Amidst the positive employment data in the United States last week, President Donald Trump has said that the unsatisfactory progress in bilateral talks between the US and China – the world’s two largest economies – would prompt him to impose higher tariffs on certain Chinese goods.
The US president made this statement via twitter on Friday last week, citing that those tariffs were formerly suspended awaiting the outcome of trade talks between both countries.
The tweet read: “For 10 months, China has been paying Tariffs to the USA of 25% on $50 billion of High Tech, and 10% on $200 billion of other goods. These payments are partially accountable for our great economic results. The $325 billion of additional goods sent to us by China remain untaxed, but will be taxed shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, which is mostly borne by China.”
How Will The Markets React To Higher Tariffs?
Stocks fell suddenly on Sunday signifying a lower open on Wall Street after Donald Trump made the announcement, intensifying the ongoing trade fight between the two countries and dampening expectations for a far-reaching agreement.
Sources report that as pre-market trading opened Sunday evening, Dow Jones futures rushed by more than 400 points before paring some of those losses; S&P 500 stocks were also seen sharply in the red.
This, taken together, means that Dow Jones, S&P and Nasdaq are in for a poor start when the opening bell sounds for the three major benchmarks on Monday, analysts say. However, it can be seen that if Sunday’s losses carry over into Monday, it would pressure a rally that has carried the pointers to new record highs.
Chief market strategist at Bannockburn Global Forex, Marc Chandler, said, “The ratcheting up of trade tensions will likely mean risk-off to start the week as China returns from the stretched May Day holiday. This means a downside risk in equities.”
Who Bears The Burden From The Trade War?
It is reported that this week, the two sides had planned to meet in what would have been a final round of talks before a potential deal. Trump had said that he would levy tariffs on Chinese imports if there was no deal. Thus far, the tariffs have mostly gone on industrial goods used as parts in finished products. This means manufacturers have to deal with them, but then consumers don’t really notice.
China’s Reactions If Trump Makes Good On His Threat.
For the better part of 2018, the US has levied a 25% tariff on $50 billion worth of Chinese high-tech imports, and 10% tariffs on $200 billion of other goods. If Trump makes good on his threat, the 10% levy that’s been on hold since January 1 will jump to 25% — which might likely spark some revenge from Beijing. But Trump, who believes the trade imbalance can be shaved down with the use of duties, has linked US growth to the imposition of Chinese tariffs.