The US Commerce Department finally lifted the sales ban on ZTE Corp (763.HK), allowing it to resume operations. Shares of ZTE rebounded 25 percent on 12 July 2018.
It seems that Trump’s sanctions on ZTE came at a cost, as he quipped that the ban had caused relevant US suppliers to lose their businesses. Nonetheless, the ZTE example has taught many Chinese companies the important lesson that they cannot fully rely on US suppliers.
Judging by how China’s ZTE went into “paralysis “, initial sales ban was a warning shot to China that the US would win in an all-out trade war. For his part, Trump appeared triumphant over his hard stance towards China, fulfilling his campaign promise to the American public.
Russia’s United Co RUSAL PLC is likely the next in line to see the lifting of sanctions. Previously, Trump sanctioned RUSAL in a show to prove that his presidency is “free from Russian interference”. In view that he would be meeting Putin soon, I believe that Trump would direct the ban on RUSAL to be lifted as well.
Interestingly, when Trump imposed sanctions on RUSAL, Russia did not retaliate against the unilateral sanction imposed by the US. This also meant that the US flaunts much economic clout over the Russian economy.
The US Senate Might Wish To Limit Trump’s Powers
In response to China’s retaliation, Trump has threatened to impose further tariffs of 10 percent on an extra US$200 billion worth of Chinese imports. The Chinese government has subtly indicated China would not back down and would respond with retaliatory measures.
The tit-for-tat response sparked a selloff in the US stock market on 11 July 2018. Meanwhile, the US Senate has passed a non-binding motion to give Congress a somewhat minor role in Trump’s decisions to impose tariffs for national security reasons. This sends a clear message to Trump not to cross the line in his effort to address what he sees as unfair foreign trade.
If Trump’s goal is to display the preeminence of the US’s economy, investors should not be overly concerned about how the trade war would transpire.