By Joe Cash, Philip Blenkinsop and Andy Sullivan, Reuters
(COMBO) This combination of pictures shows Chinese President Xi Jinping (left) and US President Donald Trump. China announced massive retaliatory tariffs on US goods, sharply escalating a trade war started by President Donald Trump and fuelling fresh panic in global markets. Photo: Supplied (Photo by Andres MARTINEZ CASARES and SAUL LOEB / various sources / AFP)
- US duties target rivals and allies alike, risk recession
- China lashes back with 84 percent tariffs on US goods from Thursday
- JPMorgan CEO Dimon expects recession and defaults, urges quick trade talks
- Alarm bells ring for investors as bonds tank
- European Union approves its own tariffs
US President Donald Trump authorised a 90-day pause as part of his tariff plan but has raised the rate for China to 125%, effective immediately.
Trump's sudden reversal came less than 24 hours after steep new tariffs kicked in on imports from dozens of trading partners. The new trade barriers have hammered markets, raised the odds of recession and prompted retaliatory responses from China and the European Union.
Trump said he would raise the tariff on Chinese imports to 125% from the 104% level that took effect at midnight. At the same time he said he would lower them on other countries also subject to his new targeted duties.
Earlier, China and the European Union announced new trade barriers on US goods in response to steep duties imposed by Trump.
China announced a tariff hike on US imports to 84 percent from 34 percent, shortly after Trump's punitive 104 percent tariffs on Chinese imports kicked in on Wednesday (local time), as a standoff between the world's two largest economies showed no signs of resolution. The EU said it would impose 25 percent tariffs on a range of US imports in a first round of countermeasures. The 27-member bloc faces US tariffs of 20 percent on most products and higher duties on autos and steel. Countermeasures in Canada, a close US ally and major trading partner, also took effect on Wednesday. Targeted US duties on dozens of other countries, from Japan to Madagascar, also took effect, the latest in a thicket of tariffs that are unwinding a global trading order that has been in place for decades. Tariffs in the world's largest consumer market now average above 20 percent, according to various estimates, up from 2.5 percent before Trump took office.
JPMorgan Chase CEO Jamie Dimon, a prominent voice on economic matters, said Trump's tariffs would probably lead to a recession and defaults by borrowers. Global markets took a pummeling, with the damage spreading beyond stock markets that have seen trillions of dollars in equity evaporate over the past week. Oil prices plunged to four-year lows, while investors dumped US Treasury bonds and the dollar, which are typically seen as safe-haven assets. The damage rolled into corporate funding markets, raising the cost of borrowing for even lower-risk companies.
Japan and Canada said they would cooperate to stabilise the global financial system - a task usually taken on by the United States during times of crisis.
Trump has shrugged off the market rout and offered investors mixed signals about whether the tariffs will remain in the long term, describing them as "permanent" but also boasting that they are pressuring other leaders to ask for negotiations.
"BE COOL! Everything is going to work out well. The USA will be bigger and better than ever before!" he wrote on social media.
Trump has said the tariffs will help rebuild an industrial base that has withered over decades of trade liberalisation, though he says he is open to negotiating down those barriers with trading partners on a country-by-country basis. Administration officials say those talks could address foreign and military aid as well as trade barriers.
Trump has already spoken with leaders of Japan and South Korea, and a delegation from Vietnam is due to meet with US officials on Wednesday.
"These countries are calling us up, kissing my ass," he said on Tuesday.
Administration officials say the tariffs may not be lifted anytime soon, and more could be in store. Trump on Tuesday reiterated plans for a "major" tariff on pharmaceutical imports, sending global drugmaker stocks plunging.
US officials say they will not prioritise talks with China.
China warned it had the "determination and means" to continue the fight if Trump kept hitting Chinese goods. Along with the countertariffs, Beijing also imposed restrictions on 18 US companies, mostly in defense-related industries, adding to the 60 or so American firms already punished over Trump's tariffs.
China's currency has faced heavy downward pressure. But sources told Reuters the central bank has asked major state-owned banks to reduce US dollar purchases and would not allow sharp yuan declines. Chinese makers of plastic Christmas trees and other holiday ornaments, who account for 87 percent of the US market, say they have not yet received orders from US importers.
Pain on the home front for US?
US stock indexes inched higher on Wednesday as investors bought cheaper tech stocks. Since Trump unveiled his tariffs on April 2, the S&P 500 has suffered its deepest loss since the benchmark's creation in the 1950s.
Economists say Trump's tariffs could increase costs for the average US household by several thousands of dollars annually, which could become a political liability for a president who campaigned on lowering the cost of living. Three out of four Americans expect prices to increase due to Trump's tariffs, according to a Reuters/Ipsos poll. Some companies have said they will raise prices immediately, but others could take time to materialise as the tariffs do not apply to goods currently in transit. Retail giant Walmart, the biggest US importer of containerised goods, stuck to its full-year sales forecast and vowed to keep prices low.
Opposition Democrats, locked out of power in Washington, have struggled to form a coherent response. Some have blasted the tariffs as counterproductive, but others have said that Trump is simply going too far.
"Tariffs need to be used like a scalpel, not a hammer," Michigan Governor Gretchen Whitmer, a swing-state governor seen as a possible presidential candidate, said at an event in Washington.
- Reuters
