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China Markets trade

As ‘Tariff Man’ Doubles Down, Chinese Domestic Demand May Be Kryptonite

"...we will be charging major tariffs."

On Tuesday evening, Donald Trump decided it would be a good idea to double down on some of his patented shrill trade rhetoric.

It’s not entirely clear why the President thinks it’s a good idea to effectively erode whatever good will he managed to engender over the weekend while dining with Xi Jinping in Buenos Aires, but then again, it’s never entirely clear why Trump does anything of the things he does.

Global stocks welcomed the 90-day trade ceasefire on Monday and while it probably wouldn’t be fair to attribute Tuesday’s brutal selloff on Wall Street to market consternation about a lack of details around the interim deescalation pact with Beijing, Trump certainly didn’t do investors any favors by taking to Twitter first thing in the morning and declaring himself “Tariff Man”.

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Trump Enters Phone Booth, Opens Twitter, Emerges As ‘Tariff Man’

The series of tweets that found the President rechristening himself a protectionist superhero would have been (more than) enough out of Trump on trade for one day, but he wasn’t finished.

“We are either going to have a REAL DEAL with China, or no deal at all”, Trump shrieked, seemingly unprompted just after 7 PM ET, on the way to reiterating that if China doesn’t move fast on that REAL DEAL, he will “be charging major Tariffs against Chinese product being shipped into the United States.”

Again, it’s not clear that anyone needed that reiterated, especially not from “Tariff Man” and definitely not a scant 48 hours after this whole trade bomb was supposed to have been temporarily defused.

“Ultimately, I believe, we will be making a deal, either now or into the future”, Trump mused, adding that “China does not want Tariffs!”

No, China “does not want tariffs”. And now that you mention it, neither does anyone else with the lonesome exceptions of Peter Navarro and someone called “Tariff Man” to whom we were all introduced on Tuesday morning.

Some observers were keen to note that on a cursory look, Tuesday’s market malaise didn’t seem to emanate from trade concerns. For instance, the China ETF and the emerging market ETF each outperformed the S&P on the day, which would appear to suggest that the proximate cause of the bloodbath on Wall Street was something other than trade jitters (e.g., the flattening yield curve).

Here’s relative performance for the China ETF (which has outperformed the S&P ETF for three consecutive sessions) and the EM ETF (which has bested the S&P both days this week):

RelativePerformance

(Bloomberg)

But even if ambiguity around the terms of the trade truce didn’t contribute to Tuesday’s equity selloff on Wall Street, Trump seems hell-bent on introducing a not-so-healthy dose of uncertainty into an already indeterminate situation just days after he traveled all the way to Argentina primarily to remove some of that same uncertainty.

On the bright side for China, if “Tariff Man” reneges on the deal and ends up escalating this situation anew, it looks like domestic demand is holding up ok. The Caixin services PMI blew away estimates on Wednesday, printing 53.8, the highest since June when the trade tensions started to build in earnest.

CaixinPMI

(Bloomberg)

 

 

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