China Warns New US Tariffs Will Be “Catastrophic” For Global Stocks

Wednesday, February 20, 2019
By Paul Martin

by Tyler Durden
Wed, 02/20/2019

Chinese state-run newspaper the Global Times warned – or perhaps threatened – late Tuesday that failed trade negotiations would have dire consequences for global stocks.

The threat of a market catastrophe has pigeonholed the US into striking a deal with Beijing, the report suggests although many are confident that the situation is flipped.

“[Trump’s] words further stoked the stock markets of the US, which reached the highest in two months and so increased pressure on the Trump administration to close the deal with China,” said the Global Times in an Op-Ed, adding that if the Trump team “imposes more tariffs on Chinese products while China responds with fiercer countermeasures,” it would “be a catastrophic strike to global stock markets.”

“In terms of avoiding such blows, the Trump administration is probably the most pressured,” the Op-Ed continues. “Thus in general, by the end of the trade negotiations, China and the US have become more psychologically equal” (according to the state-run outlet). As a result, “both sides would eventually lose,” the Times warned.

Why China’s implicit threat? Perhaps because, as Shard’s Bill Blain noted earlier today, at least in the context of its economy, China is already losing the trade war, and therefore has little to lose by escalating the war of words. This is what Blain said overnight:

The recent data highlights the Chinese economy may be slowing faster than XI can maintain his grip – he’s weaker than ever before. (Raising one scenario threat of a long-drawn out period of uncertainty if he is marginalised/deposed and a power struggle follows. That could be very destabilising and disruptive for the Occidental economies desperate to sell the China!)

We reckon XI knows he’s out of time and has to settle – handing Trump a critical victory. Long-term the US-China tech-war is difficult to call. Trump is determined to garner payback for China IP theft, and its difficult to imagine the rest of Asia adopting Chinese tech systems if they lose the current trade war to the US. However, you can’t just undo years of China tech development. My techy contacts tell me Huawai’s boasts about the US’ inability to close them is partial bluff and bluster – it’s not as advanced or robust as it claims, plus the US is going to insist on wrecking it – which could prove another long-term friction point.

The next question is how much of a favorable outcome the market has already priced in. Yesterday the S&P 500 rose modestly after President Trump suggested that the two largest economies might have more time to hammer out a deal without raising tariffs by the March 1 deadline, however it gave up much of the gains into the close suggesting that all good news may now be priced in..

Meanwhile, a Chinese trade delegation is currently in Washington D.C. this week for the latest round of trade negotiations, however with the March 1 deadline a little more than a week away, signs of any tangible progress are sorely lacking.

And speaking of China’s economic context, the world’s most populous economy is facing an accelerating slowdown in export growth in coming months according to Nomura chief China economist Ting Lu, who notes that the rush to buy up goods in advance of possible tariff increases is now over.

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