OPTIONS: Expiries for May26 NY cut 1000ET (Source DTCC)

The WSJ article identifying a potential change in the White House's approach on China is most notable for bringing up potential for a tiered, phased-in approach to tariffs on Chinese imports. In particular, "a tiered approach similar to the one proposed by the House committee on China late last year". 

• This is of course referring to a bill and not an executive order but it makes a certain amount of sense for the White House at this point, as it arguably reduces uncertainty for both Fed and businesses on the approach ahead (especially if it were codified as a bill), potentially avoids the worst of the near-term disruptions, and could provide a better roadmap toward the reshoring/supply chain restructuring the White House is looking for.
• Below are the details of the "Restoring Trade Fairness Act"  put forward last year by the House Select Committee on the Chinese Communist Party (link).
  • "The bill would end PNTR [Permanent Normal Trade Relations] for China. There would be no annual Congressional vote for recertification. It would codify tariffs in statute and create a new tariff column for China.
  • The new column would create a minimum 35% ad valorem (in proportion to the estimated value of the goods or transaction) tariff for non-strategic goods and a minimum 100% ad valorem tariff for all strategic goods.
  • Phase-in period: The new tariff column rates would be phased-in over five years with 10 percent of the tariff increase implemented in year one, 25 percent of the increase implemented in year two, 50 percent of the increase implemented in year four, and 100 percent of the increase implemented in year five.
  • Strategic Goods: Strategic goods are listed in the bill by HS code.
  • They are based on the Biden administration’s Advanced Technology Product List and China’s Made in China 2025 plan.
    The bill would end De Minimis treatment for covered nations (including China) and require customs brokers for other de minimis shipments.
  • It would provide tariff revenue to U.S. farmers and manufacturers injured by possible Chinese retaliation. Additional revenue would be used to purchase munitions vital to deterring CCP aggression in the Pacific."

These WSJ reports likely to raise the focus on Bessent's imminent appearance at the IIF in 4 minutes.

• He's set to be delivering keynote remarks and will "share his thoughts on the state of the global financial system". He will then hold a sit-down conversation with the IIF president. His remarks begin at 1000ET/1500BST and can be livestreamed here: https://vimeo.com/event/5054312/12805a306f
• His appearance follow closed-door remarks at an investor conference yesterday, where he supposedly said he sees de-escalation with China, with the current trade situation "unsustainable". Comments that will come into sharper focus given that WSJ report suggesting a "slashing" of import tariffs on Chinese goods - as well as a follow-up piece from the WSJ citing Bessent's influence in Trump deciding not to try to fire Powell.

The move lower in bonds, as well as hawkish repricing in EUR & GBP STIRs, follows the WSJ report pointing to a potential dialling back of some of U.S. tariffs imposed on China.

• Those markets trade in a manner that points to less of a global growth shock, resulting in shallower central bank cutting cycles.
• ~60bp of further ECB cuts now priced through year-end vs. ~70bp at yesterday’s close.
• Meanwhile, ~85bp of BoE cuts are priced over the same horizon after showing over 90bp of cuts for much of today.
• Oil moves away from lows in sync.