Wolf Richter wolfstreet.com, www.amazon.com/author/wolfrichter
Apparently, the trade talks have collapsed.
On May 20, Treasury Secretary Mnuchin declared that the US-China trade war was “on hold” while the trade talks were being conducted. That didn’t last long. Apparently, those talks have collapsed. And Monday evening, President Trump threatened to hit another $200 billion of imports from China with 10% tariffs.
The Shanghai Composite Index plunged 3.2% by midday in China on Tuesday, to 2,924, the lowest level since June 2016. The index is down 12% since the end of February. Hong Kong’s Hang Seng fell 2.4% by midday. Tokyo’s Nikkei fell 1.5%. But US futures edged down only a smidgen.
It would be the second wave of tariffs, following the already decided first wave of 25% tariffs on $50 billion in goods, with $34 billion of imports to be hit on July 6, and $16 billion to be hit at a later date.
But instead of buckling under Trump’s first wave and addressing the IP-theft issues brought forth by the US, China vowed to retaliate in equal measure, which caused the infuriated White House to massively escalate the trade war with the second wave of threats.
“This latest action by China clearly indicates its determination to keep the United States at a permanent and unfair disadvantage, which is reflected in our massive $376 billion trade imbalance in goods. This is unacceptable,” Trump said.
“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States.”
“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said.
And Trump threatened a third wave of tariffs – 10% on another $200 billion of Chinese goods – if China retaliates against the second wave. But that threat also fell on deaf ears.
China’s commerce ministry vowed on Tuesday to retaliate with “qualitative” and “quantitative” measures that would match the US tariffs, adding: “Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions, and is a disappointment for the international community.”
“The United States has initiated a trade war and violated market regulations, and is harming the interests of not just the people of China and the US, but of the world,” the ministry said.
So it might be dawning on the markets in China that this is getting serious.
In terms of the Shanghai Composite index, since the crash of 2015, when the index dropped into the 2,700 range, the 3,000 level has been perceived as the place where the government steps in and moves the levers, in cooperation with more or less willing institutional investors, to buy-buy-buy and nudge the market back up. This heavy hand is likely to appear soon.