Conflicting China Trade Comments Whipsaw Nervous Markets

China hinted it will take steps to counter new US tariffs set to go into effect on September 1, and nervous markets were not amused.

A short statement by the Finance ministry calls the planned levies a “serious violation” of the Osaka truce struck in late June. “China will have to take the necessary countermeasures”, the ministry warned.

The curt remarks come less than 48 hours after Beijing and Washington seemingly joined forces to buoy markets. On Tuesday, China’s Commerce ministry detailed a phone call between Vice Premier Liu He, Bob Lighthizer and Steve Mnuchin. Minutes later, the USTR said the Trump administration would delay tariffs on key consumer goods until December 15.

US equity futures moved lower on the headlines, as did European shares. US Treasurys rallied further.

Shortly thereafter, China’s foreign ministry said Beijing “hopes the US can meet half way”, a soundbite that prompted risk assets to reverse course, in truly absurd fashion.

Remember, Peter Navarro said Wednesday that the US could not, in fact, meet “half way”.

The headlines continued to roll in. “Xi and Trump are in touch via meetings, phones and letters”, China said.

Although the original statement from the Chinese was short on specifics (it’s all of three sentences long) and although traders interpreted subsequent comments as conciliatory, markets are on knife’s edge. The threat of retaliation from Beijing appears to signal that Trump’s decision to delay tariffs on some goods for more than three months is not sufficient to compel the Chinese not to hit back.

On Wednesday, Trump administration officials Peter Navarro and Wilbur Ross admitted in interviews with Fox and CNBC that the US received no concessions from China in return for postponing the tariffs on some consumer goods. It was not, to quote Ross, a quid pro quo.

With tensions running high in Hong Kong and the White House seemingly bent on somehow marrying its stance on civil unrest in the city to the trade deal, markets are set up to recoil if and when Beijing announces the specifics behind the “necessary countermeasures” tipped on Thursday.

China is, of course, constrained in its ability to hit back with tariffs, which means non-tariff measures and more yuan weakness could be in the cards.

Full statement

August 15, 2019 Source: Office of the Customs Tariff Commission of the State Council

　　The US Trade Representative Office announced that it will impose a 10% tariff on imports of goods from China for about 300 billion U.S. dollars. The relevant person in charge of the State Council Tariff and Tariff Commission said that the U.S. side’s move seriously violated the consensus between the heads of state of the two countries and the consensus of the Osaka meeting and the deviation from the Osaka meeting. The correct track of consultations to resolve differences. China will have to take the necessary countermeasures.