Danske Bank analysts note that the US has raised tariff rates on USD200bn of Chinese goods from 10% to 25% and China says it deeply regrets the move and will retaliate.
Key Quotes
“The only good news here is that China stays for talks on Friday. The fact that talks were only 90 minutes suggests there was little movement on both sides. The talks Friday will probably focus on how to get talks back on track.”
“Best guess now is that both sides talk Friday and then pause for a rethink of how to proceed. If so, we are in for a period of high uncertainty. But we need to await the outcome of Friday’s talks to make closer assessment.”
“We do not know details of how and when China will retaliate. But I think they will try to be measured on the surface, but start to halt purchases of US agricultural goods again. Tariffs may go up but China will aim to use measures that hurt the US but not themselves. That is why quantitative measures are better since they can buy agricultural goods elsewhere.”
“After Friday we should look out for whether Trump initiates the process of putting tariffs on the USD325 bn of Chinese goods he said he would do in his Sunday tweet. It would be a sign that the parties are far from each other and escalate matters further.”
“There are many scenarios from here but our baseline is still that we will have a deal by the end of Q2 – so within two months.”
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