Silver as an investment

“We’re In Uncharted Waters” – Stocks, Yuan, Commodities Slump As US-China Trade Wars Re-Escalate

Just when you thought it was safe to BTFTrade War Dip, a headline hits to remind you that President Trump is anything but done with China.

The new list marks the latest escalation of the trade war between the world’s two biggest economies.

And judging by the reaction in stocks and the yuan, it appears that the market’s brilliant extrapolation of “no more trade wars” as a result of a 3 days silence (of which 2 was during the weekend) may have been wrong.

As Asia markets open, Dow Futs are down around 300 from the closing highs

And S&P Futures down around 1%…

FTSE China A50 Index Futures Fall 2% in Singapore.

Japanese stocks are making new lows for Wednesday, with the Nikkei 225 now down 1.5%.

Copper in London Falls as Much as 3.8% to $6,092.50/Ton (Crude is also sliding)

Additionally offshore yuan is tumbling…

Treasury yields dropped…

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The US has released the list of $200 billion in Chinese products that could be subject to an additional 10% tariff, fulfilling President Trump’s promises for further escalation of the burgeoning trade war between the US and China. Meanwhile, a senior US official reportedly told CNBC that China isn’t seriously negotiating on trade, suggesting that the hoped-for negotiated settlement might not materialize – at least not anytime soon.

“As a result of China’s retaliation and failure to change its practices, the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports.

This is an appropriate response under the authority of Section 301 to obtain the elimination of China’s harmful industrial policies.

USTR will proceed with a transparent and comprehensive public notice and comment process prior to the imposition of final tariffs, as we have for previous tariffs.”

U.S. Trade Representative Robert Lighthizer reportedly took into consideration what might cause the biggest disruptions to China’s economy while building the list.

“For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition.”

“China has not changed its behavior — behavior that puts the future of the U.S. economy at risk. Rather than address our legitimate concerns, China has begun to retaliate against U.S. products. There is no justification for such action.”

The tariffs, some which will impact goods from “Made in China 2025” sectors, a state-planned initiative to establish China as a leader in several key industries, including artificial intelligence and wireless technology. The tariffs will go into effect on August 30th, after a two-month review process, with two public comment sessions. Trump has threatened to impose tariffs on as much as $500 billion in Chinese imports, which would cover roughly all of the Chinese-made products entering the US.

“If the U.S. loses its senses and publishes such a list, China will have to take comprehensive quantitative and qualitative measures,” the Ministry of Commerce said at the time.

The National Retail Federation, one of the most powerful trade associations in Washington, says simply that:

Trump’s new list “doubles down on a reckless strategy that will boomerang back to harm U.S. families and workers. We still don’t know what the endgame is” for Trump’s strategy.

The full list can be found in the document below:

As we have noted previously, China only imports around $130 billion worth of U.S. goods meaning it has a limited ability to match U.S. tariffs dollar for dollar. The U.S. imported $505 billion of goods from China last year and has promised tariffs on $250 billion worth of those products.

China could jack up existing tariffs well beyond the 25 percent level imposed so far, though that would cause pain on both sides. Analysts say it’s more likely China will resort to non tariff barriers such as making it much tougher for America Inc. to do business in China.

The responses across Wall Street are almost unanimously bad (where were all these views as The Dow surged 800 points in the last few days?)

Goldman: “The tariff would not take effect until September at the earliest but nonetheless marks an escalation of trade tensions. Networking equipment, computer components, and furniture would be the most heavily impacted imports in this round. We believe that the release of the list raises the probability that further tariffs will be implemented, though we note that the publication of the list is not a commitment to implementation, which would need to be ordered in a separate step following a comment period.”

Mark Mobius: “We are in uncharted waters.”

Don Riley, chief investment officer at Wiley Group: “Markets won’t like it and yes earnings positives will most likely be overwhelmed by trade fears.

Strategists at Singapore’s DBS bank: “The tariff news was also ill-timed for investors hoping for a trade war respite to capitalize on the expected stream of strong US corporate earnings. Overall, Trump reminded markets that US-China trade tensions are likely to escalate ahead of the US mid-term elections in November.”

Edward Alden, senior fellow at CFR, says Trump’s crackdown on trade with China is a “dangerous miscalculation”.

Richard Turnill, chief investment strategist at BlackRock, told Bloomberg TV earlier: “In the short run it’s very difficult to see what’s going to bring an end to this escalation of tit-for-tat. It’s those increasing concerns that are going to weigh on market returns and force investors increasingly to look for more resilience in their portfolios.”

And of course, politicians had to chime in:

Senate Finance Chairman Orrin Hatch immediately called the action “reckless” and not “targeted.”

House Ways and Means Committee Chairman Kevin Brady:

With this announcement, it’s clear the escalating trade dispute with China will go one of two ways – a long, multi-year trade war between the two largest economies in the world that engulfs more and more of the globe, or a deliberate decision by President Trump and President Xi to meet and begin crafting an agreement that levels the playing field between China and the U.S. for local farmers, workers and businesses.”

“Despite the serious economic consequences of ever-increasing tariffs, today there are no serious trade discussions occurring between the U.S. and China, no plans for trade negotiations anytime soon, and seemingly little action toward a solution.”

“It’s time to take the first step into a new era of fair and free trade. I strongly urge President Trump and President Xi to meet soon face-to-face to craft a solution to establish fair and lasting trade between our two countries.”

Republican Senator Jeff Flake has told reporters there will be a Senate vote on Wednesday on a nonbinding measure aimed at limiting President Trump’s power to impose tariffs. Flake says he expects a majority of both Republicans and Democrats to support the bill