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Stock markets around the world rattled as Trump vows to escalate trade war with China

By Masao Suzuki |
June 20, 2018
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San José, CA - On June 19, stock markets around the world fell in reaction to U.S. President Trump’s promise to escalate the U.S. trade war with China. The Japanese Nikei index fell almost 2% along with other Asian markets. In Europe, Germany’s export-oriented economy meant its stocks were hit the hardest, with the German DAX index down more than 1%. The world sell-off ended in New York City, with the Dow Jones industrial average down more than 1%, bringing the average to below its starting point for the year.

The stock sell-off followed the announcement that Trump would seek to place 10% tariffs on an additional $200 billion of U.S. imports coming from China. Trump thinks that the U.S. can “out-gun” China since U.S. imports from China, at about $500 billion, are much larger than China’s imports from the U.S., which are only about $150 billion. But an hour later, the Chinese Ministry of Commerce that it would respond with its own tariffs. Their statement also implied that China would take other measures, which could include restrictions on U.S. businesses operating in China. General Motors, for example, actually sells - along with its Chinese partner, the SAIC (formerly the Shanghai Automotive Industry Corporation) - more cars in China than in the U.S.

Many other countries are afraid that they will be hurt as the U.S. escalates its trade war with China. About 60% of all exports from China to the U.S. are made by multinational corporations, which import a lot of parts from other countries. For example, Apple’s iPhone, which is assembled by the Taiwanese Foxconn corporation in China, actually gets half of its value from parts coming from Japan and Germany and only 5% is value added in China.

One result of this is that relations between China and Japan have recently improved. Sino-Japanese relations have long been strained by the first Sino-Japanese war in 1895 where Japan colonized Taiwan (and continue to occupy the Chinese Diaoyutai Islands - called Senkaku by Japan), and the Japanese invasion and occupation of China in the 1930s and 1940s.