China hits back after U.S. imposes tariffs worth $34bn

GETTYThe US President has escalated tensions that could lead to a trade war

"Trade tensions stoked by U.S. President Donald Trump are clouding the economic outlook in Europe", wrote analysts at Berenberg bank in London.

"What we can expect is disruption in supply chains".

For Australia, the immediate risks include lower commodity prices and lower Chinese demand for exports, including education and tourism.

Trump has railed against Beijing for intellectual property theft and barriers to entry for U.S. businesses and a $375 billion USA trade deficit with China. As well, there are signs that worldwide investment decisions may be driven by the desire to get inside tariff walls rather than by economic efficiency. Two of the biggest economies in the world, China and the USA, are slated to sanction trade tariffs on 34-billion-dollar worth of exports on Friday.

So far the rhetoric, and action, from China has signalled that it will continue to respond proportionately to anything the United States does. The Communist Party newspaper People's Daily said tariffs were imposed on a list of goods issued last month that included soybeans, pork and electric vehicles. Public hearings are being held in the United States on a proposal to increase this target by US$16bn.

The U.S. put a 25 percent tax on $34 billion worth of Chinese imports Friday.

During an official visit to Bulgaria, China's No. 2 leader, Premier Li Keqiang, said "no one will win by fighting a trade war, yet China will take countermeasures in the face of unilateral moves".

Besides the initial tariffs from the two largest economies, traders are anxious that the trade war could escalate further in the days to come. "However, if their implementation kicked off a further and more widespread cycle of retaliation, it has the potential to lead to a more sizable shock to global growth, which would also impact on Australia".

European pork will gain some ground over the US, which shipped nearly $500 million worth of pork to China previous year.

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Moog Music Inc.in Asheville, North Carolina, known for synthesizers used by the likes of David Bowie and Michael Jackson, warns that the tariffs on imported Chinese circuit boards and other parts will "immediately and drastically" increase the cost of its instruments and might require layoffs.

In southern China, a company that makes LED-lighting is scrambling to find alternatives to the US market, which used to buy 30 percent of its output.

The trade war arrives with many companies already struggling to find workers and facing backlogs to receive supplies.

The Chinese Foreign Ministry said "retaliatory tariffs" also took effect, but provided no other details.

In a paper published in May, the Peterson Institute for International Economics researchers described Trump's tariffs as an "own goal" because they fail to target goods made strictly within China, using Chinese materials and labor, because that's really not how the world works anymore. But that's only if Europe's own trade dispute with the US does not escalate - a big if.

Oil prices ticked up after falling on USA government data that showed an unexpected jump in crude oil stockpiles. But many consumer industry groups say American consumers are likely to bear the brunt of the fight.

Indeed, given that the USA is still by far the largest economy in the world - with GDP of US$20.5tr against China's US$14trn - the barrage coming out of Trump's America is bound to ricochet around the world, hitting Australia on the way through. In fact we don't have any opinion about the stock market, its value, future direction or individual shares.

In the currency market, the yuan remained under pressure.

The tit-for-tat trade showdown has already impacted soybeans farmers in the Midwest. Investors should contact their personal adviser before making any investment decision.

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