On the New China Tariffs
Trump announced new tariffs of 10% on $300 billion in US imports from China, starting September 1. The tone was polite, but the theme was recrimination for China’s past failures to deliver. By calling the tariffs “small,” Trump is hinting they could be bigger someday. And by waiting a month t impose them, while citing China’s failures, Trump is listing what needs to be done to keep the tariffs from kicking in. Markets reacted negatively, but we think they are getting used to the use of tariffs as diplomatic tools. RMB fell sharply, now only 0.70% from breaching the critical 7-level. Oil fell sharply, reflecting the threat to already stagnant Chinese demand-growth. The risk here is not the cost of the tariffs as taxes, but the possibility of inducing a disorderly hard landing in China, or a destabilizing collapse in the already glutted global oil market.