Last week global stock markets slumped due to the prospect of all-out trade war which could destabilize global economy. The US market closed sharply lower for the week with S&P 500 falling 5.6% and Dow Jones Industrial Average falling 6%. Asia markets also skidded with Nikkei 225 falling 6.3%, Hang Seng dropping 6.4%, and Shanghai Composite shed 6.4%. On Thursday, the White House moved forward with the long promised anti-China sanctions with the announcement of new tariffs on up to $60 billion in Chinese imports.

Trump said this measure is to penalize Beijing for allegedly stealing U.S companies’ intellectual property. The tariffs follow after the result of investigation in Chinese policies last August. The review found unfair practices in China, including restriction on foreign ownership without the transfer of technology. The administration says that the theft of intellectual property has been happening for decades. The new trade sanctions have identified more than 1,000 Chinese products which can be potential target of 25% tariffs. The US is also trying to limit Chinese investment in the US and pursue legal action against China at the World Trade Organization.

China’s promise to retaliate

Beijing has said that it is not afraid of a trade war, but it hopes to avoid it through a continued dialogue. On Friday, China gave an initial counter proposal of 128 US products as potential retaliation targets. The products include wine, groceries and aluminium scrap which have an import value of $3 billion. China’s response is still quite restrained so far as it tries to avoid a full blown trade war.

Despite potential retaliation by China, the Administration says China has more to lose in the event of a full blown trade war. The US imports billions more goods from China every year than it exports, creating a deficit of $375 billion in 2017. On Thursday Trump said that he has asked China to cut the deficit by $100 billion immediately. China is the third largest market for US exports and a very big buyer of American soybeans, corn, pork, and aircraft. In the event of a full-blown trade war, many US industries will be affected and no one will win.