Trump tweets threat to raise tariffs on Chinese exports — stock markets plunge, China hardest hit

Apparently impatient and believing that the Chinese were playing a delay game on coming to agreement on a new trade deal, President Trump abruptly signaled a switch to hardball threats.  The president issued two linked tweets Sunday, threatening to increase tariffs Friday to 25% on $200 billion of Chinese exports currently taxed at 10%, and to apply a 25% tariff on $325 billion in Chinese exports currently not subject to tariffs "soon."

Stock futures in the United States and around the world immediately plunged:

US stock futures trading


Via Wall Street Journal.

But as Trump well understands, China is far more vulnerable than the U.S. to a downturn in trade.  As the Wall Street Journal noted:

U.S. futures pointed to opening losses of 1.9% and 1.8% for the Dow Jones Industrial Average and S&P 500, respectively.

The Shanghai Composite Index fell 5.6%, while its counterpart in Shenzhen tumbled 7.4%, both registering their biggest single-day declines since 2016.


Via Wall Street Journal.

 

According to Bloomberg, China is suppressing news of the threats, no doubt hoping to limit the stock market reaction there:

More than 14 hours after Trump's threat to raise tariffs on Chinese goods up-ended global markets, few Chinese news outlets have reported them. From the official Xinhua News Agency to the more market-oriented Caixin and the typically belligerent Global Times, there was little information on what sent the nation's stocks to their biggest loss since 2016 and caused the sharpest yuan weakening in three years.

Actual censorship was employed:

Posts and stories about Trump's twin pronouncements were deleted from Weibo, according to Weiboscope, a project backed by the University of Hong Kong that tallies deleted posts and censored words on the Twitter-like service. And several users reported that attempts to post screenshots of the American leader's tweets to Tencent's WeChat were blocked.

A Chinese delegation is to arrive in Washington, D.C. on Wednesday.  Trump's tweets signal to the Chinese leadership that they had better be prepared to offer more than has been indicated — certainly more than increasing imports of agricultural products, and probably relating to actual, effective intellectual property protections and limiting the forced disclosure of technology through joint ventures as a condition of accessing the Chinese market.

There may also be, as Sundance speculates, a link to the test-firing of three missiles by North Korea last week, following the return of secretary of the treasury Mnuchin from trade talks in Beijing.  Sundance believes that China gave the nod to Kim's defiance of the expectations of a stand down to keep the denuclearization talks going between the U.S. and North Korea.  If Trump believes this, his threat to apply tariffs is a response to this provocation.

Trump's calculation clearly is that China's greater dependence on the bilateral trade relationship continuing gives the U.S. an advantage in applying pressure.  It is hard to argue with that.  China already is hurting from the tariffs in place.  The regime is tightening controls over its populace, which indicates fear.  For a generation and more, the regime has legitimized itself by providing a rising standard of living and shiny new buildings, railroads, highways, and other amenities of a developed country.  All of that is threatened by a potential trade war.

The arrival of the Chinese delegation will be a critical moment on Wednesday.  Almost certainly, Trump will offer them an exit from the highway to a trade war.

Update via CNBC:

  • A source briefed on the talks had told CNBC that Chinese Vice Premier Liu He will likely cancel the trip he'd planned for the final round of talks that U.S. officials had previously said could yield a deal by Friday.
  • A second source said Trump's decision to more than double the tariff rate on $200 billion of goods was meant to send a message to Liu to not come to the U.S. with more "empty offers."
  • During a Monday news conference, a spokesman for China's Ministry of Foreign Affairs said through a translator that the country's team "is preparing to travel to the U.S. for the trade talks." He did not confirm whether Liu would be among that group.

Hat tip: Roger Luchs