The Dow Jones Industrial Average started the trading session down over 100 points on Thursday as trade war talks returned to haunt the markets. The United States announced it was considering an increase in tariffs on $200 billion worth of Chinese goods from 10% to 25%.
The news also racked Asian markets, sending the Shanghai Composite Index down 2%. Other markets around the globe reacted negatively to the news with Hong Kong’s Hang Seng falling 2.2%, Japan’s Nikkei dropping 1%, Germany’s DAX declining 2%, and France’s CAC 40 falling 0.9%.
As expected, the latest tariff threat by U.S. President Donald Trump’s administration did not go over well with China, prompting an immediate response from the Chinese Ministry of Commerce.
“China is fully prepared and will have to retaliate to defend the nation’s dignity and the interests of the people, defend free trade and the multilateral system, and defend the common interests of all countries,” the Chinese Ministry of Commerce said in a statement. “The carrot and stick tactic won’t work.”
Derek Scissors, a resident scholar at the American Enterprise Institute, cited the sharp decline in China’s currency as of late as the primary reason for the tariff increase.
“In the past six months … China has allowed its currency, the renmenbi, to depreciate. It’s depreciated a total of 8 percent since the spring. If you’re going to apply 10 percent tariffs and their currency is getting 8 percent cheaper, you’ve lost most of the effect the 10 percent tariffs,” said Scissors.
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Trade tensions between the two economic superpowers have been ongoing until news broke that private talks were taking place between the U.S. and China to hash out their differences in trade. The U.S. slapped tariffs on $34 billion worth of Chinese goods totaling over 800 items, prompting China to respond with $34 billion worth of tariffs of their own on over 500 U.S. goods.
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