JED GRAHAM
August 2, 2018 - 4:11 PM ET

Each time President Donald Trump has upped the ante on his China trade-war tariff threats — and we're probably in double digits now — Beijing has fired back and the stock market has faced a bout of selling. Yet investor concerns over Trump tariffs have ebbed and flowed, mostly staying on the back burner.

This latest Wall Street panic over a China trade war looks pretty much the same right now: The S&P 500 bounced back after a weak open to rise solidly on the stock market today, while the Dow Jones industrial average rallied all the way back from a 200-point drop with a boost from $1 trillion Apple (AAPL). The Nasdaq, fueled by Apple, Tesla (TSLA) and others, jumped 1.2%.

Yet there's now good reason to think that China trade-war fears, rather than fading, will only keep growing. Trump and Chinese President Xi Jinping have passed up three chances to turn back from a trade war since May. In fact, Trump had appeared ready to jump at all three exit opportunities. But Beijing has held firm, while allowing its currency to fall against the dollar.

Now Trump's frustration with China has bubbled over, provoking his latest threat of 25% tariffs on an additional $200 billion worth of Chinese imports. Yet there are no more obvious offramps from a conflict that continues to heat up.

Let's review. Back on May 21, Trump tweeted that China had "agreed to buy massive amounts of ADDITIONAL Farm/Agricultural Products — would be one of the best things to happen to our farmers in many years!" A day earlier, Treasury Secretary Steven Mnuchin said the U.S. was putting the China trade war "on hold."

Why China Trade Talks Have Failed

So what happened? The full story hasn't been told, but here's a pretty safe guess. The near-deal, which would have had Beijing buy $70 billion worth of U.S. goods over the next year or more, wasn't exactly a slam dunk for the U.S., which is running a $375 billion trade deficit with China. Hard-liners in the Trump administration likely told him he had to hold out for a better deal.

Even if Trump was sold or Xi was willing to sweeten the pot a bit, Beijing likely wanted assurance that the deal would provide closure. Xi had to fear that Trump would renew his China bashing and that the U.S. would demand more concessions later or impose export controls that would set back his ambitious Made in China 2025 agenda.

Although negotiations stalled, Trump subsequently gave Xi two more opportunities to reach a trade deal without losing face.

First, Trump intervened to save Chinese telecom gear giant ZTE from a de facto death sentence. U.S. sanctions deprived ZTE of key components from American firms. Trump's initial vow to rescue ZTE seemed to kick-start talks in May. He then fought off a Senate effort to reinstate the harshest sanctions for ZTE, which repeatedly defied a U.S. ban on doing business with Iran and North Korea.

Then, Trump seemed to blink just ahead of a planned June 30 date to announce emergency investment and export restrictions aimed at China. The White House was reportedly ready to impose a 25% limit on Chinese ownership in firms buying key technology. There was some talk that the U.S. might ban chip equipment sales to Chinese firms. Instead, Trump decided to punt on the June 30 deadline and back legislation in Congress to strengthen the Committee on Foreign Investment in the United States, or CFIUS. Trump's statement on support of a stronger CFIUS never even mentioned China.

Yet none of Trump's concessions to Xi has paid off. Beijing was believed to be blocking the Qualcomm (QCOM) acquisition of NXP Semiconductors (NXPI) because of the uncertain fate of ZTE. Yet even after ZTE's reprieve, Qualcomm scrapped the NXP deal amid China's continued resistance.

Now there may be no turning back for Trump. Trump tariffs of 25% already have targeted $34 billion worth of tech-related Chinese imports. Beijing answered with an equal amount of retaliation. U.S. tariffs on an additional $16 billion in goods, after a further short-term review, could be in place soon.

China Response To Trump Tariffs

Eventually, China won't be able to match Trump tariffs dollar for dollar, because the U.S. has a $375 billion trade deficit with China. That's the idea behind going big with tariffs on an additional $200 billion in Chinese imports. Yet China has devalued its currency, the yuan, offsetting much of the 10% tariffs that Trump initially proposed. That may be why Trump is eyeing 25% tariffs.

A further devaluation could come if the tariff fight escalates. China also retaliates in more subtle ways, hampering prospects for American multinationals in China such as Boeing (BA), Caterpillar (CAT), Apple and Tesla (TSLA).

Beijing's response to Trump's latest threat should worry Wall Street. "China has made full preparation for the U.S. threats to escalate the trade war, and will have to retaliate to defend national pride and the people's interests," China's Ministry of Commerce said.

Students of Chinese history say that when "national pride" is at stake, there's no chance Beijing will cut a deal. Trump, after already trying to cut a deal and making some big concessions, has come up empty. He appears ready to follow through on his threats because he has no Plan B.

https://www.investors.com/news/economy/trump-tariffs-new-china-trade-war-freakout-for-real/

that last line is kind of funny ... worth a laughs ...

Okay, seriously now ...

If the PRC decides screw you and we will devalue the RMB how much we fvcking feel like it ... that torpedoes Trump's entire protectionist strategy.

A RMB devaluation, all that means is everyone else in this world will be devaluing their currency too, the classic "Beggar Thy Neighbour" bad economics plan.

USA - more tariffs! The rest of the world - more devaluation!
USA - more tariffs! The rest of the world - more devaluation!