April (and Q2) got off to a less than inspiring start on Monday as an early Asian rally shriveled up and died on the vine as the market tries to figure out how to digest myriad uncertainties around the burgeoning trade spat between Washington and Beijing.
China officially retaliated against U.S. steel and aluminum tariffs on Monday as previously announced moves against 128 imported goods went into effect. The Commerce Ministry claims Washington did not respond to a a trade compensation consultation submitted on March 26 and so, “in view of the lack of agreement between the two sides, on March 29, China informed the WTO of the suspension of the concession list and decided to impose tariffs on certain products imported from the United States in order to balance the benefits of the US 232 measures against the Chinese,” a Ministry statement reads. Here’s the full statement from the Customs Tariff Commission:
With the approval of the State Council, the Customs Tariff Commission of the State Council decided to suspend duties on tariff reduction for certain imported goods originating in the United States and implemented it on April 2, 2018.
On March 8, 2018, US President Trump signed an announcement confirming that imported steel and aluminum products threatened US national security and decided to impose tariffs (ie 232 measures) on imported steel and aluminum products from March 23. The 232 measures violated the relevant rules of the World Trade Organization and did not comply with the “security exceptions” provision, which actually constituted safeguard measures. This measure was implemented on March 23 and caused serious damage to our interests. In order to safeguard China’s interests and balance the losses caused by the U.S. 232 measures to our country’s interests, I have suspended duties on seven categories of 128 imported goods originating in the United States from duty duties on April 2, 2018, based on the current applicable tariff rates. Tariffs have been imposed on the importation of tariffs on 120 items of imported goods such as fruits and products, and a tariff rate of 25% on 8 items such as pork and products. The current policy of tax-free and tax-exemption remains unchanged.
China’s advocacy and support for the multilateral trading system and the suspension of tariff concessions to the United States are legitimate measures taken by China to use the rules of the World Trade Organization and safeguard its interests.
So that’s that, and I’m not sure anyone is feeling particularly good about it.
For their part, Japanese equities gave up early gains to trade 0.3% lower after a late day swoon. The Tankan survey was mixed so I’m not sure there was much to be had there in terms of giving anyone conviction one way or another.
It was a similar story for mainland shares in China. Speaking of China, Bloomberg’s Mark Cranfield notes that it’s going to be a while before Asian markets start revolving around the People’s Republic of Xi.
“China’s equity and bond markets will eventually become the axis around which Asia spins but, almost a decade after the global financial crisis, what happens in the U.S. still dominates global investor psychology,” Cranfield wrote overnight, noting that “Wall Street’s February meltdown had its roots in volatility products that Asia is far less exposed to, but that didn’t protect the region from a similar degree of pain” and Asia was clearly vulnerable to the recent tech selloff despite the fact that the regulatory scrutiny that was partially responsible is first and foremost a U.S. phenomenon.
U.S. equity futs are lower for now, but we’ll see how it plays out. Hopefully Trump will refrain from tweeting anything that puts everyone in a sour mood.