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.
It looks like Trump backing down on a portion of the Sept 1 tariffs and pushing them to Dec 15 without any quid pro quo from the Chinese has emboldened the Chinese, who smell blood.
If this is the next phase of brinkmanship we may start to now see the Chinese acting in a belligerent, unexpected way. Deciding to out-crazy Trump might be a strategy. Could they decide that making the markets in the US tank by 25% may be the way to go. He may have the Art of the Deal, but they have The Art of War by Sun Tzu. They do however have some pretty big problems of their own, but an authoritarian society can have a lot more punishment on its people without worrying about losing power.
On the other hand that would let Trump off the hook for the coming recession, which he is now desperately looking to offload authorship of. Powell is his go to villain but I think Peter Navarro should be worrying about co-authorship credits, especially after his abysmal recent performances on the business networks.
The Chinese have now learned, like most of America’s Allies, not to trust Trump. Trump’s ‘walk-back’ was because the Chinese called Trump out for violating his ‘Gentleman’s Agreement’ with their Chairman.
The Chinese have alluded that:
1) They will retaliate;
2) It won’t be limited to tariffs.
As usual Trump overplayed his hand. He’s not in New York real estate any more.