China vows to fight back as the trade war escalates

Soybean prices have fallen dramatically in recent weeks.
Daniel Acker  Bloomberg

Trump has recently introduced tariffs on $34 billion worth of Chinese products and, while hundreds of products have been affected, certain goods were conveniently spared from this enactment - including the products made for Ivanka's internationally manufactured fashion brand.

The public will have a chance to comment on the list before the new tariffs - to be imposed at 10% -come into effect.

The announcement was a response to China's decision to impose 25 per cent tariffs on US$34 billion of American goods last Friday in response to a similar U.S. levy.

Stocks in China and the rest of Asia tumbled overnight, spreading to Europe after markets opened.

Europe's main bourses, also taken aback as Trump kicked off a North Atlantic Treaty Organisation summit in Brussels by accusing Germany of being a "captive" of Russian Federation, then saw similar falls.

U.S. ambassador Dennis Shea, who was among the first to speak at the closed-door review, argued that China had exploited its membership to take advantage of other nations and that if unchecked Beijing's misconduct would ruin the WTO. "If we can get a level playing field.who wouldn't want the president to accomplish that?" he said on CNN's News Day.

U.S. trade representative Robert Lighthizer announced that the United States was acting because China had not heeded previous warnings.

It was industrial metals prices though that took the heaviest hit over worries that the dispute could ultimately dent China's commodity-hungry economy. Copper was down 3 per cent at $6,141.50.

"The last thing America's manufacturing workers need is an escalating trade war", said NAM President and CEO Jay Timmons.

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President Donald Trump had ordered him last month to draw up the list in the event China retaliated against a previous round of USA tariffs.

"China's failure to fully embrace the open, market-oriented policies on which this institution is founded must be addressed, either within the WTO or outside the WTO", Shea said according to prepared remarks released by the U.S. mission. "But the unpredictability of the situation continues to rattle the markets", said Varathan. The London FTSE 100 dropped 1.2 per cent, while the Dow Jones Industrial Average was down almost 0.6 per cent in early trading.

The yen, often sought in times of political tensions and market turmoil, gained against a number of peers.

"The dollar has managed to gain even against the yen due to ongoing trade concerns, with commodity-linked currencies having slid along with the downturn in commodities and providing a broad lift for the dollar", said Ichikawa at Sumitomo Mitsui Asset Management.

The Shanghai Composite index fell 1.8 percent, and the blue-chip CSI300 index dropped 1.7 percent. However, analysts say there's little chance China will back down on the plan, which it considers crucial for developing its huge economy.

Elsewhere in markets, yields on 10-year Treasurys fell to 2.837% from 2.873% on Tuesday.

Investors had been taking the trade war in stride but Tuesday's announcement appeared to dent that optimism.

The retaliatory tariffs that China enacted Friday targeted United States cars and major agricultural goods, such as soybeans and meat.

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