The News
Having staged a dramatic rally after US President Donald Trump put a 90-day pause on some tariffs, US markets fell back Thursday as Beijing’s retaliatory duties on US imports came into effect.
European and Asian markets gained Thursday, but analysts’ concerns rose over the deepening US-China trade war: Trump excluded Beijing from the tariff reprieve, hiking duties on Chinese goods to 145%.
SIGNALS
Trump needs allies to keep China at bay
Donald Trump’s U-turn indicates that Washington is “looking to exert maximum pressure” on China “while seeking other countries’ cooperation in its rivalry with Beijing,” Bloomberg wrote. China’s tit-for-tat levies “created an opportunity” for Trump to pause other tariffs “as a token of friendship.” “Facing off against the world’s second largest economy in a sustained trade war requires alternative and reliable partners,” The Washington Post wrote: China has already sought to capitalize on tariffs by reaching out to US trading partners as an alternative. With the European Union apparently open to negotiations with Beijing, however, Trump could struggle to “coerce other countries into coordinated tariff action against China,” an ING economist wrote.
The tariffs have already done damage
“Do not mistake the consolation of having avoided disaster for good fortune,” The Economist warned following the pause: Donald Trump has raised the average US tariff rate to over 25% since January, while the dollar’s recent drop in value “all but guarantees” that US consumer prices will rise. A trade war with China — which exported $438.9 billion worth of goods to the US last year — could push the American economy into a recession, The New York Times reported. Market investors, meanwhile, are adopting a wait-and-see strategy: “Delays help, but do not reduce uncertainty,” a Morgan Stanley economist said. “Some may invest despite the possibility of ‘liberation day’ two, but many will not,” a Santander analyst said.
Trade deal negotiations have no clear outcome
Donald Trump now faces “a huge task to negotiate simultaneously” with the 90 or so countries that were subject to his “Liberation Day” tariff blitz, a former US trade representative told NBC News. Trump might decide to try imposing more product-specific duties, rather than country-by-country tariffs, one analyst told the Financial Times, but any attempted return to the status quo is unlikely. “Governments and businesses are likely to use the pause to strengthen their defenses should the trade war flare up again,” The Wall Street Journal noted: European Commission President Ursula von der Leyen said the EU would still focus on “diversifying its trade partnerships.”