| I’m Malcolm Scott, international economics enterprise editor in Washington this week. Today we’re looking at the latest state of play in the US-China trade war. Send us feedback and tips to ecodaily@bloomberg.net. And if you aren’t yet signed up to receive this newsletter, you can do so here. - China is considering suspending its 125% tariff on some US imports, sources say.
- Fed Governor Christopher Waller said firms may begin laying off more workers if aggressive tariff levels are reinstated by the Trump administration, and he’d support rate cuts if there’s a significant rise in unemployment.
- The US is seeking tariff deals with India, Norway and Switzerland.
At the start of the month, as the US and China’s tit-for-tat tariff war escalated to levels the US Treasury Secretary this week characterized as equivalent to a trade embargo, this newsletter suggested the outcome would come down to which side blinks first. Cue President Donald Trump and his Tuesday about-face, where he said he’d be willing to “substantially” pare back his 145% tariffs on China. That was a day after his meeting with executives from big retailers like Walmart and Home Depot who said import taxes could disrupt supply chains and raise the prices of goods — and after weeks of market turmoil as investors unwound the Trump trade to “sell America.” As investors cheered the U-turn, finance officials from across the world gathering in Washington for spring meetings of the IMF and World Bank got a front-row seat to the chaotic backflips that have marked Trump’s mission to reorder the world of global commerce. Fresh confusion came Thursday. Chinese Commerce Ministry spokesman He Yadong dismissed speculation progress had been made in bilateral communications. Hours later, Trump said there’d been a meeting that morning with China. Pressed on which officials were involved, the US president said, “It doesn’t matter who ‘they’ is. We may reveal it later, but they had meetings this morning.” Amid the back and forth, one government official of a Group of Seven economy said the balance of power seemed to have shifted. The US needs to deliver a successful trade negotiation to prove its strong-arm policy is working. As a result, there’s less immediate urgency to meet the US on its terms, the person told Bloomberg. Canada’s Prime Minister Mark Carney seems to have taken that approach to heart. “We don’t have to do a deal in the short term,” Carney said Thursday. “My government will do the right deal.” To Arthur Kroeber at Gavekal Dragonomics, it all points to a US climb-down. “Hour by hour you get signals coming out of the White House showing that they’re basically caving in,” he said late Wednesday. Washington will realize it has “to get into some kind of negotiation stance with China. And it’s just a question of how long that takes and what the particular shape that takes.” - For more, subscribe to Supply Lines, our daily newsletter that tracks global trade.
The Best of Bloomberg Economics | - Bank of Japan watchers forecast a delay in interest-rate hikes and a lower level at the end of the cycle as tariffs darken the economic outlook. Meanwhile, Tokyo prices jumped the most in two years.
- Historical China adversary Japan intends to push back against any US effort to bring it into an economic bloc aligned against its Asian neighbor and close trading partner.
- President Xi Jinping is seeking to repair ties with the European Union.
- UK retail sales were soaring before US tariffs rocked confidence. Still, distress among the country’s most consumer-facing sectors has surged.
- The European Central Bank is set to consider changing its monetary-policy strategy to enable more nimble responses to price shocks. Meanwhile, policymakers have come out in force in Washington this week — here’s what you missed.
- Thailand plans to step up a campaign to attract high-spending European tourists as the Chinese shun it on safety concerns.
With China girding for a prolonged stand-off over trade, Macquarie’s China economist Larry Hu made three non-consensus calls on what he expects from Beijing: - China will NOT abandon its growth target of around 5%.
- With that first point in mind, Beijing will calibrate its stimulus polices according to how the potential trade shock plays out — with scope to stimulate housing and other areas if needed to offset the drag from trade.
- China will NOT pursue a weaker exchange rate in the event of an ongoing trade war, and indeed its currency may actually strengthen as stimulus expands.
The lesson for investors, Hu wrote in the note Thursday: “Export shock is important, but Beijing's response is more important.” | 
