19 June 2023 – While the economic mood on the markets continues to brighten, criticism of the EU border tax CBAM is increasing. More and more developing countries, such as China, Indonesia, or India, are voicing concerns and opposition to CBAM. India is already thinking aloud about a countermeasure.
Sentiment on the markets is visibly improving
A more positive mood is increasingly taking hold on the international markets. The European aircraft manufacturer Airbus is pleased with its first major order before the start of the Paris Air Show. China wants more New Energy Vehicles in rural areas. The Bank of Japan continues to keep interest rates low. High flyers in South America and the German DAX stays firmly above 16,000 points.
Airbus in good mood
At the upcoming Paris Air Show, the world’s largest aircraft manufacturer, Airbus, is hoping for a strong upturn in business. The enthusiasm of the pre-pandemic era is coming back, according to the company’s chief executive. The head of sales has announced that the company has already received orders from customers for more than 60 jets.
New Energy Vehicles: Beijing takes initiative
Beijing recently announced an initiative to increase the market share of new energy vehicles (NEVs) in rural areas from the current 17% (half the share in urban areas). The initiative includes offline and online sales promotion by NEV manufacturers, charging infrastructure companies and auto financiers. It also includes supporting manufacturers and dealers in sales activities and promoting special financing packages through banks. This initiative is expected to benefit China’s automotive industry, providing income and employment effects to support the overall economic recovery. About 10% of China’s economic output comes from the automotive sector. The shares of Chinese car companies have already risen by around 6% in the past week, while the Chinese market has risen by 4%.
Bank of Japan loosens the reins
By keeping its key interest rate unchanged, the Bank of Japan has decided not to act against rising inflation. As part of its yield curve management strategy, it will continue to buy government bonds. Despite rising price pressures, the central bank believes the Japanese economy is recovering due to pandemic pent-up demand. By the middle of fiscal 2023, inflation rates are forecast to fall.
High flyers in South America
Latin American emerging market equities have strongly performed this year. They have outperformed other emerging markets. In euro terms, the MSCI Latin America Index has returned a substantial 18%, beating both the 6% EM average and its own five-year average of 8.4%.
German stock index DAX above 16,000 points
The German DAX index led the gains among its European peers touching above 16,000 points last week, boosted by a positive upgrade from analysts, while the focus of investors turned to the key central bank policy meetings scheduled for the week. The pan-European STOXX 600 index closed higher, with the DAX performing particularly well. Luxury stocks contributed to the positive sentiment. Central banks including the US Federal Reserve, the European Central Bank and the Bank of Japan were due to meet.
CBAM – Opposition to EU Carbon Border Tax grows stronger
Opposition to the European Carbon Border Adjustment Mechanism (CBAM), due to start in October 2023, is growing stronger. India sees its exports to the EU of more than US$ 8 billion threatened by the CO2 tax. Countries such as South Africa, Taiwan and Indonesia have already expressed their displeasure with CBAM and intend to appeal to the WTO if necessary, should the European Union not give in. In particular, non-EU countries see MSMEs (micro, small, and medium enterprises) as threatened by the European CBAM measure. And small and medium-sized European enterprises are also voicing their incomprehension and resistance to the ill-conceived market protection measure.
China is also very critical of CBAM
Already in March 2023, China demanded a justification for the CBAM measure from the EU and in early June 2023 reserved the right to take further steps against the carbon border tax.
Nothing but a market protection measure
Many developing countries see CBAM as nothing more than another market protection measure or tariff lobbied into the European Green Deal by European steel producers in particular. And this could lead to backlash that could cost the EU dearly, as it is not only dependent on imports (approx. 1.6 billion tonnes of goods imports in 2022 alone), but also on exports with a total value of more than 2.8 trillion US$ per year (2022). Other countries, such as India, are already thinking aloud about imposing a CO2 price on European exports based on historical emissions.
EU emissions trading has failed since 2005
EU emissions trading has shown in recent years that it is ineffective and does not lead to any willingness to adapt on the part of large CO2 emitters, such as EU steel producers. Now that the system has failed, the world outside Europe is supposed to pay for the correction of two lost decades. It is no wonder that the emerging Asian economic powers in particular are resisting.
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