It was President Trump’s metals tariffs, ironically, which eased Wall Street’s concerns that the duties he wants to impose on Chinese imports would provoke a trade war between the planet’s two biggest economies.
Or more precisely, his handling of the tariffs, which morphed from universal levies of 25 percent on steel imports and 10 percent on aluminum to more-nuanced charges with temporary exemptions for partners including the European Union, Canada, Mexico, and South Korea.
That, combined with reports of talks between the U.S. and Chinese President Xi Jinping’s government, helped U.S. stock markets on Monday to erase about half of the slide that followed Trump’s announcement of China duties last week. The blue-chip Dow Jones Industrial Average climbed 2.9 percent, while the broader S&P 500 added 2.7 percent, and the tech-heavy Nasdaq added 3.3 percent. Each of them fell almost 5 late last week.
“The Trump tariffs are now at least a known specter and not a scary unknown,” Chris Krueger, an analyst with Cowen Washington Research Group, wrote in a report. Still, he cautioned against relying too heavily on early comparisons between the two sets of duties.
The metals levies were imposed following a Commerce Department review under Section 232 of the Trade Expansion Act of 1962, while the China tariffs would be allowed under Section 301 of the Trade Act of 1974, after an assessment by the U.S. Trade Representative.
While Trump has broad powers under both laws, Section 232 provides for tariffs to protect national security, while Section 301 is designed to address unfair trade practices.
The 25 percent tariffs on about $50 billion of Chinese imports that UBS strategist Keith Parker views as a baseline scenario would amount to about $12.5 billion, or less than 1 percent of the U.S. economy.
While Beijing criticized the move, its actions so far have been limited to the steel and aluminum tariffs, after which it threatened retaliatory measures on about $3 billion of U.S. imports. Chinese premier Li Keqiang, who heads Beijing’s bureaucracy, said the two nations should continue talks and promised that China would treat U.S. companies in the same manner as its own firms, according to reports from CNBC and Bloomberg.
The U.S., meanwhile, will continue to be careful in its trade policy actions with China, Treasury Secretary Steve Mnuchin promised on Fox News Sunday. The countries are engaged in talks, he said, and the U.S. is “working on a pathway to see if we can reach an agreement.”
Trump’s goal, he said, is to cut the U.S. trade deficit with China by about $100 billion over the next year.
“If you look at what the president has done and what the Chinese response has been, they’re both being moderate,” said Doreen Edelman, co-leader of the global business team at law firm Baker Donelson. “They’re threatening big things, but they’re not pulling the trigger on big things, and they’re negotiating behind the scenes.”
