Global investors have been rattled after a threat by the Trump administration to impose 10% duties on $200bn (£151bn) of imports prompted protests from Beijing and brought an all-out trade war a step closer.
Stock markets headed lower in the US, Asia and Europe on Wednesday as the US warned that it would press ahead with further tariffs and China promised to “fight back as usual” with “firm and forceful measures” if they were enacted.
The FTSE 100 finished the day 100 points lower at 7,591, down 1.3%, while the Dax slipped 1.5% in Germany and the Dow Jones dropped 180 points, or 0.7%, in early trading. The Shanghai stock market hit 2,777, down 1.8% on the previous day and about 25% on the year so far.
The US administration released a wide-ranging list of Chinese goods that could be hit by new tariffs after a two-month consultation, including hundreds of food products as well as tobacco, coal, chemicals and tyres, pet food, and consumer electronics including television components. Some of the more eccentric items on the list included frog legs and anvils.
The US-China trade spat started in earnest last week after the US formally implemented $34bn worth of tariffs on Chinese goods, including boats, aircraft engines and nuclear reactors. Beijing retaliated with countermeasures of a similar value that targeted soybeans, tobacco and cars.
“For over a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition,” said the US trade representative, Robert Lighthizer. Referring to the Chinese retaliation on Friday, he added: “Rather than address our legitimate concerns, China has begun to retaliate against US products … There is no justification for such action.”
On Wednesday, China responded to the further threat of tariffs, which would be on top of two other rounds of levies, by saying “irrational US actions” were hurting the world as well as the US. Officials said China would seek support from the international community to resist “trade hegemony”.
China’s ministry of commerce said: “China is shocked by US’s behaviour. In order to safeguard the core interests of the country and the people, China will have to fight back as usual.”
Li Chenggang, an assistant minister at the ministry, said at a forum in Beijing that the latest US proposals interfered with the globalisation of the world economy and that China’s support for a multilateral trade system would not change.
China has repeatedly said it is more prepared for a trade war than the US. An English-language editorial in the state-run China Daily said: “If Trump launches an all-out trade war, the US economy and society may not be able to withstand the impact of countermeasures from China and other economies.”
Chinese investors and companies have been worried about a trade war between the world’s two largest economies. Before the tariffs implemented last week, the Shanghai Composite had fallen to a two-year low. China exports aabout $500bn worth of goods to the US a year while it imports about $130bn worth of US goods, giving the US more leverage in the strict confines of a battle over the costs of traded goods.
Ma Jun, a former chief economist at China’s central bank, told the Xinhua news agency: “There are still all kinds of uncertainty over whether the tariffs will be imposed and on what products.”
Donald Trump has said he may ultimately impose tariffs on more than $500bn worth of Chinese goods. There are no signs of talks between the two sides.
Some US business groups and senior lawmakers criticised the latest action, with the Republican chair of the Senate finance committee, Orrin Hatch, saying it “appears reckless and is not a targeted approach”.
The US Chamber of Commerce, which has supported Trump’s tax cuts and efforts to reduce regulation of businesses, also criticised the administration’s move.
“Tariffs are taxes, plain and simple. Imposing taxes on another $200bn worth of products will raise the costs of everyday goods for American families, farmers, ranchers, workers, and job creators. It will also result in retaliatory tariffs, further hurting American workers,” a spokeswoman said.
The Retail Industry Leaders Association, a lobby group representing the largest US retailers, said: “The president has broken his promise to bring maximum pain on China, minimum pain on consumers.”
Hun Quach, the head of international trade policy for the group, said: “American families are the ones being punished. Consumers, businesses and the American jobs dependent on trade are left in the crosshairs of an escalating global trade war.”