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Market volatility as US-China trade war takes new twist

Fiery rhetoric from China mitigated by optimistic remarks from Donald Trump on Twitter.

Article originally published by The Week. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

Fiery rhetoric from China mitigated by optimistic remarks from Donald Trump on Twitter

Trump tweeted in the morning: “When the time is right we will make a deal with China. My respect and friendship with President Xi is unlimited but, as I have told him many times before, this must be a great deal for the United States or it just doesn’t make any sense. [...] It will all happen, and much faster than people think!”

Wall Street had suffered its worst day since January on Monday, but on Tuesday, according to the Guardian, “hopes that the US and China haven’t irretrievably fallen out helped shares to rally - Donald Trump’s tweets can take some of the credit.”

At the end of last week, talks aimed at ending the conflict broke down, with the US on Friday increasing duties on $200 billion worth of Chinese imports to 25%. On Monday, China responded with tariff hikes of its own - up to 25% on $60 billion worth of imports, set to come into effect on 1 June.

In what amounts to the first explanation from either side for why the talks broke down, The Financial Times reports that yesterday the Chinese foreign ministry accused the US administration of “trying to force Beijing to suddenly increase the volume of goods it was willing to buy from the US as part of an agreement, violating terms struck in December.”

“The US 'arbitrarily raised its asking price', said a spokesman for the foreign ministry. 'The hat that... violates promises is absolutely not on the Chinese head.'”

It remains to be seen if Trump’s optimism about a resolution to the conflict will be borne out. Writing in the New York Times, Neil Irwin argues that “United States and China seem to be digging into their positions in ways that will be hard to resolve with the mutual face-saving that typically turns high-stakes negotiations into deals. [...] It is not clear what the off-ramps might be that would allow a de-escalation and prevent a major trade war that would prove costly to both nations.”

With a statement that could suggest a more protracted conflict, Hu Xijin, the editor of nationalist tabloid the Global Times, wrote on social network Weibo: “Washington was betting on overwhelming China with a single blow; it didn’t realise that the China-US trade war could become a war of attrition.”

But CNN says that the trade war is unsustainable, and predicts that it won’t last: “China's booming middle class is a critical growth engine for Boeing, Apple, Nike and other American brands. China is expected to keep growing in importance as a buyer. And America's insatiable appetite for cheap goods has created a Chinese factory juggernaut that employs millions of workers.”

Despite economists’ unanimous consensus that tariff wars are ineffective and result in costs shouldered almost entirely by the aggressor’s businesses and consumers, there remains unusual bipartisan support for Trump’s tough stance on China’s trade practices.

As Sky News says: “There is no doubt that, in this particular instance, Mr Trump has the moral high ground... Successive US presidents and countless American businesses have been frustrated by the way Beijing enforces regulations that bestow advantages to Chinese companies while penalising foreign ones.”


This article was from The Week and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

Article originally published by The Week. Hargreaves Lansdown is not responsible for its content or accuracy and may not share the author's views. News and research are not personal recommendations to deal. All investments can fall in value so you could get back less than you invest.

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