A Sea of Red in Global Markets as Trade War Escalates

It is a sea of red today as the global markets come to terms with the ongoing trade escalations. Yesterday evening, it was reported that the Trump administration will continue with the trade war with China. As he left for Brussels, the president directed his trade representatives to move ahead with additional tariffs on Chinese goods worth more than $200 billion. As shown below, global stocks and futures reacted by falling. The Dow, Nasdaq, and DAX had more than 1% declines.

Two weeks ago, the United States went ahead with its threat of imposing tariffs to Chinese goods. They implemented tariffs of goods worth more than $38 billion. China moved promptly to retaliate against the US tariffs. As expected, Donald Trump has now moved ahead with his threat of imposing ten percent tariffs on an assortment of Chinese goods. China too is expected to respond with additional tariffs.

In a statement, Trump’s trade czar, Robert Lughthizer said that the new tariffs are a response to Chinese trade practices. For decades, China has had a closed economy where American firms have been unable to compete. For example, for an American company to be able to access the Chinese market, it has to enter into joint ventures. Often, the Chinese companies they partner with are not loyal and they end up stealing the trade secrets and launching competing products. AS a result, American companies like Uber have been forced to exit the lucrative market.

Another difficulty for American companies is the large tariffs China charges on imports. For example, China charges a 25% tariff on vehicle imports. This forces companies to establish their businesses in China, where they are forced to join joint ventures. In a statement, Robert Lighthizer said:

‘For more than a year, the Trump administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition. We have been very clear and detailed regarding the specific changes China should undertake. Unfortunately, China has not changed its behaviour — behaviour that puts the future of the US economy at risk.’

The new tariffs will not kick in immediately. Instead, the trade representative’s office will begin exploring the products that will be taxed. This is a process that can take months. During those months, there are chances that an opening for negotiations can take place. However, at present, there are no ongoing talks with China.

The new news came as Trump arrived in Brussels for the important NATO meeting, where he will be the headliner. In recent weeks, the president has attacked NATO and its member countries who he has accused of taking advantage of the United States. Of the 26 members of NATO, only 6 of them are paying the recommended 2% of the GDP to defence. This is an issue that other US presidents have taken to considerations in the past. Already, Trump has started attacking the NATO countries like Germany by calling it a captive to Russia. This is probably because of the massive pipeline that Germany is building to Russia.

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