20 Sep

Trade War: China Is Done with Conventional War

WRITTEN BY Mohit Oberoi, CFA

China

We’ve seen an escalation in the US-China trade war this week. On September 17, President Trump imposed 10% tariffs on $200 billion worth of goods from China. The tariffs will increase to 25% by the end of 2018.

Trade War: China Is Done with Conventional War

As expected, China retaliated by imposing tariffs on ~$60 billion of imports from the US. According to Reuters, “Beijing will impose levies on a total of 5,207 U.S. products—ranging from liquefied natural gas to certain types of aircraft as well as cocoa powder and frozen vegetables—at 5 and 10 percent, instead of previously proposed rates of 5, 10, 20 and 25 percent, the finance ministry said.”

Metal and mining stocks

Despite the escalating trade war, markets (SPY) were relieved that the tariffs from the US and China were lower compared to the expectations. Metals and mining stocks including U.S. Steel Corporation (X), AK Steel (AKS), Cleveland-Cliffs (CLF), and Freeport-McMoRan (FCX) have been among the biggest gainers.

Done with conventional war

Now that China has imposed tariffs on practically all of the goods it imports from the US, markets have been left wondering how the country will retaliate if President Trump imposes more tariffs. President Trump has been straightforward in warning China. President Trump said, “we will immediately pursue phase three, which is tariffs on approximately $267 billion of additional imports” if China retaliates against the tariffs.

Next, we’ll discuss the ammunition that China has if the trade war continues to escalate.

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