Chinese stock markets tumble after Trump threatens new tariffs

Shanghai stock market index falls by nearly 6 per cent ahead of US-China trade meeting

Conrad Duncan
Monday 06 May 2019 14:59
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China demands US stop 'groundless' attacks as trade war tensions surface during Pompeo's Beijing visit

Chinese stock markets tumbled on Monday after Donald Trump threatened China with increased tariffs on $200bn (£152bn) of goods.

The president's surprise outburst risks derailing talks aimed at resolving the trade war between the world’s two biggest economies.

A Chinese delegation is scheduled to resume talks in Washington on Wednesday but US media reported they have considered cancelling the meeting.

Hong Kong’s Hang Seng index dropped 3.1 per cent following Mr Trump’s tweet, while the Shanghai Composite fell by nearly 6 per cent.

Chinese government officials did not immediately respond to requests for comment.

Mr Trump wrote on Twitter that he would increase tariffs on $200bn of goods from 10 per cent to 25 per cent on Friday and announced tariffs at 25 per cent on $325bn of additional goods.

Government officials in Beijing have previously told the US they would not negotiate under pressure.

Jake Parker, vice president of the US-China Business Council, said Mr Trump’s threat makes the talks “very difficult politically” for Xi Jinping’s government, as the Chinese public may view an agreement by the Friday deadline as a “capitulation”.

Although Mr Trump has twice pushed back deadlines for raising the tariffs – in January and March – he said he had lost patience with the negotiations on Sunday.

“The tariffs paid to the USA have had little impact on product cost, mostly borne by China. The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!” he said.

Mr Trump has portrayed his tariffs as beneficial for the US economy and claimed previous administrations have let China get away with abusive trade practices and take advantage of a lopsided economic relationship.

However, economists have found that the burden of the tariffs falls on US consumers and businesses who buy imported products.

A March study by the Federal Reserve Bank of New York, Columbia University, and Princeton University found that by the end of last year, US consumers and businesses were paying $3bn a month in higher taxes and absorbing $1.4bn a month in lost efficiency.

Philip Levy, who was an economist in former president George W Bush’s administration, said the talks are too complicated for Mr Trump’s high-pressure negotiating style.

"The president treats this like we're haggling over the price of a used car," he said.

The US-China trade war has also raised worries about global economic growth, with the International Monetary Fund, World Bank and others downgrading their forecasts for the world economy.

Forecasts have cited the trade war as a factor for creating uncertainty and reducing world trade.

That uncertainty is not helped by Mr Trump’s latest outburst, which came as an unexpected development for the Chinese government.

"This is a big surprise given the increasingly positive messages from the various US officials involved in the trade talks in recent weeks," said Tao Wang and Ning Zhang, senior economists at UBS.

"Certainly the risk of an all-out US-China trade war has increased significantly."

Additional reporting by agencies

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