China is not amused.
That assessment applies pretty much across the board to whatever it is that the U.S. is doing on trade on any given day, but it’s especially true on Wednesday, after reports indicated that Trump has instructed Robert Lighthizer to up the ante by raising the tariff rate to 25% on prospective duties aimed at some $200 billion in Chinese goods. This decision isn’t final and is subject to public review, but Trump has shown time and again that he doesn’t care much for public opinion when it comes to the protectionist push.
When paired with news that Steve Mnuchin is aiming to restart negotiations with Chinese Vice Premier Liu He, you come away with the impression that the Trump administration is attempting to force China back to the table under threat of even higher tariffs on the next round of measures following the expected imposition of duties on another $16 billion of Chinese imports.
On Wednesday, Beijing accused Washington of trying to “blackmail and pressure” China ahead of further talks. Here’s what the Ministry of Foreign Affairs had to say at its regular press conference:
If the U.S. takes measures to further escalate the situation, we will surely take countermeasures to uphold our legitimate rights and interests.
Again, this is the type of thing everyone warned Trump about months ago and continues to warn him about on a daily basis to no avail. The President seems to be cognizant of the extent to which Beijing has offset the impact not only of the first tranche of tariffs (duties on $34 billion in goods already in place plus tariffs on $16 billion more imminent) but also of the planned 10% levy on $200 billion in additional Chinese goods. Indeed that may well be part of the rationale for the move to raise the tariff to 25% from 10% in the next round. But he still seems somewhat incredulous at Beijing’s readiness and capacity to fight back.
On Wednesday, Chinese stocks tumbled despite promises from the Politburo to support the economy amid the trade friction. “Overall, the Politburo meeting reiterated the easing bias, similar to the recent State Council meeting, but the tone was slightly less dovish as it also highlighted the commitment for ‘deleveraging’ but noted that the ‘magnitude and pace (of deleveraging)’ should be appropriate and we noted a strong determination to control property prices from the meeting’s statement”, Goldman wrote in a note late Tuesday evening. Half of the 10 worst performers in Hong Kong on Wednesday were property developers.
On the mainland, the Shanghai Composite fell more than 1.8% in its worst day since July 2. The benchmark has now fallen in five of the last six sessions after rallying more than 1% for three consecutive days during what some thought might be a turning point. The index fell into a bear market earlier this year.
According to some observers, the vaunted “national team” was spotted in onshore markets in and around the fiscal stimulus measures announced last week, but has been largely MIA since. The CSI 300 tumbled 2% on Wednesday and has now erased the gains logged following news of the central government’s shift to a more “proactive” fiscal stance.
Meanwhile, the yuan neared its lowest levels on record against the trade-weighted basket. It was the fourth consecutive day of declines.
Apparently, we’re supposed to believe that Steve Mnuchin will be able to pull this situation back from the brink and the amusing thing about that isn’t actually the idea that Steve Mnuchin is helping to decide the fate of global trade and commerce, but that somehow, America has managed to get itself into a position where Steve Mnuchin is easily the most competent person in the room.