Markets in China, meanwhile, may not react all that positively to the new tariffs on $18 billion of Chinese imports confirmed by the Biden administration on Tuesday.
China’s commerce ministry said the move will “seriously affect the atmosphere of bilateral cooperation” and Italian Economy Minister Giancarlo Giorgetti said The G7 will discuss the risk of fragmenting global trade next week.
China will almost certainly respond in kind, it just remains to be seen how forcefully.
“Given the high stakes involved, this round of tariffs could ratchet up the trade tensions between the two countries in a way that is difficult to pull back from,” said Eswar Prasad, trade policy professor at Cornell University and former IMF China department head.
Chinese stocks have plateaued this week after mixed earnings, at best, from Alibaba and Tencent, and selling pressure on the yuan is increasing again – dollar/yuan’s daily fixing rate has risen five days out of the last six.
The dollar is also gaining ground on the Japanese yen, even though 10-year Japanese bond yields are marching to their highest level since November while U.S. yields slip. The yen’s fragility is bound to put traders on high intervention alert.
