US facing trade war on two fronts
Trump reaches out to Macron after China retaliates with $50b in tariffs
With the US facing a trade war on two fronts, President Donald Trump has called French President Emmanuel Macron in hopes of starting negotiations that could reduce trade barriers between the US and the EU.
The Elysee Palace put out a statement saying that a call had taken place on Friday and that trade was discussed amid other topics, but the EU earlier this month said it would refused to engage in formal discussions about a trade agreement while its industries are subject to punitive tariffs on steel and aluminium.
The call to Macron went out after US announced $50 billion in tariffs on Chinese goods, which are expected to go into effect in three weeks, and China retaliated with an additional $50 billion in tariffs on US goods. Many fear the tariffs could igniting a trade war that threatens to cut into the pair’s massive bilateral trade — potentially harming exporters and US multinationals keen on China’s huge market. An EU official said the bloc is also bracing for additional tariffs on car exports to the US.
Companies and trade groups in the US and China have expressed concern over how the escalating trade spat between the world’s two biggest economies could affect operations.
Agricultural trader Cargill, the largest US private company, called for dialogue between Beijing and Washington so businesses, farmers and consumers would not be caught up in an all-out trade war. “Trade conflict... will lead to serious consequences for economic growth and job creation and hurt those that are most vulnerable across the globe,” said Devry Boughner Vorwerk, a vice president at Cargill.
“The Donald Trump administration has once again proved inconsistent and precarious,” state-run newspaper China Daily said in an editorial yesterday.
Fears of tariffs and a potential global trade war have jostled US stocks over the past few months, but there is a sense among investors that the market is taking the drum beat of rhetoric and statements more in stride.
In the latest salvo, US President Donald Trump announced hefty tariffs on $50 billion (Dh183.5 billion) of Chinese imports on Friday, and Beijing threatened to respond in kind.
But even as the developments threatened to ignite a trade war between the world’s two largest economies, the equity market largely shrugged it off. The benchmark S&P 500 index ended down only 0.1 per cent on Friday.
That paled compared to losses earlier in the year that were sparked by fears of a US-China trade war that would be detrimental to economic growth.
“The market has gotten reasonably comfortably numb to this tariff stuff,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “They are becoming more accustomed to this being a first foray and negotiating tool.” The US Customs and Border Protection is to begin collecting tariffs on an initial tranche of 818 Chinese product categories on July 6.
Negotiating point
“It’s kind of the cry-wolf syndrome,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia. “I think people fear the tariffs and the uncertainty about it, but think, ‘OK, this is just another negotiating point.’” On March 1, the S&P 500 declined 1.3 per cent when Trump announced plans for hefty tariffs on steel and aluminium imports to protect US producers.
Later in March, the S&P 500 tumbled 2.1 per cent on another day of apparent escalating US-China tensions.
So far, Trump has taken little action beyond tariffs of 25 per cent on steel and 10 per cent on aluminium on imports from China, the European Union and other countries.
The market has grown more used to Trump’s style, especially when it comes to international affairs, investors said. “The market is starting to get accustomed to the president, the way the president negotiates, the way the president tries to prove his point,” Carlson said. “There is a growing awareness of how the president tries to do business.” To be sure, certain areas of the market remain sensitive to rhetoric about trade.
The S&P 500 industrial sector, which includes multinational companies such as plane maker Boeing and heavy machine manufacturer Caterpillar, has lagged the market since trade war concerns flared in March. Industrials dropped 0.25 per cent on Friday.
Steel shares also have been jostled, as investors weigh benefits from protective measures against fears a trade war will undermine global demand.
Auto investors have also been whipsawed by trade policy.
Potential higher steel costs stemming from tariffs could hurt car makers, while the Trump administration has launched a national security investigation into car and truck imports that could lead to new US tariffs.