Market Sentiment Suffers as US-China Trade War Concerns Escalate

China accuses Trump of ‘blackmail’ after new tariffs threat

The dollar rose to an 11-month high on Tuesday and the euro slumped after US President Donald Trump threatened more tariffs on China in an escalating trade dispute investors fear could hurt global growth.

President Donald Trump told Apple Chief Executive Tim Cook that the USA government would not levy tariffs on iPhones assembled in China, the New York Times reported on Monday, citing a source familiar with the negotiations.

In turn, China says their new import taxes are in response to an earlier set of tariffs by the U.S., also of $34 billion at a 25 percent rate.

Then China followed suit, unveiling 25 per cent duties on US$50 billion in United States imports - matching the USA rates.

And as Mr Trump increases the range of goods subject to tariffs it becomes harder for American importers and consumers to avoid the cost by finding alternative suppliers.

"Trump is playing a game of chicken, who will blink first", said Ivan Feinseth, chief investment officer at Tigress Financial Partners. The US Chamber of Commerce, a powerful pro-business lobbying group that historically supports Republicans, has condemned US tariffs against China. "China's government will step up an already intensive effort to determine whether Trump has the political strength to carry out his threats, while working to maximize pressure on U.S. interests to force him to back down and accept a compromise". That could take a long and painful trade fight. Some institutional investors are "proactively" making plans to buy A shares and will buy more if the gauge falls under 3,000, the China Securities Journal reported on Tuesday, without saying where it got the information or identifying the institutions.

Beijing also drew up a second list of $16 billion in chemical and energy products to hit with new tariffs, though it did not announce a date for imposing them. He added that China is a "predatory economic government" that is "long overdue in being tackled, " matters that include IP theft and Chinese steel and aluminum flooding the US market.

The Trump tariffs, which the U.S. government says are punishment for intellectual property theft, will be enacted in two waves.

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China had offered to ramp up purchases of American goods by only $70 billion to help cut the yawning trade imbalance with the United States, whereas Trump had demanded a $200 billion deficit cut.

US President Donald Trump (R) and North Korea's leader Kim Jong Un shake hands following a signing ceremony during their historic US-North Korea summit, at the Capella Hotel on Sentosa island in Singapore on June 12, 2018.

This is what a trade war looks like.

In announcing the possibility of new $200 billion in tariffs, Trump mentioned that he still has an "excellent relationship" with Chinese president Xi Jinping.

Pompeo on Monday described USA actions as "economic diplomacy, " which, when done right, strengthens national security and global alliances, he added.

Read: What can Beijing do if China-US trade row worsens?

Even as the US trade conflict with China deepens, Trump has raised trade tensions on other fronts.

Trump said that if China responds to this fresh round of tariffs, then he will move to counter "by pursuing additional tariffs on another $200 billion of goods". Trump slapped tariffs on steel and aluminum from Canada, Mexico and the European Union, threatened to kill the North American Free Trade Agreement and is studying new tariffs on auto imports.

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