The trade dispute between the US and China escalated on Tuesday, with a senior Trump official accusing China of “theft” and Beijing accusing the US of blackmail.
The news roiled global stock markets as investors feared that escalating tensions could trigger an international trade war.
Donald Trump threatened to impose an additional $200bn in levies on Chinese goods on Monday evening, days after the US announced $50bn in tariffs aimed at punishing what the US administration sees as unfair trade practices. China has already said it will retaliate for last week’s move and said it would escalate its response if further tariffs were imposed.
Some of the US’s biggest exporters were among those most affected. Boeing dropped 3% and construction and mining equipment maker Caterpillar shed 2.7%. Tech companies, too, felt the pinch with Apple down 1.5%.
US industries from agriculture to technology have expressed concern about the impact of the dispute on their businesses.
The spat between the two economic superpowers is already being felt in China. Chinese stocks recorded their steepest falls since the trade dispute started on Tuesday. The benchmark Shanghai Composite Index dropped 3.8% to 2907.82, its lowest in nearly two years. The yuan fell to its lowest level against the dollar in five months. In Europe, all the major markets fell, with the FTSE closing down 0.4%, France’s CAC down 1.1% and Germany’s DAX down 1.2%. Oil prices too dipped as investors worried that the dispute would damage economic growth.
“Trump appears to be employing a similar tactic he used with North Korea, by blustering first in order to gain an advantage in negotiations,” said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
“The problem is, such a tactic is unlikely to work with China.”
Peter Boockvar, chief investment officer at Bleakley Advisory Group, blasted the president’s latest attempt to gain Chinese concessions. “The strategy now seems a trade war of attrition,” he said in a note to clients. “The means to that end is now going off the rails.”
There is no end in sight to the trade fight, as both sides continue to up the ante. The Chinese Commerce Ministry responded that it would “strike back hard” with “measures that match the US move in quantity and quality.”
“This is just what we predicted — a tit-for-tat trade war has erupted and American families are caught in the middle,” National Retail Federation president Matthew Shay said in a statement Monday evening. “Higher prices for everyday essentials and lost jobs threaten to sap the energy out of the strong US economy.”