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China hits back in trade war with US

The new penalty duties on hundreds of US products, including batteries, spinach and coffee, will take effect on June 1.

Chinese investors monitor stock prices (Mark Schiefelbein/AP)
Chinese investors monitor stock prices (Mark Schiefelbein/AP)

China has announced it is raising tariffs on 60 billion dollars (£46 billion) of US goods in retaliation for the latest hike in American tariffs on its exports.

The move deepened a trade battle between the countries and sent financial markets into a tailspin.

The finance ministry said the new penalty duties of 5% to 25% on hundreds of US products, including batteries, spinach and coffee, will take effect on June 1.

With investors worried about the potential economic damage on all sides from the escalating trade war, the Dow Jones Industrial Average fell 617 points, or 2.4%, and the technology-heavy Nasdaq plunged 270 points, or 3.4%, in its biggest drop of the year.

Earlier, stocks fell in Europe and Asia.

“Right now, we appear to be in a slow-motion train wreck, with both sides sticking to their positions,” said William Reinsch, a trade analyst at the Centre for Strategic and International Studies and a former US trade official.

“As is often the case, however, the losers will not be the negotiators or presidents but the people.”

Beijing’s move followed Donald Trump’s increase on Friday of duties on 200 billion dollars (£153 billion) of Chinese imports from 10% to 25% after claiming that China had backtracked on commitments it made in earlier negotiations in a dispute over Beijing’s technology ambitions and perennial trade surplus.

Resuming his messages over Twitter early Monday, President Trump warned Chinese President Xi Jinping that China “will be hurt very badly” if it doesn’t agree to a trade deal.

Mr Trump tweeted China “had a great deal, almost completed, & you backed out!”

Mr Trump insisted the tariffs the US has placed on Chinese goods do not hurt American consumers, saying there is “no reason for the US consumer to pay the tariffs”.

White House economic adviser Larry Kudlow acknowledged on Sunday that US consumers and businesses pay the tariffs. “Both sides will pay,” he said.

China had vowed “necessary countermeasures” on Friday against Mr Trump’s escalation of the tariff conflict.

Beijing is running out of US imports for penalties due to the lopsided trade balance between the world’s two largest economies. Regulators have targeted American companies in China by slowing down customs clearance for shipments and processing of business licences.

The new tariffs are likely to hurt exporters on both sides, as well as European and Asian companies that trade between the United States and China or supply components and raw materials to their manufacturers.

The increases already in place have disrupted trade in goods from soybeans to medical equipment and sent shockwaves through other Asian economies that supply Chinese factories.

Forecasters have warned that the US tariff hikes could disrupt a Chinese recovery that had appeared to be gaining traction. Growth in the world’s second-largest economy held steady at 6.4% over a year earlier in January-March, supported by higher government spending and bank lending.

The tensions “raise fresh doubts about this recovery path,” said Morgan Stanley economists Robin Xing, Jenny Zheng and Zhipeng Cai.

The latest talks ended with no word of progress on Friday.

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