Donald Trump vows to raise China tariffs, sending markets tumbling
- Author: Joey Payne May 08, 2019,
May 08, 2019, 1:32
Gregory Daco, chief United States economist at Oxford Economics, said markets had "become numb to the risks of escalating trade tensions, assuming that a comprehensive trade agreement was about to be signed". It may keep alive hopes that the world's two biggest economies can still make peace. The reiteration Monday of the president's threat from three high-level Trump officials reinforced the administration's determination to throw Beijing on the defensive.
The dispute is upsetting investors.
The Dow Jones industrial average lost 473.39 points, or 1.8 percent, to close at 25,965.09 - the blue-chip index's second-biggest drop this year next to the 660.02-point plunge it logged on January 3. The higher duties would cover thousands of Chinese imports, ranging from baseball gloves to burglar alarms. This is what China has done throughout the so-called trade war and this is not likely to stop just because of Trump's last minute tariff hikes.
While the official Chinese stance has remained restrained, an editorial published in state media outlets including the People's Daily and Xinhua on Tuesday, took a stronger tone, calling out the USA for attempting to place "extreme pressure" on China before talks. They wouldn't identify the specific issues involved.
China has every right to express its views about Trump's decision but Chinese officials will nearly certainly make their views known first in private before releasing an update through official channels. Following reports that China was considering pulling out of the negotiations, a spokesman for China's Ministry of Foreign Affairs said on Monday that the delegation "is preparing to travel to the US for the trade talks".
Trump has also complained repeatedly about America's massive trade deficit with China - a record $379 billion a year ago - which he blames on weak and naive negotiating by previous USA administrations. "Let's say the worst happens and they raise tariffs on Friday, well you're going to get another buying opportunity".
'For 10 months, China has been paying Tariffs to the US of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods.
Traders are keeping a close eye on trade talks between the US and China.
Tech stocks struggled amid trade fears of increased tensions with China.
But stumbling blocks remained - even before Trump accused China of backsliding on what it had already agreed to.
Needless to say, the damage to the Chinese economy would boomerang back to the USA, slowing growth and presenting a series of headwinds for a variety of sectors.
"Had China chosen not to send a delegation to the USA this week, that would mean a deal was off for a long time", he said.
Both countries have an incentive to reach a deal.
"It will be more challenging to shift to alternative suppliers for the remaining goods, implying a smaller decline in Chinese exports", Julian Evans-Pritchard, a China economist at Capital Economics, said. The trade war with the United States has hurt Chinese exporters and eroded business and consumer confidence.
Traders work on the floor at the New York Stock Exchange (NYSE) in New York, U.S., May 7, 2019. A week prior, U.S. GDP for the first quarter clocked in at 3.2 percent.
"It undermines the core architecture of the deal", the person said, adding that not codifying the concessions would make it hard to verify and enforce China's compliance.
Beijing agreed early on to narrow its trade surplus with the United States - a staggering $379 billion past year - by purchasing more American soybeans, natural gas and other exports.
The Chinese are also skittish about allowing Washington to dictate changes to industrial policy and subsidies, said Raoul Leering, a trade specialist for Dutch bank ING.
Forecasters at the International Monetary Fund and World Bank have already downgraded the outlook for the global economy.
On Wall Street, companies with interests in China bore the brunt of Monday's selling, particularly technology and industrial companies.
'The president is determined, and tariffs have been a big part of getting people to the negotiating table, ' he said.
The trade talks were cast into doubt after Trump's surprise announcement over Twitter on Sunday that he planned to raise the tariff increase from the current 10 per cent because talks were moving too slowly. And it could shave Chinese growth to around 5%.