Chinese shares tumbled on Monday after a weekend that saw Donald Trump double and triple down on his administration’s aggressive trade rhetoric. The President cited weakness in China’s equity markets as a sign the U.S. is prevailing in what has now devolved into a weekly mudslinging contest between Washington and Beijing.
(Trump, at Olentangy Orange High School in Lewis Center, Ohio, August 4, 2018)
“China market has dropped 27% in last 4 months, and they are talking to us”, Trump said on Saturday, en route to a campaign stop in Ohio. As you can see, he repeated that in his stump speech. He made no mention of the fact that the yuan’s depreciation has offset the effects of the tariffs, something he surely knows based on his comments about the Fed and how higher U.S. rates relative to America’s trading partners are putting upward pressure on the dollar.
Well, the Shanghai Composite fell more than 1% to its lowest levels since February of 2016 on Monday. The benchmark has fallen in eight of the last nine sessions after rising more than 1% for three consecutive days late last month following the announcement that the country will take a “proactive” approach to fiscal policy in the back half of the year.
For its part, the tech-heavy, small cap ChiNext gauge dove nearly 3% and is now at its lowest levels since November of 2014.
Despite the PBoC’s efforts to put the brakes on the currency slide by reinstating rules on forwards Friday, the yuan reversed early gains to trade weaker. As noted on Sunday evening, “there’s a lot of liquidity sloshing around over there, which is just another way of saying that making it more expensive to short the currency doesn’t change the policy divergence story that led to the depreciation.” It might be time to start leaning on the counter-cyclical adjustment factor again.
In case it wasn’t clear enough from China’s announcement on Friday regarding differentiated tariffs on $60 billion in additional U.S. goods, set to take effect “as soon as” the Trump administration goes forward with the second round of 301-related duties, the Global Times was out with an amusing Op-Ed on Monday taking direct aim at Larry Kudlow, who on Friday hurled all manner of condescension China’s way.
In a piece called “Kudlow should understand China’s firm will“, the Party mouthpiece said the following:
China announced Friday the imposition of tariffs on $60 billion in US products. Top White House economic adviser Larry Kudlow dismissed China’s latest response, saying “I might think the $60 billion is a weak response to our $200.” He also warned that China had “better take President Trump seriously.”
Kudlow also claimed that the “Chinese economy is lousy, investors are walking out, the currency is falling.” Kudlow intended to mean that China could not sustain a trade war, while the US was determined to protract and escalate it. He did admit that “There is a lot they can do to damage our companies in China.”
Kudlow sounded like he was talking about an economy like Japan, South Korea or Mexico. But China is the world’s top soybean importer, the No.1 market for automobile and telecom products and has the fastest growing internet economy. The Chinese market is key to the survival of many big American companies and American farmers.
The two numbers, $200 billion and $60 billion, don’t show an imbalanced interdependent economic relationship, but rather that Washington has lost its mind on trade while China retains its rationality. The US is trying to conclude the trade disputes swiftly, but China is prepared for a protracted war.
It doesn’t get much funnier than that, does it?