Trump threatens to impose new tariffs on China

Donald Trump Xi Jinping

Donald Trump Xi Jinping

President Donald Trump said Monday that the US will make a "great deal" with China on trade, while threatening billions of dollars of extra tariffs if a deal isn't done.

Bloomberg Economics estimates that the drag on 2019 GDP growth could be about 1.5 percentage points assuming a tariff rate of 25% on all Chinese imports.

Bloomberg, citing "three people familiar with the matter", reported that the administration was planning to announce tariffs covering all remaining Chinese imports if talks between Trump and Xi failed to "ease the trade war".

The US this year has already imposed tariffs on $250 billion in trade with China. The administration has threatened tariffs on the rest. "A trade war with China was one of the bigger overhangs". Futures for the Dow were up 0.4 percent and the broader S&P 500 futures added 0.5 percent. The Dow Jones Industrial Average swung between a gain of 352 points and a loss of 566 before closing down 245.39 points, or 1 percent, to 24,442.92.

At 12 p.m. ET, the Toronto Stock Exchange's S&P/TSX composite index was up 49.17 points, or 0.34 per cent, at 14,771.08.

Stocks have plunged since early October, breaking a long period of relative calm over the summer, and trading has been especially volatile the last few days.

Among industrials, Boeing sank 6.6% to $335.59. Some early gains for tech and internet stocks also faded. Microsoft ended down 2.9% at $103.85. Ten percent tariffs on $200 billion in imports that took effect in September are due to increase to 25 percent on January 1.

Amazon.com dropped another 6.3 percent to $1,538.88.

Futures signaled gains for equities in Hong Kong and China, while Japanese stocks were seen opening slightly lower.

ANALYST'S TAKE: With new restrictions on a Chinese semiconductor maker, the "U.S. has escalated its trade war with China in an unexpected way", Chang Wei Liang of Mizuho Bank said in a commentary. The Nasdaq has dropped 13% from its August 29 record high.

For most of this year investors have remained hopeful that the US and China would work out there disagreements on trade, but in recent weeks they've lost some of their confidence.

American companies operating in China believe that they suffer more from trade disputes than companies from other countries, according to a survey by the American chamber of Commerce, which investigated 219 companies - third of the total manufacturing sector. Miners and energy companies led the way as nearly every sector on the Stoxx Europe 600 Index climbed.

"I think it's a reflection of the lack of conviction that we have in the market right now", Fehr said in an interview.

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