Despite President Trump’s decision on Monday, September 17th, to impose tariffs on $200 billion more in Chinese goods, possibly from next week, the world’s main stock markets remained calm as business began today.
In an indication that markets had been expecting the move, indexes in China, Europe and the US were slightly up on previous trading.
While disruptive, the cost of the tariffs is relatively small compared with the size of the United States and Chinese economies.
“Even on this scale, these tariffs are small potatoes to economies that weigh in with GDPs of nearly $20 trillion each,” Carl B. Weinberg, chief international economist at High Frequency Economics in White Plains, NY told the New York Times in an email.
The tariff threat comes as China endeavours to tackle a slowing economy and a bear market that is eating into its financial health. Chinese stocks hit a four-year low early on Tuesday but bounced back, reflecting confidence that the Chinese economy can absorb the impact of the levies.
According to the New York Times, analysts are concerned that Beijing could retaliate against the United States by weakening the Chinese currency’s value against the dollar. That would make Chinese products cheaper and more competitive to foreign buyers, negating the higher costs arising from American tariffs.
The renminbi has weakened by more than 7% against the dollar this year, an unusual slide for a currency that does not trade freely and is carefully managed by Beijing through the Chinese central bank.
On Tuesday, the renminbi was slightly weaker against the dollar. In Hong Kong, which operates outside mainland China’s tight financial controls, the Chinese currency was also weaker.