ASX rocked by trade war escalation

It has been another disappointing day for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO). It has sunk 0.7% lower on Wednesday after the trade war between the United States and China stepped up a gear.

A diverse range of export-focused shares such as Bellamy’s Australia Ltd (ASX: BAL), Rio Tinto Limited (ASX: RIO), and Select Harvests Limited (ASX: SHV) have all sunk notably lower on the news.

According to a United States Trade Representative (USTR) statement, the Trump administration has stated its intention to slap 10% tariffs on an extra US$200 billion worth of Chinese imports. The White House made the move after the Chinese government retaliated to last week’s US$34 billion trade tariff.

The statement explains that “China has since retaliated against the United States by imposing tariffs on $US34 billion in U.S. exports to China, and threatening tariffs on another $US16 billion. It did this without any international legal basis or justification.”

In response to this “the President has ordered USTR to begin the process of imposing tariffs of 10 percent on an additional US$200 billion of Chinese imports.”

The USTR believes this is an appropriate response to eliminate China’s “harmful industrial policies”.

The goods that the White House are targeting are wide-ranging and include food products, tobacco, coal, chemicals, tires, dog and cat food, and consumer electronics including television components.

News of the trade tariff escalation came after the U.S. markets closed but based on futures trading it hasn’t gone down well with investors.

At the time of writing futures trading indicates that the Dow Jones, S&P 500, and the Nasdaq will all open around 1% lower on Wednesday.

Markets across Asia have also tumbled on the news. As well as the ASX, the Nikkei is down 1.8%, Shanghai is off 1.7%, the Kospi is 1.3% lower, and the Hong Kong market is down 2.3%.

There has been no word out of China yet, but it seems quite likely that it will seek to retaliate in some way. I suspect this uncertainty is what is weighing on markets now.

I’m optimistic that a crisis will be averted and intend to look out for any shares falling into bargain territory as a result of these trade war fears.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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