Amidst market expectation of easing global trade scenario, US President Donald Trump has threatened to raise the current 10 per cent tariff rate on $200 billion worth of Chinese goods to 25 per cent. The President also warned to impose 25% tariff on an additional $325 billion of Chinese goods soon.
The currency, commodity and global equity markets opened lower on Monday as investors were surprised by the President’s sudden move.
The Australian dollar traded lower and settled at US 69.85¢, down from a recent high of US 70.70¢ (as on 30 April 2019). The Aussie dollar hasn’t traded at this low level since January 2016.
The Aussie share market also went down; S&P/ASX 200 Index fell 52 points (or 0.8 per cent). The Chinese equity markets also traded lower after the US President’s tweet.
The Australian bond market was also impacted by the recent threat; 2-year bond yield reducing by three basis points while the 10-year bond yield down by five basis points.
Mr Trump earlier decided to raise the tariff to 25 per cent on January 1, but then he mutually decided with the Chinese President Xi Jinping on December 1 to keep the tariff steady for 90 days. The deadline expired in March and was extended endlessly by the US President later on. The President’s move follows signals that Beijing is moving too slowly on the trade talks.
Encouraged by the recent labour force report on Friday that indicated that the US economy’s unemployment rate fell to its lowest level in half a century, Mr Trump decided to impose more punishing tariffs on Chinese goods. As per the report, the employers added 263,000 jobs in April, reducing the unemployment rate to 3.6 per cent (50-year low). The US President thereby tweeted that existing tariffs had contributed towards the robust American economy.
Mr Liu He, Chinese Vice-Premier is due to arrive in Washington on 8th May to discuss a trade deal. However, as per Chinese official sources, China may back out of trade talks post the announcement and may decide over cancellation of its ongoing trade talks with the Trump administration.
Mr Trump’s move is an attempt to accelerate negotiations and get concessions from America’s trading partners. He has already levied a tariff on $250 billion worth of Chinese goods. He is now warning to impose a tariff on almost all of the products China exports to US.
But it’s still not clear whether the US President’s threat would be beneficial for the US or would backfire by aggravating the already-tensed relations with China. This is because a large part of the American economy still rely on China for materials and products.
Recently, the US Federal Reserve also announced to keep the interest rates steady ignoring the US President’s demand to slash the rates.
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