Dow Jones plunges 617 points after China retaliates against Donald Trump’s tariffs

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Concerns around US and China trade negotiations are impacting markets.

Global markets tumbled — with Wall Street suffering its worst day since early January — after China said it will impose further tariffs on imports from the United States, escalating their ongoing trade war.

Key points:

  • Wall Street’s benchmark index, the S&P 500, dropped 2.4pc
  • Dow Jones has fallen by about 1,200 points over the last week
  • Market sell-off was sparked by China retaliating with further tariffs against US imports

The sell-off was sparked by fears that the world’s two largest economies are spiralling into a no-holds-barred dispute that could derail the global economy.

The finance ministry of China said it would set import tariffs — ranging from 5 to 25 per cent — on $US60 billion worth of US goods, including frozen vegetables and liquefied natural gas, which will take effect on June 1.

“China’s adjustment on additional tariffs is a response to US unilateralism and protectionism,” the ministry said.

“China hopes the US will get back to the right track of bilateral trade and economic consultations and meet with China halfway.”

Trade war hard to avert

Trade war hard to avert

We shouldn’t underestimate the seriousness of the trade war unfolding between the US and the rest of the world, writes Stephen Kirchner.

Beijing announced its new tariffs shortly after US President Donald Trump warned it not to retaliate.

The Trump administration, on Friday, raised tariffs on $US200 billion worth of Chinese goods, while US and Chinese negotiators were discussing a trade deal in Washington. 

The US president, who has embraced protectionism as part of an “America First” agenda, said he would meet with Chinese President Xi Jinping at a G20 summit in late June.

“Maybe something will happen,” Mr Trump said in remarks at the White House.

“We’re going to be meeting, as you know, at the G20 in Japan and that’ll be, I think, probably a very fruitful meeting.”

Mr Trump also ordered his trade chief to begin the process of imposing tariffs on all remaining imports from China.

The US Trade Representative’s office has confirmed it is planning to hold a public hearing next month about the possibility of raising duties of up to 25 per cent on a further $US300 billion worth of imports from China.

Mobile phones and laptops would be included in that list, but pharmaceuticals would be excluded, the office said.

Threatening the existence of the WTO

On Monday (local time), China further warned that US policies were threatening the existence of the World Trade Organization, setting out a string of grievances in a WTO “reform proposal” published by the WTO on its website.

China did not name the United States in the document, but referred to the block on appointment of WTO appeals judges and “national security” tariffs on aluminium, steel and cars — policies uniquely associated with Washington.

Meanwhile, Mr Trump told China not to intensify the trade dispute and urged its leaders, including President Xi, to continue to work to reach a deal.

“China should not retaliate — will only get worse,” he said on Twitter.

“I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries,” Mr Trump wrote.

American farmers are among those hit hardest by the trade war, with soybean sales to China plummeting and US soybean futures hitting their lowest level in a decade.

Mr Trump also said his administration was planning to provide about $US15 billion to help farmers whose products might be affected.

Worst day since early January

The Dow Jones Industrial Average fell by a steep 617 points, down 2.4 per cent to 25,325. The industrial-skewed index has lost about 1,200 points over the last week, since US President Donald Trump announced his threat of further tariffs against China’s imports.

The benchmark S&P 500 closed 2.4 per cent lower at 2,812.

The tech-heavy Nasdaq index, however, was the hardest hit — dropping 3.4 per cent to 7,647.

Market snapshot at 7:50am (AEST):

  • ASX SPI futures -0.9pc at 6,243, ASX 200 (Monday’s close) -0.2pc at 6,298
  • AUD: 69.43 US cents, 53.56 British pence, 61.85 euro cents, 75.85 Japanese yen, $NZ1.06
  • US: Dow Jones -2.4pc at 25,325, S&P 500 -2.4pc at 2,812, Nasdaq -3.4pc at 7,647
  • Europe: FTSE 100 -0.6pc at 7,164, DAX -1.5pc 11,877, CAC -1.2pc at 5,263, Euro Stoxx 50 -1.2pc at 3,321
  • Commodities: Brent crude -1pc at $US69.92/barrel, spot gold +1.1pc at $US1,299.66/ounce

“The market’s realising that this was an absolute breakdown of [trade] talks and everything is gone backwards — it could be very bad,” said Michael O’Rourke, chief market strategist at JonesTrading.

“There’s a lot of uncertainty. This should lead to further slowing in the economy.”

Investor anxiety surged overnight, with CBOE’s Volatility index (VIX), surging 28 per cent to 20.55 — its biggest daily point gain so far this year.

Whose side are we on?

Whose side are we on?

In the context of recent global events, the trade kerfuffle in north-east China is a ratcheting up of diplomatic tensions, writes business editor Ian Verrender.

Among stocks particularly vulnerable to US-China tariffs, Boeing slid 4.9 per cent, and Caterpillar Inc fell 4.6 per cent.

Uber Technologies extended its slide, falling 10.8 per cent to $US37.10, on its second day as a publicly traded company following Friday’s underwhelming debut. This takes Uber’s market value down to $US62.2 billion.

Apple shares sank 5.8 per cent on the double whammy of heightened trade tensions and an unfavourable court decision.

A divided US Supreme Court (5-4) gave the go-ahead to an anti-trust class action, accusing Apple of forcing consumers to overpay for iPhone software applications — a decision that could lead to billions of dollars in damages and put at risk the company’s lucrative way of selling apps.

The consumer plaintiffs claim Apple monopolised the market in violation of federal anti-trust law by requiring that apps be sold through its App Store and extracting an excessive 30 per cent commission on purchases.

Investors sought safety in safe-haven assets — US bonds, spot gold and the Japanese yen — while the US dollar slipped against a basket of currencies.

Spot gold prices jumped 1.1 per cent to $US1,299.72 an ounce, its biggest surge in almost three months.

US Treasury yields fell to six-week lows, with longer term (10-year) yields falling below those of short term (three-month bills).

This is a worrying sign for investors as a “yield curve inversion” has historically been a precursor to many US economic recessions — during the Bush Sr and Bush Jr administrations.