Seven Takeaways From The US Tariff Escalation

By Steven Englander, head of Global G10 FX at Standard Chartered

  • We were surprised that the escalation occurred so rapidly but not that the US decided to press its advantage (see Questioning Friday's market optimism).  

  • The US announcement was likely partly triggered by the desire to maintain momentum going into mid-term elections. Hearings on the tariffs will likely be held in late August, the final list announced in early September, with implementation even later. Any price impact would probably not appear before the elections, allowing time for negotiation.

  • Moreover, the inflation impact is not large. In addition, the CNY has depreciated by almost 7% from its recent highs – this is probably enough to offset the price impact of the announced tariffs.

  • China seems surprised by the speed of the follow-up. Allowing the market to weaken the CNY overnight may be the path of least resistance.

  • Investors anticipate a major reaction from China. If China stops at tariffs on goods (keeping in mind that the US exports about USD 130bn annually to China, less than the USD 200bn of goods that the US will tariff) there will likely be a relief rally. The negative market reaction will probably be stronger, if China responds with heavy non-tariff measures to match the impact of the US measures.

  • The market reaction outside of Asia is more muted than earlier responses to tariff announcement, because: (1) it seems clear that this will be a longer process, (2) export substitution outside of China may occur, and (3) the US domestic economy seems on solid footing. It is possible and even likely that more issues will emerge with Canada over autos and with other regions. We do not interpret the limited non-Asia reaction as a signal that further escalation will be innocuous.

  • Within G10 FX, commodity currencies appear to be most vulnerable. The EUR has held up reasonably well – the euro area is not as exposed as Canada to escalation of trade tensions. In the short term the Bank of Canada’s framing of trade risk will likely drive the CAD.



hxc Davidduke2000 Wed, 07/11/2018 - 21:55 Permalink

Jack in the box tacos. 2 for a buck. Top ramen (japanese) you can still get in the plastic package 50c each and that's a whole bowl of soup. Someone has not been a poor college kid recently. Dog food costs fuckin more these days anyway i bet.

I say fuck em, bring on the tarriffs. I could see this escalating to a full boycott of China... Fuck em! We need to reaccumulate actual capital goods and skilled workers HERE if our competition is a bunch of technocratic communists playing centrally-planned "capitalism" versus the rest of the world (that is just as happy to allow us to become a third world country).

In reply to by Davidduke2000

Element ebworthen Wed, 07/11/2018 - 21:01 Permalink

However, the point is to put Chinese finances, 'market', and economy in the shitter, close-up their factories, let them feel the pain from debt, unemployment, dumb agro actions, and feel some internal strife and the political and social stress which they sew.


But most of all, to deeply bleed and curb the CHICOM weapon building surge, and the attempt to consolidate claims via those---give them back in kind, what they've been dishing out.


They've gotten waaaaay too much slack rope, with which to run. We gave them an inch, and they've taken eleventy-seven parsecs instead.


Blowback time.

In reply to by ebworthen

Yen Cross Wed, 07/11/2018 - 20:30 Permalink

  Look at the commodities charts today, then we'll talk again, in exactly one week.

   :-D  Yen still has his inverse bond trades open.

  * Jamie Dimon reads the hedge?

  Just wait until XLF reports on Thursday.

 The down-voter obviously is a Chink communist. Yen is up over 11.00%YTD on the IG/HY bond positions.

shortonoil serotonindumptruck Wed, 07/11/2018 - 21:37 Permalink

The US is the major recipient of the over $4 trillion per year in capital that is being squeezed from the EM into the DE. The US now has Venezuelans, Argentinians, Brazilians, and a bunch of others paying for the oil & power bill, and generally 22% of its economy. The US is not the one with the problem; which will bring even more $ into the county. Trump has started a financial avalanche, and there is no way to stop it.

In reply to by serotonindumptruck

Davidduke2000 Wed, 07/11/2018 - 20:43 Permalink

the advantage is the us sells only $130 bn to China while China sell almost $1 trillion, so even if China wants to impose tariffs on the $130 bn they are worthless .

However China could shut down all exports to the us and ruin the us economy as China is not replaceable 

Element Davidduke2000 Wed, 07/11/2018 - 21:20 Permalink

Ha, yeah, they'll just do a Magrathea and hibernate until the galactic recession is over.


Sorry, nah. They'll financially, industrially, economically, socially and politically implode on an epic scale if they tried. They're so out of good options now that they even begged the euros for help ... and got told to stuff-off ... lol.

In reply to by Davidduke2000

gigi fenomen Wed, 07/11/2018 - 21:04 Permalink

 it’s time for “Made in the USA” to make a comeback. Before this massive trade imbalance came about, most people considered Chinese products to be of inferior quality. American made products were always of higher quality because they were made by White men who took pride in their work. It was also considered the patriotic duty of Americans to buy American made products.

The fact of the matter is that China has screwed the United States on trade for many years. They’ve made it difficult to impossible for American companies to access the Chinese market. At the same time, Chinese companies have been allowed to access the American market with few barriers.

This era of insanity is coming to an end thanks to Trump. It’d be in the chinks best interest to recognize this and strike a deal that’s fair for both parties.

MuffDiver69 Wed, 07/11/2018 - 21:29 Permalink

In a way Trump is normalizing the fact China will pay to access our market...10% on most of what China sends us isn’t much overall and if that inches up to 20% etc...then why produce it overseas...the steel and aluminum will get normalized soon enough...


But the company, which imports steel pipe from its parent in Turkey, has already faced higher costs as a result of the tariffs.


Joel Johnson, the U.S. company’s CEO, anticipates his annual shipment costs could increase by as much as $35 million if the tariffs remain in place. Earlier this month, he and his employees sent postcards to Trump, Abbott and other high-level officials requesting a two-year exemption.

If granted, he said, his company will invest $75 million in a second Baytown facility that would allow it to cease imports from Turkey. He lauded Abbott’s letter Thursday, saying he hopes it makes a difference.


francis scott … Wed, 07/11/2018 - 22:29 Permalink


"the US decided to press its advantage"


After all, the US's advantage is very much like

the advantage that Nazi Germany pressed over

Czechoslovokia, Austria, Poland, Romania, etc.


We can discuss how pressing his advantage 

turned out for der Fuhrer next week.