The Trump Always Chickens Out (TACO) trade is on this morning after some mollifying words overnight.
President Donald Trump’s administration signaled openness Sunday to a deal with China to quell fresh trade tensions while also warning that recent export controls announced by Beijing were a major barrier to talks.
Vice President JD Vance called on Beijing to “choose the path of reason” in the latest spiraling trade fight between the world’s two leading economies, claiming that Trump has more leverage if the fight drags on.
Trump later posted a statement that hinted at a possible off-ramp for Chinese President Xi Jinping while issuing a veiled threat that a full trade war would wound China.
Is this really the full TACO after just one day of stock market selling? I am more inclined to see it as Trump et al attempting to prevent China from immediately responding with a reciprocal 100% tariff.
Trump’s implementation of everything is so inept that it is hard to tell.
Goldman has a wrap on the state of play
▪On Oct 9th, China announced tighter rare earth export control measures:
1/ inprincipal bans rare earth export for military usage purpose;
2/ for rare earth export for manufacturing advanced chips (14mn and below logic integrated circuit and 256-layer and above storage chip) or related facilities and military-use AI, it will require case-by-case approval;
3/ other rare earth exporters need license approval by Ministry of Commerce to export rare earth from China.
There are a bunch of other company-specific restrictions, but basically, China is strangling the US military in response to Trump’s expanded trade restrictions for organisations on the “entity list” to any majority owned subsidiaries on Sep 29th, which impacts thousands of Chinese companies.
China’s MOFCOM indicated a willingness to talk, but we are back to Liberation Day square one here.
Perhaps the Trump TACO is better described as Trump MAD (mutually assured destruction) in trade.
Early trade has AUD up 30bps from Friday’s carnage.
