The year-long US-China trade war escalated dramatically in August. Now the world is watching to see whether new tariffs that kicked in this weekend will bring the two economic superpowers to the negotiating table, or set the stage for more damaging exchanges of fire.
The latest round of tariffs that the United States and China imposed on each other went into effect Sunday. This volley kicked off after Washington announced early in August it would impose 10% tariffs — later raised to 15% -— on Chinese imports worth $300 billion. Beijing countered with tariffs of 5% to 10% on about $75 billion worth of US goods.
Washington’s latest move targets Chinese-made products like TVs and apparel that could cost the typical American consumer. In a bid to soften the blow to holiday shopping, the US government has postponed the implementation of about half of them until December 15.
The additional tariffs come as concerns about slowing global growth are building and fear of recession stalks several major economies. Investors and executives around the world are desperate for any sign of whether the two countries will reach a truce soon.
President Donald Trump declined to say Friday whether he will speak with Chinese President Xi Jinping over the weekend.
“I can’t tell you, but we are speaking to China. I can’t tell you whether or not I’m personally speaking to Xi,” Trump said.
Trump also said badly managed companies are using tariffs as an excuse for their businesses’ struggles.
Global stocks spent much of last week in a state of anxiety. Trump’s comments that China “called” to relay a desire to return to the negotiating table helped markets move higher. But Beijing’s aloof response — a foreign ministry spokesman said he hadn’t heard about such a phone call — reintroduced doubts.
The whiplash effect has become so pronounced that even the slightest suggestion of good news from China later in the week sent markets on an upswing. A commerce ministry spokesman told reporters the country is willing to solve the trade problems with a “calm attitude”— remarks that boosted Wall Street and Asian stocks.
“It doesn’t sound like a lot,” wrote Jeffrey Halley, senior market analyst at Asia Pacific for Oanda, in a research note Friday. But given the “fragility” of markets earlier in the week, investors “would probably have continued streaming for the exit door” without the comments from China, he added.
That doesn’t necessarily mean good news is just around the corner. While Washington and Beijing are supposed to have another round of trade talks in September, neither side has said when exactly those discussions will take place. And China’s Commerce Ministry suggested that new tariffs from the United States need to be taken off the table so the two sides can move forward.
“The issue we should really be discussing is to cancel the increased tariffs on $550 billion worth of Chinese goods and to prevent a further escalation of the trade war,” Chinese Commerce Ministry spokesman Gao Feng told reporters Thursday. He was referring to this weekend’s tariffs as well as a hike in existing US tariffs Trump has threatened for Oct. 1.
“I believe the market has interpreted recent developments too positively,” wrote Iris Pang, Greater China economist for ING Group, in a note Friday.
First of all, it would be very difficult for Trump to back down so quickly, she said, adding that it’s not even a sure bet that September’s discussions will be meaningful.
“Even if there are, both sides may just reaffirm to the other side their pre-conditions for further talks,” Pang added. “And for both, this is likely to be that the other side first needs to make concessions. This implies no progress.”