China blasts Trump's new tariff threat as 'blackmail'

Scott Sinklier  Newscom

Scott Sinklier Newscom

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.

Trump's latest salvo in a brewing trade war would mean a sizable amount of Chinese goods shipped to the USA would be exposed to tariff threats and raises new questions about the impact on American consumers.

"With the Trump team apparently of the view that the USA can win trade wars, and China determined to fight one if it ensues, it increasingly looks like we cannot preclude a full-blown trade war between the world's two largest economies".

Trump announced in May he was abandoning the 2015 nuclear deal with Iran - which will mean new sanctions on the Islamic republic and punitive measures for those who trade with it.

The Shanghai Composite Index fell 3.8 percent to 2,907.82 and Hong Kong's Hang Seng lost 2.8 percent to 29,468.15.

China's Commerce Ministry on Tuesday criticized the latest threat of tariffs, saying it was an "act of extreme pressure and blackmail that deviates from the consensus reached by both parties after many negotiations, and is a disappointment to the global community".

"If the U.S. side becomes irrational and issues the list, China will have to adopt measures that are comprehensive measures in quantity and quality in order to make strong countermeasures". Trump said the latest round of tariffs - which he set at 10% - will go into effect if Beijing moves forward with its own import restrictions. But China's imports from the United States a year ago totalled $153.9-billion. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.

In April, the Trump administration outlined around 1,300 products worth $50 billion that would be hit with proposed tariffs.

American crude has proved competitive for China; the U.S. benchmark WTI averaged a $1.83 per barrel discount to oil from the North Sea Forties on a delivered basis into China in May, and a 74 cents per barrel discount to Abu Dhabi's Murban crude, according to S&P Global Platts calculations.

"That seems to open up a new front", Parker said.

However, many economists and businesses in the USA say the tariffs are likely to hurt some of the sectors the administration is trying to protect, which depend on China for parts or assembly.

"Donald Trump is once again at the centre of market sentiment, as fears over an impending trade war are heightened yet again", noted Joshua Mahony, market analyst at IG trading group.

Economists warn Washington might be undercutting its negotiating position by alienating potential allies. More than 800 exports, about $34 billion worth, will be subject to tariffs starting July 6.

"Escalation (of trade tensions) is a sort of impossible thing to forecast, but if it stops at this level you have probably created some nice risk premia in Asia and emerging markets", said Hans Peterson, global head of asset allocation at SEB Investment Management. "Increasing trade has helped growth in emerging markets and this could be negatively affected". Resolving the trade dispute quickly would decrease the likelihood of manufacturing disruptions for upcoming iPhones, iPads, and Macs, most of which will be assembled in Chinese or Taiwanese factories weeks or months before shipping to other countries.

The Canadian dollar, meanwhile, weakened to a one-year low of C$ 1.3237 overnight, before paring some of its losses on Tuesday, as investors anxious about Canada's own trade feud with the United States.

Last week, Mr. Trump announced plans for tariffs on $50 billion worth of imports from China in the technology sector, a move aimed at what he called "bringing balance to our trade relationship with China".

Europe, Japan and other trading partners raise similar complaints.

USA equipment manufacturers said Trump's action was "terrible news" that would effectively wipe out all of the gains the industry has seen from tax reform and regulatory relief.

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