Policy by Tweet: US Announces New Tariffs on China

Call it policy by tweet.  President Trump announced new tariffs on China on the social media platform.

1. For ten months, the US has levied a 25% tariff on $50 bln of Chinese high tech imports and 10% tariff on $200 bln of other goods.

2.  Starting at the end of next week, the 10% tariffs will be raised to 25%.

3. There is still roughly $325 bln of Chinese imports that are not penalized but will be shortly at 25%. 

  

4. Claims little impact on US costs, as tariffs are “mostly borne by China.”

5. Trade talks continue but are going too slowly and “as they attempt to renegotiate.” 

Implications:  There is will likely risk-off to start the week as China returns from the extended May Day holiday.   In equities, this means downside risks.  It is good for core fixed income, but the European periphery may underperform.  Italian bonds are often treated as risk assets, Spain is trying to form a government, and Portugal’s government is threatening to resign five months before the national elections.  In the currency market, the yen and Swiss franc may be the chief beneficiaries.  East Asia appears to be the laggard in Q1.  South Korea’s unexpectedly contracted in Q1, and although Japan does not report until later in the month, its economy is also expected to have shrunk.  Taiwan slowed.  North Korea missile test adds to the regional unease.  US actions cannot go unanswered by China.  Manufacturing and trade remain weak before this escalation. 

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