Market MovesAugust 15, 2019

Despite Trump Gesture, the Trade War Will Worsen, BofA Warns

White House delay on some new tariffs doesn’t convince analysts that peace is at hand.

Reported by Larry Light

Before the latest inverted yield curve news roiled the market, stocks had been whipsawed by the ongoing US-China trade war. On Tuesday, investors took heart as the White House postponed half the new tariffs it wanted to impose, until after the year-end holidays. The S&P 500 advanced 1.48%.

Alas, intones the BofA Merrill Lynch Global research report, “the trade war will last indefinitely.” Why so downbeat?

The Bank of America analysts warned that the Trump administration has crossed two “red lines.” Namely, its slapping new duties on consumer goods from China (albeit some of them are given a temporary stay of execution—toys, laptops, video game consoles, cell phones). And the administration branded Beijing a currency manipulator for weakening the yuan, which makes Chinese goods cheaper and more competitive.

The BofA report said it believed the US’s first round of sanctions—25% levies on $250 billion in Chinese products—will stay in place, and the remaining $300 billion will eventually all be subject to 10% tariffs. Plus, the firm indicated, that second round may increase to 25%.

President Donald Trump said he wanted to delay tariffs on goods that are part of the Christmas shopping season. Pantheon Macroeconomics saw that development as evidence that “Republicans—mindful of elections next year—are very resistant to tariffs on consumer goods.”

For the moment, it’s heartening that despite all the brickbats thrown, a Chinese delegation is still on track to visit Washington in September for face-to-face trade meetings. In response to Trump’s latest moves, China halted purchases of American agricultural products, as well as letting its currency weaken.