Chaos has returned to global financial markets, and it does not appear that there will be an easy fix this time. For the first four months of 2019, the mainstream media told us over and over again that a great deal of progress was being made on a trade deal with China and that negotiations would soon reach a final conclusion, but now it has become clear that those news reports were fake news. For a variety of reasons, the Chinese have been slow playing negotiations all along. Once they got the Trump administration to suspend the implementation of any new tariffs while negotiations were ongoing, the Chinese no longer had any urgency to reach an agreement. In fact, if the Chinese could have run out the clock all the way to the 2020 election, they surely would have done so. They would very much prefer to negotiate with someone else, and I think that President Trump has finally figured out that he was being played. On Sunday, in a very angry two part tweet Trump announced that he is going to slap China with huge new tariffs…
For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions Dollars….
…of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
Chinese Vice Premier Liu He had planned to bring a large delegation to Washington on Wednesday to hash out a trade deal — and there’d been talk in recent days that something resembling a deal could result. Instead, two sources briefed on the talks said the Chinese side may back out of this week’s negotiations.
That was pegged to Trump’s new threats, they said, which abandon a six-month truce after Beijing waffled on some previously discussed commitments.
Chinese Vice Premier Liu He has cancelled his trip to Washington this week for trade talks following a tweet by President Donald Trump threatening more tariffs because the talks have moved too slowly. #China#Trade#Breaking
Needless to say, global financial markets did not respond well to this news. For most of the year, hope that a trade agreement was imminent had lifted stocks, but now that hope appears to be gone.
Asia Pacific stocks tumbled in Monday morning trade following a re-escalation in U.S.-China trade tensions as President Donald Trump declared an impending increase in tariffs rates on $200 billion of Chinese goods.
The mainland Chinese markets plunged in morning trade. The Shanghai composite, Shenzhen composite and Shenzhen component all plunged more than 5% each.
Oil prices also saw sharp declines in the morning of Asian trading hours, with U.S. crude futures dropping 2.34% to $60.49 per barrel. For its part, international benchmark Brent crude futures also declined 2.09% to $69.37 per barrel.
Unfortunately, this is likely to be far more than just a temporary setback for the markets. Unless a trade deal can be salvaged somehow, things are likely to get very “interesting” quite rapidly.
According to one top expert quoted by CNBC, this “has all the makings of a complete disaster that could lead the stock market to crater this week and send those external risks to the US economic outlook soaring”…
“Another turn of the screw tighter Sunday from the President’s hard-ball tactics with the China trade talks, and his pair of tweets look like they could unleash a sharp stock market correction,” said Chris Rupkey, chief financial economist at MUFG Union Bank, in a note. “For weeks now markets have been lulled to sleep on the US trade war with China thinking an agreement was imminent. No more.”
“This has all the makings of a complete disaster that could lead the stock market to crater this week and send those external risks to the US economic outlook soaring,” he added.
“We have a recession in place. It’s just a matter of playing out in some of these other funny numbers. The reality is on the downside, where you have mixed pressures right now. People who are really concerned about the economy right now, and that includes President Trump looking at re-election, he’s been arguing that the Fed should lower rates, and I am with him. The Fed created this circumstance. They are pushing for the economy on the upside because they want to continue to keep raising rates. Banks make more money with higher rates, and they are still trying to liquidate the problems they created when they bailed out the banking system back in 2008.”
The first few months of 2019 have been surprisingly quiet, but now events appear to be accelerating in a major way.
So hold on tight, because it appears that a very bumpy ride is ahead.
Trump
to Hike Tariff Rate on $200 Billion in Chinese Goods: Two Tweets Two
Lies
President Trump said Sunday that he planned to increase tariffs on $200 billion of Chinese goods to 25% from 10% on Friday, as negotiations for a U.S.-China trade deal are set to resume on Wednesday.
“The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” he tweeted.
U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin concluded high-level trade talks in Beijing last week. Those talks are set to resume on Wednesday when Chinese Vice Premier Liu He leads more than 100 officials from more than a dozen government agencies to Washington—a sign Beijing thinks final details can be ironed out, according to people close to the talks.
The Chinese Embassy in Washington didn’t immediately respond to requests for comment. Mr. Trump’s announcement came in the middle of the night Beijing time.
Trade Talk Timeline
Trump has changed his tune on a trade deal with China so many times it's hard to count.
In December, Trump gave China 90 days to conclude a deal Otherwise. Trump said he would boost tariffs on $200 billion of Chinese goods to 25% from the current 10%.Those 90 days ended March 1.
On March 12, the Washington Post stated U.S. Trade Representative Robert E. Lighthizer told the Senate Finance Committee “Our hope is that we are in the final weeks” of negotiations. However, Schumer said on the Senate floor, “It is abundantly clear that China is playing us.”
On March 13, Trump stated that he is in No Rush to Complete China Trade Deal. “I think things are going along very well - we’ll just see what the date is,” Trump told reporters at the White House.
I understand it takes time to work out trade deals.
But how many times can one change the target date while citing "huge progress" and not look foolish?
Trump has over-promised and under-delivered on every trade discussion, not just with China.
Two Tweets, Two Lies
Lies of the Day
Tariff payments are responsible for 0% of "great economic results". Rather, Trump's tariffs, or if you prefer, retaliatory tariffs devastated US farmers.
Costs are not borne by China. Rather, costs are bore by US consumers and businesses that import from China, Mexico, etc.
Yes, the trade talks are going slow.
Implied Third Lie, Just Not Today
Trump's comment that trade talks are going slowly is an admission that trade talks were not really going as well as previously claimed.
The changing timeline and today's tariff increases are further proof.
What to Make of Today's Tweets
It's difficult to know precisely what to make of today's Tweets. We will not know until we see how China reacts.
If China pulls back or increases agricultural tariffs, it means China has had enough of Trump's BS.
If the trade talks continue without retaliation from China, it means this is a political ploy that China is willing to go along with.
Option Two Likely
I suspect we are dealing with option two.
If so, China has agreed in advance to go along with this BS. Trump will then announce that his increase in Tariffs are what closed the deal.
My base position has not changed one iota:
There will be a deal. It will be hyped as the greatest trade deal in history.
Mostly, the deal will return to the status quo of China buying more soybeans and other agricultural products.
Any other benefit that allows Trump to brag was just something that China was willing to do all along, without all this hype and theatrics.
Mike "Mish" Shedlock
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