increased.

“These include rising financial vulnerabilities, heightened trade and geopolitical tensions, global imbalances, inequality and structurally weak growth, particularly in some advanced economies,” said the communique, which was largely unchanged from an earlier draft published by Reuters.

The ministers reaffirmed the conclusions from G20 leaders at their most recent summit in Hamburg last July, when they emphasized that trade was an engine of global growth and that multilateral trade agreements are important.

“We…recognize the need to step up dialogue and actions to mitigate risks and enhance confidence,” the final communique said. “We are working to strengthen the contribution of trade to our economies.”

The language marked an incremental toughening from the communique issued at the previous ministerial meeting in March, which had only noted that the leaders “recognize the need for further dialogue.”

Slideshow (7 Images)

ALLIES ANGERED

Trump has angered European allies by imposing import tariffs of 25 percent on steel and 10 percent on aluminum, causing the European Union to retaliate with similar amounts of tariffs on Harley-Davidson Inc (HOG.N) motorcycles, bourbon whiskey and other products.

Trump, who frequently criticizes Europe’s 10 percent car tariffs, is also studying adding a 25 percent levy on automotive imports, which would hit both Europe and Japan hard.

“We were in mutual listening mode and I hope that this is the beginning of something,” European Commissioner for Economic and Financial Affairs Pierre Moscovici told reporters on Sunday, referring to the G20 negotiations. “But still the positions are not similar.”

U.S. Treasury Secretary Steve Mnuchin has sought to use the meeting to woo Europe and Japan with the offer of free-trade deals, as Washington tries to gain leverage with allies in its dispute with China.

However, French Finance Minister Bruno Le Maire rebuffed the overture on Saturday, saying that Washington must drop its tariffs before any talks could start.

European Council representative to the G20 Hubert Fuchs struck a more cautious tone on Sunday, saying the United States’ removal of tariffs was not a necessary precondition for trade talks to begin and he welcomed the candid approach adopted by Mnuchin at the meeting.

“Even the (Treasury secretary) of the United States says that he’s in favor of fair and free trade, but the problem is that the United States understands something different under fair and free trade,” he said.

Canadian Finance Minister Bill Morneau said Mnuchin had over the weekend expressed a goal for all G7 countries to “drop all tariffs, non-tariff barriers and subsidies,” which Morneau characterized as a “great idea” and an “aspirational target” but difficult to execute.

The communique emphasized that structural reforms were needed to enhance growth, and reaffirmed commitments from March’s ministerial meeting to refrain from competitive devaluations that could have adverse effects on global financial stability.

It noted that emerging market economies were now better prepared to adjust to external shocks but still faced challenges from market volatility and reversals of capital flows.

The U.S. dollar fell the most in three weeks on Friday against a basket of six major currencies .DXY after Trump complained again about the greenback’s strength and about Federal Reserve interest rate rises, halting a rally that had driven the dollar to its highest in a year.

Reporting by Daniel Flynn; Additional reporting by Luc Cohen, David Lawder, Eliana Raszewski and Scott Squires; Editing by Lisa Shumaker

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U.S. lawmakers cut anti-ZTE measure from defense bill

WASHINGTON (Reuters) – U.S. lawmakers cut measures from a defense bill that would have reinstated sanctions on China’s ZTE Corp, abandoning an attempt to punish the company for illegally shipping U.S. products to Iran and North Korea.

FILE PHOTO: A ZTE smart phone is pictured in this illustration taken April 17, 2018. REUTERS/Carlo Allegri/Illustration/File Photo

Lawmakers from both parties have been at odds with President Donald Trump over his decision last week to lift his earlier ban on U.S. companies selling to ZTE, allowing China’s second-largest telecommunications equipment maker to resume business.

An amendment backed by two Republicans and two Democrats would have reinstated the sanctions but was stripped out of the must-pass defense policy bill, lawmakers said on Friday.

The change was made as lawmakers sought to hammer out differences between the Senate and House versions of the National Defense Authorization Act, which authorizes military spending but is generally used as a vehicle for a broad range of policy matters.

The ZTE measure was co-sponsored by Republican senators Marco Rubio and Tom Cotton, Democrat Chris Van Hollen, and Chuck Schumer, the top Democrat in the Senate.

Schumer said in a statement that he opposed removing the provision.

“By stripping the Senate’s tough ZTE sanctions provision from the defense bill, President Trump – and the congressional Republicans who acted at his behest – have once again made President Xi and the Chinese government the big winners,” he said in a statement.

Rubio called the change “bad news” in a tweet, lamenting that it increased chances ZTE stays in business.

Van Hollen lashed out at Republican leaders for refusing to lend their backing.

“Despite bipartisan support to put American national security before jobs in China, the Republican leadership refused to take any real, substantive action on ZTE. Instead, they joined President Trump in bowing to Beijing. It’s weak and shameful,” he said in a statement.

ZTE could not immediately be reached for comment.

ZTE had made false statements about disciplining 35 employees involved with illegally shipping U.S.-origin goods to Iran and North Korea, Commerce Department officials said. That led to a ban ordered by the department in April that forced U.S. companies to stop selling U.S. components to ZTE for its smartphones and networking gear. Without these goods, it largely ceased major operations.

The Commerce Department removed the ban on ZTE in mid-July, shortly after the company deposited $400 million in a U.S. bank escrow account as part of a settlement reached last month. The settlement also included a $1 billion penalty that ZTE paid in June.

A U.S. investigation into ZTE was launched after Reuters reported in 2012 that the company had signed contracts to ship hardware and software worth millions of dollars to Iran from some of the best-known U.S. technology companies. (reut.rs/2GbpCmO)

Reporting by Diane Bartz; Editing by Jonathan Oatis and Rosalba O’Brien

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Over sorghum salad, U.S. farmers and Chinese buyers chew on trade

CHICAGO (Reuters) – Chinese importers of the livestock feed sorghum feasted on tabbouleh salad and chipotle tortillas made with the U.S. grain at a Texas barbecue this week, as farmers try to woo buyers in the middle of an escalating U.S.-China trade war.

FILE PHOTO: A field of sorghum (milo) grain is seen at a farm outside of Texhoma, Oklahoma, U.S., in this undated photo released to Reuters on April 3, 2018. Courtesy Jerod McDaniel/Handout/File Photo via REUTERS

Despite the overtures to the world’s top sorghum buyer, no deals were struck over the meal, held at the home of the head of the Texas Sorghum Producers. The normally brisk sorghum trade between the two countries has ground to a halt as tensions mount between Washington and Beijing.

Chinese buyers, who normally buy 90 percent of their sorghum imports from the United States, stopped purchasing due to concerns a tariff would be imposed and drive up the cost of shipments.

On July 6, that fear became reality when Beijing included sorghum in a list of U.S. exports to face levies in retaliation for U.S. tariffs on Chinese goods.

In rural Texas, the executive director of the producer group, Wayne Cleveland, hosted the Chinese delegation for a beef brisket barbecue at his home.

Also on the menu were tortillas made from sorghum – rather than wheat or corn – and duck, which is fed sorghum in China. In addition to its use as an animal feed, sorghum can form the base of gluten-free foods. In China it is used to make a fiery liquor called baijiu.

The atmosphere at the meal, part of a trip organized before Beijing implemented tariffs, was friendly as buyers enjoyed a view of the starry night, Cleveland said.

But there was little talk of the politics that has disrupted trade between the two sides, he said.

The loss of Chinese buying has pushed sorghum prices lower and hurt farmers in Texas. Sorghum is widely grown because it is a hardy crop that can withstand the hot climate.

“We need that market back,” Cleveland told Reuters.

Florentino Lopez, executive director of the United Sorghum Checkoff, an industry group, said Chinese buyers who attended the dinner were concerned about the longer-term impact of the trade war. They wanted to know if U.S. farmers may cut back on sorghum plantings, which could tighten supplies available for sale next year even if Washington and Beijing resolve their differences.

“They are looking forward and being prepared for when they can actually make some purchases,” Lopez said.

Sorghum was one of the first casualties of the U.S.-China trade war. China launched an anti-dumping probe into sorghum in February in response to U.S. tariffs on solar panels and washing machines.

Chinese buyers have bought no significant volumes since then, according to U.S. Department of Agriculture data. In 2017, they bought about $839 million of U.S. sorghum, most of which was shipped in the months after the autumn harvest.

Both sides were frustrated by the impasse.

“I want to sell and they want to buy,” one trader said.

A Chinese sorghum buyer not participating in the trip told Reuters that buying would restart if U.S. prices fall lower.

“We will definitely buy when prices are at a reasonable level, even with the 25 percent tariff,” the buyer said.

HIGH AND DRY

Colin Chopelas, who farms near the Texas port of Corpus Christi, finished harvesting his sorghum fields three weeks ago. His crop is in a grain elevator awaiting buyers.

Demand has taken a further hit because Mexico, another big market for U.S. sorghum, has been canceling sales, USDA data showed on Thursday. An abundance of other available feeds, especially U.S. corn, was also limiting interest in sorghum.

“Mexico is always an option, but they are not going to pay what we would typically get going to China,” Chopelas said. That has pushed down prices.

An elevator operated by global grains merchant Archer Daniels Midland at Corpus Christi was bidding roughly $3.68 per bushel to buy sorghum. Earlier this year, sorghum there fetched as much as $4.80 per bushel, according to Reuters data.

The Chinese delegation, which Sorghum Checkoff said represents importers that account for more than half of China’s total sorghum imports from the United States, will travel to Kansas next week. ADM and Gavilon, a unit of Marubeni Corp, said they are participating in the trade mission.

Cargill Inc will also attend, participants and other sorghum traders said. Cargill had no comment.

ADM said in May it would take a $30 million hit to its second-quarter trading profit related to disrupted sorghum shipments.

At a tour of an Attebury Grain facility in Saginaw, Texas, the Chinese importers said they still want to buy U.S. sorghum but are worried about the tariff making deals too expensive, said George Gurganus, a grain buyer for Attebury Grain who met the group.

With China’s demand down, Gurganus is searching for alternative markets. “We’re looking at every other outlet we can find,” he said.

Additional reporting by Hallie Gu in Beijing; Editing by Caroline Stauffer and Leslie Adler

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Fiat Chrysler’s Marchionne being treated in Zurich’s University Hospital

ZURICH (Reuters) – Fiat Chrysler Chief Executive Sergio Marchionne was being treated in a Zurich hospital on Sunday with a serious illness after suffering complications following shoulder surgery.

FILE PHOTO: Fiat Chrysler Automobiles CEO Sergio Marchionne jokes with a tie next to chairman John Elkann during media conference in Balocco, northern Italy, June 1, 2018. REUTERS/Massimo Pinca/File Photo

A Fiat Chrysler spokesman confirmed Marchionne was in Zurich’s University Hospital, one of the country’s largest medical centers.

The spokesman did not give the 66-year-old Italian-Canadian executive’s condition or say in which of the hospital’s 43 divisions he was being treated.

Fiat Chrysler named its Jeep division boss Mike Manley on Saturday to take over immediately from Marchionne, who had been due to step down next April.

SGS, the Swiss logistics services company, also announced on Sunday that it had named a new acting chairman to take over for Marchionne, since his illness prevented him from fulfilling the role’s obligations.

SGS said in a statement it was “deeply saddened” by the news, as did Lausanne, Switzerland-based Philip Morris International, where Marchionne is also on the board.

Marchionne was credited with rescuing Fiat and Chrysler from bankruptcy after taking the Italian carmaker’s wheel in 2004. On Saturday he was also replaced as chairman and CEO of Ferrari and chairman of tractor maker CNH Industrial – both spun off from FCA in recent years.

In additional management changes linked to Marchionne’s illness, Ferrari named FCA Chairman and Agnelli family scion John Elkann as new chairman, while board member Louis Camilleri becomes chief executive.

Reporting by John Miller in Zurich; Editing by Adrian Croft

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Japan Inc to chase casino stakes as key law passes: industry insiders

TOKYO (Reuters) – Japanese firms are likely to pursue stakes in the country’s first casino resorts, after parliament on Friday enacted a law smoothing the way for large-scale gambling – a business expected to generate billions of dollars in revenue.

Japan legalized casinos in 2016 but a further law was needed to lay out specific regulations before these resorts – complexes hosting casinos, retail and conference space – could be set up.

The new law, which allows three licenses to be given out initially, calls for a 30 percent tax on gambling revenue and caps casino space at 3 percent of total resort size, provides the clarity that was missing.

It will embolden local companies that have been wary of a sector that the Japanese public associates with addiction and crime, setting the stage for a race for stakes, casino executives and lobbyists told Reuters.

The prize for Japan Inc is clear: these resorts will earn up to $25 billion in revenue, analysts say, representing a rare chance of growth for domestic firms that have been bruised by decades of deflation and weak demand.

Various Japanese firms spanning sectors from finance, real state to construction and tourism will target equity stakes in consortia with casino operators, the sources added.

While no Japanese company has announced any plans yet, firms regularly cited by lobbyists as seeking participation include Obayashi Corp, Mitsubishi Estate Co and Sumitomo Mitsui Financial Group Inc (SMFG).

A spokesman for Obayashi, which in May set up a team to explore casino resorts, said the firm had not decided whether to seek equity in any project. Mitsubishi Estate said the chances of it taking a stake were low but involvement in related real estate projects was possible.

A spokesman for SMFG’s banking unit said the firm was not considering investing in a resort, but was speaking to foreign operators as it researched the sector.

International casino operators looking to enter Japan include Las Vegas Sands Corp, MGM Resorts International and Macau’s Galaxy Entertainment Group.

“There is going to be greater focus, greater attention, more budget and more human capital put on this,” said George Tanasijevich, managing director of global development at Las Vegas Sands. “You’ll see more activity, to the point that people are going to start to formulate their true options, and what their shareholders would see as favorable.”

PUBLIC OPPOSITION

But even as Prime Minister Shinzo Abe personally champions the creation of a casino industry, Japanese firms have stayed away, reluctant to be the first mover in a controversial sector.

A government survey last year showed some 3.6 percent of Japanese, or 3.2 million people, had been hooked on gambling – often “pachinko” pinball – at some point in their lives.

A Jiji news agency poll shows over six in ten Japanese are opposed to the latest casino law.

“Large firms don’t want to put their neck out before others,” said Lance Miller, country managing partner at law firm DLA Piper in Tokyo.

Still, some companies have already set out their stall.

Slot machine maker Sega Sammy Holdings Inc, which controls 45 percent of a South Korean resort, has said it will seek a majority stake in any Japanese project.

Of potential locations, Osaka is seen as a frontrunner.

The city of 2.7 million boasting strong local political support for casinos is expected to become the first to request proposals for plans in late 2019.

“Osaka is the only location where everything is clear: it will move forward immediately,” said Seth Sulkin, chairman of the integrated resorts task force run by the American Chamber of Commerce in Japan.

FILE PHOTO: A logo of Japan casino school is seen as a dealer puts cards on a mock black jack casino table during a photo opportunity at an international tourism promotion symposium in Tokyo, Japan September 28, 2013. REUTERS/Yuya Shino/File Photo

Reporting by Thomas Wilson; Editing by Himani Sarkar

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Amazon, Toyota, Alcoa and others working to counter Trump’s tariff plans

SAN FRANCISCO/WASHINGTON (Reuters) – Big companies in the United States from Amazon.com Inc (AMZN.O) to Toyota Motor Corp (7203.T) and Alcoa Corp (AA.N) are working to counter the effect of the Trump administration’s trade policies and to head off new tariffs.

Companies are attempting to avoid any confrontation with U.S. President Donald Trump but want to exert as much influence as they can to dissuade him from tearing up trade agreements or introducing tariffs on a wide swath of imports.

Amazon, the world’s largest online retailer and cloud-computing company, which could be hurt by tariffs on items sold through its website and components for its data centers, is discussing industry-wide advertising campaigns and more extensive government lobbying, a person familiar with the matter told Reuters on condition of anonymity.

Amazon declined to comment.

Toyota Motor North America, a subsidiary of Japan’s Toyota, which could suffer if Trump follows through on a plan to impose tariffs on imported vehicles and parts, flew workers to Washington for a rally this week in front of the U.S. Capitol while the unit’s chief has met key members of Congress in recent weeks to discuss the potential impact of tariffs.

Executives from General Motors Co (GM.N), which could be hurt if Trump pulls the United States out of the North American Free Trade Agreement or if he imposes auto tariffs, have also held meetings with the administration and Congress over the last year to raise its concerns about trade issues. Tariffs would lead to “a reduced presence at home and abroad,” the company said in June.

The largest U.S. automaker is set to hire Trump’s former deputy director of the National Economic Council and adviser on international economic affairs. Everett Eissenstat, who left the White House earlier this month, will head GM’s public policy efforts, according to sources familiar with the matter. GM told Reuters it had an opening but declined to confirm the hire. Eissenstat could not be reached for comment.

Those already suffering from the Trump administration’s tariffs on steel and aluminum imports, which went into effect in June, are also pushing for relief in private.

Slideshow (3 Images)

The chief executive of Alcoa told investors on a conference call this week that the aluminum producer was in “active discussions” with the Trump administration, the Commerce Department and members of Congress about the elimination of tariffs or getting an exception for Canadian aluminum.

Alcoa said this week it will incur as much as $14 million a month in extra expenses, mainly from tariffs levied on aluminum imported from Canada, its biggest supplier.

CLOUD PAIN

In addition to the steel and aluminum tariffs already imposed, the Trump administration has threatened 10 percent tariffs on $200 billion of Chinese goods which would affect thousands of imported products from furniture to network routers.

Seattle-based Amazon is concerned such tariffs would hit shoppers during the crucial holiday shopping season, the person familiar with the matter said.

Amazon has identified a wide range of items, some of them high-value, the tariffs would hit and is assessing the potential impact on its business, the person said.

High among its concerns is an increase in import costs for components used in data centers or other items that would make its cloud computing division less competitive, two people familiar with the matter said. Amazon Web Services is the company’s most profitable unit.

Amazon is not alone in the technology industry with its worries. “It’s hard to think of many of our companies that don’t have some risk and exposure as a result of the tariff,” said Dean Garfield, chief executive of the Information Technology Industry Council, which counts Amazon rivals Microsoft Corp (MSFT.O), Alphabet Inc’s (GOOGL.O) Google and others as members.

Lobbying administration officials and members of Congress can be costly with no guarantee of victory, but some have succeeded.

Apple Inc (AAPL.O) won guarantees from the Trump administration that its lucrative iPhones would ship from China without being subject to tariffs, the New York Times reported last month.

Reporting by Jeffrey Dastin and David Shepardson; Additional reporting by Nandita Bose; Editing by Chris Sanders and Bill Rigby

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VW to temporarily park cars due to new emissions testing bottlenecks

BERLIN (Reuters) – Volkswagen is renting parking spaces from August to stockpile vehicles which cannot be sold due to bottlenecks caused by new engine emissions tests, a spokeswoman said on Sunday.

A worker fixes the Volkswagen logo outside the new car plant in Kigali, Rwanda June 27, 2018. REUTERS/Clement Uwiringiyimana – RC11C0607830

Carmakers are rushing to get models through a new Worldwide Harmonised Light Vehicle Test Procedure (WLTP) tests on a limited number of exhaust emission test benches as they won’t be able to sell new vehicles after Sept. 1

Volkswagen (VW) acknowledged in June a potential delay in up to 250,000 vehicles worldwide triggered by the stricter anti-pollution test procedures and plans to throttle back production of some models at various plants due to testing bottlenecks.

VW has rented some multi-storey car parks and open parking lots to park the vehicles it cannot yet deliver, the spokeswoman said.

The timing of when it will have to stockpile inventory depends on the plant where vehicles are built, she added.

One option is to use Berlin’s long-delayed international airport, Berlin-Brandenburg, although a decision has not yet been made, she said.

VW said in June it would shut its main Wolfsburg factory for 1-2 days a week between August and the end of September. It will also close its Zwickau factory on some days and components manufacturing will face resulting delays.

The group’s plant in Emden will be closed on some days in the third and fourth quarter due to lackluster demand for mid-sized cars.

German newswire DPA first reported on Sunday that VW would temporarily park vehicles from August.

Reporting by Till Weber; writing by Caroline Copley; editing by Jason Neely

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