Concerns that China and the United States were gearing up for a protracted and expensive trade war impacted the finance sector on Monday as Beijing charged Washington of maintaining “extravagant expectations” for an agreement that would end the ongoing argument.
Shares of telecom suppliers like Broadcom Inc, Micron Technology, and Qualcomm went down steeply as investors calculated the costs of increased tariffs on American and Chinese goods, along with the effects of the harsh restrictions imposed on Huawei Technologies for the US tech industry.
Apple shares also went down. An HSBC warning influenced the 3.3% drop that the increased tariffs on China’s products would push the technology titan to hike prices. However, this will have severe consequences on the demand for Apple products.
Analysts from Morgan Stanley warned that a break down in the trade discussions and a continuous disruption with a tariff hike on the entire US-China trade would usher a global economic recession.
The financial services company mentioned in a memo to clients that a scenario like that would urge the Federal Reserve to lower interest rates to zero by the time 2020 rolls around. However, delays in the communication of policies could mean the company won’t be able to prevent the worsening of financial situations and an outright recession.
Discussions between the two countries had deteriorated badly since the start of the month when officials from China wanted extensive changes to the wording of a proposed agreement that the Trump government says have already been agreed on.
The negotiations that ensued culminated with no change as US President Donald Trump raised tariffs to 25% from the initial 10% levied on $200 billion amount of Chinese goods and warned that he’d enforce duties on all outstanding Chinese products sold in the US.
Meanwhile, China also instituted a tariff increase in retaliation and in return, the Trump administration included telecom conglomerate Huawei to a trading list that restricted its capacity to buy American software and components and conduct business with various businesses in the United States.
No new schedule of negotiations have been set, and if Beijing’s harsher tone is any indication, it’s unlikely that any talks will resume soon. It also raised questions whether there’s a possibility of a meeting between the leaders of the two battling countries during the G20 Summit that will be held next month in Japan.
In an interview that aired last Sunday, President Trump stated that the US and China had a good deal but that China had changed it. He added that it was OK because “we’re going to tariff their products.”
US government officials had earlier stated that China had ceded on several fundamental “structural” points, including their demand for enhancing the safeguards on intellectual property, putting an end to compulsory technology transfers and improved access to the Asian country’s markets. Placing restrictions on state subsidies turned out to a thorny issue.
Lu Kang, the spokesman for China’s Foreign Ministry, has denied that China had consented to any issues. He told a news briefing that the government doesn’t know what the agreement the US mentioned was. He posited that the US might have a deal they had high expectations of, but it’s not anything China has agreed to.
Lu also added that the latest failed round of US-China negotiations floundered because the Trump administration wanted to accomplish “unreasonable interests through extreme pressure.” He said that it wouldn’t have worked from the start.
Restrictions on Huawei
The restrictions the US imposed on Huawei began to be felt by Monday. Google revoked the Chinese giant’s license that allowed the transfer of software, hardware, and technical services. However, Huawei can still make use of Google’s open source licensing.
Because of this, shares of European chip manufacturers like AMS, Infineon Technologies, and STMicroelectronics fell drastically on Monday as investors became worried Huawei’s suppliers might stop shipping parts to the company.
China Daily, the country’s official newspaper, stated in its editorial that America had shown its ugliness through its limitations on Huawei. It criticized the US for acting like it has “the absolute say over everything in its dealings with the rest of the world” and expecting the other countries to accept what the country wanted no matter how oppressive it is. The newspaper emphasized that neither China nor Huawei will simply take that.