Donald Trump on May 5 suddenly revealed that a trade agreement with China was not imminent after all. To the contrary, the Administration on May 10 raised its earlier 10 percent tariff on $200 billion of Chinese goods to 25%, and threatened to extend 25% tariffs to the remainder of imports from China by late June (roughly $300 billion of goods). China, of course, retaliated against US exports [announcing reciprocal 25% tariffs on $60 billion of US goods, to start June 1. Surprised stock markets fell in response, with the S&P 500 down 4 per cent over the first week of the renewed trade war.
The mystery is why market investors or anyone else had up until May put faith in White House statements that a deal with China was expected any day. Why believe this Administration on such a thing? Trump, after all, is the guy who, after meeting with Kim Jong Un in Singapore, claimed that North Korea was no longer a problem because it had agreed to denuclearization. And the guy who said that Saudi officials had promised him to buy $110 billion of US arms and to lower oil prices. Did anyone really expect a proud China to agree, without meaningful reciprocal concessions, to let the US write some of its laws and to pass subsequent unilateral judgment on whether it was complying?