Thursday, 22 August, 2019

Wall Street hammered by China's plan to retaliate on trade

China to impose tariffs on $60bn worth of US goods China to hike tariffs on $60 billion of US goods
Jean Garcia | 14 May, 2019, 07:08

"A call between Presidents Trump and Xi in the next few days could easily turn everything back to normal".

The plunging of the Dow is in response to increasing tensions between Washington and Beijing.

So far consumers may not have noticed the tariffs since they are spread across thousands of products and, in some cases, have been absorbed by USA companies for competitive reasons.

White House chief economic adviser Larry Kudlow warned on Sunday that there could be negative consequences to Trump's trade war, admitting that "both sides will suffer on this" while at the same time claiming that the overall economic impact would not be significant, because the economy is "in terrific shape".

A stumbling block has been USA insistence on an enforcement mechanism with penalties to ensure Beijing carries out its commitments.

The political gains from a trade war may evaporate if USA consumers feel the pinch from higher prices on Chinese imports, or if US farmers complain about lost sales as a result of the Chinese tariffs.

The United States announced last week it would increase tariffs on US$200-billion of Chinese imports.

Shares in Asia extended losses on Tuesday following sharp falls on Wall Street overnight, the yen strengthened and US Treasury yields ticked lower as the trade war between China and the United States escalated. Very bad for China, very good for USA!

China Calls On U.S. To Remove Extra Tariffs, More Talks Planned
Mr Liu said the remaining differences were crucial ones "and we will make no concessions on matters of principle". He is heading back to Beijing where officials from both sides expect to hold more talks in the near future.

Mr Trump also said China had "taken so advantage of the USA for so many years".

With the accumulation of tariffs, and the passing of time, the need for greater concessions from China to justify these costs becomes more pressing - and becomes less likely to be met. Economists say Chinese leaders probably reject that as a violation of Chinese sovereignty.

The world's largest economies had seemed on track to resolve the ongoing trade dispute that has raised prices for consumers and pinched corporate profit margins.

Beijing will impose tariffs ranging from 5 per cent to 25 per cent on a number of American goods, according to a statement by the Tariff Policy Commission of the State Council - China's cabinet. "China trade negotiations and concern that it's really deteriorating pretty significantly, and that's impacting all areas of markets", said Kristina Hooper, chief global market strategist at Invesco in NY.

All three major USA indexes lost ground in a widespread sell-off, with the tech-heavy Nasdaq posting its biggest one-day percentage loss this year. That would pull annual growth below 6%, raising the risk of politically risky job losses. "If this trade uncertainty lingers, we will certainly be looking to the Trump Administration for another round of market facilitation payments".

The UBS analysts said the next escalation could come in as little as one month as US regulators prepare to follow through on Trump's threat to extend penalty tariffs to all Chinese goods. The commentary is due for publication on Monday in the ruling Communist Party's People's Daily.

Trump, who has embraced protectionism as part of an "America First" agenda, added that he had not yet decided whether to go ahead with tariffs on roughly another $325bn in goods from China.

Although trade talks may continue, for now the trade war that Trump began in January 2018 is back on, which will mean more economic pain for companies and consumers in both the US and China. It said the tariffs will take effect on June 1.

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