Only The Dead Have Seen The End Of (Trade) War

Donald Trump picked up where he left off on Sunday evening, tweeting about tariffs first thing Monday morning.

It’s clear he’s been watching the news. It’s also clear he still doesn’t know the difference between “their” and “there”.

“Their is no reason for the U.S. Consumer to pay the Tariffs, which take effect on China today. This has been proven recently when only 4 points were paid by the U.S., 21 points by China because China subsidizes product to such a large degree”, the president said, before launching into a pseudo-lament. Trump sounded almost regretful that things have escalated anew, although it’s dangerous to ascribe those kinds of emotions to a raving narcissist. The following is verbatim so, yes, he spelled the word “buy” wrong:

Also, the Tariffs can be………completely avoided if you by from a non-Tariffed Country, or you buy the product inside the USA (the best idea). That’s Zero Tariffs. Many Tariffed companies will be leaving China for Vietnam and other such countries in Asia. That’s why China wants to make a deal so badly!…..There will be nobody left in China to do business with. Very bad for China, very good for USA! But China has taken so advantage of the U.S. for so many years, that they are way ahead (Our Presidents did not do the job). Therefore, China should not retaliate-will only get worse!

Trump is essentially begging the Chinese not to retaliate, only he’s couching it in terms of a threat and a bombastic claim about how dire the straits are for the Chinese. It seems obvious the White House is nervous about further stock market declines.

Read more: Markets Warily Weigh Aggressive Trade Banter As New Week Dawns

US equity futures got off on the wrong foot in early Asia trading and never recovered. It was the same story for the Chinese yuan. USDCNH rose as nearly 1% at one point Monday, moving through 6.90 for the first time this year.

Analysts are now reevaluating their near-term yuan outlook. Over the weekend, Goldman revised their 3-month forecast for USD/CNY to 6.95 (from 6.65 previously). On Monday, SocGen’s Jason Daw had the following to offer:

China will not use RMB devaluation as retaliation tool in the trade war, in our opinion. It is difficult calibrating financial instruments to minimize destabilizing overshooting or second round effects. However, as our economists points out, China’s policy response could involve more RRR cuts and possibly lowering interest rates. Fundamentals — slower exports, policy easing, and growth risk premium – rather than overt competitive devaluation, can cause the CNY to weaken. The chance of CNY breaking 7.0 earlier than we have expected (Q1) has increased (market may test the PBoC’s resolve). Maybe there could be some overshooting versus our 7.05 target if a truce is not reached, but the tail risk of very large depreciation (10% more than our baseline 7.05 forecast) is quite low in our opinion. As cautionary note on excessively positioning for large depreciation (i) the CNY will only fall as much and as fast as policymakers want it to, and (ii) they have successfully prevented a break of 7.0 twice since 2015 even when the stars were aligned for it to happen.

Chinese equities resumed declines after surging Friday thanks to state buying. The CSI 300 dropped nearly 1.7% to start the week.

Trump persisted in digging himself further into a hole on Monday. “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries”, he went on to say. “You had a great deal, almost completed, & you backed out!”

China denies that version of events – vehemently.

For all his pretensions to legendary dealmaking prowess, Trump’s comments on Monday came across as laughably transparent. He’s clearly rethinking the relative wisdom of making the latest row with Beijing public as opposed to, for instance, trying to sort it out behind the scenes before resorting to a tariff hike.

Other trade-sensitive markets were under pressure Monday. The Stoxx 600 Autos and Parts index has suffered grievous losses during the latest bout of trade tensions as investors fret that Trump’s willingness to crank up the pressure on Beijing at the last minute bodes ill for how he’ll approach the Section 232 auto tariffs question.

Meanwhile, South Korean shares are in all kinds of trouble, having fallen in five of the last six sessions. The won continues to suffer, weighed down by geopolitical concerns, worries about the economy and now, the trade war.

With both sides now dug, it’ll likely be trench warfare for at least the next couple of days. Although everything could change with a single tweet, a breakthrough looked more remote than ever as of Monday morning.

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2 thoughts on “Only The Dead Have Seen The End Of (Trade) War

  1. When I see the loyal “patriots” of American agriculture and other followers blindly following their fearless (or is it clueless?) leader into an all-out trade war I can’t help remembering the ill-fated charge of the British Cavalry’s Light Brigade in the Crimean War. Led by Lord Cardigan, who apparently misunderstood the orders of his commander, Lord Raglan, the noble soldiers were cut to ribbons by opposition cannon fire as they charged enemy lines (“Into the valley of death rode the 600”). Today, the only memory of this event for most is that both generals, Raglan and Cardigan, have a type of sweater named after them. I wonder what a Trump sweater will look like?

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