Beijing is preparing a very tough response to the latest threat on the trade front from President Donald Trump yesterday, when he ordered United States Trade Representative Robert Lighthizer to compile a list of an additional $200 billion of Chinese exports to the United States that could fall under new tariffs.

*** We understand that China will not make any further compromise or concessions on trade to the United States and according to a very senior official, as things stand China will not take the initiative to talk to the US side, nor will China send any officials to Washington to negotiate with the Trump administration. White House Trade Advisor Peter Navarro confirmed earlier today that there has been limited to no engagement at all recently between China and the US on trade. ***

*** Furthermore, if Trump were to deliver on his latest threat, China is prepared to take comprehensive “quantitative and qualitative” retaliatory measures to “resolutely” strike back. That means, from what we understand, the imposition of 10% or 25% of additional tariffs on more than 90% of China’s imports from the United States, meaning, for example, a total 40% tariff on American cars, as compared with 15% for Chinese car imports from Germany, Japan and other countries. Moreover, China will strictly monitor the investment and operation of US enterprises in China, and restrict any mergers with US enterprises. ***

Officials in Beijing warn any further tit-for-tat escalation between China and the United States now is likely to trigger “a full-blown trade war.”

As we wrote yesterday, even before the latest salvo from Trump, China’s State Council had already escalated its characterization of trade tensions with the US from “trade disputes” to “trade conflicts,” and warned the two countries were one step away from a full-on trade war (see SGH 6/19/2018, “China: Trade Retaliation”). 

China, this official vows, is now prepared for the worst, namely an “unprecedented and comprehensive trade war” with the US. 

Turning to domestic markets, officials acknowledge that yesterday’s stock market rout in China was largely triggered by Trump’s threats, and communications have been initiated between Beijing’s leadership, the CSRC (China Securities Regulatory Commission) and other relevant departments to address the volatility. If the sell-off were to continue into tonight, China’s “national team,” we believe, is likely to intervene to try and support the markets.