Trump just blinked, giving China a possible edge in trade war, Jim Chanos and others say

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In backing off on tariffs Tuesday, President Donald Trump showed just how much pain the U.S. could tolerate, key voices on Wall Street say — and China may use that to its advantage.

Markets rallied on the the announcement by the United States Trade Representative office that certain items were being removed from the new China tariff list, while tariffs on others would be delayed until December.

Famous short-seller Jim Chanos, who tweets under the alter ego “Diogenes,” hinted that president Xi Jinping may take this as a sign that the U.S. may cave with enough pressure.

“So then tell me why Xi should not continue to wait out The World’s Greatest Negotiator, who keeps ‘dealing’ with himself?” Jim Chanos, founder and managing Partner of Kynikos Associates, said on Twitter.

Some investors took Tuesday’s announcement as a sign that despite the White House’s claim that China would bear the brunt of tariff impacts, the trade war was indeed hurting consumers. The products in the group exempt from tariffs include cell phones, some apparel, and video games — all of which are crucial to the U.S. consumer market.

Trump told reporters Tuesday afternoon that he postponed tariffs for the Christmas season “in case it had an impact on shopping” and the delay would “help a lot of people.”

China meanwhile, has not publicly backed off. It announced last week that it would stop buying U.S. agricultural products as its latest weapon in the tariff battle and has retaliated with its own tariffs on U.S. goods. It also set off more worries about the trade war on Friday by letting its currency weaken.

Last month, President Donald Trump surprised markets with a new round of tariffs of 10% on $300 billion of Chinese imports that eluded duties in the earlier round in May.

The president’s top priorities — a strong stock market and a tough China trade deal — have been at odds. Uncertainty around the trade war has weighed on financial markets. Stocks saw their worst day of the year on August 5 after China let its currency weaken, and China said it would stop buying U.S. agricultural products.

“The White House is now delaying the tariffs and removing some items. Did some acronym called the SPX cause someone to blink?,” David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, said in a tweet.

China’s Commerce Ministry said Vice Premier Liu had a phone call with U.S. Trade Representative Robert Lightizer and U.S. Treasury Secretary Steven Mnuchin. Trade talks are set to continue in two weeks.

According to Chinese news outlet CGTN, the call for the world’s two largest economies to meet again on trade came from U.S. trade representative Robert Lighthizer, not China.

The pain felt by the stock market was not that great. At its low point for this sell-off, the S&P 500 was only down a little more than 6% from its high.

“These developments are modestly positive,especially compared to the recent torrent of negative news, but we caution against viewing the tariff delay as anything more than an attempt to partially shield the American consumer heading into the holiday season,” wrote Isaac Boltanksy of Compass Point research in a note to clients. “We continue to believe that a broad deal will not emerge prior to the 2020 election.”

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