Analysis-Limited Options Push China Into Trade 'War of Attrition' With Trump

Economic

Forex

Summary:

Feeling boxed into a corner by the United States' intensifying tariff assault on China and any country that buys or assembles Chinese goods, is bracing for an economic war of attrition.

Washington last week imposed import tariffs of at least 10% on almost the entire world, and much higher levies on countries such as Vietnam, where Chinese factories have been shifting production. This drew retaliation from China, followed by new threats of escalation from U.S. President Donald Trump.

"Whoever surrenders first becomes the victim," said a Chinese policy adviser, asking for anonymity due to the topic's sensitivity. "It’s a matter of who can hold out longer."

China has no great options, though. It will court other markets in Asia, Europe and the rest of the world, but this may not be much of an escape valve.

Other countries have much smaller markets than the U.S., and local economies are also taking a hit from the tariffs. Many are also wary of allowing more cheap Chinese products in.

Domestically, a currency devaluation would be the simplest way to cushion the tariffs' impact but that could trigger capital outflows, while also alienating trade partners China may try to court. China has so far allowed very limited yuan depreciation.

More subsidies, export tax rebates or other forms of stimulus could be on the cards, but this also risks exacerbating industrial overcapacity and fuelling more deflationary pressures.

Analysts have advocated for years for policies that would boost domestic demand.

But despite Beijing's declarations, little has been done to meaningfully increase household consumption, given that the bold policy shifts that would be required could prove disruptive to the manufacturing sector in the short term.

Hitting back with its own tariffs and export controls may not be very effective, given China ships to the U.S. about three times as much in goods than around $160 billion it imports. But it may be the only option if Beijing believes it has a higher pain threshold than Washington has.

So far China has responded to last week's additional 34% U.S. tariffs with a similar blanket counter-levy. As Trump threatened escalation with an extra 50% hike, Beijing vowed to "fight to the end".

"China cannot inflict as much pain on the U.S. as it receives, since it runs the big trade surplus and, rare earths aside, still has more to lose from export controls," said Arthur Kroeber, head of research at Gavekal.

"But that is now beside the point. The signal from Beijing's move is that it will push back on U.S. efforts at domination, and that it is perfectly happy to settle into a war of economic attrition."

'PRECISION STRIKES'

Besides its own sweeping tariffs, Beijing can use its control over some strategic commodities and parts of the corporate world to hit Washington where it hurts the most.

China offered a taste of that on Friday, when it added seven rare earths to its export control list, a move that threatened to cut off the supply of materials U.S. defence and technology sectors depend on.

Beijing retains the option to expand the controls to 10 other rare earths or ban exports to the U.S. outright.

In the corporate world, Trump has expressed interest in a spin-off of short video app TikTok's U.S. business.

But China also has leverage there, thanks to rules it implemented in 2020 that require the company to obtain a technology export license before transferring its "secret sauce" algorithm abroad.

China indicated it would not approve the deal following the tariff announcement, sources told Reuters.

Beijing can also target U.S. companies with sanctions or add them to an unreliable entity list, which so far includes mainly firms which it says sell arms to Taiwan. U.S. drone maker Skydio, which had sourced its batteries from China, is one such company facing Chinese sanctions.

"Our strikes are 'precision strikes'," said Wu Xinbo, director at the Center for American Studies at Fudan University.

"The main priority is maintaining restraint and the next is using asymmetric methods," said Wu, adding these include export controls.

POLITICAL GAMBLE

With Washington and Beijing trying to inflict increasing pain on each other and the rest of the world seen as collateral damage in their trade war, it is hard to imagine how a grand deal to de-escalate would look like.

Economists say Trump's goal of balancing trade with China is unfeasible in the short-to-medium term, given that one side is the world's leading producer while the other is the biggest consumer.

China, hit earlier this year by a 20% tariff hike justified by fentanyl precursors rather than its trade surplus, is confused about what Trump specifically wants and rejects attempts of containment, even as it declares readiness for talks.

"China does not view the U.S. measures as conducive to creating the right atmosphere for negotiations," said Bo Zhengyuan, partner at China-based consultancy Plenum.

If a quick deal proves elusive, then it may turn into a battle of political wills, where some analysts believe Beijing has the upper hand.

Thousands of protesters gathered in Washington and cities across the U.S. at the weekend to protest against Trump, who is also facing heavy criticism from Wall Street for the global market turmoil his tariffs caused.

Chinese President Xi Jinping is unlikely to face similar resistance in his tightly controlled country, and can line up monetary and fiscal stimulus for later this year to ease some of the social stress if needed.

"Ultimately, it becomes a game of which country can actually manage its own population more effectively to manage the subsequent economic consequences from this trade war," said Zhiwu Chen, professor of finance at HKU Business School.

"Trump has to face, or at least Republican politicians have to face a lot of electoral pressure, and the American media are still pretty much free," he said. "So I think Trump's ability to fight politically with China is not that great."

Source: Yahoo Finance

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Warren Takunda

Cryptocurrency

Recent fake news that US President Donald Trump was considering a 90-day pause in tariffs shows the potential for a strong market rebound should a real one take place, according to observers.

A fake news post on X on April 7 from the verified “Walter Bloomberg” account claimed that the White House was considering a 90-day pause on tariffs following an interview with Kevin Hassett, one of Donald Trump’s economic advisers.

“Hassett: Trump is considering a 90-day pause in tariffs for all countries except China,” read the now-deleted post from the user, who is not affiliated with Bloomberg News.

The account, which has a verified badge and 852,000 followers, caused quite a stir after the rumor was mistakenly aired as a banner on CNBC and then amplified by Reuters.

The S&P 500 spiked more than 8% from its low on the day in reaction, the Nasdaq added 9.5% in less than an hour and the Dow Jones pumped 7%, adding trillions to stock markets.

Bitcoin prices saw a similar spike, with the asset pumping 6.5% to top $80,000 briefly before falling back again.

The official White House “Rapid Response” account quickly posted on X that this was fake news, and markets began to dump again.

“Market ready to ape” at a moment's notice

While the rumor was debunked as fake, crypto YouTuber Lark Davis said that the episode revealed some critical things about the market.

The market is ready to accept prolonged China negotiations as long as most deals can be resolved, he said before adding the “market is ready to ape, even a lame 90-day delay sent markets soaring.”

“Now imagine what happens when dozens of deals are made with top players ie, India, Canada, and the UK. Shit tons of money is on the sidelines, ready to ape in at a moment's notice.”

“That fake headline might actually give Trump, Navarro, and Lutnick more confidence to keep pushing this further,” commented X user Geiger Capital, who added, “They now know that at any point they can announce a pause and the market will rally ~10% in a single day.”

What really happened in Hasset interview

Fox News asked Hasset whether Trump would consider a 90-day pause in tariffs and was given a non-committal response. “I think the president is gonna decide what the president is gonna decide,” he said, adding: “Even if you think there will be some negative effect from the trade side, that’s still a small share of GDP.”

“The idea that it's going to be a nuclear winter or something like that is completely irresponsible rhetoric,” he said.

Shortly after the 90-day tariff pause post was deleted, Trump took to his own social media platform, Truth Social, to threaten China with even more tariffs.

“If China does not withdraw its 34% increase above their already long-term trading abuses by tomorrow, April 8th, the United States will impose additional tariffs on China of 50%, effective April 9th,” he said.

Source: Cointelegraph

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Warren Takunda

Economic

World markets won a reprieve on Tuesday after three days of heavy selling that wiped trillions of dollars off the value of shares, but the mood was cautious with a focus on whether Washington might negotiate on some of its aggressive tariffs.

Asia stocks bounced off 1-1/2 year lows, European shares opened broadly higher and U.S. stock futures pointed to a positive open for Wall Street where shares fell to their lowest in over a year on Monday, before steadying.

U.S. 10-year Treasury yields were steady after posting their biggest one-day jump in a year on Monday and the dollar, which has taken a beating from the tariff turmoil, remained weak against other major currencies.

"The mood is a little brighter, at least if you are looking at certain markets such as Japan which might be a priority for trade deal but there is lots of uncertainty," said Chris Scicluna, head of economic research at Daiwa Capital Markets in London.

"Markets could continue to be extremely volatile."

Japan's blue-chip Nikkei stock index closed 6% higher, with Treasury Secretary Scott Bessent tasked with leading trade negotiations with Tokyo.

In Europe, shares rose from 14-month lows and markets in London, Paris and Frankfurt were up more than 1% each, while oil held above four-year lows hit on Monday.

"Importantly, a little ray of sunshine is starting to emerge that gives hope that the U.S. is genuinely open to trade negotiations, (with) the most significant being Japan with Treasury Secretary Bessent," said Tapas Strickland, head of market economics at National Australia Bank.

FRAGILE

But less than a week since U.S. President Donald Trump unleashed sweeping reciprocal tariffs that sent world markets into a tailspin, the mood remained fragile.

The VIX stocks volatility index, often referred to as Wall Street's fear gauge, remained elevated at around 44 points -- albeit off Monday's peak just above 60.

China's markets rose only modestly after the country's sovereign wealth funds stepped in to buy shares. Chip-export-dependent Taiwan's benchmark tumbled 5%, a day after suffering its worst fall on record.

Thai stocks dropped nearly 6% in catch-up selling from a holiday on Monday, while Indonesia returned from a week-long holiday to 9% losses.

The Chinese yuan fell to 7.3677 per dollar in the offshore market, the weakest in two months, before rebounding to be slightly stronger than Monday's close at 7.3393.

The heightened uncertainty in markets wasn't helped by shifting headlines on trade as investors looked for respite from the sharp market volatility.

Trump also dug in his heels over China, vowing additional 50% levies if Beijing does not withdraw retaliatory tariffs on the United States. Beijing said on Tuesday it will never accept the "blackmail nature" of U.S. tariff threats.

The European Commission said on Monday it had offered a "zero-for-zero" tariff deal to avert a trade war with the United States as EU ministers agreed to prioritise negotiations, while also striking back with 25% tariffs on some U.S. imports.

DOLLAR FRAIL

Safe havens the yen and the Swiss franc held near six-month highs on Tuesday while the U.S. dollar nursed broad losses.

The dollar eased 0.5% to 147.08 yen .

The euro jumped 0.3% to $1.0943, and sterling climbed 0.3% to $1.2757.

The 10-year Treasury yield was lower in London trade after jumping some 17 bps on Monday as it bounced from six-month lows.

Analysts said a number of reasons may have explained the sharp rise in U.S. bond yields on Monday including investors selling their most liquid assets to make up for falls elsewhere.

On Tuesday, Japanese government bond yields rose off their own multi-month lows, with the 10-year yield up as much as 13 bps to 1.24%.

Gold added 0.8% to $3,006 per ounce, although it was still well back from last Thursday's record peak at $3,167.57, reached in the immediate aftermath of Trump's "Liberation Day" tariff announcement.

Brent crude futures slipped 0.7% at $63.71 per barrel, and U.S. West Texas Intermediate crude futures dipped 0.6% to $60.33.

Cryptocurrency bitcoin rose 1.2% to trade just below $80,000, after bouncing off a five-month low of $74,445.79 reached on Monday.

Source: Reuters

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Glendon

Economic

Forex

(April 8): US small-business confidence dropped for a third straight month in March, eroding most of the gains that followed President Donald Trump's election victory in November, amid rising concerns over the administration's trade policy despite early optimism about a potential business boost from expected tax cuts and deregulation.

The National Federation of Independent Business said on Tuesday its Small Business Optimism Index fell 3.3 points to 97.4, below the 51-year average and the biggest drop since June 2022. The slide mirrored declines in both consumer and business confidence in other recent surveys.

“The implementation of new policy priorities has heightened the level of uncertainty among small business owners over the past few months,” said NFIB chief economist Bill Dunkelberg. “Small business owners have scaled back expectations on sales growth as they better understand how these rearrangements might impact them.”

While the NFIB's uncertainty index eased, falling eight points to 96, from what had been the second-highest reading on record in February, it remained well above historical averages.

The share of owners expecting better business conditions dropped 16 points, to 21%, the lowest since October and the biggest drop since December 2020. The net share of businesses expecting higher sales in the next three months dropped to 3%, also the lowest since before the presidential election.

The survey was taken before Trump announced sweeping tariffs on April 2 that were far steeper than had been expected, triggering declines in global stock markets amid fears that the resultant changes to the world trade order will trigger recessions, including potentially in the United States. Fed chair Jerome Powell last week warned that tariffs could cause both inflation and slower economic growth.

"The impact of new tariffs is yet to be felt," the NFIB report said.

The NFIB survey showed the share of businesses raising average selling prices eased six percentage points from February to 26%, while the number planning to raise prices in the next three months ticked up to 30%, the highest in a year. Meanwhile a net 12% of businesses reported plans to increase hiring in the next three months, the lowest in 11 months.

Source: Theedgemarkets

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Michelle

Commodity

Fundamental Overview

The global stock marketrout didn’t spare gold as the precious metal fell alongside equities although ona much lesser scale. There's a common misconception with gold. People thinkit's a safe haven in crises times. But history suggests otherwise. If you lookback at the most recent recessions, you will notice that gold sold offalongside the stock market. It's not a protection against a market selloff.

When there's a tighteningin financial conditions stemming from an aggressive stock market selloff,widening credit spreads and recessionary fears, then all correlations go toone. The best times for gold is when the central bank cuts interest rates andthe market prices in better growth ahead.

But the absolute best timethough is during stagflationary expectations which we had in the past weeks andmonths. Those expectations got crushed by the tariffs announcement as it was sobad that the expectations switched to price in a recession.

We are now having atightening in financial conditions and this is going to weigh both on growthand inflation despite the expectations of more inflation from tariffs. In fact,market-based inflation expectations are going down now.

The risk of more inflationcould come only if the central banks start to ease aggressively and the currenttariffs remain in place, in which case, gold will rally hard. Conversely, if thecentral banks don't ease fast and the markets continue to sell off, then wewill just get a recession and potentially deflation which is a byproduct ofsuch crises and in this case, gold will collapse.

Of course, this doesn't take in consideration what happens with tariffs but an easing in fears and de-escalation should give gold a boost, while further escalation is likely to weigh more on the precious metal as it would increase recessionary fears.

GoldTechnical Analysis – Daily Timeframe

Gold Daily

On the daily chart, we cansee that pulled all the way back to the major trendline around the 2957 level. Thisis where the buyers piled in with a defined risk below the trendline toposition for a rally into new all-time highs. The sellers, on the other hand,will want to see the price breaking lower to increase the bearish bets into the2832 level next.

Gold Technical Analysis– 4 hour Timeframe

Gold 4 hour

On the 4 hour chart, we cansee that we have also a key resistancearound the 3057 level. From a risk management perspective, the sellers willhave a better risk to reward setup around the resistance to target a breakbelow the trendline. The buyers, on the other hand, will want to see the pricebreaking above the resistance to increase the bullish bets into new highs.

Gold Technical Analysis– 1 hour Timeframe

Gold 1 hour

On the 1 hour chart, there’snot much we can add here as we could remain stuck in a range between the 2957support and the 3057 resistance. Nonetheless, the market participants will likelylean on the levels to position for the opposite moves and increase the bets onbreakouts. The red lines define the average daily range for today.

Source: ForexLive

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Warren Takunda

Economic

Deutsche Bank says the Reserve Bank of Australia will follow the script from previous crises and deliver a double rate cut when it next meets in May, as Donald Trump’s threats of even higher tariffs on China added to fears of a looming global trade war.

Financial markets and economists were in agreement the RBA would lower the cash rate from 4.1% to 3.85% in five weeks’ time, saying the decision is “locked in” after the US president’s “liberation day” trade on 2 April sent financial markets tumbling late last week.

A 50 basis-point RBA rate cut would offer some silver lining to indebted households by lowering the monthly repayments on a $500,000 home loan by $152, assuming a home loan rate of 6% now.

If rates were to drop by one percentage point by the end of this year – as more economists now predict – then families with big mortgages will be saving hundreds of dollars a month in lower interest payments.

As investors struggle to divine the next move in what many fear is an escalating trade war, Deutsche Bank’s chief economist, Phil O’Donaghoe, said the “global shock” from the most protectionist US trade policy in more than a century justified a more aggressive move from the RBA.

O’Donaghoe said while Australia had escaped the worst of the additional reciprocal tariffs imposed on the European Union and countries such as China and Japan, “Australia does not fly under the radar in a global risk-off environment of the scale demonstrated by moves in financial markets in the past few days”.

He drew parallels with RBA’s response during previous crises, including the global financial crisis and, more recently, the Covid-19 pandemic.

“Unless there is a sudden reversal – or significant watering down – of US tariff rates on Australia’s key trading partners in Asia, especially China, the consequences for business confidence, consumer confidence and domestic growth justify the RBA making an outsized shift away from its ‘restrictive’ policy stance,” O’Donaghoe said.

“This is one of the few occasions in history where a global ‘shock’ outweighs prevailing domestic economic considerations.”

O’Donaghoe said he still believed the cash-rate cuts would end at 3.1% – from 4.1% now – although the central bank would get there more quickly, by late this year rather than in early 2026.

Financial markets have priced in a chance of a 50 basis point rate cut next month, but, like most economists, traders believe a more orthodox 25 basis point cut is more likely.

The latest rates prediction comes as share markets settled following days of near-panicked selling on Wall Street and on bourses around the world.

The Australian dollar steadied at a little over US60 cents on Tuesday, while the benchmark S&P/ASX 200 share market index bounced 2.3% to 7510 points, to still be more than 5% lower over the past week.

The return of uneasy calm was despite Trump threatening an extra 50% lift in duties on Chinese goods on Monday night.

NAB chief economist Sally Auld said a rate cut at the May RBA monetary policy board meeting still remained the most likely outcome.

Auld, however, said she had expected four cuts to 3.1% by early next year, but that the trade turmoil meant the cash rate would reach that level by late 2025 instead.

If the trade war escalated, the RBA may need to deliver deeper cuts into the “mid to high twos”, she said.

“A big piece of this is how China fares in all of this. I do think the Chinese will respond with fiscal and monetary stimulus to put a floor under growth. And our starting point is pretty favourable: we have a low unemployment and inflation, and plenty of scope to ease policy.”

Whatever unfolds over coming weeks and months, “we are not going back to a world of zero tariffs,” Auld said.

Source: Theguardian

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Warren Takunda

Stocks

World shares and U.S. futures advanced Tuesday, led by gains in Tokyo where the Nikkei 225 shot up just over 6% as markets calmed somewhat after the shocks from President Donald Trump ’s tariff hikes.

The modest rebound for most markets followed a wild day on Wall Street, where stocks careened after Trump threatened to crank his double-digit tariffs higher.

Early Tuesday, China’s Commerce Ministry said it would “fight to the end” and take unspecified countermeasures against the United States after Trump threatened another 50% tariff on Chinese imports.

Germany’s DAX gained 0.9% to 19,975.81 while the CAC 40 in Paris was up 1.3% at 7,018.79. Britain’s FTSE 100 also picked up 1.3%, to 7,804.73.

The future for the S&P 500 gained 1.5% early Tuesday while that for the Dow Jones Industrial Average was up 1.9%.

In Tokyo, the Nikkei 225 closed a smidgen over 6% higher, at 33,012.58.

Hong Kong also recovered some lost ground, but nothing close to the 13.2% dive Monday that gave the Hang Seng its worst day since 1997, during the Asian financial crisis.

The Hang Seng gained 1% to 20,036.03. The Shanghai Composite index jumped 1.4% to 3,140.15 after the government investment fund Central Huijin directed state-owned companies to help support the market with share purchases.

South Korea’s Kospi picked up 0.3% to 2,334.23, while the S&P/ASX 200 in Australia climbed 2.3% to 7,510.00.

Markets in Thailand and Indonesia tumbled, however, as they reopened after holidays. Trading was suspended briefly in Jakarta when the JSX index fell more than 9%. It was down 7.6% by mid-afternoon. Thailand’s SET lost 4.2%.

In Taiwan, the Taiex lost 4%, pulled lower by losses for Taiwan Semiconductor Manufacturing Corp., or TSMC, the world’s largest computer chip maker. Its shares fell 3.8% on Tuesday.

On Monday, the S&P 500 sagged 0.2% as shell-shocked investors watched to see what Trump will do next in his trade war. If other countries agree to trade deals, he could lower his tariffs and avoid a possible recession. But if he sticks with tariffs for the long haul, stock prices may fall further.

The Dow sank 0.9%, and the Nasdaq composite edged up by 0.1%.

All three indexes started the day sharply lower. But a false rumor that Trump was considering a 90-day pause on his tariffs caused the Dow and S&P 500 to shoot higher in the late morning. A White House account on X quickly labeled as “fake news” the rumor that raised hopes Trump may let up on tariffs, causing shifts in trillions of dollars of investments.

Soon afterward, Trump dug in further, saying he may raise tariffs more against China after the world’s second-largest economy retaliated last week with its own set of tariffs against U.S. products.

Trump’s trade war is an attack on the globalization that’s shaped today’s world economy and helped bring down prices but also caused manufacturing jobs to leave for other countries.

He has said he wants to bring factory jobs back to the United States, a process that could take years. Trump also says he wants to narrow trade deficits with other countries, but it’s unclear how much room for negotiation there is on the U.S. side or among its trading partners.

Indexes swung between losses and gains Monday, partly because investors are still hoping negotiations may forestall actual implementation of the stiff duties on all imports.

All that seemed certain Monday was the financial pain hammering investments around the world.

Hurt by worries that a global economy weakened by trade barriers will burn less fuel, the price of a barrel of benchmark U.S. crude oil dipped below $60 on Monday for the first time since 2021. Early Tuesday, it was up 67 cents at $61.37 per barrel.

Brent crude, the international standard, gained 65 cents to $64.86 per barrel.

In currency trading, the U.S. dollar fell to 147.32 Japanese yen from 147.85 yen. The euro fell to $1.0982 from $1.0905.

The price of gold rose $54 to about $3,028.00 an ounce.

Bitcoin gained 6.2% to about $79,400. On Monday it sank below $79,000, down from its record above $100,000 set in January.