China retaliates on tariffs, stock markets go into a slide

Stock futures drop as China is said to raise tariffs on U.S. goodsMore

The Dow Jones Industrial Average plunged more than 700 points Monday as investors sought shelter from an escalating trade war between the USA and China. Cellphones and laptops would be included in that list but pharmaceuticals would be excluded, the office said.

Other analysts point to a smaller impact, though, particularly for the United States, the world's largest economy.

The latter has shed 5.5 percent of its value so far this month and looks set to record its sharpest drop in May since 2000. China's yuan currency fell to its lowest level since December and oil futures slumped.

White House economic advisor Larry Kudlow told USA media Sunday that Trump and Chinese President Xi Jinping could meet next month on the sidelines of the G20 summit to hash out their differences on trade, although no new talks are scheduled.

"Maybe something will happen", Trump said in remarks at the White House. Beijing has counterpunched by targeting $110 billion worth of American imports, focusing on farm products such as soybeans in a deliberate effort to inflict pain on Trump supporters in the US heartland.

"We're in a very good position and I think it's only going to get better", said Trump.

The Chinese government's top diplomat, State Councilor Wang Yi, said during a trip to Russian Federation that China-U.S. talks were not a "one-way street" and needed to be conducted on the basis of equality, according to China's Foreign Ministry. Many are still confident that both sides will eventually reach a deal. The tariff increases already in place have disrupted trade in such American products as soybeans and medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.

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President Trump encouraged manufacturers hit by the tariffs to move manufacturing to the USA or to secondarily consider buying from a country not hit by the same level of tariffs. Trump said on Monday his administration was planning to provide about $15 billion to help farmers whose products might be targeted. The administration a year ago handed farmers aid worth $11 billion to offset losses from trade conflicts.

The move was announced in a statement by the Tariff Policy Commission of China's cabinet, the State Council.

The tensions reverberated through global financial markets, with the yield curve between three-month U.S. Treasury bills and 10-year notes inverting for the second time in less than a week on Monday. "It was 95 percent there and then my representatives, as you know, Secretary [Steve] Mnuchin and Bob Lighthizer, Ambassador Lighthizer, they went to China, and they were told the things that were fully agreed to we're not going to get anymore, they're going to unagree to them", Trump explained. It could soon hit all Chinese imports with 25% tariffs. The move affected 5,700 categories of Chinese products, including internet modems and routers. Its state media kept up a steady drum beat of strongly worded commentary, reiterating that the door to talks was always open but vowing that China would defend its national interests and dignity.

Uber has begun trading as a public company just as the U.S. and China have stepped up the level of trade tariffs. His comments came after the USA more than doubled tariffs on $200bn (£15.4bn) of Chinese goods on Friday. Throughout these protectionist moves, Trump has denied the knock-on effect these tariffs have in raising the prices that US consumers ultimately pay for them.

China's finance ministry announced that it was raising tariffs on a wide range of American goods to 20 percent or 25 percent from 10 percent in response to Mr. Trump's decision to raise tariffs to 25 percent on $200 billion worth of Chinese goods.

President Donald Trump and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, Nov. 9, 2017.

Aaron Klein, a fellow at the Brookings Institution who previously served as a Deputy Assistant Treasury Secretary during the Obama administration, explains that tariffs are essentially a "tax on US consumption of foreign goods".

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