Lack of US-China trade deal weighs on Asian markets

Daniel Fowler
May 13, 2019

Continuing his Twitter thought on Saturday, Trump said "the only problem" with China's approach to trade talks "is that they know I am going to win (best economy & employment numbers in United States history, & much more), and the deal will become far worse for them if it has to be negotiated in my second term".

One of Donald Trump's top economic advisers has acknowledged the president was wrong to suggest that China would pay tariffs on its exports to the US.

The Republican U.S. president last week also ordered U.S. Trade Representative Robert Lighthizer to begin imposing tariffs on all remaining imports from China, a move that would affect an additional $300 billion worth of goods.

President Donald Trump threatened that the trade standoff with China will "get worse" if there is retaliation for US tariffs that go into effect on Chinese goods Monday.

The UBS analysts said the next escalation could come in as little as one month as USA regulators prepare to follow through on Trump's threat to extend penalty tariffs to all Chinese goods.

White House economic adviser Larry Kudlow told a Fox News program that China needs to agree to "very strong" enforcement provisions for an eventual deal and said the sticking point was Beijing's reluctance to put into law changes that had been agreed upon. But so far "the expected countermeasures haven't yet materialized", Kudlow said on Fox News Sunday.

Chinese state media kept up a steady drum beat of strongly worded commentary on Monday, reiterating that China's door to talks was always open, but vowing to defend the country's interests and dignity.

Beijing said it would make no concessions on core principles, even as the two sides eye more talks.

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Both sides are eager to portray the discussions as productive and ongoing in a bid to keep markets calm and ward off broader economic fallout and damage to things like business investment and sentiment.

Wei Jianguo, a former vice-minister at the Ministry of Commerce (Mofcom) responsible for foreign trade, said China still has abundant tools in its armoury and has already prepared a contingency plan to deal with the escalation of the trade war.

Mr Kudlow said the United States tariffs would remain in place while negotiations continue.

"The risk of a full blown trade war has materially increased, " they said in a report.

With another round ending without a deal, markets are underpricing how long the US-China trade talks may drag on, Eleanor Creagh, a Sydney-based Australia market strategist at Saxo Capital Markets, told Bloomberg Television. China will never surrender to external pressure.

The president argued there was "no need to rush" into a trade agreement with China, as the US Treasury was benefiting from these "massive payments".

"We're in terrific shape in order to correct 20 years plus of unfair trading practices with China", Kudlow said. President Trump said Beijing "broke the deal" by backtracking on earlier commitments to change its policies.

Later Sunday, Trump reiterated his view in a tweet: "We will be taking in Tens of Billions of Dollars in Tariffs from China".

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