London (AFP) – Fears of an all-out trade war between the world’s top two economies weighed heavily on global stocks Wednesday, as Washington and Beijing showed no appetite for compromise in their row over tariffs.
Wall Street dived at the opening bell, with European and Asian markets also a sea of red.
But approaching midday in New York, US markets were showing signs of paring their losses while in Europe, London managed to inch into positive territory at the close.
Investors around the globe are rattled by China’s plans to hit major US exports such as soybeans, cars and small aircraft with retaliatory tariffs worth $50 billion in the escalating trade duel.
China’s threats came as a response to a US list of Chinese imports that could be targeted by tariffs, also worth $50 billion.
“We are witnessing exactly the tit-for-tat response to the US tariffs that had been feared from the get go,” said Jasper Lawler, an economist with the London Capital Group.
“Proposals targeting specific products and industries from both the US and China just bring us one step closer to a trade war,” he said.
– So much for ‘amicable’ –
Markets had always assumed that an amicable solution would be found eventually, Lawler said, but now “investors are second-guessing their initial belief that this can be wrapped up in a civilised way”.
Boeing stock was the main early faller on the Dow amid fears that the plane maker could be targeted in an escalating trade conflict.
“It would appear that gloves are off in relation to the trade war,” said David Madden, market analyst at CMC Markets UK.
In Europe, fears of a trade war overshadowed data showing that the eurozone’s economic recovery is gaining pace, with unemployment in the bloc at its lowest level since December 2008.
An all-out trade war between China and the United States would be likely to hit economies around the world, even those exempt from tariffs imposed by President Donald Trump’s America First administration.
– Skirmish or war? –
“The proposed US tariffs on Chinese imports of Chinese goods could have knock-on effects on other EMs (emerging markets), especially in East Asia, via supply chains,” Capital Economics said in a note.
Meanwhile, experts were debating at what point “trade war” would become an appropriate label for the ongoing conflict.
“When does a trade skirmish become a trade war?,” asked Adam Slater, lead economist at Oxford Economics.
For now, he said, protectionist moves were having a small impact on the world economy.
“But the seeds of a more serious conflict are there,” Slater warned. “Possible warning signs would be US tariffs extending to Chinese industries such as consumer electronics and negative developments in the NAFTA negotiations and the US-EU trade relationship.”
Gold traded higher, an indication that many investors were fleeing risky stocks for the safety of the precious metal.
“Gold has been supported by the stock markets falling out of favour,” said Fawad Razaqzada at Forex.com.
Oil, meanwhile, came off its day’s worst levels after the US reported a surprise fall in weekly stockpiles, and strong petroleum exports.
– Key figures around 1540 GMT –
New York – Dow: DOWN 0.6 percent at 23,885.03 points
London – FTSE 100: UP 0.1 percent at 7,034.01 (close)
Frankfurt – DAX 30: DOWN 0.4 percent at 11,957.90 (close)
Paris – CAC 40: DOWN 0.2 percent at 5,141.80 (close)
EURO STOXX 50: DOWN 0.2 percent at 3,340.19
Tokyo – Nikkei 225: UP 0.1 percent at 21,319.55 (close)
Hong Kong – Hang Seng: DOWN 2.2 percent at 29,518.69 (close)
Shanghai – Composite: DOWN 0.1 percent at 3,131.84
Euro/dollar: UP at $1.2296 from $1.2275 at 0230 GMT
Dollar/yen: DOWN at 106.49 yen from 106.60
Pound/dollar: UP at $1.4078 from $1.4076
Oil – Brent North Sea: DOWN 41 cents at $67.71 per barrel
Oil – West Texas Intermediate: DOWN 42 cents at $63.09