China Weekly Letter: Retaliation is not over yet

China retaliated against Trump's tariff hikes on Friday. While countermeasures were expected, it was a reminder that the trade war is alive and kicking.
The retaliation is not over, though. China stated this week that it will announce the names on its 'unreliable entities list' soon, a countermeasure to the sanctions on Huawei.
USD/CNY moves to new 11-year high. We look for further CNY weakness.
Monetary reform to pave the way for more easing. Our GDP forecast for 2020 is lowered to 6.0% from 6.2% on continued trade war headwinds.

Danske Research Team Danske Bank A/S

Due to holiday there will be no China Weekly Letter next week.

China to reveal names on 'unreliable entities list' soon

On Friday afternoon, China announced countermeasures to Trump's 10% tariff on USD300bn of Chinese goods. 5-10% tariffs will be added on USD75bn of goods. Tariffs on US cars will go as high as 50% for some autos as the exemption of a 25% tariff hike is suspended. The countermeasures will also hit soybeans and oil. This is not likely to be the end of Chinese retaliation. China has not yet put countermeasures on US firms from the export ban on Huawei. But this week China stated it will soon announce names on its 'unreliable entities list', which was formed as a response to the US 'Entity List' that blacklists Huawei and other Chinese companies.

On Monday the White House announced that Huawei will get a further 90-day exemption from the blacklist. However, the exemption was mainly for domestic purposes and to underline that the exemption was not a softening, another 46 affiliates of Huawei were added to the list. Illustrating what a big blow the blacklist is, Huawei founder Ren Zhengfei wrote in an internal memo that Huawei is in a 'live or die' moment and he encouraged underutilized employees to form 'commando squads' to explore new projects.

This week Trump defended the trade war describing himself as 'the chosen one ' after saying that 'this is a trade war that should have taken place a long time ago.' Trump has faced a bit more resistance lately as it is clear that China and the US are not anywhere near signing a trade deal and that the US economy is showing more signs of damage from the trade war. CNBC's 'Mad Money' host Jim Cramer referred to warnings from Home Depot's CFO that the trade war could soon hurt consumer confidence. Cramer who has supported the trade war stated that 'I hope the President takes this opportunity to make a deal' and that 'the last thing any President wants is a trade war related recession as we head into election year'. A Washington Post article this week also described concern about the economy brewing inside the White House.

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Danske Research Team

Danske Bank A/S

Research is part of Danske Bank Markets and operate as Danske Bank's research department. The department monitors financial markets and economic trends of relevance to Danske Bank Markets and its clients.

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