President Donald Trump is calling for 10 percent tariffs on $200 billion in Chinese imports.
The new USA tariffs take what had been a trade spat that appeared to be calming to the next level. As punishment for continuing to doing business with Iran and North Korea in defiance of US sanctions against those regimes, the Commerce Department had ordered ZTE's USA component suppliers to cease doing business with the firm.
"Everybody will have their eyes on the Russell 2000 because people begin to think small-cap US companies, that aren't subject to the winds of global trade negotiations, is the right place to hide out", said Michael Antonelli, managing director, institutional sales trading at Robert W. Baird in Milwaukee. He said the move would be in retaliation for China's decision to raise tariffs on $50 billion in USA goods.
The Canadian dollar weakened to a one-year low of C$ 1.3237 overnight, before paring some of its losses, as investors anxious about Canada's trade feud with the United States.
Neither side has yet imposed tariffs on the other in their growing dispute over technology and the US trade gap; the first round is to take effect on July 6.
"China trade remains a lingering theme, at least until the U.S. tariffs take effect early in July", said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management in Tokyo. "China's government will step up an already intensive effort to determine whether Trump has the political strength to carry out his threats, while working to maximize pressure on USA interests to force him to back down and accept a compromise".
"These tariffs are essential to preventing further unfair transfers of American technology and intellectual property to China, which will protect American jobs", the president said at the time. "It is very unfortunate that instead of eliminating these unfair trading practices, China said that it intends to impose unjustified tariffs targeting US workers, farmers, ranchers and businesses".
The benchmark index of Chinese stocks fell nearly 4 per cent, other Asian share markets declined and USA equity futures traded lower, while safe havens including the yen, gold and Treasuries climbed.
The Dow Jones Industrial Average dropped 400 points, or 1.5 percent, and the S&P 500 fell 1 percent in early trading. Intel dropped 3.4 percent after Northland Capital downgraded the stock to underperform from market perform.
While the Trump administration has insisted that the enforcement action vs. ZTE was separate from talk talks, it's clear that Chinese President Xi Jinping didn't agree.
"Such a practice of extreme pressure and blackmailing deviates from the consensus reached by both sides on multiple occasions", the ministry said in a statement.
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"If the United States becomes irrational and issues this list, China will have no choice but to adopt strong countermeasures of the same amount and quality", the ministry statement said.
In an official statement, Trump said that these new tariffs would be in retaliation for China threatening to impose retaliatory tariffs on USA goods in response to the last round of tariffs imposed on China by the U.S.
Trump said that if China responds to this fresh round of tariffs, then he will move to counter "by pursuing additional tariffs on another $200bn of goods".
Mounting concerns over the U.S.
The initial US tariffs are aimed at items such as semiconductors, electronics, plastics and other goods from sectors expected to benefit from China's "Made in 2025" initiative to dominate the world in technology areas such as robotics, driverless cars and advanced medical devices.
Currency markets in general dislike trade intervention, and previous protectionist efforts by the USA government have weakened the dollar. Trump said at the time he would impose even more duties if China retaliated, which the Asian nation immediately said it would do.
Europe, Japan and other trading partners raise similar complaints, but Trump has been unusually direct about challenging Beijing and threatening to disrupt such a large volume of exports.
The administration has not yet said which products would be targeted in the new round of tariffs. The next step will be for the Office of the U.S. Trade Representative to identify the Chinese goods to be penalized and to conduct a legal review.
"The trade relationship between the United States and China must be much more equitable", Mr. Trump said.
China shipped far more goods to the United States ($505 billion previous year, according to USA figures) than came back in the opposite direction ($130 billion). They're going to have to support a lot of stock.
Russia's Economy Minister, Maxim Oreshkin, said the tariffs would target goods of which the Russians already had domestic equivalents.
The U.S. tariff hikes imposed so far affect a total of about $109 billion of imports, according to Morgan Stanley.