Trump Set To Unleash $60bn China Tariffs On Friday

Having rejected a plan for imposing $30 billion in tariffs on Chinese imports last week, saying they weren't big enough; President Trump is reportedly planning to unveil by Friday, a package of $60 billion in annual tariffs against China.

Trump is following through on a long-time threat that he says will punish China for intellectual property infringement and create more American jobs, and, as The Washington Post reports, the timing of the tariff package, which Trump plans to unveil by Friday, was confirmed by four senior administration officials.

The package could be applied to more than 100 products, which Trump argues were developed by using trade secrets the Chinese stole from U.S. companies or forced them to hand over in exchange for market access.

WaPo also notes that many of the financial ministers at the G-20 meeting have also alleged that China should make changes to its trade policies, but so far most have tried to cajole Beijing multilaterally, a strategy that Trump has said doesn’t work.

Trump this month announced 25 percent tariffs on imported steel and 10 percent for aluminum and they will also take effect Friday.

As Bloomberg reminds us, Canada and Mexico are already excluded from the levies, and the Trump administration has left the door open for Australia and possibly other allies to win a similar concession if they can show they are trading fairly and are national-security partners. Planned retaliation from the European Union to China has triggered concerns over a global trade war.

And as we warned previously, the recently announced global steel and aluminum tariffs (with various exemptions) by the Trump administration were just a (Section 232) preview of the main event: Trump's imminent trade war with China, which as Credit Suisse previews, will be unveiled any moment in the form of tariffs and restrictions on trade with China, reportedly in retaliation for Chinese IP violations.

First, a reminder on the all-important Section 301:

  • What is Section 301? Section 301 of the 1974 Trade Act allows the President to, among other things, “impose duties or other import restrictions on the products of [a] foreign country,” if the President determines that that country is violating a trade agreement or “engages in discriminatory or other acts or policies which are unjustifiable or unreasonable and which burden or restrict United States commerce.“ The U.S. relied heavily on the provision during the Reagan era (an administration in which the current USTR Robert Lighthizer served as Deputy USTR) into the early 1990s, but it has been used infrequently since the World Trade Organization was formed in 1995 and provided a forum for dispute resolution.

How will Section 301 figure in the upcoming US-Chinese trade war, and what are the key points:

  • Last August, President Trump instructed his U.S. Trade Representative Robert Lighthizer to initiate a Section 301 investigation into China’s forced technology transfer policies.
  • While the results of the 301 investigation are not due until August 2018, the President appears poised to act on the issue in the coming weeks.
  • The President is reported to be seriously considering a package of tariffs on Chinese imports (targeting between $30BN and $60BN worth).
  • Reports have stated that Administration officials have used China’s manufacturing roadmap, “Made in China 2025,” in deciding what goods to impose tariffs on. This will likely further concern Chinese leaders.
  • In addition, the Administration has discussed rescinding licenses for Chinese businesses and employing other such methods to restrict Chinese investment in the United States. The President’s recent decision to block a Singaporean company’s bid to takeover a U.S. company underscores his aversion to Chinese direct investment (the company had Chinese affiliations).
  • As part of the 301 action, the Administration has also reportedly discussed visa restrictions and a mandate that U.S. stock exchanges limit who can list in a U.S. market. It remains unclear whether the restrictions will go this far, but the President has, to date, been hawkish in his trade policy and there seem to be fewer and fewer moderating voices in the White House.
  • The 301 investigation and potential actions resulting from it seem to complement congressional efforts to restrict Chinese investment through legislation broadening the jurisdiction of the Committee on Foreign Investment in the United States (CFIUS). We believe this legislation is on track to be signed into law in Q3 2018.

What to expect? here are some high-level thoughts from Credit Suisse:

  • The Chinese will likely respond in kind, beginning a succession of tit-for-tat trade policies between the two countries.
  • The United States has the option to take a multilateral approach and work with allied nations to initiate their own WTO dispute regarding Chinese technology transfer policies. However, at this point, the U.S. appears more likely to instead take unilateral retaliatory action without WTO authorization, which may run afoul of the U.S.’s WTO obligations.
  • If the U.S. acts unilaterally (as it appears it will), China will likely bring a challenge before the World Trade Organization (WTO).
  • The President appears committed to maintaining his “tough on China” stance. Even after losing top advisor Gary Cohn after the imposition of steel and aluminum tariffs, the President appears steadfast in his campaign against China’s trade practices and Chinese investment in the U.S, and we expect continued restrictive trade policies with respect to China.
  • The President’s actions may not receive the congressional backlash that his steel and aluminum tariffs did. Many U.S. corporations are frustrated with China’s policy requiring foreign companies to turn over source code and other proprietary technology in exchange for access to the Chinese market. However, if the President takes this as far as he currently seems to be planning to, punitive measures by China coupled with the chilling of foreign investment could be a major concern for U.S. corporations.

In terms of specifics, the US trade deficit last year hit an all time high of $375BN.

The Trump administration is planning imposing tariffs on up to $60bn of Chinese goods, or roughly 13% of goods import from China ($505BN), and 2.75% of total US goods import according to Danske Bank; the tariffs will target tech products, telecoms & clothing.

A snapshot of the key aspect of the US-China trade relationship:

  • the US exports soybeans, pharmaceuticals, vehicles and aircraft.
  • the US imports textiles,clothing, manufactures of metals,electronics and toys.

How to trade it?

As noted last week, when discussing which industries and companies would be impacted, we said that there are some obvious sectors such as industrials (cars, planes), agriculture, and technology. Below, courtesy of Strategas,  is a list of US companies which derive the largest percentage of their total revenue from China. As trade war looms, it would be prudent for investors to start thinking about potential risks to the companies they own if they have sufficient business in China.

 

Comments

Baron von Bud SilverRhino Mon, 03/19/2018 - 18:27 Permalink

US corporations voluntarily gave China the trade secrets in exchange for market access. That wasn't smart. It should have been obvious that the Chinese would use the information to grow their own industries. We all knew that twenty years ago. Why didn't the US govt raise the issue back then? Corporate greed; that's why. Access was more important to them than intellectual property. Hard to fault China for thinking long term and negotiating a good deal for themselves.

In reply to by SilverRhino

mkkby beemasters Tue, 03/20/2018 - 00:06 Permalink

Bullshit comments.  Globalist corps may have transferred the tech voluntarily, but not because it was a good business decision.  They did it because the CEO will get his bonus now, and not be around in 5 years when the shareholders are fucked by copy cats.

Follow the money, and when corps are involved it nearly always involves management screwing shareholders/investors.

Go Trump, give those chinks both barrels.  Americans need those jobs.  MAGA.

In reply to by beemasters

roddy6667 The Real Tony Mon, 03/19/2018 - 22:30 Permalink

You are an untravelled American. That's why you only see the cheap crap that China produces. That crap is exactly what Walmart, Target, Macy's, Sears, etc ordered. Exactly. Do you think they ordered quality merchandise and got shipped tacky trash? American retailers know that Americans can't afford the good stuff. It would never sell.

Here in China I see the quality and stylish home goods, clothing, electronics, cars (BMW, Mercedes, Audi, etc), toys, tools and machinery that are made here but not shipped to America. You live in an information vacuum and don't know what is going on in the rest of the world.

In reply to by The Real Tony

Elvis Burnt To… Stuck on Zero Mon, 03/19/2018 - 18:34 Permalink

Trade deficit my arse, let me know how the 4 proposed rate hikes in 2018 impact the value of RE...the Fed owns $1.77 trillion of agency MBS, nearly 29 percent of all outstanding MBS as of late September 2017.  

The Federal Open Market Committee announced on September 20, 2017, that it would begin to normalize its balance sheet in October 2017. The committee has been transparent about the course. It  will begin by reducing the reinvestment rates on its portfolio. In months 1 through 3, the Fed would let the System Open Market Account (SOMA) portfolio run off by $10 billion each month, increasing to $20 billion in months 4 through 6, $30 billion in months 6 through 9, $40 billion in months 10 through 12, and $50 billion a month thereafter. The maximum runoff in each month, if met, would comprise 60 percent Treasuries and 40 percent MBS.

 

Normalize, lmao

In reply to by Stuck on Zero

raybies privateparts501 Mon, 03/19/2018 - 20:13 Permalink

Nobody cares about NK. USA was at a crossroad in 1999. PNAC stole the election for Bush and demolished your twin towers so they could secure ME resources to squeeze the world and constrain China. Then they just got lazy and didn't follow through, bcos Bush admin fucked up Iraq and you got the CDO orchestration. Then Obama was bullshitting the "deeper state" and nothing happened. The deeper state got Trump in to continue the PNAC.
There's only 2 countries in your way China and Russia; you can wait out Russia... but I figure you're already late with China, and you can't pressure China when they make everything for you, now can you?

In reply to by privateparts501

DelusionsCrowded Justin Case Mon, 03/19/2018 - 22:44 Permalink

These two sides to every story . Truth is truth , self interest is self interest .

Infact China is just doing what the US would do if it were in China's play , 'freemarket' or not ' . 

The US wasn't giving away its tech by allow piracy , The US were allowing piracy to help undermine competition in chinese software from growing . If Chinese companies could get it for free , then their wouldn't be any money in making their own stuff . 

The reality is China has out worked and out played the US Deep State and now this DS , who has been trying like hell to start a war with both China and Russia since at least the MH370 disappearence but even before by fucking Libya where 100000 Chinese contactors were building infrastructure , is desperate , really desperate . Trump is America 1st but in this game with China I think the DS is on side .

China could well ask why the US doesn't weaken its currency if it wants to stem imports . They might even say since USA won't weaken their currency , China has decided to strenghten the Yuan . 

Is Trump trying to precipitate the financial systems collapse ?? A reset .

 

 

In reply to by Justin Case

roddy6667 Kaiser Sousa Mon, 03/19/2018 - 22:37 Permalink

I have read that China is not openly dumping American debt, but using it to buy commodities. They buy oil and gas for immediate use, but they are using the temporarily low prices of copper, beryllium, vanadium, cobalt, to stockpile reserves. This serves a dual function. It kicks America in the nads and it will mean profit in the future.  

In reply to by Kaiser Sousa

veritas semper… Kaiser Sousa Mon, 03/19/2018 - 19:06 Permalink

With the petro-yuan backed by ...gasp...GOLD. It's said they have 30,000 to 35,000 tons of it.

In terms of China being hurt by the Treasuries' dump , they may be ,but it will open the "yellow brick road" ,the OBOR . Every body is going to be hurt with the collapsing of the current financial system based on paper money , usury and fractional reserve. But ,some countries are positioned better to minimize it. And US is not one of them ,unfortunately. Dumping Treasuries is like dumping toilet paper. Used one.

All pieces are in place. Including the re election of Mr. Xi Jinping and Mr. Putin.

 Follow  the yellow brick road,it will lead you to the wizard of OZ and you can pull the curtain and expose him.

In reply to by Kaiser Sousa