‘Tariff Man’ Returns: Trump Announces New China Tariffs, Stocks Crash

Everyone knew it was coming.

Donald Trump on Thursday announced the imposition of 10% tariffs on the remainder of Chinese imports to the US, reigniting the trade war less than five weeks after the Osaka truce.

“The US will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country”, the president tweeted, adding that “this does not include the 250 Billion Dollars already Tariffed at 25%”. Stocks promptly plunged, erasing what was an otherwise solid bounce of Wednesday’s selloff.

We are now just one step away from the “all-in” scenario of 25% duties on all Chinese imports.

Over the past several days, tensions between Washington and Beijing have soured considerably, even as Bob Lighthizer and Steve Mnuchin met with their Chinese counterparts in Shanghai for the first in-person, principal-level trade talks since things fell apart in May.

This week alone, China’s foreign ministry accused the US of fomenting discord in Hong Kong, Trump lashed out at Beijing for not following through on alleged promises to purchase US farm products, and a US appeals court upheld a lower-court ruling holding a trio of Chinese banks in contempt for failing to produce evidence tied to a criminal investigation around possible evasion of North Korea sanctions.

The trade talks ended on Wednesday with no progress – only an agreement to talk again in September.

Read more: As Accusations Fly, US-China Relationship Splinters Further At Just The Wrong Time

And so, Trump is forging ahead, perhaps emboldened by Wednesday’s Fed cut and Jerome Powell’s decision to bring forward the end of balance sheet runoff (albeit only by a couple of months).

“If the ‘Powell Put’ and ‘Trump Call’ are strong enough, they could create an ever-escalating trade war matched by an ever lower funds rate”, BofA cautioned just a month ago. “The stock market would be left in a range-bound ‘collar’ trade, with its upside and downside capped by the trade war and the Fed, respectively”, the bank mused.

(BofA)

“Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing”, Trump explained, recapping recent events.

He continued. “More recently, China agreed to buy agricultural product from the US in large quantities, but did not do so”, the president said, again without providing any evidence that such an agreement was ever actually cemented. Trump also says Beijing did not stop the sale of Fentanyl to the US. “My friend President Xi said that he would stop the sale of Fentanyl to the United States — this never happened, and many Americans continue to die!”, Trump exclaimed.

Ultimately, he attempted to strike a constructive tone. “We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!”, the president said.

That’s small consolation for a market that continues to get burned by the president’s on-again/off-again trade war. At a certain point, traders will likely run completely out of patience with this scenario – “fool me once”, and such.

You can now add one more event to the long list of milestones in Trump’s quixotic effort to rewrite the rules of global trade and commerce.

(Credit Suisse)

Trump is once again chancing an inflationary outcome. “Because many of the categories of imports not yet hit by tariffs are sourced largely from China, our analysis suggests that further tariffs would be harder to avoid through trade diversion, resulting in either large inflationary effects or a large reduction in imports”, Goldman warned recently, looking ahead to the next round of duties which will be a reality starting in one month.

(Goldman)

As we wrote just 48 hours ago in these pages, “…all of this feels like a slow-motion train wreck [and] it seems like just a matter of time before Trump takes to Twitter to announce the imminent imposition of duties on the remainder of Chinese imports”.

We’d call that prescient, but considering it was a foregone conclusion, that would be disingenuous.