SINGAPORE (Reuters) - U.S. tariffs on $34 billion in Chinese imports took effect as a deadline passed on Friday, and with Beijing having vowed to respond immediately in kind, the two biggest economies were set on a risky path toward a full-blown trade war.
The Trump administration has warned it may ultimately target over $500 billion worth of Chinese goods, or roughly the total amount that the United States imported from China last year.
Beijing has said it would immediately respond with an equal amount of tariffs of its own against U.S. autos, agricultural and other products, but it did not say at midday on Friday if its countermoves had kicked in.
MARKET REACTION:
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MSCI's broadest index of Asia-Pacific shares outside Japan pulled off early lows and was little changed by midday. The index has lost 8.8 percent since June 7 on fears of a trade war.
The Shanghai Composite index, which recently tumbled into correction territory, fell 0.3 percent in morning trade.
U.S. S&P mini futures edged up 0.2 percent.
COMMENTARY:
SEAN CALLOW, SENIOR FOREX STRATEGIST, WESTPAC, SYDNEY
"Markets have had plenty of time to price in these tariffs, and for every investor who is worried about where this trade battle is heading, there is another who points out that this stage of the trade measures is not likely to have a large impact on corporate profits or growth in either the U.S. or China.
"A short-term response in USD/CNY also seems unlikely now that the PBOC has publicly declared that it is, after all, still valuing currency stability, after a couple of weeks when it didn't look like it.
"But it seems far too optimistic to simply brush aside this phase of U.S.-China tariffs. Trump's 18 June statement threatening tariffs on up to $400 billion of additional China imports hangs over today's fully anticipated actions. We should take this threat very seriously, given Trump's long-standing views on trade, his protectionist promises on the campaign trail and polling indicating his voter base remains with him into the November mid-terms."
KEN CHEUNG, SENIOR ASIAN FX STRATEGIST, MIZUHO BANK, HONG KONG
"The market has already digested (the news of tariff implementation). Unless there is an escalation, the yuan is unlikely to have a sizable decline."
XU YIYI, FUND MANAGER, HUAAN FUND CO, SHANGHAI
"Cash is king and investors should stay on the sidelines watching. The impact from the first round of tariff levies is limited. But what about the second round, the third round, if Trump does what he said he would do?"
TOMMY XIE, ECONOMIST, OCBC BANK, SINGAPORE:
"I think probably China has no choice but going ahead with the retaliation package, but I doubt it will become full blown.
"It's probably in Trump's interest to drag the process to November, that's why he can come out with any number he wants.
"I don't know how he is going to do that. So I guess it is probably his strategy to 'threat and drag'.
"The initial impact on China's economy should be limited as $50 billion is not that much for the economy."
FREDERIC NEUMANN, CO-HEAD OF ASIA ECONOMICS RESEARCH, HSBC, HONG KONG
"On the positive side, one could argue that China is a crucial supplier to the rest of the world of a lot of goods and so imposing tariffs on Chinese exports does not necessarily mean Chinese exports go to zero. Americans probably still would want their iPhones ... and in some sense the increase in prices would be borne by the importer.
"On the negative side, you have the impact on confidence and investment. The uncertainty around it would certainly escalate the impact.
"But it is very clear that if you impose tariffs on all of China's exports that would have very far reaching repercussions.
"There are a bunch of studies by credible global institutions that show that roughly if you impose a 10 percent tariff on global trade then global GDP might decline by 2 percentage points. That's a material impact.
"The China-U.S. relationship is such a large component of global trade that we really have a global impact and that has implications that are difficult to foresee. There are all these feedback loops that have to be taken into account.
"China's economy is actually relatively closed. It is a massive continental-sized economy nowadays. People seem to think it's another one of the Asian tigers but it is a different beast, it has vast internal markets and vast savings like Europe, Japan and the United States.
"China could in the near term scale up fiscal stimulus quite considerably. If you compare (public debt) with global metrics there's really no limit for a near-term fiscal boost. And then you have the monetary side.
"They're going to take fiscal measures that will accelerate the structural changes they have in mind anyway, to get away from investment and exports: tax cuts for consumers, more subsidies for high-tech investments.
"By and large I'm still fairly relaxed about this. It's a drag on growth. I don't think it's as disruptive as often described. China's position is strong enough to avoid a hard landing in the current scenario."
GRAPHICS:
- China's trade with U.S. https://reut.rs/2HjTuSw
BACKGROUND:
-- U.S. President Donald Trump has threatened to impose tariffs on Chinese goods to combat what he says is Beijing's misappropriation of U.S. technology through joint venture requirements and other policies, which China denies.
-- Ballpark estimates from economists show that every $100 billion of imports affected by tariffs chip away around 0.5 percent of global trade, wiping off 0.1 percentage points of GDP growth.
-- The direct impact on China's economic growth in 2018 is estimated at 0.1-0.3 percentage points while the drag on its export growth is expected to be 1 percentage point. The effect on the United States will be less.
-- Indirect damage is harder to assess, with global financial markets already skidding and collateral damage forecast for countries and companies which are heavily plugged into China's supply chains.
-- Morgan Stanley estimates that world trade could be seriously disrupted as two-thirds of goods traded are linked to global value chains.
-- U.S. tariffs on Chinese exports will apply to engines and motors, construction and farming machinery, electrical, transportation and telecom equipment and precision instruments.
-- Counter tariffs by China will hit U.S. agricultural commodities, autos and aquatic products. Soybeans are the country's biggest import from the United States by value.
(Reporting by Reuters bureaus in BEIJING and elsewhere in Asia; Editing by Kim Coghill)