The US finally announced the list Chinese products to be tariffed in its Section 301 actions. China responded with strongly worded statement. But so far, market reactions are muted. After limited volatility, both Japan Nikkei and Hong Kong HSI are trading nearly flat at the time of writing. The China SSE (LON:SSE) Composite index is actually up 0.8%. Gold is trading inside recently established range, gyrating around 1335. While the 301 tariffs are seen as some as the cannons of the first battle of the US-China trade war, it seems that the markets are not expecting a escalation. Instead, the US and China would bring things back to the table for negotiation. But we’d like to emphasize that the situation will totally change depending on the response from China.
In the currency market, Dollar is trading broadly lower in Asian session, followed by Yen. The greenback tried to rally against Euro and Swiss Franc overnight. EUR/USD has indeed taken our 1.2285 support but it recovers ahead of 1.2238. On the other hand, Canadian Dollar is the strongest one for the week now. It’s boosted by news that US President Donald Trump is rushing to complete a draft of NAFTA for release next week. Technically, USD/CAD formed a head and shoulder top reversal pattern. And it’s trying to extend decline to sustain below a key near term fibonacci support level at 1.2789.
US announced tariffs on 1300 products, targeting “Made in China 2025” plan
The Office of the United States Trade Representative finally released the list of products regarding the Section 301 tariffs against China. The action will impose 25% tariffs on approximately USD 50b of Chinese imports to the US “in response to China’s policies that coerce American companies into transferring their technology and intellectual property to domestic Chinese enterprises.” And the Trade Res presentative claimed in the statement that these policies “bolster China’s stated intention of seizing economic leadership in advanced technology”, like in its “Made in China 2025” plan.
The proposed list of products covers around 1300 tariff lines, focusing on technological and industrial products, like televisions, medical devices, batters, aircraft parts etc. The list will be finalized after public comment, including a hearing on May 15 in Washington. And companies will have until May 22 to file final objections.
China: It’s only polite to reciprocate to US unilateralistic and protectionist action
In response to the 301 tariffs announce, the Chinese Embassy in the US issued a strongly worded statement. China said it “strongly condemns and firmly opposes the unfounded Section 301 investigation and the proposed list of products and tariff increases based on the investigation.” It condemned that “unilateralistic and protectionist action has gravely violated fundamental principles and values of the WTO”. And such action serves nobody’s interest. China said it’s “only polite to reciprocate” and said it will resort to the WTO. In addition, China pledged to take “corresponding measures of equal scale and strength against U.S. products in accordance with Chinese law”.
Separately, China’s Ministry of Commerce also said in a statement that it will ” immediately bring relevant U.S. practice to the dispute settlement body of the WTO, and is ready to take counter measures on U.S. products with the same intensity and scale that will be published in the coming days.”
On the data front
Australia retail sales 0.6% mom in February, above expectation of 0.3% mom. Australia building approvals dropped -6.2% mom in February, below expectation of -5.0% om. UK BRC shop price index dropped -1.0% yoy in March. China Caixin PMI services dropped to 52.3 in March, below expectation of 54.5.
Looking ahead, UK will release construction PMI in European session. But main focus will be on Eurozone CPI flash for March. Eurozone will also release unemployment rate. Later in the day, US will release ADP private employment, ISM services and factory orders.