US equity markets are accelerating losses following confirmation, via a Chinese media op-ed, that the US-China trade war is drifting further away from a deal following Trump's new tariffs.
The US on Thursday unexpectedly announced on Twitter that starting September 1 it would impose a 10-percent tariff on an additional $300 billion in Chinese goods, following the resumed high-level China-US economic and trade consultations in late July in Shanghai. Both sides said the negotiations were "constructive" and mentioned China's commitment to increase purchases of US agricultural products in their statements. It's astonishing and inexplicable that the White House changed its tune overnight and is wielding the tariff stick once again.
The US looks quite temperamental. It accused China of backtracking on a trade deal as Beijing insisted on some of its own demands. This time, the US faulted China for not stepping up to buy more US farm products. It threatened new tariffs once again, obviously hoping to deter China.
China regrets this new, unreliable behavior. Purchasing US agricultural products in bulk is a complicated commercial activity. From Chinese importers inquiring about prices to selling the goods to Chinese buyers, the process requires much coordination. Chinese officials have said several times that the purchases are in progress. But they are not as simple as buying a bag of peanuts in the supermarket.
Despite understanding the complexity of the negotiations, the US seems very anxious and impatient. However, differences between China and the US cannot be swiftly eliminated. As a Chinese proverb says, "Eat hot tofu slowly."
China hopes to reach a trade deal with the US and has shown its goodwill to promote the resumption of trade talks. But China's bottom line has become increasingly crystal-clear. Although the US is stronger than China and has more power in deciding whether to talk or not, China has set realistic negotiation goals for itself and has sought to staunchly protect its core interests.
The Chinese market needs US agricultural products, but it won't make purchases for the sake of reaching a trade agreement with the US without prior consideration of how to sell and consume them. The purchase of several million tons of US soybeans to satisfy Chinese demand is not large, but if purchased under US tariff pressure, even one kilogram is unnecessary.
Reaching a trade deal is important, but ensuring that the negotiating process is equal and reasonable is also of great importance to China. China believes mutual respect and equality is essential to safeguarding national interests.
China and the US slipped into a two-month stalemate after Washington slapped new tariffs on Beijing in May. Attempts to intimidate China with tariffs are futile. The more tariffs on China, the more pain the US will suffer. This cannot be covered up by US lies against the basic laws of economics. US stocks plummeted after the new tariffs were announced. Investors know that the White House is bringing major uncertainties to the US economy once again.
China doesn't want to return to a stalemate, but if that's what the US wants, China has no other choice but to withstand it. US anxieties are now obvious. Should the new tariffs take effect, by no means will they bring China and the US closer to a trade deal. Instead, they will only move the two further away from a deal.
China believes that it's better to talk than to fight. China also adheres to the principle that it must firmly strike back against any coercion. Of the two attitudes, which one does the US expect China to take in the coming days? That's the White House's choice.
Kudlow was quick to jump on the wires to support the President's actions, saying that the administration "is looking forward to more China talks," and added that Trump "is not satisfied with progress so far with China." We suspect, that progress is about to come to a standstill.