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.