Fears of a trade war are roiling global financial markets Friday, with stocks under pressure around the world and the U.S. dollar in retreat.
A day after the Trump administration imposed tariff hikes on Chinese goods, Beijing has threatened import duties on U.S. goods including pork, apples and steel pipes, accentuating fears of a global trade war.
“For a person who’s been obsessed with stock market gains since his election victory 16 months ago, President Donald Trump doesn’t appear too concerned about the impact his tariffs are having at the moment,” said Craig Erlam, senior market analyst at OANDA.
Though the European Union has been granted a possible exemption, stock markets across the region have fallen sharply. In early afternoon trading, Germany’s DAX was down 1.7 per cent at 11,900 while the FTSE 100 index of British shares fell 0.6 per cent to 6,910. France’s CAC-40 was 1.5 per cent lower at 5,089.
In Asia, markets ended sharply lower after a stomach-churning ride. Japan’s benchmark Nikkei 225 index plunged 4.5 per cent to 20,617.86, its second-biggest daily decline in a year, and South Korea’s Kospi tumbled 3.2 per cent to 2,416.76. Hong Kong’s Hang Seng lost 2.5 per cent to 30,309.29 and the Shanghai Composite in mainland China sank 3.4 per cent to 3,152.76. Australia’s S&P/ASX 200 skidded 2 per cent to 5,820.70.
A day after the Dow Jones industrial average dropped more than 700 points, North American markets were largely flat, with the Dow Jones, S&P 500 and TSX all treading water, and the Nasdaq just slightly into the red.
Trump is planning to impose tariffs of 25 per cent on imported steel and 10 per cent on aluminum. The move is aimed at China, which has been flooding the world with cheap steel and aluminum, but would hurt many other countries, including close allies like the European Union. Trump’s administration gave some countries, including the EU, Canada and Mexico, an exemption until May 1, pending negotiations.
EU Trade chief Cecilia Malmstrom said the plans for steel and aluminum tariffs “are a highly unfortunate unilateral action, which goes against agreed international rules.”
In a separate case, the Trump administration approved a possible tariff hike on Chinese imports worth up to $60 billion over its complaint that Beijing steals or forces foreign companies to hand over technology.
China gave no indication of a possible response but a foreign ministry spokeswoman said Beijing was “fully prepared to defend” its interests.
“Everybody’s pushing each other around to do some negotiating,” said David Collins, chief operations officer at CMC China Manufacturing Consultants, which advises companies on setting up factories in China. “Trump is negotiating. He’s pushing back on the Chinese, and the Chinese will push back.”
On Thursday, investors fled stocks and bought bonds, which sent bond prices higher and yields lower. With interest rates falling, banks took some of the worst losses. Technology and industrial companies, basic materials makers and health care companies also fell sharply.
‘There would be some damage on us in the long term as well’ – South Korean construction worker S. E. Kim on the prospects of Chinese tariffs
Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, said the risk of a damaging trade war is still low because the Trump administration is targeting specific goods that aren’t central to China’s economy. That could change if it puts tariffs on products like electronics or appliances imported from China.
“If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors,” he said.
The risk of a U.S-China trade war is a regional concern, given the myriad supply chains and other ties across Asia. For example, South Korea’s largest trading partner is China. The U.S. is its second biggest.
“I’m worried that it would affect the national economy,” said S. E. Kim, an employee at a construction company in Seoul. “If the U.S. imposes tariffs on China like that, I think there would be some damage on us in the long term as well.”
The U.S. dollar has suffered on concerns over a possible trade war. The euro was up 0.4 per cent at $1.2345 while the dollar fell 0.2 per cent at 105.08 yen.
The Canadian dollar was up more than half a cent, meanwhile, flirting with the 78 cents US level after a Statistics Canada report showed the country’s inflation rate has risen to its highest level since 2014.