The likely escalation of tensions between the United States and China into a full-blown trade war rattled global markets on Friday as investors prepared for Donald Trump to push the trigger on the biggest wave of tariffs so far in a move expected to damage both countries’ economies and permanently alter trade between the world’s superpowers.
Stockmarkets in Australia, China and parts of Asia were in negative territory ahead of a Friday afternoon deadline to make public comments on Mr Trump’s $US200 billion ($280 billion) of proposed tariffs. While the White House did not make any announcements about its intentions immediately after that comment period expired at midnight US time, investors expect Mr Trump to drop his latest trade bombshell at any time.
China also said it would take “necessary counter measures” if the US went ahead with another wave of tariffs as both sides dig their heels in for what is expected to be a protracted trade war.
“The US’s so-called hardline stance will not help solve the problems,” a Commerce Ministry spokesman said late Thursday.
“Unilateralism and trade protectionism are unpopular and going against the trend.”
Indeed, there were growing signs in the US that Mr Trump’s threatened tariffs are becoming increasingly unpopular with the corporate sector. A last-ditch plea by some of America’s most prominent technology companies and retailers to convince Mr Trump to back down on his fight with China was expected to fall on deaf ears. On Thursday, Cisco Systems, Hewlett-Packard and other technology companies sent a letter to US Trade Representative Robert Lighthizer urging the administration to avoid imposing more tariffs.
China is expected to retaliate with duties on an additional $US60 billion worth of US goods, bringing the total number of exports on both sides affected to as much as $US400 billion or 2.3 per cent of global trade, according to analysts.
Australian businesses operating in China do not see a direct impact to their companies from the trade war although any impact on the US dollar would make a difference.
Risk to China’s long-term growth
The exact timing of when the next round of tariffs will be implemented or whether they will be staged is unclear. Mr Trump has been distracted this week with the release outlining a new book and an anonymous article by a senior official attacking his presidency. Mr Trump said on Wednesday he was not yet ready to do a deal with China, which has refused to bow to his demands around the use of foreign companies’ intellectual property.
Economists expect China to seek to contain the economic damage by keeping interest rates on hold.
Some economists warn the latest salvo from Washington poses a serious risk to China’s long-term growth at a time when the central government is balancing high debt and slowing investment, while American consumers will feel the pinch at home.
Ratings agency Standards & Poor’s this week warned the conflict was now at risk of serious escalation and could shave 1 percentage point off US GDP by 2021.
The latest round of levies cover more than 6000 items, including food products, minerals and consumer goods such as electronics, handbags and pet food. But a bigger proportion of the $US200 billion of tariffs are consumer goods, which will have a larger impact on US consumers. China’s total exports to the United States last year were worth just over $US500 billion, while China imported about $US130 billion of US goods.
Australian and Japanese stocks closed in negative territory Friday, although mainland China and Hong Kong bourses made gains in afternoon trade after the deadline expired. The Nikkei fell by 0.8 per cent in afternoon trade on fears that Japan could be Mr Trump’s next target. The Shanghai Composite Index was 0.4 per cent higher by mid-afternoon, recovering earlier losses.
Chen Jiahe, chief strategist of Cinda Securities, said the tariffs had already been factored into the market with the Shanghai Composite already down almost 20 per cent for the year so far.
“No one wants the trade war, but it is not a burden China cannot take,” he said. “The impact [on stocks] will be limited, considering the market has dropped so much this year.”