Trade War Fears Justified as China Responds with Force, Stock Markets Tumble

While the U.S administration introduced tariffs on a broad range of goods, the Chinese government has focused on aircraft, soybeans, and cars, which were the three largest exports to China in 2017, the tariffs announced targeting $50bn of U.S goods annually, with 25% tariffs on the big 3.

The total number of U.S products that will fall under the latest tariffs to be introduced by China sit at 106, though for the U.S government and the economy, the punitive tariffs on aircraft, soybeans, and autos are going to hurt the U.S economy and the administration the most.

China is in no mood to mess around and, while U.S President Trump has found increasing support since the introduction of trade tariffs, uncertainty over the near-term outlook for farmers and the aircraft and auto manufacturing sector looks grim should the tariffs be introduced in the coming weeks, particularly when March manufacturing PMI numbers released earlier in the week had disappointed.

China’s list of 106 U.S goods have been released and for the Republicans, not only will the prospect of falling demand for U.S autos and Boeing aircraft weigh heavily, but also the impact on farmers, with the mid-West having been a strong Republican stronghold in the 2016 Presidential Election.

U.S President Trump had only recently stated that it was easy to win a trade war. The latest move by China could be checkmate, with demand for aircraft, auto and U.S produce having formed the lion’s share of U.S exports, creating a significant number of jobs within the U.S that has contributed to the tightening in labour market conditions, with the unemployment rate now sitting at pre-global financial crisis levels in recent months.

Unsurprisingly, the global financial markets have balked at the release of China’s 106 and when considering the fact that China is the world’s largest importer of Soybeans, moving away from the U.S to alternative sources is going to have a drastic impact, not just on the U.S, but also on China.

At the time of writing, the Dow Jones futures were down 461 points, the S&P500 futures down 38 points and the NASDAQ futures down a whopping 114 points and the slide comes before the Chinese government has even announced a date on which the tariffs will become effective.

The market bulls will be hoping that China’s latest move will force the U.S administration into pulling back from its plans and, when considering the fact that China was the largest buyer of U.S paper in 2017, the U.S government’s need for funding this year will add further pressure on the Dollar and U.S government funding should Trump stand firm.

There are no winners here and, with numerous economies hinged on China’s demand for raw materials and goods, not to mention the market sensitivity to China’s economy, there will be many a government hoping that the threat of a trade war is put to bed.

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