In taking aim at the “Made in China 2025” initiative, Trump is attempting to undercut Beijing’s effort to catapult the country into a leadership role in industries like IT, robotics, aerospace, rail, new-energy vehicles, bio-medical and (somewhat separately), AI.
Clearly, any effort to stymie that from Trump would invite retaliatory measures, raising the trade stakes even further, and putting the focus even more squarely on tech, etc. etc.
That’s what we said on Tuesday evening after the USTR published the list of products subject to the tariffs announced last month in connection with the Trump administration’s 301 probe.
Well if you were hoping this situation wouldn’t deteriorate further, you’re going to be disappointed because China has decided to hit the U.S. with $50 billion in tit-for-tat tariffs and unlike the measly $3 billion in duties Beijing slapped on imports in response to the steel and aluminum levies (those went into effect on Monday), this time they aren’t playing around. China is now going to apply 25% reciprocal tariffs on 106 U.S. products and that includes soybean, cars, planes and chemicals.
“China’s response was tougher than what the market was expecting; investors didn’t foresee the country levying additional tariffs on sensitive and important products such as soybeans and airplanes,” Scotiabank’s Gao Qi said.
This looks “more draconian than many economists had anticipated” as it hits “mainstay U.S. exports”,” Bloomberg chimed in. It’s also “hitting stocks” – hard. Futures plunged when the news hit, and it’s only getting worse:
The yen rallied:
European stocks are getting crushed:
Soybean prices plunged:
Brent is sharply lower:
And the question now is of course whether China is going to roll out the really big guns next.
“China’s response has been quite tough, which is triggering concern that policy makers may use yuan weakness as a tool in the Sino-U.S. trade war,” Commerzbank’ Zhou Hao said, weighing in from Singapore. And look, they’ve got room to do that – remember, the yuan has strengthened against the dollar for five consecutive quarters.
The offshore yuan fell the most since March 22 on the news:
If that doesn’t “work” (whatever “work” means in this context), China could start dumping Treasurys, no matter how Plaxico-ish that might be.
So let’s see how the U.S. (read: Trump) responds to this escalation. For now, China is taking the Tony Montana approach…