Chinese Stocks Fall To Four-Year Low As Beijing Promises ‘Pain’, Trump Brands The World ‘Tariffed!”

It is nothing new for the U.S. to try to escalate tensions so as to exploit more gains at the negotiating table. We are looking forward to a more beautiful counter-attack and will keep increasing the pain felt by the U.S.

That’s from an “editorial” published in the Global Times on Monday and suffice to say it suggests Beijing is nowhere close to caving in the face of renewed pressure from the the Trump administration on trade.

Over the weekend, multiple outlets confirmed Bloomberg’s Friday reporting which quoted four sources as saying Trump has instructed aides to move ahead with tariffs on $200 billion in additional Chinese goods. On Sunday, WSJ said it’s now possible that Beijing will decline to engage Washington further on the issue, which makes sense considering the U.S. President is openly bragging about negotiating in bad faith.

Obviously, this is bad news for risk sentiment. Investors are on edge Monday and Chinese stocks fell. The Shanghai Composite closed at its lowest level since 2014, notable given that the last several times the index has approached the 2016 lows, state-sponsored vehicles stepped in to prop it up.

You can probably expect state buying tomorrow if this doesn’t abate.

Meanwhile, the China/U.S. “equity ratio” is now below 1, the lowest in a dozen years.

Trump views that as a sign of “strength”, but remember, Xi has already consolidated power. Trump, on the other hand, is facing a midterm election that could very well see his party lose control of the House. His “market scorecard” (to quote JPMorgan’s Kolanovic) is important. So he’d better hope the U.S. market continues to hold up in the face of the global turmoil he’s creating.

Meanwhile, Trump was up before dawn tweeting about tariffs. Specifically, he said this:

Tariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country – and yet cost increases have thus far been almost unnoticeable.

Two things. First, he still doesn’t understand what tariffs are. They do not amount to “billions of dollars flowing into out country”. That’s not the way rational people conceptualize this situation. Second, the reason why “cost increases” haven’t shown up yet is precisely because the USTR has avoided taxing things that would create cost pressure. That will be impossible in the next two rounds: