Financial markets have taken fright after Donald Trump fired the latest shots in an escalating trade war between the world’s two biggest economies by announcing $60bn (£42.5bn) of further tariffs on China.
Amid relief in Brussels that the EU had won a temporary reprieve from Trump’s already announced action to protect the US from imports of steel and aluminium, Wall Street braced itself for retaliation from Beijing.
Trump told reporters that the US trade deficit with Beijing was out of control at about $504bn.
“It is the largest deficit of any country in the history of our world. It’s out of control,” the US president said as he signed a memorandum. “We have a tremendous intellectual property theft situation going on, which likewise is hundreds of billions of dollars.”
Just 24 hours before tariffs were to be enforced on the EU, the Trump administration announced it was exempting the bloc, along with Australia, Argentina, Brazil, Canada, Mexico and South Korea, while trade talks with those nations were ongoing.
The Austrian chancellor, Sebastian Kurz, welcomed the development in a tweet from a summit of EU leaders in Brussels. “A trade war would have damaged both sides,” he said.
About £35bn worth of Chinese imports to the US will be affected by tariffs of 25% on steel and 10% on aluminium.
The White House said Trump would direct the office of the US trade representative to publish a new list of proposed tariffs within 15 days. They are likely to cover sectors such as robotics, hi-tech trains and aerospace. There will then be 30 days for responses. In January Trump imposed tariffs on solar panels and washing machines.
Peter Navarro, director of the office of trade and manufacturing policy, told reporters the US was “strategically defending itself [from] … economic aggression”.
US stock markets reacted negatively, with the Dow Jones dropping more than 300 points on Thursday. Caterpillar, 3M and Boeing – all with significant exposure to China – were among the biggest fallers. Bank and tech stocks also fell. At one point, the index was down 500 points, though by lunchtime in the US it had recovered on news that the tariffs would be subject to a period of consultation to be down 1.1% or 287 points. The FTSE-100 closed down 86 at 6952.59 – the first time the index has closed below 7,000 since December 2016.
China has warned it would take “all necessary measures” to defend itself. Hua Chunying, a foreign ministry spokeswoman, referred to imports of US soybeans, aeroplanes, cotton and cars, saying they could be viewed as examples of unequal trade. The US also “refuses to export what China wants”, she said, possibly referring to restrictions on technology and military sales.
“We are firmly against unilateralism and protectionism. China will not watch our legal interest being harmed,” Hua added.
Dozens of industry groups signed an open letter to the White House last weekend warning that “the imposition of sweeping tariffs would trigger a chain reaction of negative consequences for the US economy, provoking retaliation; stifling US agriculture, goods and services exports, and raising costs for businesses and consumers”.
The EU has argued in recent months that as a close ally of the US it should be exempt, and had threatened to impose a series of retaliatory measures including import duties on their products.
Speaking before Trump’s comments, the US trade representative, Robert Lighthizer, told a Senate committee that the president had personally decided “to pause the imposition of tariffs with respect to those countries” with which trade talks were ongoing.
Trump has had few kind words to say about the EU, claiming it had made life difficult for US exporters.
Earlier this month he told reporters: “The European Union has been particularly tough on the United States. They make it almost impossible for us to do business with them.”
As the proposed further tariffs on China were unveiled Trump called for the EU to respond to his temporary amnesty with a willingness to cut tariffs on US exports to Europe. The EU’s response is among topics on the agenda at an EU leaders summit dinner on Thursday.
Cecilia Malmström, the EU commissioner for trade, held two days of talks with her US counterpart, Wilbur Ross, before the announcement.
The reprieve for the EU was only given a cautious welcome by British steel makers.
Gareth Stace, the director of UK Steel, warned that US protectionism would still have a heavy impact on European countries unless Brussels took its own measures to stem the flow of aluminium and steel into the EU.
“Tariffs are set to divert millions of tonnes of steel away from the US towards other open markets,” he said. “At 40m tonnes a year, the EU is by far the largest import market in the world and will be the obvious target for major steel exporters to the US such as Turkey and Russia.”
He added: “The top priority here must be for the [European] commission to swiftly introduce safeguard measures to guard against further expected import surges.”