Shortly before Federal Reserve Chairman Jerome Powell’s keynote speech at the Jackson Hole, Wyoming central bankers’ symposium at 14:00 GMT, the financial markets were trading relatively steady. Traders seemed to be hoping for the best, but were prepared for the worst. However, trading conditions changed abruptly when China announced it will impose new tariffs on $75 billion worth of U.S. goods and resume duties on American autos.
The announcement caught traders off-guard and they responded in textbook fashion by buying safe-haven Treasury bonds, Japanese Yen and gold, while selling higher-yielding U.S. stocks. However, the moves were muted as investors put faith in Powell’s ability to soothe the sudden volatility.
Powell Stabilizes Markets in Wake of New Chinese Tariffs
Powell did stabilize the markets by opening the door to further rate cuts during his speech by mentioning modest and incremental rate cuts during the 1990s, for example, that helped sustain a period of prolonged economic growth.
Powell offered no support for President Trump’s trade war, and actually went as far as suggesting that Trump’s tariffs against China and other countries were exposing the economy to additional risk in the midst of the longest economic expansion in U.S. history. He also said that Trump’s policies may influence how drastically he acts on the interest rate front in the months ahead.
The combination of the new Chinese tariffs on the U.S., and Powell’s comments probably raised the ire of President Trump, leading him to fire off a series of tweets that destabilized the markets for the rest of the day. But that’s another story.
China Retaliates With Tariffs
According to reports, the Chinese State Council said it decided to slap tariffs ranging from 5% to 10% on $75 billion in U.S. goods in two batches effective on September 1 and December 15. Those dates correspond with the starting dates of President Trump’s latest tariffs on Chinese goods.
The Chinese State Council also said a 25% tariff will be imposed on U.S. cars and a 5% on auto parts and components, which will go into effect on December 15. China had paused these tariffs in April.
The retaliatory moves came in response to the tariffs Trump announced earlier in the month, bringing to an end a short-lived cease-fire that began in May. Trump said he would impose 10% tariffs on another $300 billion of Chinese goods although he did announce a delay until December 15 on some items.
“In response to the measures by the U.S., China was forced to take countermeasures,” the state council said in a statement. “The Chinese side hopes that the U.S. will continue to follow the consensus of the Osaka meeting, return to the correct track of consultation and resolve differences, and work hard with China to end the goal of ending economic and trade frictions.”
This article was originally posted on FX Empire
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