Dow Jones falls 473 points as US-China trade fears escalate

AMD and Nvidia Analysts Worry Amid US-China Tensions

Credit: ShutterstockU.S. President Donald Trump said in February that he delayed an increase on tariffs affecting goods imported from China because of "very productive talks" between the countries. A diplomatic cable from Beijing arrived in Washington with systematic edits the draft trade agreement that shocked US officials because it appeared to take back so much of what they had thought China had already agreed to.

Soon after, China's Ministry of Commerce said the world's second-largest economy was already preparing retaliatory countermeasures in the event that the US upped tariff rates.

The Chinese Commerce Ministry said in its statement: "The escalation of trade friction is not in the interests of the people of the two countries and the people of the world".

Disagreements between United States and Chinese officials have deepened over the past week over accusations that Beijing would renege on commitments made earlier in negotiations that aimed to end the two countries' trade war.

In each of the seven chapters of the draft trade deal, China had deleted its commitments to change laws to resolve core complaints that caused the United States to launch a trade war: Theft of USA intellectual property and trade secrets; forced technology transfers; competition policy; access to financial services; and currency manipulation.

Media reports suggest that the two sides are still discussing key issues on structural issues, such as the U.S. accusation of unfair subsidies in China, a mechanism to verify compliance and what to do with the tariffs the two have already imposed on each other's goods.

Trump took at shot at his Democratic challengers, singling out former Vice President Joe Biden, saying China would prefer to negotiate with them.

One private-sector source briefed on the talks said the last round of negotiations had gone very poorly because "China got greedy".




FURTHER TALKS THIS WEEK The rapid deterioration of negotiations rattled global stock markets, bonds and commodities this week.

In response, the Dow dropped 1.8% on Tuesday - its biggest fall since early January - while the S&P 500 and Nasdaq slid 2%. Chinese trade officials backtracked on key aspects of a trade deal draft, undercutting hopes that the Chinese delegation led by Vice Premier Liu He this week could salvage the deal, according to a Reuters report.

Shortly after Trump tweeted on Wednesday morning, the United States Trade Representative moved to make the tariff hike official. A ramped-up trade war could impact USA businesses by increasing their costs for imports, which would either be eaten or passed onto consumers in higher prices. "Over the course of last week we have seen an erosion of commitments by China", Lighthizer told Bloomberg News.

Trump's latest salvo "decimated the "Goldilocks" environment for equity traders, where subdued geopolitical risks, steady Fed policy and low inflation were only hinting on more gains for the global indices", said Konstantinos Anthis, head of research at ADSS.

On Sunday, Trump tweeted he would raise tariffs on $200bn worth of Chinese goods from 10 percent to 25 percent by the end of the week, and would "soon" target the remaining Chinese imports with tariffs, sending stocks and oil prices lower on Monday. But that was averted when China announced Liu would return to Washington.

China's exports fell unexpectedly in April, adding to pressure on Beijing ahead of negotiations on ending a tariff war with Washington over Chinese technology ambitions. If the 25% tariff were extended to the rest of Chinese exports to the U.S. that might knock a further 0.3 percentage points off GDP.

A Reuters report earlier quoted USA government and private-sector sources as saying China had backtracked on nearly all aspects of a draft trade agreement with the United States.

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