Trump's Trade Tactics Rattle Markets, China Ponders Canceling Talks

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On Sunday, Trump announced a tariff increase on Chinese goods. Equity futures opened solidly in the red.

President Trump accused China of backsliding in talks and ramped up tariffs on Chinese imports. The stock maket did not take kindly to Trump's ploy but bond yields tumbled across the board.

S&P 500

Dow Cash Market

The Wall Street Journal reports Trump Tweets Corner China’s Xi—Get a Trade Deal Without Looking Weak.

President Trump’s new tariff threat is putting Chinese leader Xi Jinping in a bind about how to keep the negotiations on track and shore up China’s economy while not being seen as caving to Washington.

Mr. Trump’s weekend tweets surprised Chinese negotiators, led by Vice Premier Liu He, who were aiming to wrap up the trade talks with their U.S. counterparts during a trip to Washington scheduled for this week. Following Mr. Trump’s renewed warning of raising tariffs, China’s leadership on Monday was considering canceling the trip, said a person briefed on the matter. That hews to a line Beijing has maintained throughout the year-old trade battle that it wouldn’t negotiate under threat.

In recent rounds of talks, negotiators have sparred over how to enforce a trade deal. China wants the current tariffs removed or at least rolled back once a deal is reached while the U.S. wants to leave tariffs in place and remove them as China complies with the terms of an agreement. Another sticking point is that the U.S. wants to retain the ability to reimpose tariffs if China backtracks while prohibiting Beijing from retaliating.

“There’s still hope that China can stop the additional tariffs,” said Tu Xinquan, dean of China Institute for WTO Studies at University of International Business and Economics in Beijing. He said Mr. Trump has before threatened to take action and then delayed doing so.

If the U.S. goes ahead and raises tariffs, Beijing is likely to retaliate in kind, Mr. Tu said: “To not reciprocate would look too weak.”

Two Tweets, Two Lies

Yesterday, I commented Trump to Hike Tariff Rate on $200 Billion in Chinese Goods: Two Tweets Two Lies

Lies of the Day

  • Tariff payments are responsible for 0% of "great economic results". Rather, Trump's tariffs, or if you prefer, retaliatory tariffs devastated US farmers.
  • Costs are not borne by China. Rather, costs are bore by US consumers and businesses that import from China, Mexico, etc.

Yes, the trade talks are going slow.

Implied Third Lie, Just Not Today

Trump's comment that trade talks are going slowly is an admission that trade talks were not really going as well as previously claimed.

The changing timeline and today's tariff increases are further proof.

What to Make of Today's Tweets

Yesterday's key comment: It's difficult to know precisely what to make of today's Tweets. We will not know until we see how China reacts.

Who Wants a Deal More?

The WSJ article implied China wanted a new deal more than Trump. I disagree. If China did, we would have a deal already.

It's difficult to say who is backsliding more. Trump is feeling cocky because the sock market hit a new high.

The key sticking point is Trump wants to keep tariffs but expects China to end theirs. China says no. Trump calls that backsliding, an absurd position.

Matter of Trust

The US may be worried about China honoring a deal, and rightfully so. But look at things from China's standpoint.

Who in their right mind can possibly expect Trump to honor any trade deal?

Mike "Mish" Shedlock

Comments (16)
No. 1-8
TheGreatMiginty
TheGreatMiginty

I'm an importer of many Asian countries including China. When I first visited China in 1993 there were no cars and rudimentary roads. The average worker pay was $40. month. Now when I visit they are far passed USA infrastructure and cities. This was funded by Americans giving over jobs and buying low cost Chinese products. China also gets lowest shipping and mail costs in the world and uneven competition.Trump standing up for fair global treatment long overdue. One question is why there has been almost no improvement in America in 50 years??

Casual_Observer
Casual_Observer

I will say it here because it is true. China is effectively a colony of the USA. They would have had anarchy if not for manufacturing being offshored by the US and others. So let them try to do whatever. The US consumer still drives 70% of of global GDP. Kill the US consumption and the global economy including China dies. This may not go on forever but given the Chinese buy debt and fund our consumption and their production they are at a subservient position in the supply chain. Demand is still driving the economy last I checked.

lol
lol

On again,off again,deal or no deal,maybe,maybe not,dude can't make up his GD mind!Tariff's be off again in...one...two......then on again in one....two.then off again in...one...two mofo joke!

TheGreatMiginty
TheGreatMiginty

Housing Bubble China grows

Carl_R
Carl_R

China is a demographic time bomb. Their population was exploding, so they instituted a one child policy, and there was a preference for males. As a result, their population has three booms, and a bust. The first, small boom, matches our baby boom. They are 60-64. Then come two huge booms, the first currently 40-54, the second one currently 25-34. The number of females at any given age from 0-19, however, is only half of the number each age from 25-29.

What does that imply?

  1. All those booms are in their most productive years (25-64), so as a country they should be seeing huge productivity growth.
  2. The two groups that typically must be supported, over 65, and under 20, are both very small, so they should be very prosperous, and their consumer economy should be booming, including homes, etc.
  3. In about 20 years, the first two booms will have passed the retirement age, and there will be more and more elderly, and less and less working people to support them.
  4. Beyond 2040 their population is projected to start declining rapidly. What will that do to home and real estate prices?

I'm not projecting a disaster for China's economy, but neither am I projecting smooth sailing. If they are not careful, they very well may have a disaster. Their one child policy was radical, and will have some dramatic consequences down the road, not all of which can be foreseen. Yes, it is not surprising that China is in a period of unparalleled prosperity, with 3 baby booms all in their earning years, and few elderly, and few children. What will the costs be later?

mudpuppet
mudpuppet

Markets rattled?

Casual_Observer
Casual_Observer

Another gap down today. Where are the Dow 30k people ?