September 13 was the Mid-Autumn Festival in China. The holiday is a harvest festival during which people gather, show gratitude, and pray. This year, prayers may carry additional weight amid China’s ongoing trade war with the US. During the festival, fewer Chinese consumers may buy US-made goods for their families and friends, as tariffs and the weakening Chinese yuan have made them more expensive.
Some investors may also express gratitude for the recent decisions made by Presidents Xi Jinping and Donald Trump. This week, both China and the US delayed some tariffs as a goodwill gesture. The S&P 500 Index (SPY) has gained over 1% in the last two trading sessions since the delay was announced. China’s (FXI) Shanghai Composite Index closed up 0.75% on September 12 for the same reason. The Chinese market was closed on September 13.
Trump’s trade diplomacy
So far, President Trump has given special consideration to festivals in his trade war strategy. Last month, he delayed tariffs on $160 billion worth of Chinese goods to December 15 from September 1. These products include made-in-China smartphones and other consumer products. The reason is simple: Trump doesn’t want the trade war to affect holiday shopping in the US. A slowdown in consumer spending may hamper his “economy is great” narrative.
Apple produces most of its products in China through contract manufacturers such as Foxconn. Apple has opposed Trump’s trade war tactics on multiple occasions. On August 16, President Trump and Apple CEO Tim Cook discussed the tariffs. Later, the president said that the meeting had been “very good.” For the first time, Apple has been affected directly by the trade war. The Apple Watch and other products were hit by tariffs starting on September 1.
Google is shifting its Pixel smartphone production out of China to Vietnam due to the trade war. Amazon is also looking to shift production of its Echo devices to Vietnam. Vietnam also celebrates the Mid-Autumn Festival. It’s a day dedicated to children and the moon.
Will tariff hike delays turn into short-lived trade war respite?
While the tariff delay sounds good, it’s only for 15 days. Moreover, apart from the goods subjected to tariff hike delays, the trade war is also affecting hundreds of billions of dollars’ worth of goods. Starting on September 1, the US started levying a 15% tariff on $110 billion worth of Chinese goods entering the US. The trade war will further escalate on December 15, when tariffs on the remaining $160 billion worth of Chinese goods come into effect. President Trump seems to be having second thoughts about everything, making it difficult for us to determine the next chapter of the trade war.
China has also started levying retaliatory tariffs. China’s 25% tariffs on US cars will take effect on December 15, hampering US automakers such as Ford, GM, and Tesla (TSLA). Tesla is building Gigafactory in China to produce its Model 3 electric vehicle. Last month, the company had to raise prices earlier than expected due to the falling yuan. While the Gigafactory could help Tesla save on costs and escape tariffs on the Model 3, it will still have to pay tariffs on higher-end models if a trade deal isn’t reached.
What’s next in the trade war?
During the Mid-Autumn Festival, people also pray for longevity. With the trade war still on, markets may be looking for longevity of free trade. As for President Trump himself, it’s not clear whether he’ll be praying for longevity of tariffs.