US-China trade war takes a toll on global markets; Here’s how top big global voices foresee its impact
Its US versus China as the trade war between the two economic giants intensifies after US President Donald Trump set in motion tariffs on as much as USD 60 billion in Chinese imports to the US on Thursday and accused the Chinese of high-tech thievery, picking a fight that could push the global heavyweights into a trade war.
China responded early Friday by announcing a list of US goods, including pork, apples and steel pipe, it said may be hit with higher import duties. The Commerce Ministry said the higher US tariffs “seriously undermine” the global trading system. The ministry urged the US “to resolve the concerns of the Chinese side as soon as possible,” and appealed for dialogue “to avoid damage to overall Chinese-US cooperation.”
Following the development in the trade war, equity markets across the globe came crashing down with the US markets plunging in trade on Thursday. The Dow Jones Industrial Average fell 724.42 points, or 2.93 per cent, to 23,957.89, the S&P 500 lost 68.24 points, or 2.52 percent, to 2,643.69, and the Nasdaq Composite dropped 178.61 points, or 2.43 percent, to 7,166.68.
Across the Asian markets, the indices sunk including names like the Nikkei which tanked 3.6 percent, dropping to its lowest levels in around five months. The broader Topix lost 2.88 percent, with its 33 sectors trading lower across the board. Seoul’s benchmark Kospi index lost 2.25 percent, as shares fell broadly. In Sydney, the S&P/ASX 200 slid 1.9 percent as all sectors traded in the red.
The Indian benchmark indices also followed global cues with the Nifty plunging 140 points, trading below the 10,000 mark while the Sensex tanked over 400 points or 1.3 percent. The sectors which lost the most included the PSU banks and the Nifty metal index.
In an interview to CNBC-TV18, check out what top global experts feel about the implied trade tariffs and the trade war between China and the US:
Chris Wood of CLSA
The global market expert feels the stance on trade, if pursued by the Trump administration, can make more waves in financial markets. Most likely outcome is that China will agree to some form of compromise, he said. According to him, Beijing is unlikely to play hard ball in terms of threatening to sell treasury bonds. Trump may be satisfied personally if he can say he delivered a ‘better deal’ with China.
Shane Oliver of AMP Capital Investors
“The US move seems to be more of a negotiating tactic with China and the global markets seem to have overreacted a little bit w.r.t recent developments,” Shane Oliver of AMP Capital Investors said.
He thinks Trump wants to extract a deal with China. “We are seeing exemptions coming through on steel, amongst others.” It is not in Trump administration’s interest to wage a trade war, he said.
According to him, the possible trade war will hit more to emerging markets than developed markets. “So far for India the impact is relatively moderate & measured and we are not concerned about direct impact on India as of now,” Oliver said, adding India for many years was over valued versus other markets but that over valuation of has now reduced.
“We are looking to buy India, but not yet,” he said.
Morgan Stanley’s take on Trade War:
The US has rolled back some tariffs on other countries which is a positive and measures announced By Donald Trump are less aggressive than what we feared, said Chetan Ahya, Co-Head of Global Economics & Chief Asia Economist at Morgan Stanley said.
He believes this is going to have moderate impact on trade & growth. Previous experiences indicate impact of global trade war is not severe, he believes. “We need to see if this a move to eventually negotiate with China on tariffs,” he said. He further said US seems to have taken a targetted approach w.r.t Indian subsidies.
Richard Harris, Investment Management:
Richard Harris, Chief Executive, Port Shelter Investment Management is of the view that equity market is pricing in the bad news w.r.t possible trade war and equity markets are doing what they should be doing.
“You have to be bullish on US equities. I think there is still a goldilocks scenario in the US economy,” he said.
Jahangir Aziz of JP Morgan
Jahangir Aziz, Asia Economic Research at JP Morgan expects value of all items under higher tariffs should be USD 50 billion. “We need to see what items US imposes tariffs on with their aggregate value. US’ next move on IP protection is going to be significant to track,” he said.
Daniel Hynes of ANZ Research
Daniel Hynes, Senior Commodity Strategist at ANZ Research said global trade moves could have wide ramifications for the oil market. Oil could spike higher due to declining inventories & geopolitical risk, he feels.
Brent crude futures were up 0.93 percent at USD 69.55 a barrel while US crude futures rose 1.09 percent to USD 65 a barrel.
Lewis Alexander of Nomura
Lewis Alexander of Nomura said that Donald Trump’s bark has been worse than his bite’ as recent developments are risky & can spiral out of control. “We have seen a desire by US’ partners like Europe & China to be proportional. If retaliation is proportional, then don’t think this is a disaster,” he said.
Trump administration has crossed lines that have never been crossed before, he feels.
Ken Peng of Citi Private Bank
Ken Peng of Asia Pacific Investment Strategist at Citi Private Bank feels that MSCI China’s exposure to US export revenue is 3 percent and Chinese listed companies’ revenue exposure to US is limited.
Hence, US’ move on China tariff does not have to result in a bigger trade war, he feels. He expects further downside in global markets for the near-term and doesn’t expect this trade issue to be resolved very quickly. He further expects intense volatility in global markets in the coming months.
Paul Kitney, Daiwa Capital
Paul Kitney, Daiwa Capital Markets said, “What we have seen so far is a series of selected targeted tariffs rather than a full scale trade war that would benefit neither US or China. A trade war would benefit no one, but it would be particularly bad for China than US. It is not in its interest to respond aggressively, but for political reasons, they have to do this.”
“Right now top of the list of investments is is China. We are overweight China and India and Korea and Hong Kong.”moneycontrol