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– Sensex falls 400 points, Nifty finishes below 10,000 in Trade war scare
– China urges US to pull back from brink as Trump unveils tariffs
– The Dow Jones industrial average dropped more than 700 points
Global financial markets slumped on Friday as the United States and China engaged in a trade dispute. US President Donald Trump on Thursday announced tariffs on up to $60 billion-worth of imports from China, drawing a sharp reaction from the country, which unveiled its own plans to set up duties of up to $3 billion on US imports. Japan’s Nikki fell 4.1 per cent, Shaghai’s shares were down 3.3 per cent, Australian stocks lost 2.1 per cent, Taiwan shares slid 1.7 per cent and South Korea’s KOPS retreated 2.3 per cent. The Dow on Thursday shed 2.9 per cent. In India, the BSE Sensex opened 400 points lower, while the broader Nifty traded below 10,000 in the opening hours.
President Trump was evidently just warming up when he ordered global tariffs on steel, aluminum, solar panels and washing machines in recent weeks. The main event came Thursday, when the president announced plans to impose up to $60 billion in tariffs on China. This time, the president is focused on the right problems: China’s abuse of U.S. companies that do business there, its pursuit of technology developed here, and its support for hackers who steal trade secrets online.
Trade War Scare
As the term might suggest, a trade war is a situation where countries try to hamper each other’s commerce. Generally, the process involves imposing hefty tariffs and restrictions on each other’s produces. For example, if Country-A hikes import duty on the produces of Country-B, then its products become more expensive and thus less competitive in the Country-A’s markets.
US has passed a presidential memorandum that could impose tariffs on up to $60 billion of imports from China. China has retaliated with a $3 billion counter punch to Donald Trump’s tariffs. Global markets including that of India have taken a hit amid the volatility.
The Dow Jones industrial average dropped more than 700 points
US stocks have plunged after the Trump administration slapped sanctions on goods and investment from China.
The Dow Jones industrial average dropped more than 700 points as investors feared that trade tensions between the world’s largest economies would escalate.
The planned sanctions include tariffs on $48 billion worth of Chinese imports as well as restrictions on Chinese investments.
Mr Trump said he is taking those steps in response to theft of American technology and the Chinese government said it will defend itself.
Investors are worried that trade tensions would hurt US companies and harm the world economy.
On Thursday they fled stocks and bought bonds, which sent bond prices higher and yields lower.
With interest rates falling, banks took some of the worst losses. Technology and industrial companies, basic materials makers and healthcare companies also fell sharply.
Unfortunately, Trump is once again offering the wrong solution. The tariffs aren’t likely to inflict as much pain on China as they will on U.S. consumers and exporters.
For Trump, China has long represented the worst of the worst among trade cheats. The tariffs announced in previous weeks applied to metals and products from a vast array of countries, but their primary target was Chinese exporters that allegedly sell their goods below cost in defiance of global trade agreements. In the view of top administration officials, those unfair practices have been enormously costly to U.S. companies, causing factories to shut down and thousands of workers to lose their jobs.
It’s hard to see how slapping tariffs on as-yet-identified products will induce China to honor intellectual property rights.
But that’s only part of the story. Even if you accept the administration’s analysis, it is also true that cheap Chinese materials and assembly factories have helped U.S. companies compete and expand globally (see, e.g., Apple). In fact, one study estimates that the tariffs on steel and aluminum would create about 33,000 jobs at metals factories while costing nearly 180,000 in other industries.
Trump’s latest initiative focuses not on Chinese products, but on Chinese behavior — its cavalier attitude toward intellectual property rights and the hostile environment it has created for U.S. companies seeking to operate or invest in China. And on these points, there is widespread agreement that China has not only behaved badly, it has resisted years of pressure from U.S. leaders to change.
Among other things, China continues to require U.S. businesses to create joint ventures with Chinese firms in order to invest in selected industries, and in the process they often are forced to transfer valuable and novel technology to their Chinese partners. China also puts its thumb on the scales in negotiations between U.S. and Chinese firms, helping Chinese companies obtain U.S. technology on favorable terms.
China’s bad trade practices were damaging enough when the country was mainly a source of cheap consumer goods. But now that China’s industrial policy is focused on dominating such crucial 21st century fields as health sciences, artificial intelligence and aerospace, the stakes are considerably higher.
That’s why Trump’s tough talk and actions are drawing plaudits from some lawmakers in both parties, whose patience with China has understandably grown thin. And two pieces of Trump’s latest order — imposing restrictions on Chinese investments in the U.S. to match the ones China imposes on U.S. companies, and asking the World Trade Organization to rule against China’s “discriminatory licensing practices” — are welcome steps that respect the WTO and international trade agreements that the U.S. has pushed the world to embrace.
On the other hand, it’s hard to see how slapping tariffs on as-yet-identified products will induce China to honor intellectual property rights, permit more investment by U.S. firms or stop trying to steal trade secrets online. The tariffs will no doubt raise the price that U.S. consumers pay for those products. And they will just as surely prompt China to retaliate against U.S. exports, even as it finds new buyers for its own goods. That’s been the result when the U.S. has unilaterally imposed tariffs in the past, and there’s no reason to think the outcome would be any different this time.
The right steps to take are the ones that Trump has disdained since the day he took office. The industry groups and countries that have succeeded in changing China’s trade practices have been the ones that have acted in broad coalitions. Governments around the globe have complained about Chinese violations; the Trump administration should be organizing trading blocs to jointly demand changes from the Chinese through globally recognized institutions like the WTO that exist for just that purpose, backed up with tariffs and other sanctions if they don’t deliver.
Instead, the administration has gone in the exact opposite direction, bullying trade partners, threatening to cancel major free-trade deals and undermining the WTO. One of Trump’s first acts as president, in fact, was to pull the U.S. out of the Trans-Pacific Partnership — a 12-nation pact the U.S. had organized to counterbalance China’s influence in Asia and establish high standards for intellectual property protection, state-owned industries and other trade norms.
By calling out China’s mistreatment of foreign investors and competitors, Trump has echoed the sentiments of government leaders around the world. If only he’d lined them up — any of them — to help make his sanctions work.
The restrictions will be imposed under the US Trade Representative’s “Section 301” investigation into alleged misappropriation of US intellectual property by China, reports The Associated Press.
Describing China as a “friend”, Trump said Thursday, “We have spoken to China and we are in the middle of negotiations.” He added that the loss of American jobs from unfair trade was one of the main reasons he had been elected in 2016.
The US has accused China of breaching intellectual property law and participating in unfair business practices through which US investors are forced to turn over key technologies to Chinese firms. It claims these practices have given the country an unfair advantage.
“Many of these areas are those where China has sought to acquire advantage through the unfair acquisition and forced technology transfer from US companies… establishing its own competitive advantage in an unfair manner,” Everett Eissenstat, deputy director of the National Economic Council, said. He added that the US could also look at ways to curb Chinese investments in the US.
US-China trade dispute explained US President Donald Trump displays signs a presidential memorandum imposing tariffs and investment restrictions on China in the Diplomatic Reception Room of the White House, Thursday, March 22, 2018, in Washington.
Further, Washington has also demanded that China shrink its annual trade surplus with the US by $100 billion. It was $375 billion in 2017. US imports far exceed its exports leading to large deficits each year — something Trump had rallied against during his campaign and presidency.
China is also likely to target soybean and automobiles, and possibly halt production of iPhone devices, which would really hurt the US economy. Chinese ambassador Cui Tiankai, meanwhile, was quoted by Reuters as saying, “We will retaliate. If people want to play tough, we will play tough with them and see who will last longer.”
Trump’s decision to impose tariffs on Chinese imports is likely to bear an impact on economies supplying the US and China. India’s G20 Sherpa Shaktikanta Das, taking to Twitter today, expressed concern over the dispute between the large economies. “Tariff skirmishes between large economies are a matter of concern for global growth. These countries need to analyse whether it really benefits their domestic economy. Such trade issues need to be resolved through mutual engagement,” he said.
(Box) China urges US to pull back from brink as Trump unveils tariffs (Box)
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China urged the United States on Friday to “pull back from the brink” as President Donald Trump’s plans for tariffs on up to $60 billion in Chinese goods brought the world’s two largest economies closer to a trade war.
The escalating tensions between Beijing and Washington sent shivers through financial markets as investors foresaw dire consequences for the global economy if trade barriers start going up.
Trump is planning to impose the tariffs over what his administration says is misappropriation of U.S. intellectual property. A probe was launched last year under Section 301 of the 1974 U.S. Trade Act.
“China doesn’t hope to be in a trade war, but is not afraid of engaging in one,” the Chinese commerce ministry responded in a statement.
“China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”
In a presidential memorandum signed by Trump on Thursday, there will be a 30-day consultation period that only starts once a list of Chinese goods is published.
That effectively creates room for potential talks to address Trump’s allegations on intellectual property theft and forced technology transfers.
Trump said he views the Chinese as “a friend”, and both sides are in the midst of negotiations.
Meantime, China showed readiness to retaliate by declaring plans to levy additional duties on up to $3 billion of U.S. imports including fresh fruit, wine and nuts in response to imports tariffs Trump announced earlier this month on steel and aluminium, which were due to go into effect on Friday.
The inevitable fall in demand from a full-blown trade war would spell trouble for all the economies supplying the United States and China.
Feeling the chill, MSCI’s broadest index of Asia-Pacific shares outside Japan dropped 2.4 percent, tracking a large overnight fall in Wall Street shares, but perceived safe havens such as government bonds gained.
“The upshot is that today’s (U.S.) tariffs amount to no more than a slap on the wrist for China,” Mark Williams, Chief Asia Economist at Capital Economics, wrote in a note. “China won’t change its ways. Worries about escalation therefore won’t go away.”
Williams estimated that the $506 billion that China exported to the United States drove around 2.5 percent of its total gross domestic product, and the $50-60 billion targeted by the U.S. tariffs contributed just around 0.25 percent.
Trump, however, appears intent on fulfilling election campaign promises to reduce the record U.S. trade deficit with China.
U.S. multi-nationals at a business gathering in Shanghai were warned by Stephen Roach, a Yale University economist, “to prepare for the worst” and make contingencies until calmer heads prevail.
Roach said he could foresee “the Chinese government moving to restrict, in some form or another, the financial as well as the supply chain activities of American companies operating in this country.”