Chinese stocks plunged 5% at one point today before closing down 3.8% in a broad sell off with 1,000 Chinese stocks falling below 10% after a surprise overnight announcement by President Trump of potentially fresh new tariffs on $200 billion worth of goods.

“Unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports.

China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology.

Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong.” Trump said in a statement before adding:

“Further action must be taken to encourage China to change its unfair practices, open its market to United States goods, and accept a more balanced trade relationship.”

He has asked U.S. trade representative Robert Lighthizer to identify $200 billion more in Chinese products for import taxes of 10%, making it in combination import taxes on effectively half of all yearly trade between China and America.

They have not yet been imposed, but will be implemented “if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said.

China, however, is not backing down, announcing both qualitative and quantitative counter measures, calling the tariffs “extreme pressure and blackmail.” China’s Commerce Ministry then effectively declared trade war has begun:

“The United States has initiated a trade war that violates market laws and is not in accordance with current global development trends,” they said.

That led to a broad global stocks sell off with Asia hit hard, especially tech companies that supply components to Apple. According to MarketWatch:

“IPhone-camera maker Cowell Holdings skidded 11.5% in Hong Kong to fresh record lows, while smartphone-lens maker Sunny Optical pulled back a further 5% and acoustics firm AAC Technologies fell 3.3%.

In Taiwan, Sunny peer Largan Precision was off 5.2%. Apple product assembler Hon Hai Precision Industry dropped 2.3%.”

Dow futures are down 350 point, nearly 2%, prior to opening, but the dollar is up, pound is down, yuan is down, cryptos have jumped with ethereum in particular rising nearly 7%.

How exactly this great game between two of the world’s biggest economies will develop remains to be seen as the lion and the tiger eye each other up.

America has long accused China of unfair practices that in their view amount to protectionist policies, leading to a trade imbalance of nearly half a trillion.

China, however, insists on an economy with “Chinese characteristics,” which in practice means prioritizing local companies over foreign companies, leading to encouragement of intellectual property transfers according to the Trump administration.

The stupendously close 2016 election gives Trump a mandate to rebalance relationships with China as that was a campaign promise, but this megaphone diplomacy has not quite been seen in our lifetime.

We’d have to go back almost exactly a century ago when England and Germany had their own great game. We trust both sides are mindful of that history not least because the educated people might sooner turn against their leaders than other peasants.

Yet considerable escalation does look unlikely at this stage. Both sides know neither would benefit, and within China there is intellectual support for opening up of their markets. In the absence of it, Trump might not quite have much choice.

“No tariffs, no barriers, that’s the way it should be. And no subsides, I even said, not tariffs.” Trump said at the G7 meeting before adding:

“Ultimately that’s what you want, you want tariff free, no barriers, and you want no subsides because you have some countries subsidizing industries and that’s not fair.

So you go tariff free, you go barrier free, you go subsidy free, that’s the way you learned at the Wharton School of Finance.”

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