AI
Friday, April 11, 2025 3:42:05 AM
China knows Trump’s breaking point
https://finance.yahoo.com/news/commentary-china-knows-trumps-breaking-point-213645787.html
Several weeks of manic tariff activity by Trump and mass confusion in financial markets have finally provided some clarity: Though Trump wants to remake America’s entire trade system, his real target is China.
As financial markets cratered, Trump finally backed down on April 9 by suspending most of his country-specific “reciprocal” tariffs for at least 90 days, until early July. The one notable exception is China, which got the opposite treatment: even higher tariffs.
The Trump tariff on Chinese imports is now 145%, up from about 6%, on average, when Trump took office and trained his sights on the world’s No. 2 economy. The tariff rate is so high that it’s “an effective blockade on Chinese imports,” according to Heidi Crebo-Rediker, former chief economist at the State Department and a senior fellow at the Council on Foreign Relations.
That leaves China in a uniquely adversarial position with Trump. China has retaliated against the Turmp tariffs far more aggressively than most other US trade partners, including many that didn’t retaliate at all and instead offered to make concessions. The China tariff on American goods is now 84%, and China has taken other measures to punish American businesses. China’s rhetoric has also been far more bellicose than anybody else’s, with its Commerce Ministry saying in a statement that China “will fight to the end.”
Xi has some advantages. For one thing, Trump’s tariffs are a tax on American businesses and consumers, not on Chinese exporters, which is why the first line of damage is to US stock prices.
Investor losses driven by Trump’s unilateral tariff moves are a built-in barrier to how far Trump can go. “President Trump does lose leverage if equities keep falling,” Tom Lee, co-founder of investing firm Fundstrat, said in an April 7 video briefing, amid the stock-market sell-off. By the time Trump bailed on his reciprocal tariffs on April 9, the S&P 500 index had dropped nearly 20% from its peak, putting it on the cusp of a bear market. So a 20% plunge in stock values may be one measure of Trump’s pain threshold.
But from April 4 to April 9, US Tresasury yields rose by more than four-tenths of a percentage point, when normally they would have been falling. At the same time, the value of the dollar fell by an unusually large amount against the euro and other currencies, suggesting that a disorderly sell-off of US assets with potentially dire consequences could be underway. That added to the pressure on Trump. “The spike in the 10- and 30-year Treasury seemed to be the ultimate pressure point for Trump to pause these tariffs for 90 days,” Crebo-Rediker said.
Investors are suddenly wondering whether China or a group of US trade adversaries could cause a US financial crisis by deliberately selling Treasuries to drive US interest rates up, which could freeze credit markets. A credit crisis is generally worse than a stock sell-off because if can affect the liquidity companies need to pay their bills, especially if it happens fast. A credit crunch and frozen liquidity helped turn the 2008 housing bust into a financial crash that nearly became a depression.
China Stocks Extend Gains as Stimulus, Deal Hopes Get Upper Hand
The mood was less upbeat in the morning session, after the White House clarified Thursday that after including a 20% levy imposed earlier this year, the total tariffs on China stand at 145%, a level far above what many economists said could decimate US-China trade.
Stocks were rising on the potential easing in US-China tensions after Trump indicated the willingness to “exempt thousands of products from tariffs,” said Steven Leung, an executive director at UOB Kay Hian Hong Kong. “Investors are also expecting some supportive measures in China after top officials’ recent meetings.”
Trump said Thursday he thought the first trade deals are “very close” and voiced optimism that China would eventually come to the table.
A prolonged trade war may also result in Chinese stocks’ underpeformance in Asia, Nomura Holdings Inc. strategist Chetan Seth warned. “We think HK/China equities are still not off of the hook yet – and will likely lag the region as US-China trade tensions are only rising,” Seth wrote in a note Thursday.
https://finance.yahoo.com/news/commentary-china-knows-trumps-breaking-point-213645787.html
Several weeks of manic tariff activity by Trump and mass confusion in financial markets have finally provided some clarity: Though Trump wants to remake America’s entire trade system, his real target is China.
As financial markets cratered, Trump finally backed down on April 9 by suspending most of his country-specific “reciprocal” tariffs for at least 90 days, until early July. The one notable exception is China, which got the opposite treatment: even higher tariffs.
The Trump tariff on Chinese imports is now 145%, up from about 6%, on average, when Trump took office and trained his sights on the world’s No. 2 economy. The tariff rate is so high that it’s “an effective blockade on Chinese imports,” according to Heidi Crebo-Rediker, former chief economist at the State Department and a senior fellow at the Council on Foreign Relations.
That leaves China in a uniquely adversarial position with Trump. China has retaliated against the Turmp tariffs far more aggressively than most other US trade partners, including many that didn’t retaliate at all and instead offered to make concessions. The China tariff on American goods is now 84%, and China has taken other measures to punish American businesses. China’s rhetoric has also been far more bellicose than anybody else’s, with its Commerce Ministry saying in a statement that China “will fight to the end.”
Xi has some advantages. For one thing, Trump’s tariffs are a tax on American businesses and consumers, not on Chinese exporters, which is why the first line of damage is to US stock prices.
Investor losses driven by Trump’s unilateral tariff moves are a built-in barrier to how far Trump can go. “President Trump does lose leverage if equities keep falling,” Tom Lee, co-founder of investing firm Fundstrat, said in an April 7 video briefing, amid the stock-market sell-off. By the time Trump bailed on his reciprocal tariffs on April 9, the S&P 500 index had dropped nearly 20% from its peak, putting it on the cusp of a bear market. So a 20% plunge in stock values may be one measure of Trump’s pain threshold.
But from April 4 to April 9, US Tresasury yields rose by more than four-tenths of a percentage point, when normally they would have been falling. At the same time, the value of the dollar fell by an unusually large amount against the euro and other currencies, suggesting that a disorderly sell-off of US assets with potentially dire consequences could be underway. That added to the pressure on Trump. “The spike in the 10- and 30-year Treasury seemed to be the ultimate pressure point for Trump to pause these tariffs for 90 days,” Crebo-Rediker said.
Investors are suddenly wondering whether China or a group of US trade adversaries could cause a US financial crisis by deliberately selling Treasuries to drive US interest rates up, which could freeze credit markets. A credit crisis is generally worse than a stock sell-off because if can affect the liquidity companies need to pay their bills, especially if it happens fast. A credit crunch and frozen liquidity helped turn the 2008 housing bust into a financial crash that nearly became a depression.
China Stocks Extend Gains as Stimulus, Deal Hopes Get Upper Hand
The mood was less upbeat in the morning session, after the White House clarified Thursday that after including a 20% levy imposed earlier this year, the total tariffs on China stand at 145%, a level far above what many economists said could decimate US-China trade.
Stocks were rising on the potential easing in US-China tensions after Trump indicated the willingness to “exempt thousands of products from tariffs,” said Steven Leung, an executive director at UOB Kay Hian Hong Kong. “Investors are also expecting some supportive measures in China after top officials’ recent meetings.”
Trump said Thursday he thought the first trade deals are “very close” and voiced optimism that China would eventually come to the table.
A prolonged trade war may also result in Chinese stocks’ underpeformance in Asia, Nomura Holdings Inc. strategist Chetan Seth warned. “We think HK/China equities are still not off of the hook yet – and will likely lag the region as US-China trade tensions are only rising,” Seth wrote in a note Thursday.
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