US-China trade tensions to take centre stage – Danske Bank

Analysts at Danske Bank suggest that the focus today will continue to be on the US-China trade tensions after the Trump administration revealed a plan for a 25% tariff on 1,333 Chinese products worth USD50bn and China immediately vowed to retaliate.

Key Quotes

“It may be viewed as a slight relief, though, that Trump is targeting USD50bn rather than the USD60bn that was mentioned before.”

“The key news overnight was Trump's detailed plan on tariffs on China . The plan was expected this week and follows up on his announcement before Easter. It covers products worth USD50bn, mainly within high-tech sectors identified in China's 'Made in China 2025' strategy. The Chinese tariffs will not go into effect immediately, as there will be a 30-day period for public comments and there will be a public hearing on 15 May.”

“As expected China quickly vowed to retaliate. In a statement overnight the Chinese Embassy in Washington stated that ' As the Chinese saying goes, it is only polite to reciprocate. The Chinese side will resort to the WTO dispute settlement mechanism and take corresponding measures of equal scale and strength against US products in accordance with Chinese law .' We expect China to target products such as soybeans and aircraft that will hurt the US more than the initial small-scale round of tariffs China launched earlier this week. We also expect to see a specific plan from China quite soon in order to put pressure on Trump in the 30-day hearing period and affect interest groups in the US campaigning for free trade.”

“The stock markets took the news in their stride this time and even increased slightly . The plan was widely expected and it may be viewed as a slight relief that Trump is targeting USD50bn instead of the USD60bn that was mentioned earlier. There is still uncertainty about a further escalation and a tit-for-tat trade war but our expectation is that it stops after China has retaliated and things calm down again. It should pave the way for some relief in equity markets, also helped by the earnings season that we expect will return attention to strong profit growth in not least US companies.”