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1.2119-0.0070 -0.0031World markets dip as Trump
ratchets up China trade war
Richard Partington
Economics correspondentFinancial markets around the world
fell sharply after Donald Trump threat-
ened to impose a new tariff on $300bn
(£ 247bn) of Chinese goods in a rapid
escalation of the trade war between
Washington and Beijing.
The FTSE 100 was down more than
2% as markets across Europe tumbled
yesterday, continuing a wave of sell-
ing pressure around the world after the
announcement on Thursday evening.
Wall Street also sold off sharply as
investors continued to digest the US
president’s decision to bring a trade
truce with China to an abrupt end.
The Dow Jones Industrial Average
was down by more than 280 points to
26,298 in early afternoon trading in
New York.
Joshua Mahony , a senior market
analyst at the fi nancial trading fi rm
IG, said: “Hopes of a resolution to the
US-China trade war have been dashed
once again. We are going around in cir-
cles, yet there is a feeling that this timewe are unlikely to see tariff s averted
by simply promising to resume talks.”
In a development likely to have
severe ramifi cations for global growth,
Trump said Washington would impose
10% tariffs on $300bn of Chinese
goods, in eff ect placing additional bor-
der taxes on the total value of China’s
exports to the US.
The White House already charges
tariff s of 25% on $250bn of Chinese
goods sold in the US as part of the long-
running trade standoff. Total Chinese
exports to the US were worth $539.7bn
last year.
Share prices in London tumbled ,
with the FTSE 100 closing down more
than 150 points, or 2.3% at 7,407. Ger-
many’s Dax index fell by more than 3%,
while France’s Cac 40 index was down
3.6%. Overnight shares in Shanghai
dropped by 1.4% while Japan’s Nik-
kei closed the day down by 2.1%. The
MSCI index of world stocks dropped
by 0.6% in a sign of selling pressure
around the globe.
The yields on US and German gov-
ernment bonds dropped as investors
rushed into assets considered as safehavens amid global turmoil, with the
yield on 10-year US treasuries falling
to 1.832%, the lowest since Novem-
ber 2016.
Trump said the fresh tariff s were a
punishment for Chinese non compli-
ance with agreed measures. In a fl urry
of tweets , he said: “We thought we had
a deal with China three months ago,
but sadly, China decided to re negoti-
ate the deal prior to signing.”
Beijing warned of retaliation
and said it would not be bullied.
Hua Chunying, a foreign ministryspokeswoman, said the country would
not give an inch , Reuters reported. “If
America does pass these tariff s, China
will have to take the necessary coun-
termeasures to protect the country’s
core and fundamental interests. We
won’t accept any maximum pressure,
intimidation or blackmail,” she said.
The US-China trade dispute has had
a chilling eff ect on the world economy
as global trade volumes plummet and
major companies pause investments.
Growth has eased around the world,
and several major countries have
fl irted with recession.
Factory output has plunged across
Europe , dragging down growth in Ger-
many and Italy. Alongside the impact
of Brexit, economic growth in Britain
has dipped to stalling point.
US economic growth has also
slowed , putting pressure on the US
Federal Reserve to cut interest rates
to support the economy. It cut rates
this week for the fi rst time in a decade.
Tiff any Wilding , an economist at
the bond fund manager Pimco, pre-
dicted another rate cut by September.
“Growth in US manufacturing, invest-
ment and exports is likely to fall further
over the next several months, and the
latest announcement is likely to only
exacerbate the weakness,” she said.▲ T he trade accord reached between
Donald Trump, left, and China’s
president, Xi Jinping, has been
replaced by a war of words and tariff s
PHOTOGRAPH: NICOLAS ASFOUR/AFP/GETTY‘We are going around
in circles. There is a
feeling this time we
are unlikely to see
tariff s averted by
promising talks‘Joshua Mahony
Senior market analystQ&A
Trade war explainedWhy is Trump imposing tariff s on
China?
Trump is applying pressure to try
to force China to narrow the trade
defi cit – the gap between imports
and exports – between the two
countries. He complains China buys
fewer US goods than the US buys
from China, a gap worth $419.5bn
last year. He also accuse s Chinese
fi rms of stealing US companies’
intellectual property.How do tariff s work?
Tariff s are border taxes imposed
by one country or economic bloc
on goods shipped from a trading
partner. The aim is to raise the cost
of those goods to make them less
attractive to domestic consumers.
The taxes are paid by buyers of
goods when they cross the border
into the country imposing the tariff.What is the scale of the latest threat?
Trump is threatening tariff s of 10%
on $300bn of Chinese imports. The
White House already levies tariff s
of 25% on $250bn of Chinese goods.
Adding both together would mean
roughly all Chinese imports to the
US face higher taxes. China sold
$539.7bn of goods to the US last year.What other tariff s are in place?
Beijing has retaliated with tariff s
of up to 25% on US goods, worth
$113bn. China is constrained by
how much further it can go, given
that total US imports to China were
worth $120.1bn last year. However,
the trade war has extended beyond
tariff s before, with changes to rules
designed to make life diffi cult for US
or Chinese companies, such as the
US blacklisting of Huawei.How could it aff ect the global
economy?
The I MF says the US-China trade
war is hitting global growth.
Trade growth has stalled and
business investment has been
paused because of the uncertainty.
Factory output has stalled in
several countries including the UK,
Germany and Italy, with a knock-on
impact on growth. Central banks
including the US Federal Reserve
and European Central Bank are
under pressure to cut interest rates.Is a peace deal in sight?
China says it will not be intimidated- a sign the confl ict is unlikely
to dissipate quickly. Economists
believe tariff s could just be a
negotiating tactic and Trump has
fl ip-fl opped before, raising hopes of
a resolution. He could also expand
his trade war to other nations, as
well as the EU. He has tariff s on car
imports in his sights, ostensibly
to protect the US auto industry.
Economists say imposing car tariff s
on the EU would dramatically
escalate the global trade war and
further damage growth.
Richard Partington
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