Futures slide as China-U.S. trade dispute heats up

Marco Green
June 20, 2018

"China has been taking out $500 billion a year out of our country and rebuilding China".

Apple's iPhones are assembled in China from parts manufactured in China, the USA, and other countries, a process that could bring the tech giant into the forefront of the Trump administration's escalating trade actions against Beijing as well as China's retaliatory measures.

But if one measures both exports and sales of United States companies inside China, the United States has a surplus of US$20 billion with China, according to Deutsche Bank.

The US "practice of extreme pressure and blackmail departed from the consensus reached by both sides during multiple negotiations and has also greatly disappointed worldwide society", it said.

Although Mr. Trump's audience applauded his comments on tariffs at the annual National Federation of Independent Business conference, the renewed trade hostilities between Washington and Beijing are spooking many sectors of the US economy, from Wall Street to the agricultural heartland.

But then the president railed against the North American Free Trade Agreement between the U.S., Canada, and Mexico. The German DAX dropped 1.66 percent, while the French CAC 40 fell by 1.18 percent.

Global markets slumped, with China-focused stocks hard hit. The tech and energy were down more than 1 percent.

"Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship with the United States", Trump said in a statement yesterday.

On July 1, Canada is set to impose retaliatory action of $16.6 billion on USA products after Trump slapped tariffs on aluminum and steel - and he has threatened more to come on automobiles.

The bid to save NAFTA comes as the fear of a global trade war continues to grow, fuelled by the Trump's administration's plan to impose new tariffs on China that target $200 billion worth of goods. Trump agreed to end a ban on the sale of US parts to Chinese telecommunications firm ZTE, while celebrating China's offer to increase its importation of American farm products as a major trade victory. The list was created using a computer algorithm that chose products to hurt Chinese exporters while limiting the impact on United States buyers. Those penalties are scheduled to take effect next month and will likely be followed by Chinese countermeasures. But the rhetoric is intensifying after several rounds of high-level trade talks that White House economic adviser Peter Navarro said yielded no progress.

"There is going to be a sales lull that will keep these barrels trapped and the widening of the spread that we see will persist and get worse before it gets better", said John Kilduff, partner at Again Capital LLC in NY.

Even as the USA trade conflict with China deepens, Trump has raised trade tensions on other fronts. Slapping tariffs on $200 billion more in goods, in addition to the $34 billion already set, would likely mean that nearly all Chinese products would face some import tax-though this depends on whether or not the new tariffs are on goods already taxed.

Cyndee Todgham Cherniak, a trade expert, said Mr. Trump is wrong to suggest border charges are anti-American. Which is to say: Beijing is using violations of worldwide trade rules in a bid to reshape the global economy in a manner that will weaken the West relative to China.

Worries about a trade war between the United States and China has been brewing for most of the year as the two countries have traded threats.

Chicago Board of Trade soybeans 0#S: fell as much as 6 percent, while wheat slumped 0#W: more than 4 percent.

Other reports by Click Lancashire

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