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Updated 10:46 16/06/19

Global stock markets struggle as US/China trade tariffs loom

Liam Sheasby

By Liam Sheasby, News Editor

27 Jun 2018

Stock markets all over the world are experiencing large-scale selloffs after the United States announced plans to introduce $34 billion in global trade tariffs from July 6th, 2018. Investors are concerned that the ongoing dispute between the US and others will escalate into a full-blown trade war, which would seriously limit investment opportunities and the flow of goods and services.

The Chinese government has declared it will match these tariffs and specifically target the USA, while the European Union is to implement €3.3 billion to deter the US from flooding the European markets with goods.

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Why the tariffs?

The United States operates at a large trade deficit, meaning that it imports billions more than it exports. President Trump wants to redress this, in an attempt to boost the US economy. One tactic was to shake faith in the US Dollar, thus making it cheaper to buy US goods, but now the tact has switched to trade tariffs to persuade American industries to buy domestically first.

The loss of trade for the EU, Mexico and Canada has seen them place counter tariffs on certain US exports, but the real dispute is with China. President Trump also believes that China are providing companies with state subsidies to make them more competitive against US companies, and they have also been accused of intellectual property theft by some of their major technology firms.

President Trump, as ever, turned to Twitter back in March to give his thoughts about the potential for trade tariffs:

Trump’s move makes him look strong ahead of the Congressional elections in November, but to counter such a play the EU, China, Canada and Mexico are all targeting their tariffs at states that specifically voted for Trump, as Beto O’Rourke explains:

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Market performance

The stock markets all fell on Monday following the announcement of the latest round of tariffs, but the US markets are holding out the best at the moment. The Dow Jones, Nasdaq and the S&P 500 are all slightly up today but down on their peak values earlier this month.

In the UK it’s a different story, with the FTSE 100 slightly up thanks to the weaker Pound Sterling. This offers investors a good return on the exchange rate, so the London markets are doing better than they should be. In comparison, the DAX 30 in Germany and the CAC 40 in France are both fractionally up today but down against the mid-month peak and, in the case of Germany, at the lowest point since early September 2017.

China’s Shanghai Composite Index is the real loser of all the trade disputes so far, down 31.33 today and 3.5% for the week. The SCI has lost over 20% in the past six weeks and is performing at its worst levels for a year, with China’s currency – the Yuan – also reporting continued losses against the USD.

The price of gold has climbed by a few Pounds per ounce to £953.28, but this is still a way off the peak of £982 only three weeks ago. Investor caution has seen interest in Treasury bonds and gilds take precedence as the go-to investment opportunity.

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What next?

Escalation is the main concern for economists and investors alike, and the risk of recession that it brings. The Bank of America Merrill Lynch wrote to clients last Friday warning of the risks, citing higher costs from the tariffs causing problems for capital. The next impact would be a lack of materials or resources, and the combination would then hit investor and consumer confidence, meaning spending drops across the board. This would stall the economy and trigger recession.

President Trump has reportedly instructed staff to draw up an additional list of goods worth $200 billion for tariffs, should China retaliate. Given China’s intention to match the US tariffs on July 6th we could see further restrictions from America for some time to come.

Russia has been quiet for the past few months, but journalists are reporting that the Kremlin is debating similar targeted tariffs against the US in line with Canada and Mexico.

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