"We're In Uncharted Waters" - Stocks, Yuan, Commodities Slump As US-China Trade Wars Re-Escalate

Just when you thought it was safe to BTFTrade War Dip, a headline hits to remind you that President Trump is anything but done with China.

The new list marks the latest escalation of the trade war between the world’s two biggest economies.

And judging by the reaction in stocks and the yuan, it appears that the market's brilliant extrapolation of "no more trade wars" as a result of a 3 days silence (of which 2 was during the weekend) may have been wrong.

As Asia markets open, Dow Futs are down around 300 from the closing highs

And S&P Futures down around 1%...

FTSE China A50 Index Futures Fall 2% in Singapore.

Japanese stocks are making new lows for Wednesday, with the Nikkei 225 now down 1.5%.

Copper in London Falls as Much as 3.8% to $6,092.50/Ton (Crude is also sliding)

Additionally offshore yuan is tumbling...

Treasury yields dropped...

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The US has released the list of $200 billion in Chinese products that could be subject to an additional 10% tariff, fulfilling President Trump's promises for further escalation of the burgeoning trade war between the US and China. Meanwhile, a senior US official reportedly told CNBC that China isn't seriously negotiating on trade, suggesting that the hoped-for negotiated settlement might not materialize - at least not anytime soon.

"As a result of China's retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports.

This is an appropriate response under the authority of Section 301 to obtain the elimination of China's harmful industrial policies.

USTR will proceed with a transparent and comprehensive public notice and comment process prior to the imposition of final tariffs, as we have for previous tariffs."

U.S. Trade Representative Robert Lighthizer reportedly took into consideration what might cause the biggest disruptions to China's economy while building the list.

“For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition.”

“China has not changed its behavior -- behavior that puts the future of the U.S. economy at risk. Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action.”

The tariffs, some which will impact goods from "Made in China 2025" sectors, a state-planned initiative to establish China as a leader in several key industries, including artificial intelligence and wireless technology. The tariffs will go into effect on August 30th, after a two-month review process, with two public comment sessions. Trump has threatened to impose tariffs on as much as $500 billion in Chinese imports, which would cover roughly all of the Chinese-made products entering the US.

"If the U.S. loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures," the Ministry of Commerce said at the time.

The National Retail Federation, one of the most powerful trade associations in Washington, says simply that:

Trump's new list "doubles down on a reckless strategy that will boomerang back to harm U.S. families and workers. We still don't know what the endgame is'' for Trump's strategy."

The full list can be found in the document below:

As we have noted previously, China only imports around $130 billion worth of U.S. goods meaning it has a limited ability to match U.S. tariffs dollar for dollar. The U.S. imported $505 billion of goods from China last year and has promised tariffs on $250 billion worth of those products.

China could jack up existing tariffs well beyond the 25 percent level imposed so far, though that would cause pain on both sides. Analysts say it's more likely China will resort to non tariff barriers such as making it much tougher for America Inc. to do business in China.

The responses across Wall Street are almost unanimously bad (where were all these views as The Dow surged 800 points in the last few days?)

Goldman: "The tariff would not take effect until September at the earliest but nonetheless marks an escalation of trade tensions. Networking equipment, computer components, and furniture would be the most heavily impacted imports in this round. We believe that the release of the list raises the probability that further tariffs will be implemented, though we note that the publication of the list is not a commitment to implementation, which would need to be ordered in a separate step following a comment period."

Mark Mobius: "We are in uncharted waters."

Don Riley, chief investment officer at Wiley Group: "Markets won't like it and yes earnings positives will most likely be overwhelmed by trade fears."

Strategists at Singapore's DBS bank: "The tariff news was also ill-timed for investors hoping for a trade war respite to capitalize on the expected stream of strong US corporate earnings. Overall, Trump reminded markets that US-China trade tensions are likely to escalate ahead of the US mid-term elections in November."

Edward Alden, senior fellow at CFR, says Trump's crackdown on trade with China is a "dangerous miscalculation".

Richard Turnill, chief investment strategist at BlackRock, told Bloomberg TV earlier: “In the short run it’s very difficult to see what’s going to bring an end to this escalation of tit-for-tat. It’s those increasing concerns that are going to weigh on market returns and force investors increasingly to look for more resilience in their portfolios.”

And of course, politicians had to chime in:

Senate Finance Chairman Orrin Hatch immediately called the action "reckless" and not "targeted."

House Ways and Means Committee Chairman Kevin Brady:

"With this announcement, it’s clear the escalating trade dispute with China will go one of two ways – a long, multi-year trade war between the two largest economies in the world that engulfs more and more of the globe, or a deliberate decision by President Trump and President Xi to meet and begin crafting an agreement that levels the playing field between China and the U.S. for local farmers, workers and businesses."

"Despite the serious economic consequences of ever-increasing tariffs, today there are no serious trade discussions occurring between the U.S. and China, no plans for trade negotiations anytime soon, and seemingly little action toward a solution."

"It’s time to take the first step into a new era of fair and free trade. I strongly urge President Trump and President Xi to meet soon face-to-face to craft a solution to establish fair and lasting trade between our two countries."

Republican Senator Jeff Flake has told reporters there will be a Senate vote on Wednesday on a nonbinding measure aimed at limiting President Trump’s power to impose tariffs. Flake says he expects a majority of both Republicans and Democrats to support the bill

Comments

TheSilentMajority Quantify Tue, 07/10/2018 - 16:57 Permalink

Good.

The markets have already given the greenlight for this new $200 billion, and another $300 billion after that. 

A 25% tariff on all Apple product imports should cover the first $200 billion nicely. That will get cookie to move fast to setup manufacturing in murica. 

Make sure you also include a ban on all PRC students studying science or tech in USA universities, and a ban on PRC Anchor babies, and a ban on PRC buying usa land/homes.

China is running out of ammunition(USA imports to tariff) very fast.

Get it done Trump!!

In reply to by Quantify

DingleBarryObummer TheSilentMajority Tue, 07/10/2018 - 17:13 Permalink

Yes! More Tariffs!  Set USA on the path to self reliance!  Fvck Made in China 2025.  Made in USA 2025, Baby!

We are working our way up to this, and then onward to total boycott.

Donald J. Trump said he would favor a 45 percent tariff on Chinese exports to the United States, proposing the idea during a wide-ranging meeting with members of the editorial board of The New York Times - Jan 2016
https://www.nytimes.com/politics/first-draft/2016/01/07/donald-trump-sa…

In reply to by TheSilentMajority

Maghreb beemasters Tue, 07/10/2018 - 22:32 Permalink

Because 50 million Chinese will lose their jobs. If it destabilizes badly enough the country could collapse economically and politically. Would trigger a global conflict and probably take most of the world down with it......

Just saying America first but you have to be smart about these things........

Perhaps Bannon is right about the 4th turning. Maybe Emperor Xi needs to be taken down a notch. But still best not hope these things escalate too far.

Plan for a New American Century claimed the Middle East would have to be pacified before a new Cold War broke out.......

In reply to by beemasters

Proofreder Maghreb Tue, 07/10/2018 - 23:14 Permalink

Bannon and The Fourth Turning ...

Bannon has indeed read the book a number of times and attempted to pass on the wisdom of Howe and Strauss to our elected President.  Bannon had nothing to do with the book itself.

Now is USA-1929 in Social and Economic China - 90 years later is about 4 Turnings.  China will take part in the Great Shift and the next war.

4th Turning is a good, concise, convincing read.  Take it to the beach and spend some time with a book.

ES back up to 2778, DOW futures recovering to 24750, off less than 0.8%; the dip has been bought once again by those clever Europeans.  Or a dead cat bounce.  Hmmmm - Gartman covered his short, so ... all so complicated.  

In reply to by Maghreb

GoingBig Proofreder Wed, 07/11/2018 - 00:48 Permalink

Did you even read the stupid book? And I mean stupid book? It is a bunch of very loosely corroborated worldwide events based around cycles. And it is so loose that is basically fucking nonsense but dumbshits like Bannon take it as the Gospel because they have never learned how to think critically and question what has been put in front of them.  

In reply to by Proofreder

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In reply to by CultiVader

Iskiab Carl Grimes Tue, 07/10/2018 - 19:22 Permalink

I bet not, maybe if you’re day trading.  The markets have been used to all American policy catering to the market.  That’s why 2 days silence was seen as a de-escalation of the trade war.

Once the realization comes that the market =/ the economy and the trade war will go ahead regardless of what will happen in the market, the market will price in the changes.

In reply to by Carl Grimes

Elliott Eldrich topspinslicer Tue, 07/10/2018 - 21:21 Permalink

"It would be nice if we were making most of these products in the states already before enacting tariffs — in other words have such a business environment that only a fool would not want to setup shop in the USA."

Unfortunately it doesn't work that way. You have to have the tariffs in place first, then the industry starts moving back. It's all about the bottom line. Businesses don't exist to "do good," they exist to make profits.

I'm not a fan of Trump and I didn't vote for him, but on this issue he is absolutely correct. Our trade policies have been an abomination, and I'm happy to see someone in office who is finally doing something about them.

And no, I didn't vote for that vile, despicable, detestable, loathsome, hideous and miserable cuntbag Hillary either, I voted third party. Just FYI. The only thing I want to see the Clintons do is take a very long walk off a very short pier.

In reply to by topspinslicer

vladiki Rothbardian in… Tue, 07/10/2018 - 20:49 Permalink

Pity you weren't there; nothing like experience to teach you history.  Weimar hyperinflation was due to its money printing after WW1 and ended in the early 20's.  The Weimar Republic was never stable, but collapsed into Nazism a decade later due to the same deflationary policies that turned a Great Recession in the US into the Great Depression ('purge the rottenness from the system' - Mellon) ... at which point the US was also very politically unstable and for the same reasons, but remained a democracy. 

Tariff wars in the 30's probably exacerbated the situation, but the CAUSE of the problem was the immensely stimulatory bank-generated credit binge, egged on by the Fed and Washington, that had made the 20's roar.  Recent events in many ways a sad parallel, but Bernanke overlearned from the 30's,and his response has created a whole new set of problems that right now no one has a clue how to address.

The current trade and intellectual property theft situation between the US and China has no historic parallel. Now after 25yrs of destructive passivity, Trump is doing what should have been done 20 years ago.  He needs support in this, not endless bitching from mindless Trump haters and the slyly self-interested (megacorporations who've done very well out of the imbalance).

In reply to by Rothbardian in…