Last week, in an attempt to soothe jittery markets, Trump’s chief economic advisor Larry Kudlow said the US and China would probably strike an agreement to stop tariffs from being imposed – though he admitted that talks hadn’t started just yet.
Well, more than a week later, the two sides have apparently made zero progress toward a deal, because early Thursday, Beijing hit back with a pair of announcements that are sure to pop the bubble of trade-war optimism that has buoyed markets this week, according to CNBC.
First, China’s Ministry of Commerce confirmed that there have not been any trade negotiations between the two sides at any level recently. It added that the liberalization measures touted by President Xi Jinping and PBOC Gov. Yi Gang pertained solely to China proactively opening up its market – not trade.
But in one of the strongest hints that China doesn’t intend to surrender even an inch of ground to the US – though it recently ruled out currency manipulation as a means of retaliation – the MoC confirmed that China will not hesitate to retaliate should the US escalate its trade spat with Beijing.
When Xi said earlier this week that China intends to lower some import duties on automobiles, he wasn’t making a concession to the US – rather, lowering autos tariffs was part of China’s liberalization plan all along.
Following Xi’s speech, President Trump tweeted that he was “thankful” for the president’s kind words.
“Very thankful for President Xi of China’s kind words on tariffs and automobile barriers…also, his enlightenment on intellectual property and technology transfers. We will make great progress together!”
Trump had earlier criticized China in a tweet for maintaining its 25% import tariffs on cars compared with the US’s 2.5% duties, touting this as an example of “stupid trade.”
MoC spokesman Gao Feng, speaking during his regular press briefing, said it’s unreasonable to have tariffs be completely equal for both sides, and that there is no requirement for tariff equalization between two countries according to the rules of the WTO. Gao added that Beijing has been unwilling to negotiate because it believes Washington hasn’t been sincere.
As the Financial Times said then, all of the measures unveiled in Xi’s speech had been announced earlier, and Xi offered no new details about how they would be implemented.
Furthermore, as we noted at the time, sell-side analysts quickly seized on this, explaining that the market and the president were both misguided in their initial interpretation of Xi’s remarks. For example, UBS explained that “President Xi’s economic speech recycled the January Davos remarks.” Citi echoed this sentiment, adding that while Xi’s conciliatory speech had surprised the market, “a careful read of the original text in Chinese reveals that the speech was more a reiteration of existing commitments rather than new major initiatives or concessions to Trump.”
Citi further added that “a 360 degree swing of attitude within one week is not improbable but highly unlikely”. And that equity traders have behaved like a substantial concession had been made.
For now stocks – which were delighted to soar on the misreading of Xi’s speech – are completely ignoring China’s clarification of what really happened.