Markets in Asia and Europe Unfazed by Trade-War Escalation

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Asian markets were mixed on Tuesday after President Trump ordered tariffs on $200 billion more in Chinese goods, ramping up tensions between the world’s top two economies.CreditCreditKoji Sasahara/Associated Press

By Jack Ewing and Alexandra Stevenson

Sept. 18, 2018

The trade war between the United States and China has escalated. Markets are largely shrugging it off.

Stock indexes on Wall Street were poised to rise on Tuesday morning, after China’s stock market closed higher and Europe’s main indexes were all up slightly. The indifferent trading served as an indication that investors around the world had already factored in President Trump’s pledge on Monday to impose tariffs on $200 billion more in Chinese goods as soon as next week.

“Markets have been expecting the Trump tariffs for a very long time now,” said Carl B. Weinberg, chief international economist at High Frequency Economics in White Plains, N.Y. “So the formal announcement of the tariffs yesterday was no surprise to market participants.”

Mr. Trump has long railed against what he says are China’s unfair trading practices, and with Monday’s tariff announcement, the president said he was willing to quickly add levies on a further $267 billion worth of imports if China retaliated. Beijing said on Tuesday it was “deeply disappointed” and added that it “would have to adopt countermeasures.”

Still, while disruptive, the cost of the tariffs remains relatively small compared with the size of the United States and Chinese economies.

“Even on this scale, these tariffs are small potatoes to economies that weigh in with G.D.P.s of nearly $20 trillion each,” Mr. Weinberg said in an email.

Stocks closed 1.4 percent higher in Tokyo, u p 0.6 percent in Hong Kong, and they gained 0.3 percent in Seoul, South Korea. In Shanghai, where China’s biggest companies are listed, stocks rose 1.8 percent. But the gains came only after a 1.1 percent drop on Monday that took stocks to their lowest point since November 2014.

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Major markets in Europe, including Frankfurt, London and Paris, were all flat or slightly higher in early afternoon trading, while the euro was barely changed against the dollar.

The trade war is clearly bad for some big European companies, particularly carmakers like BMW and Daimler. They manufacture in China, the United States and Europe, and the tit-for-tat tariffs interfere with the flow of vehicles and components. But Mr. Trump’s focus on China could ease tensions with the Continent, and Europe could even benefit from tensions between China and the United States, said Gabriel Felbermayr, director of the Ifo Center for International Economics in Munich.

“The period of Trump attacking all trade partners simultaneously has hopefully already ended,” Mr. Felbermayr said. As long as Mr. Trump’s ire remains concentrated on Beijing, he added, “Europe is relatively safe.”

The tariff threat comes as China is grappling with a slowing economy and a bear market that is eating into its financial health. Chinese stocks hit a four-year low early Tuesday but bounced bank, reflecting confidence that the Chinese economy can absorb the impact of the levies. The benchmark index in Shanghai closed almost 2 percent higher.

Tariffs could knock off 0.7 of a percentage point from the country’s annual economic growth, said Fang Xinghai, vice chairman of China’s securities regulator. But, he added, the Chinese government has the monetary and fiscal tools to cushion any impact. Mr. Fang was speaking Tuesday morning at a World Economic Forum conference.

Analysts have raised concerns that Beijing could retaliate against the United States by weakening the Chinese currency’s value against the dollar. That would make Chinese products cheaper and more competitive to foreign buyers, blunting the higher costs that American tariffs would impose.

The renminbi, has weakened by more than 7 percent against the dollar this year, an unusual slide for a currency that does not trade freely and is carefully managed by Beijing. The daily exchange rate is set by the Chinese central bank and trades in a narrow band against the dollar.

On Tuesday, the renminbi was slightly weaker against the dollar. In Hong Kong, which operates outside mainland China’s tight financial controls, the Chinese currency was also weaker.

Follow Jack Ewing and Alexandra Stevenson on Twitter: @JackEwingNYT and @jotted.