So much for months and months of constant leaks, headlines, tweets, and press reports that US-China trade talks are going great, and are imminent amid an ocean of "optimism" (meant solely to sucker in amateurs into the most obvious bull headfake since 1987).
Just after noon on Sunday, President Trump tweeted that 10% tariffs paid by China on $200 billion in goods will rise to 25% on Friday, and that - contrary to what he himself and his chief economist, Larry Kudlow has said for months, talks on a trade deal have been going too slowly.
And, just to underscore his point, Trump also threatened to impose 25% tariffs on an additional $325 billion of Chinese goods “shortly.”
With the tariff rate on numerous goods originally set at 10% and set to more than double in 2019, Trump postponed that decision after China and the US agreed to sit down for trade talks; following Trump's tweet it is now confirmed that trade talks have hit an impasse and that escalation will be needed to break the stalemate.
It was as recently as Friday that Vice President Mike Pence told CNBC that Trump remained hopeful that he could strike a deal with China (at the same time as he was urging for a rate cut from the Fed).
Curiously, on Wednesday, the White House - clearly hoping to sucker in even more naive bulls to buy stocks at all time highs - said the latest round of talks had moved Beijing and Washington closer to an agreement. Press secretary Sarah Sanders said, “Discussions remain focused toward making substantial progress on important structural issues and re-balancing the US-China trade relationship.”
In recent weeks there were multiple reports that China and U.S. were close to a trade deal, and an agreement could come as soon as Friday. Major sticking points the U.S. and China have been intellectual property theft and forced technology transfers. There has also been disagreement as to whether tariffs be removed or remain in place as an enforcement mechanism. Related: MIT Invests $1 Billion In Artificial Intelligence
While it was not clear why Trump has decided to escalate his tariff policy, the most obvious explanation is that for a White House, which has been obsessed with pushing the S&P to record levels, this was the last lever it had at its disposal. And now that the S&P is back at all-time highs, the lies can end, if only for the time being.
Stock markets respond to latest trade deal news
Stock markets have been both the primary beneficiaries and the biggest losers in the ongoing trade war saga, jumping and falling on each piece of news regarding the potential of a trade deal.
The latest rhetoric sent investors into a whirlwind, as futures on all major United States indexes fell by a minimum of 1.8% at their worst levels. Abroad, markets were also a sea of red, with China’s Shanghai Composite diving 5.58% and Hong Kong’s Hang Seng index tanking 2.9%. Europe’s benchmark Euro Stoxx 50 also fell by 2%.
Warren Buffett commented on the pre-market market fall, mentioning that the reaction was “reasonable.”.
Buffett likewise noted that “If we actually have a trade war, it would be bad for the whole world, and could be very bad, depending on the extent of the war,” adding, “There are times in negotiations when you talk tough.”
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