Jason Douglas
Appearances
WSJ What’s News
Chinese Manufacturing Tumbles as Tariffs Bite
Yeah, that's right, Luke. There was a contraction in manufacturing activity down to the worst reading for I think about a year, maybe about 18 months. It was far worse than new export orders, which after all is a thing we're all watching closely. Those tumbled to the worst it's been since the end of 2022, which was when China was still very much grappling with COVID-19 and lockdowns and so on.
WSJ What’s News
Chinese Manufacturing Tumbles as Tariffs Bite
And in fact, if you exclude the disruptions around COVID, it's the worst export orders reading since 2012. There was also a weakness in production overall and in employment in the manufacturing sector. So these surveys are pointing to a bit of difficulty surrounding the trade war.
WSJ What’s News
Chinese Manufacturing Tumbles as Tariffs Bite
So China's economy isn't in a great position going into this trade war. About a third of its growth last year came from trade, where previously it has had much stronger domestic spending, much stronger investment, much stronger consumption to power growth. Goldman Sachs estimates there are between 10 and 20 million jobs in China that are at factories that ship stuff to the US.
WSJ What’s News
Chinese Manufacturing Tumbles as Tariffs Bite
So there is quite a lot of risk in terms of jobs. Growth in the first quarter, according to Capital Economics, was probably weaker than the official numbers actually suggested. And they expect growth this year to come in 3.5%, which is much lower than the 5% the government is aiming for. So there's certainly lots of short-term weakness built into the Chinese economy. The big question is,
WSJ What’s News
Chinese Manufacturing Tumbles as Tariffs Bite
Can the government do enough on the stimulus side to really boost domestic spending to offset some of the headwinds from trade and then longer term reorient this economy away from exports so that it isn't so vulnerable in the future?
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
I think you can see in stock markets across Asia that there's real concerns now about growth. We've seen central banks in New Zealand and India today cut interest rates. We're starting to see all sorts of little support packages being thrown to exporters in the region by countries like South Korea and their auto industry, Japan and Taiwan.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
There's real anxiety in Asia now about what all this means for growth, for sure, yeah.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
Yeah, that's right. We've seen some forecasts from investment banks and from consultancies out here suggesting that Chinese exports exports to the US could drop by as much as half in light of Trump's tariffs of 104% plus, depending on exactly how you calculate it. We're already starting to see the yuan weaken.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
It's tightly controlled by the central bank and the government, but they are starting to let it weaken a little bit. It's a bit unclear if that'll be the start of a sustained depreciation or something more controlled. But you're right for all the economies out here, Japan, South Korea, Vietnam, these are all very heavily export dependent economies and the US is by far their biggest market. So
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
They really are bracing for a great deal of disruption.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
Well, if the EU is a carrot and a stick approach, then we have countries like Japan and South Korea that underneath the security umbrella that are mostly doing the carrot bit, they are basically making a beeline to the White House. in the hope of getting a trade deal very quickly. And China thinks, at any rate, that it has a great big stick.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
And so it has retaliated hard, and it will probably continue to do so. Both sides, US and China, just do not seem to be very close to a negotiation at all at the minute, and neither side seems willing to back down.
WSJ What’s News
Bonds Sell Off as New U.S. Tariffs Upend Global Trade
Yeah, I think that's right. We're all trying to wrap our heads around what this means for globalization, what this means for the global trading system as it stands, as it stood for 30 odd years. In the short term, I think the economic worry is recession. These recession fears are just getting bigger and bigger.
WSJ What’s News
China Bets Trump Will Cave on Tariffs
Part of Beijing's strategy is certainly to suggest to Trump that they're not rattled by what he's doing at all. They seem very keen not to take the first step in ratcheting down tensions either. It seems clear that they think that strategy is working, now that Trump is the one to signal that he is prepared to de-escalate and reduce tensions.
WSJ What’s News
China Bets Trump Will Cave on Tariffs
The real risk here is that the trade war spills over into arenas that are removed from tariffs, that it is just tariffs that get affected. But the US, for instance, has talked about delisting Chinese stocks. you know, investors putting money into China could have put further restrictions on investment flows. Trump says that he wants China to give him a call.
WSJ What’s News
China Bets Trump Will Cave on Tariffs
It doesn't seem like China will do that until they see some real movement on tariffs.
WSJ What’s News
China Bets Trump Will Cave on Tariffs
Trump has blinked. And the way this will be interpreted in Beijing is that China has a much greater tolerance for pain than the U.S. does.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
Sure. So the big cuts happened to the reciprocal tariffs and the retaliation that followed that. So if you remember, on April 2nd, President Trump slapped tariffs on pretty much everyone. That included China. But then over the next couple of weeks, China retaliated. And by the end of it, both sides have put tariffs of more than 100% on each other's imports.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
So this reduction primarily focuses on that. They've reduced tariffs by 115%. So they're down now to about 10% at a baseline. But the US still has these additional tariffs that aren't related to those reciprocal ones on China. That includes the tariffs related to fentanyl. Overall, what it adds up to is tariffs on most Chinese imports are about 30%, which is a lot better than 145%.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
And there might be still some different tariff rates for things like auto steel and a few other things that are subject to separate tariffs.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
It does seem to be something that helped prize negotiations open, if you like. I mean, the U.S. takes this very seriously and China has shown that it does too. So one of the attendees, in fact, at the trade talks was the Chinese minister for public security who talked at length to the U.S. delegation about what China was doing on fentanyl. That's pretty unusual in trade talks, right?
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
You usually don't get these kind of officials there. And from what we understand, that was very much appreciated and taken on board by the U.S. delegation. So, yes, fentanyl does seem to be important. So we could probably expect some more movement on that in the near future.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
The 90-day pause is very similar to what Trump has offered every other country, right, subject to reciprocal tariffs. I think two things stand out. One is Scott Messer, the Treasury Secretary, was pretty enthusiastic about the talks that are to come and said that they would encompass more than just tariffs and they would look at other things that the U.S. is concerned about, such as
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
Chinese currency policies, such as non-tariff barriers, regulations, and other restrictions to US companies operating in China. The other important thing that he talked about was that they now have a mechanism that should prevent future escalation. So they have established a regular dialogue, if you like, at a sort of lower level.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
So quite what gets achieved in that 90 days and whether the two sides could really come together to make a durable trade deal, who knows, but they are at least optimistic that they've got the framework in place to give it a good go.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
I think it was surprising, but I suppose the escalation in the first place was pretty surprising and pretty shocking when it happened. The message from the U.S. delegation was very much that, as you said, that that wasn't really what they wanted to happen.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
They felt that the guardrails that would have kind of prevented that kind of thing from happening weren't in place because the relationship between Beijing and Washington had deteriorated so much. So they are saying that these guardrails are back and now this kind of escalation hopefully shouldn't happen again.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
I think there are still some challenges. I think it's right to say they don't want a full decoupling. There's lots of trade that both sides are very happy to participate in. But I think there are still pretty serious US concerns, firstly, about their trade deficit with China and what they feel is unbalanced nature with trade with China.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
And I think there are still national security issues around sensitive technologies such as semiconductors and so on that will persist. And exactly where all this sort of shakes out, it's hard to say. But the idea of a full blown kind of break, a clean break just doesn't seem to be what they want.
WSJ What’s News
Stocks Surge as U.S. and China Slash Tariffs
Our reciprocal tariff rate will go down to 10% on the United States side, so it goes down 115%. We enter into a 90-day pause period for negotiations, which both the Chinese and the United States are very committed to.