In his own mind, President Trump is a four -dimensional job that always thwarts his counterparts. In his real world trade war, however, Trump showed his cards to his most powerful opponent and revealed some of his constraints.
Several weeks of manic tariff activity by Trump and mass confusion in the financial markets have finally brought a certain clarity: although Trump wants to redo the entire American trade system, his real target is China.
Until April 9, Trump had imposed new prices on imports of almost all countries, as well as additional import taxes on certain categories of products, including cars, steel and aluminum. No one has suspended.
While the financial markets were in the lead, Trump finally fell back on April 9 by suspending most of his “reciprocal” prices specific to the country for at least 90 days, until early July. The only notable exception is China, which obtained the opposite treatment: even higher prices.
The Trump price on Chinese imports is now 145%, compared to around 6%, on average, when Trump took office and has trained its objective on the world No. 2. The tariff rate is so high that it is “an effective blockade on Chinese imports”, according to Heidi Crebo-Rediker, former head economist of the State Department and main member of the Council for Foreign Relations.
Find out more: What Trump’s prices mean for the economy and your wallet
This leaves China in a unique opposing position with Trump. China retaliated against Trump’s prices much more aggressively than most other American business partners, including many who have not responded at all and rather proposed to make concessions.
The Chinese price on American products is now 125%, going from 84% on Friday, and Beijing took other measures to punish American companies. The rhetoric of China was also much more bellicose than that of anyone, with its Ministry of Commerce, saying in a press release that China “would fight until the end”.
China would avoid a trade war if it could, but it is a proud country led by an obstinate autocrat, President Xi Jinping, who undoubtedly wants Trump’s commercial intimidation. XI and its setting also consider China as a legitimate superpower trying to hang on to parity with the United States, and perhaps beyond. XI preached a national belief in autonomy In recent years, and he could very well see a trade war with Trump as a crucible China must move on to economic greatness.
XI has some advantages. On the one hand, Trump’s prices are a tax on American companies and consumers, not on Chinese exporters, which is why the first line of damage is during American shares. The prices lower the equity prices because they increase costs for businesses, which reduces future profits. They also injure Chinese exporters, as prices effectively increase the cost of their products, leaving American buyers looking for other suppliers or simply buying less. But the US stock market feels damage first, because equity prices are, in fact, a predictor of future economic developments – which the markets now consider bad.
The losses of investors drawn by the unilateral tariff movements of Trump are an obstacle integrated into the extent to which Trump can go. “President Trump is losing a leverage if the shares continue to drop,” said Tom Lee, co-founder of the investment company Fundstrat, in a video briefing on April 7, in the midst of the stock market sale. As Trump has bail out his reciprocal prices on April 9, the S&P 500 index had dropped almost 20% of its peak, putting it at the dawn of a lower market. Thus, a dive of 20% of the original values can be a measure of the Trump’s pain threshold.
Exchange. From left to right, President Donald Trump, former Canadian Prime Minister Justin Trudeau, Chinese President Xi Jinping and Mexicia President Claudia Sheinbaum (AP photo) ·Associated Press
This drop in the equity cascade was starting to have a disturbing side effect: rumors on the bond market. Bond yields – Interest rate – normally fall during the sale of shares, because investors selling stocks generally put money in highly liquid cash bonds. The demand for treasury bills increases the prices of bonds while reducing interest rates that investors require to hold them.
But from April 4 to 9, the American yields of Tresasury increased by more than four tenths of percentage points, while normally they would have dropped. At the same time, the value of the dollar has dropped in an unusually significant amount against the euro and other currencies, which suggests that a disorderly sale of American assets with potentially disastrous consequences could be in progress.
It added to pressure on Trump. “The peak in the 10 and 30-year-old treasure seemed to be the ultimate pressure point for Trump to interrupt these prices for 90 days,” said Crebo-Rediker.
Investors suddenly wonder if China or a group of American commercial adversaries could cause an American financial crisis by deliberately selling treasury bills to increase American interest rates, which could freeze credit markets. A credit crisis is generally worse than a sale of shares, because if can affect liquidity companies, they must pay their bills, especially if this happens quickly. A credit cream and frozen liquidity helped transform the housing bust in 2008 into a financial crash which has almost become a depression.
China holds around $ 760 billion in US Treasury titles, or 2.6% of the United States total debt negotiated on public procurement. The share has decreased in recent years, and it is probably not enough for China to arm itself as a lever effect against Trump in a trade war. China would suffer damage to any credit crisis that has struck the United States, which could hinder the ability of many nations to buy Chinese exports at the current levels.
But the simple size of the American debt load – which will only grow as Trump pushes tax reductions funded by the deficit – is a vulnerability that Trump may not have counted when he launched his trade war. The higher its prices, the more they will cause damage to the American economy, the more foreign investors are likely to withdraw, exerting upward pressure on rates. China sees this and Trump has now shown its sensitivity to the possibility of a credit crisis.
As an autocrat who no longer needs to face the elections, XI can bear political pain longer than Trump. But China also has vulnerabilities. Trump’s prices will harm many Chinese companies and harm the global Chinese economy if they remain in place for a long time. XI is powerful but not always decisive, and there is no obvious way for him to thwart Trump.
“He can degenerate and cause more pain, or to hold back and seem weak both to foreign rivals and his domestic audience,” said Craig Singleton of the Foundation for the Defense of Democracies recently written in foreign policy. “Anyway, the driving knot is tightening.”
Trump says he is ready to negotiate with business partners, but he has also shown an interest in “Decoupling »American and Chinese economiesAfter 25 years of deep integration. This process may have started, and as long as Trump has his say, it can be irreversible.
By narrowing the objective of his trade war with China, Trump can support the resources that he cannot afford to waste elsewhere. China may not be able to win a trade war, but it can certainly be a thorny enemy that causes a lot of damage – and knows where to aim.
Rick Newman is a main columnist for Yahoo Finance. Follow him Bluesky And X: @rickjnewman.
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