- The US is considering a stricter round of tariffs and sanctions on China.
- The move is in response to the alleged theft by China of US intellectual property.
- The latest developments show that uncertainty still lingers about the prospect of a global trade war.
Stricter tariffs on Chinese imports and a crackdown on Chinese foreign investment in the US are being considered by the Trump administration, according to a Bloomberg report.
The proposed moves are in retaliation for the alleged theft of US intellectual property, following an investigation by the US Trade Representatives Office last year.
By law, the US can impose trade restrictions on any country which has been shown to undermine American businesses.
An announcement is expected in the coming weeks, and any move by the US would reignite the prospect of a trade ware between the two countries — a scenario to which markets had taken a more benign view to start this week.
But the latest developments are a reminder that uncertainty still lingers around threats to the international trade order stemming from the Trump administration’s recent anti-trade rhetoric.
And that uncertainty was exacerbated by reports this morning that White House economic adviser Gary Cohn had resigned due to a difference of opinion with President Trump on trade.
In a more extreme scenario being considered, the US could impose an import tax on a range of Chinese goods, from clothing to electronics.
The Bloomberg report said a slightly watered-down version of the proposal would instead specifically target Chinese foreign investment in the US.
Lobbyists for US companies that are heavily reliant on Chinese trade have urged the Trump administration to negotiate further with Beijing before imposing any penalties.
In conjunction with Cohn’s resignation, markets across Asia have taken on a more risk-off tone.
The Australian dollar slipped back below US78 cents but has since rallied back, but the ASX200 is down 0.7% in midday trade and S&P500 futures in the US are down more than 1%.
Stock markets mainland China opened at 12:30pm AEDT and are climbing in early trade — although it follows reports that China’s securities regulator asked some funds to avoid net-selling of stocks during the National People’s Congress which kicked off on Monday.
Daily FX senior strategist Ilya Spivak told Business Insider that increasing trade tension will drive increased demand for safe-have assets.
This morning’s development “seems to suggest the markets were too optimistic in dismissing the appetite for protectionism at the White House”, Spivak said.
“If these moves gain traction and become policy, the most likely beneficiary is likely to be the Japanese yen, which tends to gain when market sentiment broadly sours.”
“The near-term implications for the US Dollar are less clear, but sweeping risk aversion has tended to be supportive as capital flows seek liquidity havens.”
The US Trade Representatives Office has previously argued that Chinese companies often force their US counterparts to disclose trade secrets, as part of the cost of doing business in China.
Among the specific industries under threat, US policy makers that China is trying to build up its capacity for the production of semiconductors to compete with the US.
US officials are still considering what action to take — and may still end up doing nothing — while China has recently warned that any tariffs could harm the global trading system.