US stocks fell as China followed through on a threat to retaliate against American tariffs with border taxes of its own.
America’s agriculture sector is in Beijing’s crosshairs as the world’s second biggest economy hit back at tariffs imposed on its sales of steel and aluminium into the US.
The prospect of a trade war is in full focus as China imposed tariffs on 128 categories of imports from the US. There may be more to come as the US is expected to outline taxes on imports of technological goods from China this week.
The Chinese taxes of between 15pc, on 120 types of goods including fruit, and 25pc on commodities including pork, came into force on Monday.
Shares on the broader S&P 500 index and the blue-chip Dow Jones Industrial Average fell by 2.2pc after the announcement.
However, economists said the taxes could have been worse and so hold out hope this will not result in a trade war.
“The $3bn in tariffs that China imposed were in response to the steel and aluminium tariffs (which hit $6bn of Chinese imports), which I would charactarise as a fairly restrained response,” said Michael Pearce at Capital Economics.
“Moreover, the US has shown it is willing to scale back tariffs in return for fairly modest concessions. One example of this was the “deal” on the Korea-US Free Trade Agreement, which exempted Korea from the steel tariffs without Korea giving up much.”
Both countries claim they are acting in the best interests of a fair and open trading system, with Donald Trump imposing the levies on the basis of ‘national security’, arguing that China has unfairly built up its own industrial sectors at the cost of America’s manufacturing base.
As a result the tariff of 25pc on steel and 10pc on aluminium imports should restore the balance, the President hopes.
By contrast China said those steps “violated the relevant rules of the World Trade Organization and did not comply with the ‘security exceptions’ provision” and so its own tariffs are designed to protect the integrity of the WTO and the global trading system.
This shows China’s “advocacy and support for the multilateral trading system”, the Customs Tariff Commission of the State Council said.
Other US fears are focused on the exclusion of many tech firms from the Chinese market, and concerns that US firms are forced to hand over intellectual property in exchange for access to the Chinese market.
As much as $60bn-worth of Chinese-made tech imports could be affected by new levies seeking to combat this threat.
From Bush 1 to present, our Country has lost more than 55,000 factories, 6,000,000 manufacturing jobs and accumulated Trade Deficits of more than 12 Trillion Dollars. Last year we had a Trade Deficit of almost 800 Billion Dollars. Bad Policies & Leadership. Must WIN again! #MAGA— Donald J. Trump (@realDonaldTrump) March 7, 2018
Analysts at Goldman Sachs have studied the technology row.
“While the current trade dispute has unique elements such as cyber-theft and national security concerns, it also has an economic logic, one that is neither novel nor unique to the US-China relationship,” said analysts David Mericle and Daan Struyven, referring to previous international spats between firms which become national champions, such as aeroplane manufacturers.
“In part for this reason, the dispute is unlikely to be fully resolved any time soon; after all, the Airbus-Boeing trade dispute has continued for decades.
“Notions of free and fair trade become hazier when industries are highly concentrated and superstar firms earn monopoly rents.”