Global stocks brace for first tariffs in US/China trade spat

As it awaits the imposition of new US tariffs, China says it won’t shoot first in any trade war.

Going into the July 4 national holiday, US President Donald Trump’s plans to enact an extra $US34 billion of tariffs on more than 1000 product lines could be in place by this Friday.

The Trump administration plans to roll out tariffs of 25% on $US50b of Chinese products in two steps. The first round, on $US34b of goods in aerospace and information technology as well as auto parts and medical instruments, is scheduled to take effect on July 6. Another round – on $US16b on machinery and plastics – will get industry comment at a public hearing on July 24, with tariffs to be imposed sometime after that.

Beijing says it would assess the tariffs once they come into force and decide if it would retaliate with corresponding limitations on US goods. It isn’t clear which lines are highlighted by USTR, though the products in question are likely to be similar to a preliminary list released in early April.

China had planned to enact its own tariffs against the US before July 6, the same date set by the US for its tariffs but changed its mind yesterday. The State Council, China’s cabinet, issued a statement saying “China absolutely won’t fire the first shot” by enacting tariffs. However, it reserved the right to place tariffs later in the day on Friday.

However, Mr Trump has also threatened tariffs on as much as $US400b worth of Chinese goods if Beijing retaliates.

Chinese Foreign Ministry spokesman Lu Kang says China is ready to act, though he did not confirm the start date for Chinese tariffs.

“China has already made preparations. As long as the US issues a so-called tariff list, China will take necessary measures to firmly protect its legitimate interests,” he says.

China’s yuan rose sharply against the dollar on Wednesday, a day after its central bank assured markets it would keep the currency stable amid growing worries about trade friction.

Economists at UBS Group AG say the first round of tariffs likely will have a limited impact on China’s $US11 trillion economy. If the conflict escalates and global trade slows, they estimate it would shave a 0.5 percentage point from China’s GDP growth, which last year was 6.9%.

Back in the US, Mr Trump’s prediction of GDP growth of 4% this year may be coming true on a quarterly basis. Strong retail sales data pushed up tracking GDP growth for the second quarter to about double the first quarter's level and reach 3.8%. The US economy grew by 2.2% in the first quarter.

World stocks tense
While US markets are closed, global stocks are waiting for the USTR’s tariff decision on China.

The MSCI All-Country World index, which tracks shares in 47 countries, was lower by less than 0.1% on the day, recovering slightly from a 0.2% fall earlier.

“There is a lot of concern about the effect a long-term trade war might have but actually if you look at the data we’re seeing, the economic data is not that bad,” CMC Markets chief markets analyst Michael Hewson says.

Hong Kong’s Hang Seng fell 1.1% Wednesday to its lowest closing level of the year, and the Shanghai Composite shed 1% to close at its lowest since 2016.

The pan-European STOXX 600 index was last down 0.1%, see-sawing from positive to negative territory during the day. Germany’s exporter-heavy DAX fell half a per cent and Britain’s FTSE 100 fell 0.3%. Telecom companies were the biggest winners, though declines in technology shares helped offset the move. Trading volumes were more than 40% below the 30-day average. 

The euro was slightly higher at $1.1662 after having fallen as much as 0.2%. The British pound climbed 0.3% to $US1.3237, the strongest in more than a week. The Japanese yen fell 0.1% to 110.48 per US dollar.

Britain’s 10-year yield gained three basis points to 1.269%. Germany’s 10-year yield gained one basis point to 0.31%. France’s 10-year yield increased one basis point to 0.645%.

Gold gained 0.4% to the highest in more than a week. West Texas Intermediate crude was up 0.3% at $US74.33 a barrel. LME copper, sometimes seen as a barometer of global economic strength given its wide use in power and construction, fell 1.3% to $US6,406.50 per metric ton, the lowest in almost 11 months.

Iran/US talk nuclear deal
Iranian President Hassan Rouhani arrived in Switzerland for two days of talks expected to focus on efforts to preserve the 2015 Iran nuclear deal after Mr Trump withdrew the US from the accord.

Iran will continue to respect the 2015 deal as long as its interests are preserved, Mr Rouhani told the press. The foreign ministers of Iran, UK, Germany, Britain, France, Russia and China will meet on Friday in Vienna to discuss ways to salvage the nuclear deal.

“We are prepared to work with countries that are reducing their [oil] imports [from Iran] on a case-by-case basis,” the senior State Department official Brian Hook says, walking back threats to insist on zero imports by November 4.

“We have been clear with countries and companies around the world that we are bringing severe economic pressure on Iran until the regime changes its destabilising policies,” he says, adding that more than 50 international companies have indicated that they will leave Iran.

“The Americans have claimed they want to completely stop Iran’s oil exports. They don’t understand the meaning of this statement,” Mr Rouhani responded, warning that such action would threaten regional oil exports.

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