Trade war: US stock markets fall sharply after Trump imposes new tariffs on China

Dow Jones and S&P drop as Beijing retaliates with levies on $60bn of US imports

US stock markets opened sharply lower on Monday after Donald Trump's administration put tariffs on $200bn of Chinese imports.

Beijing retaliated earlier on Monday with its own tariff increase on around $60bn of US goods in the latest round of an escalating trade war between the two countries.

The Dow Jones Industrial average was 1.9 per cent down at 25,449 shortly after opening in New York.

The S&P 500, which is a much broader index, fell, 1.7 per cent to 2,832.7. Boeing dropped almost 3 per cent, Caterpillar fell 4 per cent and Apple lost 5 per cent.

Trade tensions worsened last week when the Trump administration announced a 25 per cent tariff on Chinese products worth about $200bn. The US is set to reveal a plan to levy a 25 per cent additional tariff on all remaining imports from China later on Monday.

China's Ministry of Finance said in a statement on Monday: “China’s tariff move is in response to the US unilateralism and trade protectionism.

“China hopes that the US will return to the right track of bilateral trade talks, work together with China and meet each other halfway, to reach a win-win and mutually beneficial agreement on the basis of mutual respect."

Beijing's retaliatory tariffs will affect almost 2,500 products with rates to be set at between 5 per cent and 25 per cent. Most of the levies will be at the top end of that range.

Mr Trump has repeatedly accused China of acting unfairly in its trade relationship with the US.

But economists have warned that his America first approach will simply damage world trade. The president's top economic advisor warned this week that the US will "suffer" as a result of a trade war.

The new tariffs are also likely to hurt European and Asian companies that trade with the US and China or supply components and raw materials to their manufacturers.

The increases already in place have hit US firms, disrupting trade in goods from soybeans to medical equipment and sending shockwaves through other Asian economies.

While the tariffs only affect a small proportion of world trade they risk putting a dent in already fragile economic confidence.

Richard Carter, head of fixed interest research at Quilter Cheviot the outlook for the global economy had worsened after the breakdown of US-China trade talks.

“The economic impact of the trade war is hard to quantify," Mr Carter said.

"Global growth and confidence is rather fragile at the moment so the timing is not great. It is possible, however, that the blow will be softened by further stimulus in China and an interest rate cut by the US Federal Reserve.

"This latter prospect would have seemed outlandish at the start of the year but is now gaining credence with bond markets pricing in a 70% chance of a cut by year end. The Fed certainly has room to manoeuvre with inflation at a fairly benign 2 per cent despite record low unemployment.”

There are no more formal talks planned although there remains hope that a meeting between Mr Xi and Mr Trump could be arranged at the G20 event in late-June to break the deadlock.

Donald Trump has warned China that it would be “hurt very badly” by a trade war in a rambling Twitter attack on President Xi Jinping.

The US president responded to criticism of his decision to increase tariffs by warning his Chinese counterpart not to retaliate and accusing him of backing out of a ”great deal”.

In a series of misspelled tweets, he also suggested that “there will be nobody left in China to do business with” if the dispute continued.

The rambling barrage came after his top economic adviser Larry Kudlow admitted that the US would “suffer” as a result of the tariff increase because the public would have to pay more for goods.

“Their is no reason for the US Consumer to pay the Tariffs, which take effect on China today,” he insisted.