China ‘Firm on Interests’ as U.S. Plans More Tariff Hikes

BEIJING (Reuters/AP) —
Oranges from the United States and other fruits from China at a supermarket in Beijing, seen Tuesday, as each side plans to increase import tariffs against the other. (AP Photo/Andy Wong)

China’s Foreign Ministry said on Tuesday that it hopes the United States does not underestimate its determination to protect its interests, even as Washington threatened to extend tariffs to virtually all Chinese imports.

Foreign Ministry spokesman Geng Shuang, speaking at a daily briefing, also said both countries agreed to continue pursuing a process of talks to resolve their trade dispute.

U.S. officials are targeting a $300 billion list of additional Chinese imports, including laptop computers, for tariff hikes, ratcheting up a trade fight that is shaking financial markets and fueling fears about global economic growth.

The release followed Beijing’s announcement Monday of tariffs of up to 25% on $60 billion of American imports in their spiraling dispute over Chinese technology ambitions and other irritants.

The list of 3,805 product categories is a step toward carrying out President Donald Trump’s May 5 threat to extend punitive 25% duties to all Chinese imports, the U.S. Trade Representative office announced. It said a June 17 hearing would be held before Washington decides how to proceed.

The list “covers essentially all products” not already affected by punitive tariffs, the USTR said.

It includes laptop computers, saw blades, turbine parts, tuna and garlic. The USTR noted it excludes pharmaceuticals and rare earth minerals used in electronics and batteries.

Asian stock markets fell Tuesday for a second day amid investor anxiety about the impact of trade tensions on global economic growth.

China’s main market index slipped 0.7% and Tokyo’s benchmark fell 0.6%. Hong Kong, Australia and Taiwan also fell.

On Monday, the Dow Jones Industrial Average fell 2.4% and the tech-heavy Nasdaq lost 3.4% in its biggest drop of the year.

That came after Beijing retaliated for U.S. tariff increases Friday on $200 billion of U.S. goods. China’s Finance Ministry announced duties of 5% to 25% due to take effect June 1 on about 5,200 American products, including batteries, spinach and coffee.

Trump warned Xi that China “will be hurt very badly” if it doesn’t agree to a trade deal. Trump added that Beijing “had a great deal, almost completed, & you backed out!”

Both governments indicated more negotiations are likely. Trump said Monday he and Xi would meet during the Group of 20 meeting of major economies on June 28 and 29 in Osaka, Japan.

The six weeks before that meeting will be “highly volatile” for financial markets, said Macquarie Bank analysts in a report.

“Both sides have the incentive to act half-crazy and unpredictable before that in order to cut a better deal,” they said.

Fresh volleys in the U.S.-China tariff war pressured Asian shares on Tuesday, but comments from President Donald Trump that he expects trade negotiations to be successful eased some worries.

Chinese markets that were pummeled in early trade swung in and out of the red amid signs of state support, but ended the day lower.

Late on Monday, Trump said trade talks with China are “going to be very successful.” That helped lift U.S. stock futures, which had been down, to be more than 0.4% up, though sentiment remained fragile.

European shares were expected to take their lead from U.S. futures. In early European trades, the pan-region Euro Stoxx 50 futures were up 0.3% at 3,296, German DAX futures were 0.07% higher at 11,890.5 and FTSE futures were up 0.14% at 7,140.

Prakash Sakpal, Asia economist at ING in Singapore, said the current volatility showed how a “180-degree” turn in U.S. rhetoric on trade negotiations had spooked markets.

“We don’t see any quick end to this state of the markets until we see some resolution, constructive dialogue and something very solid in terms of deals. But the hopes for that are a bit misplaced currently,” he said.

Broader Asian markets were dragged lower by sagging Chinese shares, with the MSCI China index dropping 1.8%. China’s blue-chip CSI300 index finished the day down 0.6%, with suspected state-backed buying of equities helping to stem further losses.

“Politicians may be willing to focus less on the market impact until things get more severe, making it doubtful there will be an early resolution to the current breakdown in negotiations simply based on market moves,” said Kerry Craig, global market strategist at J.P. Morgan Asset Management.

“Furthermore, as there isn’t a clear schedule for meetings between Chinese and U.S. negotiators, markets are likely to be more volatile.”

Australian shares finished down 0.9% while Japan’s Nikkei stock index closed 0.6% lower after touching its lowest level since mid-February.

As investors flocked to safe-haven assets, U.S. Treasury yields remained near six-week lows early on Tuesday, though they moved higher following Trump’s comments. Benchmark 10-year Treasury notes last yielded 2.4086% compared with a U.S. close of 2.405% on Monday.

The two-year yield, which rises with traders’ expectations of higher Fed fund rates, was at 2.1945%, up from a U.S. close of 2.193%. But data from CME Group continued to show a more than 70% chance of the Fed cutting rates by the end of 2019.

Underscoring market concerns over the economic impact of the trade war, 10-year yields once again ticked below those on three-month Treasury bills. A sustained inversion of this part of the yield curve has preceded every U.S. recession in the past 50 years.

On Monday, some traders were concerned that China, the largest foreign U.S. creditor, could dump Treasuries to counter the Trump administration’s hardening trade stance. But most analysts downplayed such a possibility.

“If China did start to [sell Treasuries] it will galvanize both sides of politics in the U.S. against China and the Fed would be sent into the market to buy bonds,” Greg McKenna, strategist at McKenna Macro said in a note to clients.

“That would expand its balance sheet but it would allow it to neutralize China’s efforts to disturb U.S. financial markets. So I doubt they’ll try to sell Treasuries.”

After earlier falling against the yen, the dollar strengthened 0.31% against the Japanese currency to 109.64 .

The single currency was up less than 0.1% on the day at $1.229, while the dollar index, which tracks the greenback against a basket of six major rivals, was mostly unchanged at 97.311.

China’s offshore yuan hit a fresh 2019 low early in Asia on Tuesday before rebounding. It was last trading at 6.9009 per dollar, up 0.17% on the day.

Its onshore counterpart strengthened slightly to 6.8767 per dollar after touching four-month lows on Monday, sparking speculation China’s central bank may be letting the currency weaken amid the intensifying trade war.

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