The trade war between the world’s two greatest economies enters a new phase on Friday July 6th as the first trade tariffs from the U.S. go into effect with the imposition of $34 billion worth of duties on Chinese goods.
It is expected that China will retaliate right away to place the same amount of tariffs on imported U.S. goods.
Investors are cautious as the first wave of tariffs looms and Asian stock markets closed lower on the eve of the deadline. The trade spat arose three months ago and markets have been on edge since. The Chinese equity markets have been negatively impacted. Uncertainty over the tariffs' impact on trade has led to a subdued mood in risk assets and has also hit the Chinese yuan hard, as the currency reached mulit-month lows this week.
Reuters reported that China's finance ministry said it "absolutely will not fire the first shot" in its trade spat with the U.S. However, due to the time difference between U.S. and China, tariffs imposed by Beijing would (technically speaking), likely take effect before Washington's tariffs on Friday.
The main fear is that President Donald Trump has threatened to retaliate against China's retaliatory tariffs. This is what will really escalate trade tensions and comes at a bad time when the Chinese economy may be slowing down.
A trade war will hurt everyone and will leave the markets with few winners. So the question is whether Trump pulls back the last minute and does not impose the tariffs. This could be a possibility since the U.S. President has been known to change his mind on a dime. Then, if so, will the trade conflict take a different course?
U.S. and China go head-to-head on trade
Market Trends - 05/07/2018