US-China trade war: Twist and Shout

Given the massive 145% tariff on China, and the still significant 10% universal tariff on the rest of the world, roughly 80% of the tariff discount flows to Chinese goods. Out of these $100 billion from China, smartphones and laptops make up about three-quarters, and the exemption therefore spares the US consumer from significant sticker shock on some popular purchases, for now.

Uncertainty remains a threat at least on par with the tariffs themselves

But the bigger picture remains: the move reflects further fuel to the fire of uncertainty. This is merely the next iteration in delaying, exempting, escalating or reversing of tariff policy. The policy package only stood for two days as of Friday, still roughly four times the duration of the 13-hour reciprocal tariffs. There was also uncertainty over the extent of the exemption, forcing the administration to clear the details up over the weekend, at which point they also made it clear that the targeted goods will be hit by sectoral tariffs of unspecified magnitude somewhere in the next two months, again adding uncertainty. They will almost surely be lower than the current tariff for China though. At least, the government published a detailed product list of what goods fall under the ‘semiconductor’ umbrella, which will likely form the blueprint for sectoral tariffs. Still, it’s another few months of uncertainty-induced paralysis, as firms will be hesitant to make any investment and production decisions that may no longer be viable before a single brick is laid. (Rogier Quaedvlieg)

China - Tariff exemption for electronics likely to soften direct export shock to US for now.

Trump’s twist on tariffs for electronics is a (temporary) relief for China. Around one-third of the country’s exports to the US (equivalent to ±1% of GDP) are classified as consumer electronics, and these will now face 20% tariffs rather than 145% tariffs. That means that the shock to direct Chinese exports to the US may be softened, at least for now, and the potential imposition of future sector-specific tariffs may even give rise to short-term trade frontloading again. Meanwhile, China’s March exports data came in much stronger than expected this morning, showing annual growth of 12.4% y/y (consensus: 4.6%, February: -3.0%). Exports to the US jumped by almost 45% on a monthly basis, but that reflects – next to frontloading – the low number of working days in February (short month, closed for the Chinese New Year at the start of the month).

Beijing makes clear it would like to see further corrections in US tariff policy.

China's Ministry of Commerce spoke about ‘a small step by the US toward correcting its wrongful action of unilateral reciprocal tariffs’. The US was also urged to take further steps to completely abolish these wrongful actions, and ‘to return to the correct path of solving differences through equal dialog based on mutual respect’. China did not come with specific exemptions on import tariffs for US goods yet, which had been raised to 125% last week – with the addition that ‘US tariffs are a joke, and China would not pay attention to potential further US tariff hikes’. All of this suggests that Beijing is getting a sense that it gets the upper hand in the trade conflict with the US, after financial markets last week made clear that it is the US economy itself that will be hurt the most by the Trump administration’s policies. Against that background, it is not so surprising that Beijing is trying to keep the pressure on the US government to take further steps to reverse their tariff policies. (Arjen van Dijkhuizen)