Trade War Week is Back

I’m watching the stock-market today as there’s a major event. Chinese markets have plunged more than 5% as US-China trade tensions escalate. The POTUS has threatened a seismic shift in the trade war with China, suggesting new tariffs on $325 billion worth of Chinese goods.

This means major pain on Wall Street. Donald Trump has 60 million Twitter followers.

  • The Chinese may back out of negotiations this week after Trump’s escalated tariff threat.
  • Donald Trump says 10 per cent China tariffs will rise to 25 per cent on Friday May 10th, 2019.
“This represents a shift from the optimistic statements from US officials over the last few weeks and suggests that the probability of a near-term agreement is at least slightly lower than it seemed to be recently”- Goldman Sachs (Bank)

Chinese President Xi Jinping’s top trade envoy, Liu He, returns to Washington this week (expected May 8th) for what could be a closing round of trade talks.

Many analysts believe Trump’s latest move increases his economic leverage but will not lead China to surrender on his terms. It’s the awkward truth but U.S. President Donald Trump may have to choose between supporting the U.S. stock markets and hampering the Chinese economy enough to make Beijing bend on the ongoing trade dispute.

“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Trump said in a tweet.

Threats, Tariffs and Trade Wars

Chinese markets, meanwhile, tanked more than 5% on Monday, May 6th, but that’s unlikely to be enough to shake Beijing’s resolve.

Chinese state media was muted on the latest Trump tweets. The most important near-term indicator to watch, according to Goldman, will be whether the large delegation of Chinese officials comes to Washington on May 8, as scheduled.

A tariff increase on the $200 billion figure would be a delayed implementation of a raise planned for earlier this year. They would have a moderate impact on China’s economy of about 0.2 to 0.3 percentage points, according to experts.

On the other hand, a 25% tariff on $325 billion would put duties on virtually all goods China exports to the U.S. Such a broad application of tariffs — and expected retaliatory duties from Beijing — could hit China’s headline gross domestic product by at least 0.3 or 0.4 percentage points, slowing growth to 6% or less. Time will tell what happens with the Trade War, but the stakes have been raised this week.