China & US embark on potential trade war

China & US embark on potential trade war

US President Donald Trump stated that he was considering additional tariffs on a further $100 billion in Chinese goods to the $50 billion he had initially proposed on 22 March.

"President Xi and I will always be friends, no matter what happens with our dispute on trade", Mr. Trump tweeted Sunday. China will take down its Trade Barriers because it is the right thing to do.

On Apr. 4, the Dow had opened down almost 500 points after China hit back against the Trump administration's list of about 1,300 China-made items - or $50 billion in goods - on which it would impose an additional 25 percent tariff.

China warned the USA that it would learn a "painful lesson" if it followed through, while users on Chinese social media platform Weibo were quick to show their patriotism by cheering their country on. The recent market declines and volatility have let at least some of the steam off of high USA stock valuations, even though we're still expensive by most metrics. In the case of China's threat, it would cover more than one third of the goods it now buys from the US.

A trade war might be emerging between the USA and China, which threatens to have a monumental impact, not only severely hurting trade profits on both sides, but also destabilising existing foreign policies.

AMP Capital chief economist Shane Oliver has dispelled fears about the seemingly escalating trade dispute between the U.S. and China.

Meanwhile, others feared a trade war could cause massive price spikes on everyday goods, such as iPhones and soy beans.

The proposal would affect more than 10 times as much trade.

China sales rise 3% in March
Trump cited a speech by Chinese President Xi Jinping that the USA president interprets as a signal China is about to open its markets to more US goods.

Tempting as it might be for the administration to vent its displeasure with China's unfair trade practices, one must hope that it thinks carefully before rushing into a trade war.

Speaking from experience, he talked about the exorbitant costs of medication in China; many patients and their family members seek out relatives living overseas to help them buy medication, particularly cancer treatment drugs.

Mr Oliver added that the reason markets had responded to the trade dispute was in order to "make some allowance for the probability" of a "full-blown trade war".

James Laurenceson, deputy director of the Australia-China Relations Institute at UTS, said the Chinese response - that they would be playing by the World Trade Organisation rules as much as possible - was "a pretty smart one". Unless higher import tariffs somehow increased US savings or reduced USA investment, there is no reason to think that they would help eliminate the trade deficit. Beijing also declared that the current rhetoric made negotiations impossible, even as the White House suggested that the tariff talk was a way to spur China to the bargaining table.

The threat of a trade war between the world's two largest economies has unsettled global markets.

"If you look at President Xi's speech, it was conciliatory and that feels like a de-escalation", Art Hogan, chief market strategist at B. Riley FBR, tells CNBC.

Senior fellow at the Lowy Institute, Richard McGregor, expected the tension to go on for years and couldn't see the conflict being resolved quickly because of declining strategic trust and rising strategic, economic and technological competition between two of the world's largest economies. It does take many months - sometimes years. "That's a possibility", Trump said.

As to the all-important question of the likely costs of a trade war, it is well to recall that from a financial market perspective Trump could not have chosen a worse time for a trade war.

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