US economy

Trump to hit $300bn in Chinese goods with 10% tariff


US President Donald Trump said the US would place a 10 per cent tariff on $300bn of additional Chinese goods, escalating the trade war between Washington and Beijing in a new threat to the global economic outlook. 

The announcement on Thursday shook financial markets, sending the yield on the 10-year Treasury note to its lowest level since 2016 and pushing down stock prices after they had rallied earlier in the day.

In a series of afternoon tweets, Mr Trump shattered a tenuous truce he reached with Xi Jinping, his Chinese counterpart, at the G20 summit in Osaka in late June, which had paved the way for a new round of high-level talks in Shanghai this week.

Mr Trump suggested the negotiations had gone badly, with China failing to follow through on its pledges to buy more US farm products and restrict the flow of fentanyl to America.

“The US will start, on September 1, putting a small additional Tariff of 10% on the remaining 300 Billion Dollars of goods and products coming from China into our Country. This does not include the 250 Billion Dollars already Tariffed at 25%,” Mr Trump said. 

“We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal, and feel that the future between our two countries will be a very bright one!” he added. 

Later in the day, before departing for a rally in Ohio, Mr Trump said he might raise tariffs even more. The US president said the administration could increase tariffs in “stages” — starting at 10 per cent and moving to “well beyond” 25 per cent. But he added that he wasn’t looking to do that “necessarily”.

The ramp-up in the trade conflict was particularly jarring because it coincided with growing fears of a global economic slowdown driven by commercial tensions. On Wednesday, the Federal Reserve cut its main interest rate by 25 basis points to protect the US economy from the uncertainty deriving from trade tensions.

On Thursday, interest rates fell further, with the yield on the benchmark 10-year Treasury dropping 11.4bp to 1.9 per cent and the two-year Treasury down 12.6bp at 1.75 per cent. Oil prices plunged.

“Not only does this bring lower rates, but it puts more immense pressure on the Fed to do something more sooner rather than later,” said Jim Paulsen, chief investment strategist at Leuthold Group.

The S&P 500 slid 0.9 per cent, dragged down by shares in retailers such as Best Buy, which lost nearly 11 per cent. If Mr Trump follows through on his latest tariff threat against China, it would mean that all of its exports to the US would be covered by levies, including a number of consumer goods from toys to clothing and footwear. 

“The first two rounds of tariffs didn’t hit the consumer, but this one will,” said Steve Chiavarone, portfolio manager with Federated Investors.

Myron Brilliant, head of international affairs at the US Chamber of Commerce, said more tariffs were not the answer to improving business confidence. “Businesses are holding back on investment, and they say a large part of the uncertainty is on the trade agenda, and China is front and centre”, he said.

Hu Xijin, editor of Global Times, a Chinese state-run tabloid publication, said the new round of tariffs would have the opposite effect of what Mr Trump was intending.

“New tariffs will by no means bring closer a deal that the US wants, it will only make it further away,” Mr Hu tweeted. “I think the Chinese will no longer give priority to controlling trade war scale, they will focus on the national strategy under a prolonged trade war.”

Mr Trump began slapping tariffs on Chinese imports early last year, with an initial move targeting $50bn of industrial products. He added levies on a further $200bn of products in late 2018. After negotiations broke down acrimoniously in May, Mr Trump increased the tariffs on that $200bn of products from 10 per cent to 25 per cent, and threatened to slap tariffs on the remaining $300bn of Chinese imports. On Thursday, the US president signalled that he would follow through on that threat.

The move to impose more tariffs also raised questions about how Mr Trump would handle Huawei, the Chinese telecoms company that US intelligence and security officials worry could help China conduct cyber espionage.

Speaking after his meeting with Mr Xi in Osaka, Mr Trump signalled that he would ease some restrictions on Huawei that he had imposed after the trade talks fell apart in May. The collapse of the ceasefire would increase uncertainty for US companies about whether they would be able to sell technology to Huawei.

Although US and Chinese officials planned to hold a new round of face-to-face negotiations in Washington in early September, it was unclear whether Mr Xi would want to send a delegation in the immediate aftermath of a new tariff increase. 



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