A 10 per cent tariff on an additional $200 billion of Chinese goods was officially launched on Tuesday at the behest of US President Donald Trump. Subsequently, China also made a big counterattack, announcing plans to impose tariffs on another $60 billion of American goods, looking like a resurgence of trade war.

Combined with Trump's previous tweet, "the trade war will hit the Chinese stock market," it seems that the plan to bring the Chinese stock market down with this heavy blow seems certain.

However, judging from the market performance in the past few days, "there is no fluctuation in my heart, and I even want to laugh" may be a true portrayal of investors in Asian markets at the moment-A shares have rebounded by 3% in two days, and the Hang Seng Index has risen three times in a row. even the Nikkei index hit a new high.

I'm afraid the blond uncle on the other side of the ocean can hardly sit still now: "you should give me some reaction to the tariff policy that was finally passed." Do I want to lose face?! "

"Collective face-to-face" in the Global Market

Tuesday's tariff statement on Sino-US trade can be said to be the largest round of tariff policy so far between China and the United States. in addition to imposing a 10 per cent tariff on $200 billion of Chinese imports to the US, the US has also threatened that if China retaliates against industries such as agricultural products, the United States will immediately impose stronger tariffs on about $267 billion in additional imports.

Naturally, China does not show weakness, proposing two major measures to counter the US tariff policy: imposing tariffs on imports of about $60 billion of US origin, with tax rates ranging from 5% to 10%. In addition, the WTO has sued the US for taxing US $200 billion exports to the US under the 301 investigation.

However, after the arrival of the tariff, the entire Asian stock market, including the Chinese stock market, did not fall sharply, but rebounded slightly:

Photo: Bloomberg

Among them, the Shanghai Composite Index rebounded 3 per cent in the two days after the arrival of the 200 billion tariff, while the Hang Seng Index also rose three times in a row, while ETF (FXI), a large Chinese stock in the US stock market aimed at investing in China, rose 1.7 per cent on the day of the tariff landing.

The same thing happened in Japan, where the Nikkei index rebounded last week after a relatively low trend at the beginning of the month and hit its highest level since the end of January on Monday:

Photo: Bloomberg

In fact, not only in Asia, but also the US financial markets seem ungrateful for the tariff increase and China's counterattack.

Originally, according to analysts' view, the imposition of tariffs should have caused considerable volatility in US stocks, but the recent volatility of the S & P 500 index is not as large as it was at the beginning of the year, and the overall trend is still showing a steady uptrend. All three benchmark stock indexes are close to record highs:

Source: Futu Securities

The E-mini S & P 500 futures index, which tracks the S & P 500, fell only briefly after China fought back against the tariff, but then rebounded, hitting an all-time high on Wednesday and sharply higher positions:

Photo: Bloomberg

Is the stock market no longer afraid of tariffs?

Although, as a result, a new round of US tariff action against China and China's counter-measures against the US have not caused concern in global stock markets, are stock markets really no longer afraid of tariff policy? The answer is, of course, no.

On the one hand, the prolonged downturn in the Asian market has basically digested the impact of tariff news in advance, similar to the model of "buying expectations and selling facts". On the other hand, in order to deal with the tariff policy of the United States, China chose to impose tariffs on American goods by 5-10% in the latest round of tariff policy, rather than fully adopting the level of 10%. The more modest counter-measures taken by China have also boosted market sentiment to some extent.

Bloomberg believes that while the rebound in Asian markets does not represent Trump's tariff policy is good news, it does mean that investors have found a reason to avoid panic and listed three reasons:

1. With Asian stock market valuations near their lowest level in more than two years, emerging market stocks are in a bear market, the Shanghai Composite index closed at its lowest level since 2014 on Monday, and some trade effects have been factored in.

2. Trump plans to raise tariffs to 25% next year, which means there is still room for negotiation and the possibility that the United States will take a more moderate stance after the mid-term elections.

Although tariffs will take effect soon, the economic impact will take longer to take effect, which means that there are more factors that need to be taken into account, such as the huge profits of Japanese companies.

From the perspective of the United States itself, the calmness of investors in the face of trade tensions also has something to do with the trend of the dollar. With imports restricted, tariffs are supposed to boost the dollar and reduce demand for foreign currencies, but contrary to the theory put forward by economists on the trade war, the dollar has recently shown signs of weakening.

Clifton, head of policy research at Strategas, a market research firm, pointed out that the dollar has continued to fall since August 16, when it was reported that the leaders of China and the United States might hold talks after the mid-term elections, and doubts about the trade dispute between China and the United States faded, which greatly tarnished the charm of the dollar, which was the most important reason for the dollar's "continuous decline."

A weaker dollar will help boost the profits of US multinationals and ease pressure on emerging markets. Bloomberg also said that expectations that the Fed will raise interest rates next week are flashing signals to sell the dollar, and dollar bears are likely to go on a spree again.

All in all, it is not clear what impact the Sino-US tariff policy will have on the global economy in the short term, but one thing is certain: this time the performance of Asian markets hit Trump hard in the face. and this is not good news for him, who is about to face the mid-term elections.