Trade war with China was lost many years ago: Donald Trump

Sight for Sore Eyes       The start of April may be a welcomed change for Asian investors after a rocky March              Source Bloomberg

After an early jolt, stocks rallied and finished higher Wednesday as investors bet that back-and-forth tariff threats between the USA and China won't blossom into a bigger dispute that damages global commerce. Household goods makers, retailers and homebuilders led the way while technology companies reversed some early losses. Technology stocks have turned higher.

The market reaction comes on the heels of China's overnight announcement that it would impose tariffs on 106 types of American imports, including whiskey, soybeans, cars and chemical products - amounting to $50 billion in US products annually.

U.S. President Donald Trump, left, and Chinese Finance Vice Minister Zhu Guangyao.

US President Donald Trump meanwhile unleashed a tweet storm, emphatically stating the United States was "not in a trade war with China" and implying he was simply fixing the mistakes of previous administrations.

"The rhetoric is different this time around", said Jay Bryson, global economist with Wells Fargo.

Donald Trump claimed the U.S. was not in a trade war with China, but that he had nothing to lose with a $500bn trade deficit.

The broad-based S&P 500 gained 30.25 points (1.16 per cent) to 2,644.69, while the tech-rich Nasdaq Composite Index jumped 100.83 points (1.45 per cent) to 7,042.11. The Dow Jones Industrial Average, meanwhile, was down 1.5% at 23,680.

On the continent, the pan-European STOXX 600 index was down 4.29 points, or 1.16 per cent after a flat open. China responded with its own tariffs on USA goods within hours.

Industrial companies were rocked. Boeing lost almost 5% and semiconductor shares fell nearly 3%.

Whilst markets are correct in pricing in a higher degree of uncertainty, a full trade war as suggested by the recent sharp drops in global equities seems unlikely.

China then responded within 11 hours with penalties on US$50 billion of USA goods ranging from soybeans, cars and chemicals to whisky, cigars and tobacco with its Vice Finance Minister stressing the country had never given in to external pressure.

"My view is this is more trade poker than it is trade policy", he said. "We represent 6 percent of the imports but account for 51 percent of the tariffs". Broader S&P 500 futures slumped 1.5 percent to 2,575.00.

European stocks also fell. Germany's 10-year yield dipped one basis point to 0.49%, the lowest in 12 weeks.

China retaliated by hiking tariffs on 128 USA products, including pork and fruit.

Escalating trade tensions will not only hurt their economies, but slow world economic growth.

Indeed - Kudlow, a former Chief Economist of Bear Stearns, who became a commentator on "CNBC", is well known for being a strong advocate of free trade and was the first to criticize the tariffs on steel and aluminum stating that they would only harm the USA economy. The global economy is expected to grow 3.9 percent this year, which would be its strongest showing in seven years, according to the International Monetary Fund.

Different states have different levels of trade with China, and could be hit hard by a trade war.

Cotton represents another significant flow of trade from the US: exports of fiber in its raw form fetched $5.8 billion previous year, government data show. Sometimes tariffs are used to raise the price of imported products so that they don't undercut domestic products.

USA neighbors Canada and Mexico are exempted from the tariffs, with Trump saying other countries could potentially receive similar exemptions if they can "ensure that their products no longer threaten our security".

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