Breaking: Trump to impose additional 10% tariff on remaining $300 bln of Chinese imports to US starting Sept 1


  • Trump retaliates to not only China but to the Federal Reserve on his own soil.
  • Trade wars just turned uglier and are morphing into a full-blown currency war.

There is major news that has hit the circuit today that the US administration will impose an additional 10% tariff on the remaining $300 bln of Chinese imports to the US starting Sept 1. This is a complete surprise to the markets and we are seeing huge variations across all sectors with US 10-year yields now down a whopping -6.44 % at the time of writing, almost 4% of that on this news story alone. 

The decision from Trump came following a meeting that took place this morning between the trade representatives reporting back to their president on the Minutes of the Shanghai trade discussions with their Chinese counterparts. In a quick blast of tweets from the president, markets scrambled for the hills, sending the yen further off its cliff to complete a full 1% round trip on the day.

Trump tweeted:

Our representatives have just returned from China where they had constructive talks having to do with a future Trade Deal. We thought we had a deal with China three months ago, but sadly, China decided to re-negotiate the deal prior to signing. More recently, China agreed to buy agricultural product from the U.S. in large quantities, but did not do so. Additionally, my friend President Xi said that he would stop the sale of Fentanyl to the United States – this never happened, and many Americans continue to die! Trade talks are continuing, and during the talks the U.S. will start, on September 1st, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%...

...We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!

  • Markets are impacted hard on this news. 

Market implications and what it means for the Fed

USD/JPY made a fresh low of 107.48, down from the post-Fed decision highs of 109.32. The 10-year yield dropped to 1.876%, down from the 2.0610% highs. The 2-years have dropped nearly 10% to a low of 1.6920% from a high of 1.9060%. 

The news essentially means that the odds of the Federal Reserve cutting interest rates, again and again, are far greater. After all, Powell said that the reason for the cut was an insurance against the trade wars. Powell said the following yesterday:

  • "Weak global growth, trade policy uncertainty and muted inflation have concerned Fed."
  • "Trade policy tensions have returned to a simmer."

Then, Trump tweeted:

"....As usual, Powell let us down, but at least he is ending quantitative tightening, which shouldn’t have started in the first place - no inflation. We are winning anyway, but I am certainly not getting much help from the Federal Reserve!"

What the Market wanted to hear from Jay Powell and the Federal Reserve was that this was the beginning of a lengthy and aggressive rate-cutting cycle which would keep pace with China, The European Union and other countries around the world...."

So, you have to wonder as to how orchestrated this move from Trump was in retaliation to the Fed's decision yesterday to be more aggressive in their shift and tone with respect to a new easing cycle. Risk assets such as gold, CHF and the Yen should remain well bid on this fresh impetus and currencies such as the AUD and now even possibly the Dollar will bear the brunt of a deeper and protracted trade war which is now turning into a full-blown currency war.  

 

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