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Analysts at Rabobank suggest that the proximate trigger, and one that will ensure Asia is a sea of red again today, was Bloomberg stating US President Trump will announce a 25% tariff on ALL Chinese exports in early December unless he gets progress from a planned meeting with Chinese President Xi next month.

Key Quotes

“That’s a doubling of the total level of goods now under tariffs. Considering a 60-day phase in period, this would imply from Chinese New Year 2019 we have the worst case scenario in US-China trade relations, something few wanted to seriously contemplate at the start of the year. (It was, however, the main scenario fleshed out back in November 2017 as a path to a US victory over China in a looming Cold War.)”

“Let’s assume the Bloomberg story is true as it would be a perfectly Trumpian tactic of exerting maximum pressure. What can China do in response? By Trump making that threat publicly, Xi cannot now offer anything substantive, even if there were anything substantive that he wanted to offer.”

“One example of what that is likely to mean for China is a Reuters report: “Many US firms in China eyeing relocation as trade war bites: survey” showing more than 70% operating in the manufacturing powerhouse Pearl River Delta are considering relocation. Although only 1% are talking about moving back to North America, and all are worried about price hikes, it should be clear who is going to take the far greater pain if that shift occurs.”

“And linked to it is the other key shift – when we get USD/CNY above 7. We were at 6.9750 at time of writing.”