China Unveils How It Will Retaliate To US Tariffs, USDJPY Snaps

While it will hardly come as a surprise considering that trade wars always evolve in an escalating tit-for-tat manner, the WSJ reports that just hours ahead of Trump's announcement of as much as $60 billion in tariffs targeting Beijing, China is preparing to hit back with its own countertariff aimed at President Donald Trump’s support base, including levies targeting U.S. agricultural exports from farmbelt states in retaliation to the mounting trade offensive from Washington.

At the same time, and in hopes of avoiding further escalation, Beijing is also reportedly weighing concessions, including easing restrictions on foreign investments in securities firms and insurance companies.

In taking a stick-and-carrot approach, President Xi Jinping is seeking to avoid escalating trade tensions with the Trump administration.

“Any Chinese response to new U.S. tariffs would be measured and proportional,” said a Chinese official involved in policy-making.

Should the carrot not work, China's "stick" is said to target U.S. exports of soybeans, sorghum and live hogs.

Soybean harvest in Illinois last September

And while we said that the news should not come as a surprise, it appears that to FX-trading algos, that's precisely what the WSJ report was, as it sent both the USDJPY and AUDUSD sliding.


 

Earlier today, the WSJ confirmed previous reports that the White House is preparing to crack down on what it says are improper Chinese trade practices by making it significantly more difficult for Chinese firms to acquire advanced U.S. technology or invest in American companies, individuals involved in the planning said.

The administration plans to release on Thursday a package of proposed punitive measures aimed at China that include tariffs on imports worth at least $30 billion.

The tariffs won’t be imposed immediately, rather, U.S. industry will be given an opportunity to comment on which products should be subject to the duties. As part of the package, the White House will announce possible investment restrictions by Chinese firms in the U.S. and will direct the Treasury Department to outline rules governing investment from China.

Final details of the plan, including the amount of imports to be hit by tariffs, remain in flux, those involved with the discussions said. While the rough amount and rationale for the tariffs are expected to be disclosed on Thursday, the final decisions will come once U.S. industry has had its say, they said.

As a reminder, last week we laid out the most likely Chinese imports that will likely be targeted by Trump. To do this, Goldman looked at imports from China in 57 categories. The answer is shown in the table below.

These are the items that are most likely to see their prices spike as a result of the tariffs: Power tools and electrical appliances top the list, based on a substantial bilateral trade deficit, higher tariffs applied in China versus the US, and high share of imports going to final (in this case, consumer) use.

Sporting goods, toys, jewelry, and consumer electronics like TVs rank highly, for the same general reasons. However, in most of these categories, imports from China constitute a large share of total domestic sales of these products.

Expect price of the abovementioned imports - and sectors - to rise sharply in the coming months should trade war not be avoided in the last moment.

Comments

Mike Masr Wed, 03/21/2018 - 08:01 Permalink

March 26, 2018 China's SFE will launch Crude Oil Futures & dump the Petro Dollar

The Shanghai Futures Exchange (SFE) will begin trading in Crude Oil Futures on March 26th. The Petro Yuan will be the currency used for trading, settlements, margin and deliveries on Crude Oil.

Do not forget that China is Saudi Arabia's largest trading partner. Expect all of the SCO countries with Russia and China as well as BRICS countries to dump the Petro Dollar and use this new SFE exchange and the Petro Yuan. Other countries under US sanctions like Iran and Venezuela will most likely dump the US dollar and use the Petro Yuan. 

Dutti eforce Wed, 03/21/2018 - 08:30 Permalink

Thank you team TRUMP!

It's about time somebody stands up and reevaluates the US's permissive and self destructive trade policies. Other countries like China, Germany etc. put up all kinds of barriers like tariffs, 20% VAT's, "technology transfer" requirements etc.

When the US is finally charging some tariffs of their own, the US gets some additional income, it also reduces the quantity of needless, useless crap imports and thereby helps to save the environment. ;-)

This is not a trade war, it's putting the US on a bit of a more equal footing.

Not afraid about China selling off US treasuries. If they would sell heavily, they would cause a US$ interest rate rise, which in turn would lower the price/value of the  US bonds they hold. In addition, the value of the  US dollar would drop, which would also cut into the valuation of their US treasury assets. In addition this US$ devaluation would also make them less competitive in trade. 

One of the best US policy changes in decades!
 

In reply to by eforce

itstippy American Psycho Wed, 03/21/2018 - 09:17 Permalink

It's a lot more complicated than that.  

If American corporations are allowed to import whatever goods they want from wherever they want they'll go for the lowest priced goods.  Goods produced in "shithole" countries with no environmental protection laws and no labor laws will obviously be the cheapest.  We won't manufacture anything here in the U.S.A. unless we scrap our environmentlal protection laws and labor laws.  The American worker will either A) Have no work or B) Be forced to work in a polluted, sweatshop environment for shit wages.

Welcome to globalized commerce.  Digital communications and containerized shipping have drastically changed the playing field for Working Joe.  We can't make it here anymore.

In reply to by American Psycho

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In reply to by Kayman

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In reply to by slopz38

fattail Déjà view Wed, 03/21/2018 - 10:09 Permalink

The louder they scream about the adverse effects of tariffs in the US the more it hurts them.  The chinese consumer has been hurt by their protective tariffs for years except no corporate shill in the US will utter a word about that.  Let alone the degradation of their environmental capital (clean air, water, and soil) that has been mined, sold, and profited from by the multinational corporations.

Everything made in china is cheap precisely because the end consumer does not pay the full cost of production plus the profit margin to the manufacturer and retailer.  The cost that is associated with standard environmental laws and controls is not paid by anyone because there are none.  The cost of the environmental pollution is bore by the chinese peasants in the cancer villages in china. 

Their tariffs have been protecting their workforce along with subsidizing their overcapacity and production.  Add in an endemic layer of corruption to pay off the minions of the local and regional communist party members and you have a wall street wet dream.

In reply to by Déjà view

Kayman fattail Wed, 03/21/2018 - 10:29 Permalink

<The cost that is associated with standard environmental laws and controls "is not paid by anyone".>  Wrong.

Those costs are paid by others- poor health, bad drinking water, sick children, bad air in western North America, etc.

It is paid, not by the polluters, but by everyone else. Or more dryly, in economic speak, it is an externality. 

In reply to by fattail

brianshell Kayman Wed, 03/21/2018 - 12:03 Permalink

If one trade barrier should be built, it is against the export of rare earth ore by US miners.

Our "ratline"  nuclear regulators need to wake up and smell the thorium.

TMSR. Thorium molten salt reactor power plants can be the energy solution for the world.

The only people who are against it are the ratline profiteers.

In reply to by Kayman

curbjob Dutti Wed, 03/21/2018 - 09:22 Permalink

"This is not a trade war, it's putting the US on a bit of a more equal footing."

 

When the US$ loses its reserve currency status, all of the Americas will have a bit more of an equal footing.

The differences between Cincinnati and Caracas will definitely become less stark.

In reply to by Dutti

shovelhead Kayman Wed, 03/21/2018 - 15:03 Permalink

A historical artifact that at present is still useful. When it is no longer a benefit to China, they will come out swinging, or try to, depending how well Yuan are accepted as an international trade medium.

I'm sure Chinese economists are wary of Triffin's Dilemma and would rather a commodity based basket of currencies at which they would lead rather than preside over the eventual wreckage of their currency that a sole fiat reserve currency eventually brings.

In reply to by Kayman

E5 tmosley Wed, 03/21/2018 - 11:12 Permalink

The idea that China does not possess enough land, indentured employee citizens, or industrial base to develop the necessary hog production is ignorant.  Once the industry is supplanted and built it is gone forever.  Look at the textile industry in America.

Good luck when your walmart wolf shirt goes to $250.

In reply to by tmosley