Saturday, 26 May, 2018

Markets Jittery Over US-China Trade Fight

China imposes tariffs China raises tariffs on $50B of US soybeans, other goods
Gerardo Duncan | 05 April, 2018, 01:48

The Dow Jones industrial average advanced 230.94 points, or 1 percent, to 24,264.30, after a swing of more than 700 points.

China hit back quickly on Wednesday against the Trump administration's plans to impose tariffs on $50 billion in Chinese goods, retaliating with a list of similar duties on key United States imports including soybeans, planes, cars, beef and chemicals.

The second battle, involving USA claims of unfair Chinese actions targeting intellectual property, began on March 22 with Trump's order to trade officials to draw up a list of Chinese products to hit. While Trump's administration said the list accounts for some US$50 billion of goods, numerous industrial items targeted are so specialized that U.S. manufacturers may have little choice but to pay the premium, said Michael McCool, Hong Kong-based managing director of consultancy AlixPartners.

"The most likely outcome is smoke, but no fire", said Bill Adams, senior worldwide economist at PNC Financial. That might chill commerce and set back a global economic recovery. The Shanghai Composite slipped 0.2 percent to 3,131.11 while Hong Kong's Hang Seng slumped 2.2 percent to 29,518.69 with the decline accelerating in the final minutes of trading after Beijing announced specifics of its tariff hikes.

American and other foreign companies have long complained about Chinese rules that require automakers and others to work through local partners, compelling them to share technology with potential competitors.

Cui and State Department officials said the meeting had been arranged before Washington announced proposed US tariffs on $50 billion of Chinese products, a move that provoked Chinese retaliation.

Industrial companies were rocked. Boeing shares are down 2.7 per cent and Caterpillar is down 2 per cent.

Plane maker Boeing plunged more than 6% in premarket trading, and GM was down nearly 4%.

There will be a 60-day delay before the United States tariffs take effect, while China said its timetable for the proposed new tariffs would depend on when the USA acted.

China expresses "strong dissatisfaction" over the decision, adding that it "aggravates the global trade environment".

That followed the release of a USA government list of Chinese goods targeted for punitive tariffs in response to complaints Beijing pressures foreign companies to hand over technology. The Chinese yuan fell 0.4 percent against the USA dollar, according to Reuters, its biggest fall against the dollar since mid-March. Aerospace company Boeing shed $14.07, or 4.3 percent, to $316.75.

Stock markets in Europe fell, with investors taken aback by the speed of China's response. Germany's DAX lost 0.4 percent while the CAC 40 in France dipped 0.2 percent. The FTSE 100 in Britain was 0.5 percent lower. "China's response is a surprise for some people", said Julian Evans-Pritchard, Senior China Economist at Capital Economics, noting that neither said had yet called for enforcement of the tariffs.

On March 23, Trump imposed massive trade tariffs amounting to United States dollars 60 billion on China, in an effort to stop the latter from stealing "intellectual property" from American companies.

Fear and uncertainty over a growing trade dispute with China continued to weigh on investors Wednesday, with markets opening sharply lower before recovering by early afternoon. "We will see what the USA will do", he added. "It serves neither China's interest, even less, the interest of the global economy".

USA stocks were close to break-even by late morning, a recovery from an initial drop sparked by fears of a trade war with China.

US authorities say Beijing denies foreign companies the right to block use of technology by a Chinese entity once a licensing period ends. But they could also hurt US companies or individuals that don't do any exporting, if they have to pay higher costs for imported products.

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