United States trade war fears weigh on markets as South Korea sounds alarm

Soybean prices have fallen dramatically in recent weeks.
Daniel Acker  Bloomberg

On July 10, U.S. Trade Representative Robert Lighthizer announced in a statement that U.S. President Donald Trump has "ordered USTR to begin the process of imposing tariffs of 10 percent on an additional $200 billion of Chinese imports".

On Tuesday the Trump Administration announced a large list of Chinese products that would be targeted with the next round of tariffs the government is threatening to impose.

Asked what Beijing would do, foreign ministry spokeswoman Hua Chunying gave no details but said, "We will take firm and forceful measures".

The US said that was in response to Beijing's failure to change its policies and to retaliate for last week's US tariff hike by increasing its own duties on American goods.

The tech sector, more broadly, will suffer from tariffs due to the nature and complexity of the worldwide supply chain that it relies on.

"China's closest neighbours, namely Japan, Korea and Hong Kong, are most vulnerable to a US-Sino trade war because they export mostly intermediate goods to China", OCBC Bank said in a note.

Lighthizer said the initial $50 billion in USA tariffs were aimed at goods that "benefit from China's industrial policy and forced technology transfer practices".

South Korea on Thursday warned that an escalating trade dispute between the United States and China could hit its exports of "intermediary goods" used in home appliances, computers and communications devices.

The Office of the US Trade Representative proposed 10 per cent tariffs Tuesday on a list of 6031 Chinese product lines.

Trump has been considering tariffs against China since his officials concluded in March that Beijing violates United States intellectual-property rights, such as by forcing American firms to hand over technology.

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"Resolving these challenges in an equitable manner is essential for the United States and China to have a healthy long-term commercial relationship that brings benefits to both our peoples", it said in a statement on the survey results.

Last year, China only imported about $130 billion of US goods, so to retaliate it might increase the size of the tariffs it imposes or resort to what it calls "qualitative" measures, which USA businesses fear could mean reprisals against their China operations. The threat to the US economy is less about a question of "if" and more about "when" and 'how bad.' Tariffs on such a broad scope of products make it inconceivable that American consumers will dodge this tax increase as prices of everyday products will be forced to rise.

"For over a year, the Trump Administration has patiently urged China to stop its unfair practices, open its market, and engage in true market competition", Lighthizer says.

China's commerce ministry said on Wednesday it was "shocked" and would complain to the World Trade Organisation, but did not immediately say how it would retaliate.

China's foreign ministry said the Trump administration's actions were "typical bullying" and promised retaliatory action against the US, according to the wire service.

China "cannot match fresh US tariffs", Vishnu Varathan of Mizuho Bank said in a report.

The list is subject to a two-month public comment period before taking effect.

The US Chamber of Commerce has supported Trump's domestic tax cuts and efforts to reduce regulation of businesses, but it has been critical of Trump's aggressive tariff policies.

"But more tariffs like these will punish America's manufacturing workers - and could undermine our hard-won gains thanks to tax and regulatory reform".

"We can not turn a blind eye to China's mercantilist trade practices, but this action falls short of a strategy that will give the administration negotiating leverage with China while maintaining the long-term health and prosperity of the American economy".

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