World markets calm and edging higher after USA confirms tariffs on China

Geneva Stokes
July 9, 2018

"It's 60 years of work that we've done to build a market in China for United States soybeans".

Chinese Prime Minister Li Keqiang says there could be no victor in a trade war with the United States, yet China has to introduce countermeasures against Washington, which on Friday hiked tariffs on Chinese imports.

It will take weeks to months for the U.S. Trade Representative to review and possibly activate any new rounds of punishment.

Notwithstanding the loud threats, some are of the view that the trade war will not significantly impact the stock market as most of the latest developments have already been priced in.

The European Union, India, China and Russian Federation all have applied to the World Trade Organization to challenge the US tariffs, which mostly took effect March 23.

Some of Trump's fellow Republicans in the U.S. Congress lashed out at his actions.

From soybean farmers and pork producers to the motorcycle manufacturer Harley Davidson, numerous American exporters are facing upheavals from the tariffs. This marks the official beginning of what China dubs as "the biggest trade war in economic history".

WTO spokesman Dan Pruzin has cited concerns expressed on Twitter by WTO Director-General Roberto Azevedo about new "restrictive measures" before 25-percent USA tariffs on $34 billion worth of Chinese imports took effect.

Among other energy products, China noticeably spared US liquefied natural gas (LNG) exports from potential import tariffs, but in doing so, it has preserved a potential weapon should the trade war with Washington deepen.

"China is engaged in industrial policies and theft of intellectual property that merits a response, but across the business community we feel that tariffs are not the answer", John Murphy, senior vice president for global policy at the U.S. Chamber of Commerce, told CNBC.

Looking a little deeper, there are some areas that would be hit much harder by a trade war between the world's two biggest economies.

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France's foreign minister has criticized U.S. President Donald Trump's economic policy, which includes hiking tariffs on Chinese imports as of Friday.

The question is what impact and how long this trade dispute will last.

A World Trade Organization spokesman says it has no indication that the United States could pull out of the trade body, while citing its concerns about new tariffs like those behind a possible U.S.

"He's going to deliver better deals", Kevin Hassett, chairman of the White House Council of Economic Advisers, said on FOX Business Network. He added that for now, "He's called the bluff of other countries that have basically been abusing" US companies and workers.

Higher commodity and labour costs are on the list of profit worries as well.

There are already signs within the USA that companies are pausing decisions on investment and hiring and input costs flowing from the earlier increase in duties on steel, aluminium and washing machines are flowing through to higher end-prices. The products, sold on Chinese e-commerce platforms, ranged from pet food to mixed nuts and whiskey.

That could change materially and quickly - and be reflected within financial markets - if all the parties continue to hold the ground in which they are already becoming quite entrenched. But German automaker BMW (BMWG.DE) said it is unable to "completely absorb" new Chinese tariff on imported USA -made models and will raise prices. But for now, employers, investors and USA consumers are weighing the perils of a prolonged rift between the world's two largest economies against a far more positive backdrop: America's healthiest job market in years. But President Trump said Thursday that he's prepared to impose tariffs on up to $550 billion in Chinese imports-a figure that exceeds the $506 billion in goods that China actually shipped to the United States previous year.

If it happened, the Trump-led economy could eventually buckle under the weight of protectionist trade policies. More than 200 S&P 500 reports are due the following two weeks, including from some USA companies that could be caught in the middle of a US trade war with China.

Had Trump confined the trade assault to China, the European Union and other traditional allies would probably have ganged up with it.

Not long after U.S. tariffs on $34 billion worth of Chinese goods kicked in, the Chinese government has responded by imposing its own 5% tariff on 545 USA products, also worth a total of $34 billion.

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