Analysts have said a full blown trade war between the US and China would not be good for the global economy or markets - and that ongoing behind-the-scenes negotiations between the two giants were crucial.But market reaction in Asia trade on Friday suggested investors were not too troubled by the latest twist, and that trade war fears were somewhat exaggerated.In China, Hong Kong's Hang Seng was in positive territory, up 1.3 per cent. Japan's benchmark Nikkei 225 was also trading higher in the afternoon session.Earlier this year, the US announced it would impose import taxes of 25 per cent on steel and 10 per cent on aluminium. The tariffs would be wide ranging and would include China.
China responded this month with retaliatory tariffs worth $3bn of its own against the US on a range of goods, including pork and wine. Beijing said the move was intended to safeguard its interests and balance losses caused by the new tariffs.Meanwhile, there had been rumblings the US was preparing to slap between $50bn and $60bn worth of tariffs on Chinese-made goods in response to unfair Chinese intellectual property practices, such as those that pressure US companies to share technology with Chinese firms.The draft details of those import taxes were released last week when Washington set out about 1,300 Chinese products it intended to hit with tariffs set at 25 per cent worth some $50bn.
China responded swiftly by proposing retaliatory tariffs, also worth some $50bn, on 106 key US products, including soybeans, aircraft parts and orange juice. This set of tariffs was narrowly aimed at politically important sectors in the US, such as agriculture.In Mr Trump's Thursday statement he branded that retaliation by Beijing as "unfair"."Rather than remedy its misconduct, China has chosen to harm our farmers and manufacturers," he said."In light of China's unfair retaliation, I have instructed the USTR (United States Trade Representative) to consider whether $100bn of additional tariffs would be appropriate... and, if so, to identify the products upon which to impose such tariffs."
He said he had also instructed agricultural officials to implement a plan to protect US farmers and agricultural interests.The threats sound strident but the actual impact is far from clear or straightforward - and will vary dramatically from product to product.To get a sense of how things might play out, let's take soybeans as an example.China, which is a big producer of soybeans itself, also buys about 60 per cent of all soybeans exported by the US.It uses the product to feed farmed animals, including pigs and chickens, as well as fish. Those animals are in turn used to help feed China's enormous population.China's demand for soybeans and soybean products has buoyed the price of US soybeans for some time.
But Beijing's tariffs against US soybeans will mostly likely see sales to China fall off, which will in turn hurt American farmers.Many of US farmers could then be forced to switch to other crops - very few of which are as lucrative.Soybean producing areas in the US are filled with famers who voted for Mr Trump, and so some of them are now less than happy with their president.Meanwhile, China will need to set about sourcing the extra soybeans it needs from other countries.India is one of the world's biggest soybean producers, and analysts there have already pointed to a potential trade war between the US and China as an opportunity for its economy.
Other big soybean producers are Argentina and Brazil, and some studies suggest that is where China will turn to should the current set of proposed tariffs come into force.But it could end up paying more than it currently does, ultimately forcing up the price of those animals which eat soybean products. So that would mean pork, for example, China's most popular meat, could get more expensive. And food price inflation is something that will worry Beijing.(UNI)