China trade talks threatened by Donald Trump’s new tariff threat; shares and dollar drop

15-05-2019 21:05

Australian shares were down 1 per cent around the middle of the day on Donald Trump’s tweet.

US President Donald Trump has threatened to reignite the trade war with China, by announcing he will impose tariffs on $US525 billion ($753 billion) of Chinese goods because Beijing is moving too slowly on a deal.

Key points:

  • US President Donald Trump warned he would lift tariffs by Friday on $US200b ($287b) worth of Chinese goods from 10pc to 25pc
  • He also raised the possibility of a new 25pc duty on another $US325b ($466b) on imports that aren’t currently covered
  • The two sides were due to resume talks in Washington this week, but China may now delay the trip

Mr Trump on Sunday warned he would lift tariffs on $US200 billion ($287 billion) worth of Chinese goods from 10 per cent to 25 per cent by Friday, reactivating a threat he delayed indefinitely months ago.

He also raised the possibility of a new 25 per cent duty on another $US325 billion ($466 billion) on imports that are not currently subject to tariffs.

The two economic superpowers have been in constant negotiations for months, after agreeing to a trade war truce in December, and looked close to a deal.

But Mr Trump’s threats — made on Twitter, where the US President commonly announces changes to US policy — come as another round of talks were due to resume between the two sides this week.

Chinese negotiators, led by Vice-Premier Liu He, were scheduled to arrive in Washington on Wednesday, but US media outlets, including the Wall Street Journal, are now reporting that China is considering delaying the trip because of Mr Trump’s comments.

Trump says ‘No!’

Mr Trump tweeted, “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”

The US President also said: “for 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday.”

The sudden increase in trade tensions comes amid warnings from the International Monetary Fund that US-China tit-for-tat trade war is reducing world trade and creating uncertainty.

The IMF downgraded its forecasts for global economic growth last month, saying the global economy will grow 3.3 per cent this year, down from the 3.5 per cent the IMF had forecast in January.

The Trump administration in July began imposing taxes on Chinese goods to pressure Beijing into changing its policies.

Can US-China trade relations be the same?

Can US-China trade relations be the same?

Whatever the outcome of a trade deal, the US will likely further restrict Chinese investment in America.

It has since imposed 10 per cent tariffs on $US200 billion in Chinese imports and 25 per cent tariffs on another $US50 billion.

The Chinese have retaliated by targeting $US110 billion in American imports.

Markets hit hard

Just the threat of tariffs alone has weighed down investor sentiment, which has been largely positive amid previous signs of gradual progress towards a deal.

The Australian share market has fallen 1 per cent with the ASX 200 at 6,272 around 1:00pm (AEST).

The decline is largely attributable to Mr Trump’s tweets, as both the major US share market indices and Australian share market futures ended last week substantially higher ahead of the US President’s social media intervention on Sunday.

Chinese markets were harder hit, with shares in Hong Kong down 3.6 per cent in morning trade and indices on the mainland down well over 5 per cent.

The Australian dollar also took a big hit from the tariff fears, falling to 69.7 US cents.

What Chinese goods could get hit?

The panic on Chinese share markets was exacerbated by Donald Trump’s warning that his administration would tax nearly all of China’s exports to the United States.

US-China trade war explained

US-China trade war explained

It is upping the ante in a high stakes game, but what are the implications of President Trump targeting hi-tech Chinese imports?

The US imported just under $US540 billion of Chinese goods in 2018 including cell phones, computers, clothing, footwear and other consumer products.

Mr Trump tweeted: “325 Billions Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China.”

China could retaliate and hit back with higher tariffs on American imports, as well as tougher regulatory hurdles for US companies doing business in China.

While the two sides had been reporting progress in talks, the sticking points have been on intellectual property theft and forced technology transfers.

White House economic adviser Larry Kudlow told Fox News that the US President’s tweet was a warning to the Chinese.

“The President is, I think, issuing a warning here, that, you know, we bent over backwards earlier, we suspended the 25 per cent tariff to 10 and then we’ve left it there,” he said.

“That may not be forever if the talks don’t work out.”

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