Chinese Stock Market Nosedives Amid Trump's Tariff Threats

Posted May 07, 2019

U.S. President Donald Trump's fresh threats of tariff hikes on Chinese imports this week marked a new escalation in the trade dispute between the world's top two economies and a reversal of months of apparent progress in negotiations.

In his tweets, Trump again showed he either doesn't understand how tariffs work or, more likely, doesn't seem to think the reality is as politically palatable as his claims that for 10 months, "China has been paying tariffs to the United States of America", that "these payments are partially responsible for our great economic results", and that "the tariffs paid to the United States of America have had little impact on product cost, mostly borne by China".

A high-level Chinese delegation led by Vice Premier Liu He was scheduled to be in Washington this week to resume talks aimed at resolving the trade war that has cast gloom over the world economy. 325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. "It's going to mean that investors will be very focused on the trade issues even beyond China", with a review of USA auto-import tariffs still pending, she said.

Beijing was surprised by U.S. President Donald Trump's threat to levy new tariffs on trade with the country, the Journal reported, citing a person it didn't identify.

The US president originally imposed a 10 percent tariff on these goods in September that was due to rise in January, but postponed this as negotiations advanced. In dollar terms, a decline in two-way trade of $25 billion accounts for around 0.5 percent of global trade. The U.S. releases the April CPI report Friday.

China is now considering canceling the talks, according to media reports.

"The next important thing is the reaction from China".

The Shanghai Composite index closed 5.6% lower at 2,906.46 after plunging more than 6% earlier in the session. "Despite the increase in gold prices (on Monday), technical analysis suggests that downward pressure on the yellow metal continues to manifest", OCBC analysts said in a research note, adding that most of the intra-day move was likely related to covering short positions and hedging against market risks. The Tariffs paid to the U.S. have had little impact on product cost, mostly borne by China. Let Trump raise tariffs.

"Raising tariffs means raising taxes on millions of American families and inviting further retaliation on American farmers", said Christin Fernandez, a spokeswoman for the Retail Industry Leaders Association.

In this file photo taken May 1, 2019, Chinese Vice Premier Liu He, right, gestures as US Treasury Secretary Steven Mnuchin, centre, chats with his Trade Representative Robert Lighthizer, left, before they proceed to their meeting at the Diaoyutai State Guesthouse in Beijing.

The negotiating period was prolonged in March after officials from both sides said trade talks reached a breakthrough. China wants the tariffs to be lifted, while Trump wants to keep some, if not all, of them as part of any final deal to ensure China lives up to its commitments, a White House official said on Sunday. Analysts said Trump's comments might be a negotiating tactic, but might also make Beijing reluctant to appear as if it was giving in to USA demands.