Last week we covered the news that President Trump and his administration were preparing to implement a new round of Tariffs on China, with 25% tariffs proposed on up to $200B of Chinese goods. The latest announcement from the White House is an indication that the administration is losing patience and intends to pressure China into coming to the table for more trade talks. Analysts believe that China’s somewhat meek response to the latest tariff threat is an indication that they are not ready for a long trade war.

As happened with tariffs earlier in the year, China indicated that they are willing to respond, threatening 25% tariffs on over 5000 types of U.S. imports. These tariffs would impact up to $60B of U.S. products that are sent to China.

These latest threats from both sides have come while two Chinese complaints sit with the World Trade Organization. China is not alone in raising complaints to the WTO. The European Union, Russia, and India also raised complaints for U.S. trade issues this year.

The United States economy is currently growing, while China’s is slowing down. Many believe that China simply can’t afford a long trade war. China is hoping that their smaller but strategically placed tariffs will be more damaging, particularly on agricultural producers in the U.S.

Earlier this week, a Chinese state-run newspaper said Washington had “lost its mind” on trade, while an economic advisor to the White House called China’s latest retaliatory threats “weak”.

Long Trade War, Politics Weighing Heavily on Investment Markets

Volatility has been high in the stock market this year, with trade tensions factoring into the numbers for the last six months. When tensions rise, investors lose confidence. Thankfully, the damage has not been widespread or prolonged. Tech gains have protected most diversified portfolios, while some areas of manufacturing have picked up in the last two quarters.

The United States has a $375B trade deficit with China, which is what all the rhetoric and tariffs ultimately come down to. For the U.S., this situation is not fair or sustainable. For China, it means that more favorable terms will need to be reached soon, as the American economy is in a much better position to weather a long trade war.