Trump Tries to Use His Version of Leverage, Again, on China

Posted on 08/01/2019 1:55 PM

Trump: New 10% tariffs coming Sept. 1 on $300 bil. of China products if...

A lot of things are odd when it comes to the Trump administration. The latest bewildering event is another President Trump Tweet on China: 

“Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to... agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States — this never happened, and many Americans continue to die! Trade talks are continuing, and...

...during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tarrified at 25%...

...We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!

The Chinese President can't just stop sales of fentanyl to the US. The sales [are] done by lots of illegal groups who don't always follow every order from the president.”

Perspective: The oddity comes when you consider that the official White House statement Wednesday on the completion of Shanghai-based talks this week mentioned nothing about the threatened 10% tariffs on $300 billion of Chinese products come September 1. Reports note the tweets came after Trump got a briefing from U.S. Trade Representative Bob Lighthizer and Treasury Secretary Steven Mnuchin. Lighthizer has always said additional tariffs are up to Trump. But Trump watchers say this is actually typically Trump, knowing the threatened tariffs have a month to go before taking effect, setting up August working groups between U.S. and China officials and technies regarding issues, and perhaps having those groups show enough progress to forestall any 10% tariffs on $300 billion in additional Chinese products. Recall also that Trump had called a trade truce after meeting with Chinese President Xi Jinping at the G20 summit in June. He said that his administration elected to take the step announced today despite "constructive" trade talks this week in Shanghai led by Mnuchin and Lighthizer. That is about as bewildering as watching the Democratic presidential candidates’ debates.

Equity traders took Trump's tweet to heart, putting a dagger into what had been 300-point gains to sink nearly 285 points at this writing. A nearly 600-point swing. Call it the Trump tweet break.

Bottom line: At face value (and nothing much nowadays can be taken at face value) is that talks this week clearly took a step or two backwards. No progress was made, despite reports to the contrary by both countries. And we now have a month of watching working groups try to forestall an acceleration of the Trump trade war with China.

See you in September, along with a now-scheduled 13th meeting between U.S. and Chinese officials in Washington.

Lastly, it will be interesting to see what China says officially regarding Trump's tweet. Suggestion: Believe China's explanation of the topic.

Bill Bishop of Sinocism notes that China is unlikely to cave to his demands over the next month. Now that is something equity traders should count on.


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