Many had hoped the trade war between the United States and China was coming to an end, but a brash tweet from US President Donald Trump sent global markets falling, wiping off nearly $2 trillion so far this week.
On Sunday, the “leader of the free world” renewed hostilities between the two major economies through a threat to once again ramp up China’s cost of trading in the US.
….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
— Donald J. Trump (@realDonaldTrump) May 5, 2019
Mr Trump vowed to more than double the tariffs on $200 billion in Chinese goods from Friday, with Beijing criticised for reneging on commitments made during months of talks that aimed to reduce the US trade deficit.
US negotiators also wanted China to clamp down on the alleged theft of US technology and reduce its massive subsidies.
“For 10 months, China has been paying tariffs to the USA of 25% on 50 billion dollars of high tech, and 10% on 200 billion dollars of other goods,” Mr Trump said in the tweet.
“These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 billions dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%.
“The tariffs paid to the USA have had little impact on product cost, mostly borne by China.
“The trade deal with China continues, but too slowly, as they attempt to renegotiate. No!”
The threat spooked investors, sparking massive losses on stock markets around the world.
It also ramped up volatility once again, with the Cboe Volatility Index rising 50 per cent in two days to breach 20 for the first time since January, reports Bloomberg.
Although his tweet caused mayhem for markets, another sent an Ohio-based company’s shares skyrocketing, so much so that it crashed a website. More on that later.
Up until last weekend, businesses and investors were confident the trade war, which stifled markets for nearly all of 2018, was coming to an end.
But the Dow Jones lost nearly 2 per cent on Tuesday, its second-biggest daily percentage drop of the year, and the local benchmark ASX200 fell by about half a per cent on Wednesday.
A whopping $1.93 trillion has been erased from global stocks so far this week.
“Over the course of the last week or so, we’ve seen an erosion in commitments by China, I would say, retreating from commitments that have already been made in our judgment,” US trade representative Robert Lighthizer was quoted as saying in media reports on Monday.
He said the tariffs would increase on Friday.
US Treasury secretary Steven Mnuchin described the negotiations as 90 per cent complete but told reporters in recent days the talks had gone “substantially backward”, according to the media reports.
Mr Trump vowed on Sunday to ratchet up existing tariffs this week and also extend the 25 per cent punitive duties to the remaining $350 billion in Chinese goods imported into the country each year.
Despite the tougher US rhetoric, China said on Tuesday its top trade negotiator, Vice Premier Liu He, would lead Beijing’s delegation to the talks in Washington on Thursday and Friday, a day later than originally scheduled.
“China always believes that mutual respect, equality and mutual benefit are the premise and the basis for reaching an agreement. Adding tariffs will not solve any problem,” Chinese Foreign Ministry spokesman Geng Shuang said at a regular media briefing.
The tensions have renewed fears the trade war could spill over into the global economy.
Speaking in Paris, International Monetary Fund chief Christine Lagarde said “tensions between the United States and China are the threat for the world economy”.
Oxford Economics warned escalating the tariffs to the remaining Chinese goods, which would be expected to spark further retaliation from Beijing, would cut 0.3 percentage points off US growth.
But William Reinsch, a trade policy expert at the Centre for Strategic and International Studies, cautioned China would never meet all the US demands, which complicates Mr Trump’s strategy.
“The most important things are the things the Chinese won’t give,” he told AFP, including reducing subsidies and subjecting state-owned enterprises to market forces.
“The Chinese are not going to do either of those things,” so “the path to political victory for him is a narrow one,” he added.
PENNY STOCK SKYROCKETS MORE THAN 20 PER CENT ON TRUMP TWEET
President Trump’s fast fingers aren’t as detrimental for some, with Ohio-based maker of electric vehicles, Workhorse, having its shares surge more than 200 per cent after a post revealed details of a deal between the company and GM Motors.
GREAT NEWS FOR OHIO! Just spoke to Mary Barra, CEO of General Motors, who informed me that, subject to a UAW agreement etc., GM will be selling their beautiful Lordstown Plant to Workhorse, where they plan to build Electric Trucks. GM will also be spending $700,000,000 in Ohio…
— Donald J. Trump (@realDonaldTrump) May 8, 2019
On Wednesday, the president tweeted that GM’s chief executive Mary Barra had told him the company would sell a manufacturing plant to Workhorse which would be used to build electric trucks.
The small company’s stocks, which has a market value of less than $A250 million, soared 214 per cent.
The mention caused so much activity for Workhorse it crashed the company’s website, which was offline for three hours after the tweet.
Analysts at Cowen, reported by CNBC, said the comment raised speculation that “Workhorse is likely to be a vendor for the US Postal Service program.”
“Based on media reports and comments from the US Postal Service, testing for the next generation vehicle is done and a request for production is due later this year,” Cowen analyst Jeffrey Osborne said in a note to clients Wednesday.
Workhorse confirmed to CNBC it was one of the finalists for the postal service contract but would not offer further details.
“We are pleased with this development, but note the tweet from Trump is incredibly vague as it relates to financial ramifications for Workhorse,” Osborne said.