Trump-China trade war lingers upsetting global economy and stock markets

Photo Credit: Official White House Photo by Shealah Craighead
President Donald J. Trump, joined by Vice President Mike
Pence, Cabinet members, and senior White House staff, signs
a presidential memorandum targeting China’s economic
aggression, in the Diplomatic Reception Room at the White
House, Thursday, March 21, 2018, in Washington, D.C.
President Trump said the United States will demand true
reciprocal trade agreements with China.

The trade war between US and China has escalated in the last few days when Trump decided to announce tariffs on Chinese goods worthy of 50 billion dollars. The latter was not left unanswered by Beijing that fought back with similar announcements.

However, the trade threats continued with the US warning to impose additional tariffs of 200 billion dollars if China wouldn’t change its trade policies. Consequently, China responded by accusing the US of “blackmailing”, at the moment when the stock markets have been experiencing losses suffering from the back-to-back disputes between the two nations.

US-China trade war

The U.S. President mentioned last Friday that the his country will impose a 25% tariff on a list of Chinese goods. The first wave of duties will be on Chinese goods worth of 34 billion dollars on July 6 while a list of 284 products worth of 16 billion dollars will be subject to a public consultation period taking effect later. The US administration characterised China’s trade practices as unjust. More specifically, Donald Trump said: “Trade between the countries had been very unfair, for a very long time. These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs.”

Last month during China-US trade negotiations, China pledged to enhance the trade relationship with the US and buy more US products. In detail, China’s Commerce Ministry said: “In this day and age, launching a trade war is not in the interest of the world. We call on all countries to act together to firmly stop such an outdated and backward move, and to firmly safeguard the common interest of all mankind.”

However, after the US announced levies on Chinese goods, China naturally retaliated by proposing similar tariffs on 659 US products worth of 50 billion dollars. The list includes agricultural products, cars and marine products. An article in the People’s Daily characterized the US administration as “rude, unreasonable, selfish and headstrong” while an English-language article in the China Daily mentioned that “given the frequent flip-flopping of the Donald Trump administration, it is still too early to conclude that a trade war will start”.

More tariffs?

But Trump’s MAGA (Make America Great Again) didn’t limit his threats to the 50 billion dollar tariffs. An additional 10% duty on 200 billion dollars valued Chinese goods will be charged in case China continues the same trade practices. Mr Trump precisely said: “If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 bn of goods. New tariffs would go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced.”

On the other hand, China’s ministry of commerce underlined that the Asian giant will act accordingly in case additional tarrifs are imposed. Particularly, the exact words of the Chinese ministry were: “If the US acts irrationally and issues a list, China will have no choice but to take comprehensive measures of a corresponding number and quality and take strong, powerful countermeasures.”

Stock markets fall

As expected, the recent statements by US President Donald Trump regarding the enforcement of tariffs on Chinese goods have created turbulences in the world financial markets. S&P 500 experienced its biggest drop in three weeks while stock markets in Asia and Europe fell rapidly due to the potential impact of a US-China trade war.

In Europe, the Stoxx Europe 600 Index declined by 0,7% to the lowest level this month and Germany’s DAX Index fell by 1,2% to the lowest in almost three weeks. Furthermore, Hong Kong’s Hang Seng Index dropped by 2,8% to the lowest since last February and the MSCI Emerging Market Index slipped by 1,9% to the lowest since October 2017.

Mark Howard, a senior multi-asset specialist at BNP Paribas, mentioned in an interview with Bloomberg TV yesterday that this trade war has made investors more careful with both nations exchanging threats. Mark Howard stated on the issue: “The degree of both rhetoric and substance behind the proposals that have gone back and forth recently is worrisome. This has caused a bit of a risk-off trade today, and it’s a cause of caution by major investors.”

All in all, the trade war between US and China seems to have just kicked-off as Trump’s peculiar administration attempts to bully its trade partners. It remains to be seen though how far MAGA’s inventor and his administration will drag this dispute and to what extent the global economy and the financial markets will be affected by this unprecedented lose-lose battle, which is heavily criticised by the rest of the sane world.

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