China triples down on its long game after Trump doubles down.

A Resolute President leaning on the namesake desk during trade talks with Chinese VP, Liu He.

A Resolute President leaning on the namesake desk during trade talks with Chinese VP, Liu He.

Strike 2 - Friday 10 May, the Don’s double-down.

The war of blunt instruments continues - with Strike 1 being the original imposition of US steel and aluminium tariffs on July 6 last year (see my last year blogs).

Last Friday, US tariffs on about US$200 billion of Chinese products were increased from 10% to 25%.

This ‘Strike 2’ retaliation by the Don was in direct response to China’s reported roll back on certain agreements and a trade deal -something that the US equities market (and many others) had prematurely factored in.

Along with Friday’s increase, Donald Trump also threatened to extend tariffs over the entire estimated US$540 billion of annual Chinese imports.


The behaviour of the US equities market last week was proof that too many traders/investors have not taken the tariff war seriously enough, and tonight’s session which started around 1.7% down at the open (with the DOW down >2% as I write) is further proof.

China-exposed Apple is about 5% down and Boeing and CAT are showing 4% to 5% declines.

Tariff income to purchase US food for the poor - that’s gotta upset China.

Interestingly, during last week reports from CNN and Fox seemed to indicate that the tariff revenue the US Government would generate on about US$200 billion of goods would be used to support the US farm sector - by purchasing food from farmers and sending it off as aid to ‘poor countries’.

This probably incensed Chinese authorities.

Strike 3 (not out) - China triple-down.

When leaving the Washington trade talks on Friday, the Chinese Vice Premier tripled down on the conditions that would have to occur to end the trade war, namely:

  1. Remove all extra tariffs.

  2. Set purchases of goods in line with real demand.

  3. Ensure the text of the deal is ‘balanced’ to ensure the ‘dignity’ of both nations.

As we know, there are certain fundamental issues that the US requires (including changes to Chinese Law) that China finds repugnant.

However, the US position appears resolute given this President has chosen to draw his line in the sand in relation to decades of US IP theft by China.

Strike 4 - Monday 13 May, retaliatory tariffs.

Prior to the planned release of new tariffs on US$300 billion in Chinese imports from the White House, China responded today with retaliatory tariffs.

These will apply to about US$60 billion of US goods. Most items will see tariff rates at least double, with 5% items moving to 10%, and 10% items to 20% or 25%.

Reportedly, these will take effect on 1 June 2019.

Statements from China today included words such as ‘a response to unilateralism and trade protectionism’, and that China is simply seeking to meet the US at the ‘half-way’ point with a ‘win-win’ outcome.

Steeeeeeeeerike 5 - About to land.

Strike 5 is about to land as I write this late Monday night Perth time, with the imposition (not removal) of ‘all extra tariffs’ that China has warned against.

This would mean extra US tariffs on the remaining US$340 billion of Chinese imports.

It seems to me that the past 10 months have been a warm up to the main game of tariff bludgeons which started yesterday, with Strike 4.

Equities are off significantly, Gold is still to break out of the 1,300 range, volatility is up but most of all Bitcoin continues to rally.

To the extent US markets again expect/hope for interest rate cuts (in light of the potential for an escalating trade war) bonds might also rally.

Maybe the Don gets his way with Jerome Powell - and perhaps this was the plan from the get-go, but that’s just speculation.

As to whether there will be any effect on China’s demand for West Australian iron ore - this is still opaque and remains to be seen.

Stay tuned.


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