Trade fight could slow United States growth, economists say

Gladys Abbott
June 21, 2018

The S&P 500 index is rising 8 points, or 0.3 percent, to 2,771.

The S&P 500 posted seven new 52-week highs and five new lows; the Nasdaq Composite recorded 135 new highs and 48 new lows.

China's government has denounced President Donald Trump's threat of tariffs on US$200 billion of Chinese goods as blackmail and warned it would respond with "strong countermeasures".

Beijing also drew up a second list of $16 billion in chemical and energy products to hit with new tariffs, though it did not announce a date for imposing them. -China Business Council. Parker suggested that such steps might include delaying or denying licenses required by USA companies in China.

Early in the day, the Dow Jones Industrial Average index shed 362 points to 24,626, led lower by Boeing, Caterpillar and DowDuPont.

The declines weighed on the S&P industrials index .SPLRCI , which fell 2.1 percent, its biggest one-day percentage drop in almost two months.

Shares in supermarket Tesco, Britain's biggest retailer, meanwhile jumped 2.6 percent after the company reported solid first-quarter sales.

Canada has pledged $16.6 billion in countermeasures to respond to US tariffs on Canadian steel and aluminum.

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In London, shares in British engines maker Rolls-Royce soared almost 10 percent.

USA crude futures dropped 1.6 percent to $63.99 per barrel, briefly touching their lowest levels since April 10. Automakers fell sharply. GM sank 3.9 percent to $42.25 while Tesla slumped 3.9 percent to $356.25.

The intellectual property sanctions were the latest in a spate of protectionist measures unveiled by Trump in recent months that included tariffs on steel and aluminium imports to the US and a tough rhetoric on trade negotiations from North America to Asia. The Russell 2000 index of smaller stocks is building on the record set Tuesday, up 11 points, or 0.7 percent, to 1,705.

US tariffs on Chinese products including steel, aluminium, and those that benefit from China's industrial development subsidy programmes including the "Made in China 2025" technology upgrade plan, could hurt a broad number of China-listed companies, said fund manager Dai, who is general manager of Shanghai Wisdom Investment. Oxford Economics estimates that if Trump imposed the $200 billion in tariffs and China responded in kind, USA growth could slow by 0.3 percentage point next year.

China's retaliation list was increased more than six-fold from a version released in April, but the value was kept at $50 billion, as some high-value items such as commercial aircraft were deleted.

Further market falls could also trigger a vicious cycle of selling, as a large proportion of shares in China's stock market are pledged against loans, and could potentially face margin calls, he said.

Shanghai stocks staged a modest 0.3 percent recovery after tumbling almost 4 percent on Tuesday to a two-year low, buoyed by soothing comments from the central bank chief and in state media, and a burst of share purchase plans. The yield on the 10-year US Treasury bond ticked down to 2.88%. A US-China trade war would not only destroy the economies of the two countries; it won't spare their trading partners.

On Monday night, Trump told the USA trade representative, Robert Lighthizer, to target an additional $200 billion in Chinese goods for 10 percent tariffs. China, claiming the United States had "launched a trade war", retaliated nearly immediately, outlining its own tariffs on USA goods worth $50 billion. U.S. Steel fell 3.4 percent to $34.89 while aluminum producer Alcoa declined 4.3 percent to $43.84.

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