Rumors are circulating that we could get news next week that the US is putting tariffs on an additional $16 billion worth of Chinese imports. The rumors are likely coming from the fact that President Trump said back on Thursday, July 5, 2018, that an additional $16 billion worth of tariffs against China are coming in about two weeks.
I think this rumor is likely true. President Trump is trying to motivate the Chinese to make a special trip to Washington like the EU’s Juncker did last week. Now that President Xi has witnessed the EU coming to the US to work a deal, more pressure is on him to do the same thing. President Trump will continue to pressure China to come to the table of negotiations. China has banned its State media from mentioning the words “trade war” and from framing President Trump in a negative manner regarding the trade war. This suggests that China is under a lot of pressure to capitulate and that the Chinese government wants to save face with its people which is why the State media ban on the trade war has taken place.
The real variable is the yuan. China can offset the negative effects of tariffs from the US by devaluing its currency which effectively makes its exports to the US cheaper. Worse, history has shown that when China massively devalues its currency, US stock markets have dropped by -11% on average. If China feels that it’s Shanghai drop was a result of the trade war with the US, it may retaliate and attempt to drop our markets by devaluing its currency. If China feels it can devalue its currency instead of renegotiating its trade deals with the US, that’s what it will do.