In almost every way, the overnight trading action has been a mirror image of the ramp observed on Monday morning, when trade tensions - inexplicably, one trading day after trade war started - were said to have "gone away" leading to a furious global rally.
Not so much today, when hours after Trump unveiled the second round of trade war - at the worst possible time according to bulls, just ahead of earnings season, once again spoiling the positive effect of what is set to be another 20%+ EPS rise for the S&P - by pushing ahead with plans to impose tariffs of 10% on an additional $200 billion of Chinese goods by releasing a list of targeted products that includes consumer items such as clothing, television components and refrigerators, global stocks are a sea of red amid a worldwide market selloff as traders realized that not only is trade war not hibernating, but it is set to keep getting worse as Steven Englander explained last night, as escalation has now crossed past "the point of no return."
While the duties have some time before taking effect, and the soonest they could be implemented would be after public consultations end on Aug. 30, Beijing has described the move as “totally unacceptable” bullying and vowed it will be forced to retaliate, without however giving details.
However, the biggest risk is that, as Bloomberg wrote, Trump has pushing his China trade conflict beyond "a point of no return", where neither side can back down. China now has seven weeks to make a deal or dig in and try to outlast the U.S. leader. However, president Xi Jinping, facing his own political pressures to look tough, has vowed to respond blow-for-blow. He’s already imposed retaliatory duties targeting Trump’s base including Iowa soybeans and Kentucky bourbon.
Yet matching the latest U.S. barrage would force China to either levy much higher tariffs or take more disruptive steps like canceling purchase orders, encouraging consumer boycotts and putting up regulatory hurdles. Not only does that risk provoking Trump to follow through on threats to tax virtually all Chinese products, it could unleash nationalist sentiment on both sides that fuels a deeper struggle for geopolitical dominance.
“It’s already past the point of no return,” said Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong. “What’s next is not so much a trade war or even a cold war as the dawn of an ice age in relations between China and the United States.”
As noted above, the Chinese Commerce Ministry said on Wednesday that it would be forced to retaliate against what it called “totally unacceptable” U.S. tariffs, with China’s Vice Minister of Commerce Wang Shouwen saying in comments to Bloomberg that Beijing “never yields to threat or blackmail” and will retaliate against the “groundless” tariffs."
"The U.S. side ignored the progress, adopted unilateral...