Donald Trump, the President of the United States (US), did follow through with his election promise by imposing tariffs on China. US has already imposed tariffs on $34 billion in Chinese imports, to which China has retaliated. Trump upped the ante by instructing the US Trade Representative Robert Lighthizer to consider raising proposed tariffs on $200 billion in Chinese goods to 25 percent from 10 percent. The Chinese Ministry of Commerce responded with a retaliatory threat on Thursday, August 2nd.
But the market moves suggest that China is taking a bit hit – Shanghai index has lost close to 17 percent in the last three months whereas the Dow has more or less stayed steady (see figure below):
So why are the Chinese markets tanking? “It is because Chinese markets are heavily influenced by foreign capital flows and capital has been flowing out of China”, said John Rutledge, the Chief Investment Officer of Safanad, a global principal investment house.
Is China throwing in the towel?
Does this mean that China is going to capitulate? Not so fast, say experts. The effects of the tariffs have not yet been felt by the common man and when they do, it will cause a furor. Additionally, a third of the value-add of Chinese exports are from US firms, which would see lower sales as a result of higher prices at the stores. In a global marketplace where there is a relentless effort to find the best price, a tariff levied by the World’s biggest consumer is going to have an effect.
Last week, the Chinese made some conciliatory efforts by reaching out to the US to see if a meeting could be arranged between Xi Jinping and Donald Trump, sometime in November. A nine-member delegation from Beijing, led by Vice Commerce Minister Wang Shouwen, will hold meetings with U.S. officials led by the Treasury undersecretary, David Malpass, on Aug. 22 and Aug. 23, it is learnt.
Note the timing – November. Is China expecting a redrawing of the political map in the US, which would weaken Trump, thus making him more amenable to them? Only time will tell.
 US, China plot roadmap for meeting between Trump, Xi to resolve trade dispute: Wall Street Journal – Aug 17, 2018, CNBC.com
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