US-China trade war getting worst? – Deutsche Bank

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Deutsche Bank analysts point out that the awaited China retaliation was the focus yesterday as they announced the raising of tariffs on a number of US goods from June 1st.

Key Quotes

“To be fair it was hard to really say that the retaliation was much of a surprise however the rubber stamping perhaps confirmed that any hopes for de-escalation were out of the window for now.”

“In addition to that and compounding the pain for markets were the comments from the editor of China’s Global Times Hu Xijin (who has quickly become a must follow on Twitter for his perceived connections) which grabbed equal if not more attention. Not long after the tariff news hit, Xijin tweeted “China may stop purchasing US agricultural products and energy, reduce Boeing orders and restrict US service trade with China. Many Chinese scholars are discussing the possibility of dumping US Treasuries and how to do it specifically”. Hardly the sort of message that implies China is willing to let this pass by then or attempt to compromise.”

“Not to be outdone, President Trump had already tweeted yesterday that there “is no reason for the US consumer to pay the tariffs” and that “China has taken advantage of the US for so many years that they are well ahead. Therefore, China should not retaliate – will only get worse”.”

“Another tweet by the President said “I say openly to President Xi and all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries”. Risk assets did stage a small attempt at a comeback in the afternoon after Trump said that he plans to meet with President Xi at the G20 next month and that he had not yet decided about when or if to implement the next tranche of tariffs on around $300bn more of Chinese imports. That followed comments from Secretary Mnuchin, who stated that negotiations with China are currently ongoing. Ultimately though, the market seems to be getting a bit more nervous of the more positive comments and rallying much less off the lows than it did last week.”

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