Looking to the Futures: Tariff Talks

July 6, 2022 Ryan Hinsen

The Biden administration is contemplating removing some of the tariffs on Chinese imports

The Biden administration is contemplating removing some of the tariffs on Chinese imports imposed by former President Donald Trump in hope of diffusing some inflation pressures. US and Chinese officials held discussions Tuesday morning, Beijing time – the last time the Vice Premier and the US Treasury Secretary spoke was last October.

Vice Premier Liu told US Treasury Secretary Janet Yellen that the fair treatment of Chinese enterprises and the lifting of sanctions and tariffs are areas of concerns to China. Reports from China say the two discussed economic policy and stabilizing global supply chains, while consenting that the two countries need to strengthen their communication and coordination in those areas for their own benefits and the rest of the world’s.

The United States referred the talks as “candid and substantive” but the official readout did not include mentions of tariffs or sanctions. However, Yellen “frankly raised issues of concern including the impact of Russia’s war against Ukraine on the global economy and unfair, non-market” practices by China.

Janet Yellen said in July that the US administration wanted to reconfigure the tariffs, which she claimed, “really weren’t designed to serve our strategic interests.” However, US Trade Representative Katherine Tai has asserted that the tariffs are leverage against China and she has doubts on how large of an impact lifting them would have on inflation.

Larry Hu, head of China economic analysis at Macquarie Group Ltd., agrees with Katherine Tai explaining “The impact on US inflation would be limited too -- prices in the US didn’t surge, for example, in 2019 when tariffs were in place.” Barclay’s Plc estimates the maximum direct effect on US inflation from a complete annulment of the tariffs to be a one-time reduction of 0.3%. They cited the small share of Chinese imports on the US consumption basket as a reason for the negligible change.

Technicals

The equity indexes we up slightly on July 4^th before falling sharply to open up significantly lower Tuesday morning. The Russell 2000 September contract (RTYU22) was down 2.5%. The 5-day moving average is just above the 13-day moving average as the 14-day RSI comes off oversold levels in mid-June. The RSI(14) is still below the 50 mark and the contract is well below the 50-day moving average that has been serving as strong resistance this year.

The CFTC’s Commitment of Traders (COT) report shows that asset managers have been consolidating around a net short position of -120K contracts (currently -124,479 contracts).