Published: Wed, June 20, 2018
Finance | By Jaime Brady

The burgeoning US-China trade war has entered a new phase

The burgeoning US-China trade war has entered a new phase

When Trump threatened another $100 billion in tariffs if China retaliated with matching tariffs, Chinese President Xi Jinping appeared to relent with consideration of reduced tariffs on imports of USA automobiles.

Last week Mr Trump announced the United States would impose 25% tariffs on $50bn worth of Chinese goods.

Derek Scissors, a China scholar at the American Enterprise Institute, a Washington think tank, said that means China will soon run out of imports of U.S. goods on which to impose retaliatory tariffs.

"President Donald Trump's unwillingness to back down became apparent this morning, once again sinking markets into a risk-off atmosphere", Jingyi Pan of IG said in a report. "It is very unfortunate that instead of eliminating these unfair trading practices China said that it intends to impose unjustified tariffs targeting USA workers, farmers, ranchers, and businesses".

Stock markets have fallen around the world in the wake of President Trump's latest tariffs threat to China. That could take a long and painful trade fight.

Until now, China has mirrored Trump's actions, matching Friday's tariff hike with identical charges on the same amount of imports.

Whatever the Trump administration puts on its next list of Chinese goods will be carefully chosen in order to inflict the most pain, Oosterveld suggested.

Neither side has yet imposed tariffs on the other in their growing dispute over technology and the US trade gap; the first round is to take effect on July 6.

White House trade adviser Peter Navarro, a sharp critic of Chinese trade actions, said China has more to lose from any trade war.

"However, and unfortunately, China has determined that it will raise tariffs on Dollars 50 billion worth of United States exports".

"Although many think this might be another bluff from Trump, markets are likely to stay nervous to trade-related headlines for now".

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Beijing has offered to narrow its politically volatile trade surplus with the United States but has resisted changing technology development tactics its leaders see as a path to prosperity and to restoring China's rightful role as a global leader.

The tariffs target Chinese President Xi Jinping's Made in China 2025 plan that seeks to develop sophisticated manufacturing capabilities.

Trump said Monday that China's response "indicates its determination to keep the United States at a permanent and unfair disadvantage".

"Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong".

Brent crude futures fell 0.8 per cent to US$74.76 a barrel after rallying 2.5 per cent overnight, while USA light crude futures retreated 0.9 per cent to US$65.27.

For Trump, who has declared trade wars "easy to win", the escalating tariffs represent the fulfillment of a campaign promise to crack down on China and reduce the US trade deficit to support

The president said the move was a retaliatory response to China's decision to raise tariffs on $50 billion of American goods, including cars, tobacco, petrochemicals and agricultural products.

Investor concerns surrounding the implications of confrontation between China and the US returned just as the Federal Reserve this month signaled a faster pace of policy tightening and the European Central Bank said it will maintain it key rate until the second half of next year.

The ratcheting up of tensions is a blow to sentiment in the struggling US$7.2 trillion equity market, where turnover has been dwindling on concern the trade dispute will hurt China's already-slowing economy.

Since June 1, steel and aluminium imports from the European Union, Canada and Mexico have been hit with tariffs of 25 per cent and 10 per cent, respectively.

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