China unveils tariffs on US, markets drop, as trade sparks fly

China made it clear US President Donald Trump has a fight on his hands, threatening tariffs on US$3 billion worth of US goods as the rumblings of a global trade war shook stock and currency markets on Friday.

Beijing unveiled a list of US products – from fresh fruit to pork and wine – that could face duties of up to 25%, in response to similar moves by the Trump administration against Chinese imports on Thursday.

Stocks have reacted dramatically to the hostilities. The Dow Jones Industrial Average plunged more than 700 points on Thursday, while Hong Kong and Shanghai stocks sank at the open.

China’s commerce ministry, parroting a now-familiar line, said the country “does not want to fight a trade war, but it is absolutely not afraid of a trade war.” It added: “China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place.”

Hours earlier, Trump signed an order that could result in restrictions on Chinese investment in the US, saying it would be the “first of many” trade actions.

Commerce Secretary Wilbur Ross suggested that new measures against Chinese theft of intellectual property were in fact a way of bringing Beijing to the table, telling CNBC they were “the prelude to a set of negotiations.”

“China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place”

Beijing warned that a 15% tariff on 120 goods worth almost US$1 billion – including fresh fruit, nuts and wine – would be imposed if the US fails to reach a “trade compensation agreement” within an unspecified timeframe. And it promised a 25% tariff on a further eight goods – including pork and aluminum scrap – totaling nearly US$2 billion.

China’s list notably does not include soybeans, as had been feared. A third of US soybean exports go to China in a business that was worth US$14 billion to US farmers last year. Trump won in the 10 top soybean-producing states in his 2016 presidential election triumph.

Voices from American industry, and agriculture in particular, have stridently opposed Trump’s aggression on trade. However, White House trade adviser Peter Navarro told reporters that China benefitted far more from trade with the US, meaning retaliation could be difficult for Beijing, and said lawmakers would broadly support the measures.

Shanghai shares were down 3.3%. Australian stocks lost 2.1% and Japan’s Nikkei dropped 4.1%. Hong Kong’s Hang Seng was down 2.8%, Taiwan shares slid 1.7% and South Korea’s KOPS retreated 2.3%. Earlier, the Dow had shed 2.9% by close on Thursday. The S&P 500 dropped 2.5% and the Nasdaq fell 2.4%.

The yen, often sought in times of market turmoil, rallied against the dollar. The greenback fell roughly 0.5% to as low as 104.635 yen, its weakest since November 2016. The dollar was down more than 1% on the week.

Meanwhile, Trump has temporarily excluded six countries, including Canada and Mexico, and European Union states, from higher US import duties on steel and aluminum due to come into effect on Friday.

In a presidential proclamation published late on Thursday, he said he would suspend tariffs for Argentina, Australia, Brazil, South Korea, Canada, Mexico and the European Union, the US’ biggest trading partner, until May 1, as discussions continue.

With reporting from Reuters, Agence France-Presse.