Trade war fears send stocks retreating
The world’s major stock markets fell on Thursday as sentiment was rocked by new trade war fears as US President Donald Trump unveiled tariffs on Chinese imports of at least $50bn.
Saying it would be the “first of many” trade actions, Trump signed the order that will also look at restrictions on Chinese investment in the US. “We have a tremendous intellectual property theft situation going on,” Trump said.
He said that loss of American jobs from unfair trade was one of the main reasons he had been elected in 2016.
The US runs a $375bn goods trade deficit with China.
New York’s blue-chip Dow was down 1.4% in midday trading before Trump made the formal announcement. Europe’s main indices closed the day with similar losses.
“Dealers are worried this could be the first shot fired in a trade war between the two largest economies in the world,” said market analyst David Madden at CMC Markets UK.
The move is likely to add to tension with Beijing after the White House unveiled controversial tariffs on imports of steel and aluminium, which sparked fury from world leaders.
China was preparing a range of responses to planned US tariffs and would stand up to protectionism, but still hoped for dialogue, Beijing’s ambassador to the World Trade Organisation (WTO) said on Thursday. Zhang Xiangchen said China was considering a WTO complaint against Trump’s tariffs.
Meanwhile, a senior US official said Trump would grant Europe and half a dozen other countries a last-minute exemption from the punishing metal tariffs, although European leaders were waiting for the official announcement by a US president who is known to make last-minute changes.
China and Russia were not among the countries named.
“Fresh tariffs from the Trump administration has put a global trade war right at the centre of market psyche,” said Jasper Lawler, head of research at London Capital Group.
“Investors are preparing for the worst, namely a tit-for-tat reaction from China and the negative consequences it could have for the free flow of goods and services,” Lawler said.
“A trade war damages the
idea of synchronised growth in 2018.”
London’s FTSE 100 index shed 1.2%, while in Paris the CAC 40 dropped 1.4% and the DAX 30 in Frankfurt fell 1.7%.
Signs that the Federal Reserve would increase the pace of interest rate rises in 2019 also weighed down equity markets, as did a perceived tighter bias at the Bank of England, traders said.
On Wednesday, the Federal Reserve raised the key lending rate for the first time in 2018, citing a stronger outlook for economic growth, and hinted at a slightly more aggressive pace for hikes in 2019.
Higher interest rates tend to weigh on stock markets global because they increase loan repayments and reduce consumers’ disposable incomes.
Jerome Powell, chairman of the Federal Reserve, “delivered the rate hike markets expected, but a more hawkish tone hints heavily at an increasingly aggressive rate tightening cycle, if not this year then certainly in 2019”, said Interactive Investor analyst Lee Wild.
The Bank of England left Britain’s leading interest rates unchanged, but two of the nine monetary policy committee members voted against that decision, which pointed to “a slightly more hawkish tone”, Accendo’s Michael van Dulken said on Thursday.