International Monetary Fund warns increasing U.S. tariffs could cut China growth sharply

International Monetary Fund warns increasing U.S. tariffs could cut China growth sharply

"We're not ready to make a deal", Trump told reporters at the White House before heading out on vacation at his New Jersey golf resort.

The S&P 500 fell 19 points, or 0.7%, to 2,918.

In the commodities markets, benchmark US crude jumped $1.96 to settle at $54.50 a barrel. China's economy is slowing - partly because President Donald Trump has slapped tariffs on US$250 billion ($386.4b) worth of Chinese imports - and market pressures are pulling the currency down.

Relations have soured further in the past week after Trump announced the new round of punitive tariffs, despite a truce agreed with President Xi Jinping in May, and Beijing responded by halting all purchases of United States agricultural goods. The fact that China abruptly stopped these purchases is quite significant, Eitelman noted, as this was precisely the concession the USA believed it had extracted from China.

Such fear has been most pronounced in the bond market, where yields have tumbled as investors scrambled for protection.

The PBoC explained that the decline was triggered by "unilateralism and trade protectionism measures and the imposition of tariff increases on China".

Could the trade war trigger a recession? Negative global spillovers could be significant, it added. "There's been a gradual deceleration in manufacturing activity since the end of 2017, as this sector is very exposed to tariffs and supply-chain disruptions", he explained.

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New US tariffs on remaining Chinese goods would cut GDP growth by 0.8% points.

"We are not going to do business with Huawei".

Other areas of the world are facing even weaker economic growth, and the British government reported that its economy shrank in the second quarter for the first time since 2012.

The net effect of all this? More fragility in the USA, he said, as business executives wrestle with how to respond to heightened uncertainty and the slowdown in growth. According to analysts with Eurasia Group, which advises investors on political risks, China President Xi Jinping is increasingly wary of being seen as capitulating to USA pressure. In this instance, business uncertainty would fade and markets would rally, he said.

For the short-term health of markets, it's important that trade negotiations between the two countries continue next month, Eitelman said - and that the additional tariffs threatened by the USA on Chinese imports don't go into effect come September 1.

Navarro said he wonders if the Chinese are really ready, too.

A standoff also continues to persist over US restrictions on companies doing business with Chinese telecom giant Huawei and China's reluctance to ramp up purchases of American farm goods. "These numbers will be even more important than usual, in light of all the recent developments around trade", Eitelman concluded.

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