China Rejects Trump's Tariff Olive Branch, Vows Imminent Retaliation Against US

One day after the Chinese press roundly mockedTrump’s unsolicited tariff delay as proof the US was losing the trade war with China, with the Global Times saying that “Chinese experts said the sudden postponing of impending tariffs showed that the maximum pressure tactics of the US are losing their bite when it comes to China”, a suddenly emboldened Beijing – perhaps sensing that it is indeed dealing with a weaker opponent – called planned U.S. tariffs on an additional $300 billion in Chinese goods a violation of accords reached by Presidents Donald Trump and Xi Jinping, and warned it would take all necessary measures to impose new tariffs on its own.

Echoing what Global Times editor in chief Hu Xijin said overnight, a short Thursday statement from the State Council Tariff Committee said the new 10% tariffs have taken the U.S. and China off the track of resolving their dispute through negotiation, and noted that China “has no choice but to take necessary measures to retaliate,” without specifying what the nation would do. The committee has overseen tit-for-tat retaliatory tariffs on American products.

The statement indicates that it won’t take long for China to reveal its own retaliatory tariffs, according to Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics in Beijing. The response is about expressing China’s stance even though policy makers know the impact on the U.S. economy will be limited, he told Bloomberg.

That said, according to an analysis by twitter China watcher, Trinh Nguyen, the amount China has left under tariffs is about USD10bn (already imposed 110bn) “so not much ammunition & will need curb investment/FX deval/UST/rare earth curb. Chart below 👇🏻 US has plenty left & reflects trade diff w/ China.”

But what is far more troubling, is that contrary to Trump’s implied expectation that China would respond with an olive branch of its own and according to Steven Englander, “will expect China to reciprocate by buying US agricultural products in the coming weeks”, not only does China not plan on doing so but – as we warned yesterday – will send relations between the two nations into even greater turmoil with escalation of its own.

Less than 12 hours before the Chinese statement on retaliation, Trump suggested another meeting with Xi. In a flurry of tweets, Trump defended his tariffs decisions, praised Xi and urged the Chinese president to “humanely” resolve the protests that have gripped Hong Kong for more than two months. He ended the posts with an apparent overture to Xi — writing “Personal meeting?” — without clarifying whether he was suggesting another summit.

In kneejerk response to the apparent escalation, European stocks declined and U.S. equity futures pared a gain of almost 1%. The Stoxx Europe 600 index fell while the three main American equity contracts trimmed an earlier jump after China’s move.

And with the ball no longer in China’s court now that Beijing has spat at Trump’s coy attempt at quasi-appeasement, all eyes are back on Trump’s twitter feed where the US president has two options: either offer even more concessions to China and be seen as even weaker and more desperate to get some concessions out of Beijing (unlikely), or go back to square one and/or escalate tensions even more and potentially eliminate the proposed tariff delay, sending stocks plunging (and the Fed that much closer to the coveted emergency rate cut).


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