Trade war looming
MORE than $ 30 billion has been wiped from the Australian share market amid growing fears the US and China are dragging the world into a debilitating trade war.
And steelmaker BlueScope has suffered its worst single- session market rout in seven months, stripped of $ 510 million in value after the White House announced Australia’s exemption from steel tariffs would only be temporary.
The benchmark Australian share index, the ASX 200, fell 2 per cent yesterday in its worst session for more than six weeks, ending at its equal-lowest level since October.
It came after US President Donald Trump announced he was introducing tariffs on imports of Chinese products worth up to $ US60 billion ($ A77.8 billion) a year.
Signing a presidential memorandum aimed at curbing “China’s economic aggression”, Mr Trump said he was reacting to the “theft” of US intellectual property, and to cyber theft.
China promptly retaliated, issuing a list of 128 products imported from the US that it may hit with tariffs of 15 to 25 per cent.
The value of the US exports, including goods such as pork, apples and steel piping, was estimated at $ 3 billion a year.
Sending a further shudder through the Australian market, the White House also announced that exemptions – extended to countries including Australia – from its 25 per cent tax on steel imports and 10 per cent tariff on aluminium would only be temporary.
While other countries, including those in the European Union, have now been added to the exemption list, the exemption will for now only run until May 1, subject to further negotiations.
Mr Trump’s policy adviser, Peter Navarro, also outlined plans for quo- tas limiting the amount of tariff- exempt steel that could be imported to the US from various trading partners.
Quotas on tariff- exempt countries would ensure they were not used as a backdoor entry point to the US by non- exempt countries, he said.
Shares in Australia’s biggest steelmaker, BlueScope Steel, tumbled 5.9 per cent in the wake of that revelation, closing 92c lower at $ 14.78.
The broader Australian market shed $ 34.1 billion in value amid a broad selling spree.
It followed a slump of almost 3 per cent on Wall Street with the Dow Jones Industrial Average down more 700 points.
Asian markets also followed Wall Street lower, with Japan’s Nikkei 225 slumping 4.5 per cent in intraday trade yesterday and Hong Kong’s Hang Seng down almost 3 per cent in late trade.
China’s Commerce Ministry said the decision by Mr Trump “seriously hurt the multilateral trading system” and it would consider legal action through the World Trade Organisation.
ANZ economist Raymond Yeung said countries that traded with the US and China might be dragged into the increasingly bitter battle.
“Although the face value of the US tariff will be small, President Trump may push other countries to take sides, resulting in a divided world,” Mr Yeung said.
“The scale of the trade war would be broadened. This is the biggest risk lying ahead.”
CommSec economist Craig James said a global trade war could be avoided if the US could reduce its deficit in trade with China.
The amount the US spends on Chinese goods every year outstrips the amount it sells to China by $ US380 billion.
“If progress is made by the two countries to reduce the shortfall, then this will serve to prevent any broader deterioration of relations between the two countries and negative impact on global economic growth,” Mr James said.
The US plans to outline a list of Chinese products it wants to include in the new tariff dragnet.
Bell Direct equities analyst Julia Lee said investors were now waiting to see how the US and Chinese tariff announcements manifested in real terms.
“Given we are talking about the two largest economies in the world, this could have a significant impact on global growth and that is the fear of the market,” Ms Lee said.