US weighs fresh tariffs on Chinese imports – will Trump’s strategy pay off?

by 6 Apr, 2018

European markets and Wall Street futures slipped again at the open Friday, after President Trump escalated trade tensions late Thursday. The pullback in stocks comes on the heels of a stronger day for markets yesterday. Indeed, April 5th was the best day for UK equities since the Brexit vote in June 2 years ago. 

The US has threatened to add an additional $100 billion of tariffs to a range of Chinese imports, after China outlined their own retaliatory tariffs on over 100 US products earlier in the week. The move came just as data was released which showed America’s trade deficit widened to $57.6bn in February as its international trade hit a monthly record.

The President said on Thursday: “Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers.” He added, “In light of China’s unfair retaliation, I have instructured the USTR to consider whether $100bn of additional tariffs would be appropriate.”

The news out of Washington has made it a ‘risk-off’ day once again, as traders brace for more volatility, though indices in Germany, France and Britain are beginning to rise after a sloppy start.

ING analyst: Trump could win on trade

An international trade analyst at investment firm ING thinks Trump may have a chance of coming out of the trade dispute with a win. Speaking in a blog post, ING’s Raoul Leering wrote: “Does President Trump really not understand that a trade war is a lose-lose situation or is he playing a smart strategic game? There are indications the latter is the case.” Leering added that other countries depend far more on American demand for their products than the other way around. “It is likely that China will, in the end, cut its losses and be willing to give Trump something.”

An example of a country that moderated its approach to trade at the request of the US was South Korea, which recently agreed to open their markets further to American vehicles. However, given China’s position as more of an adversarial power to the US and its record on intellectual property theft, it’s unlikely the 2 nations can come to an amicable agreement as quickly in comparison.

Given China said it would “firmly fight back” at any cost if the U.S. wanted to escalate a trade confrontation, the stakes are extremely high!

White House officials will be hoping that the measures will force the Chinese to come to the table and address their unfair trade practices (including widespread intellectual property theft and steel dumping), but it could turn into a lose-lose situation for both nations unless a breakthrough is made.

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