Trade war tension between the US and China has put an end to the local stock market's record run as risk and fear return to investor thinking.
Trade war tension between the US and China has put an end to the local stock market's record run as risk and fear return to investor thinking.
Wall Street's stocks fell overnight with the Dow Jones Industrial index off more than one per cent.
The local NZX-50 was off by one-quarter of a per cent at midday - having fallen almost one per cent yesterday. It bounced back into positive territory this afternoon on hope that the initial sell-off may have played out.
Analysts expect to see volatility in markets remain high in the lead up to the deadline for the implementation of the first round of tariffs early next month.
US President Donald Trump raised the stakes in the trade dispute with China by threatening to impose tariffs on another US$200b worth of Chinese goods. That follows the plan for tariffs on US$50b of Chinese goods — which comes into effect on July 6.
The Chinese quickly responded — the Ministry for Commerce in Beijing saying it would respond "strongly" if Trump followed through.
The standoff, mostly over China's drive to supplant US technological dominance, threatens to tip "the US and China into a downward spiral like the world hasn't seen since the trade war that plunged us deeper in the Great Depression and into the Second World War," Matt Gold, professor of international trade law at the Fordham Law School and a former US trade official, told Associated Press.
Yesterday the Shanghai Composite Index slid almost 5 per cent after Trump upped the ante in his trade dispute with the world's second-largest economy.
A gauge of technology stocks in Shenzhen fared even worse, plummeting as much as 6.7 per cent, the most since February 2016.
There were expectations they would recover some of that ground today as the impact of the risk was digested.
The International Business Forum's Stephen Jacobi said the escalation of the tension was worrying for New Zealand in the medium to long term as it threatened to dampen global growth and undermine existing trade rules.
But short-term he was optimistic that New Zealand would be clear of immediate fallout from new tariffs.
Trump's protectionist policies could have major repercussions for the world's economy. Photo/Getty Images.
"There could actually be a bit of a lift for our exports to China if the Chinese retaliate against the US on dairy beef, wine — these are all things we export to China and we could fill the gap," he said.
"I don't think we'll be caught out by anything in the United States — our export profile to the US is quite different."
Broadly the escalation of tariff rhetoric was very worrying Jacobi said.
But he still held out some hope that there might time before the July 6 "trigger date" for talks to continue and for a pull back from the brink.
If the tariffs the two countries have threatened to slap on each other's exports take effect, their consumers would have to pay higher retail prices.
Companies would pay more for imported parts and would have to decide whether to absorb those higher costs — or pass them on to their customers.
The tariffs would start to slow US growth, economists warn.
Oxford Economics estimates that if Trump imposed the US$200 billion in tariffs and China responded in kind, US growth could slow by 0.3 percentage point next year.
Trump is gambling that Beijing has the most to lose. China couldn't come close to matching America's tariffs on US$450 billion of Chinese exports. The United States sold only US$130 billion of goods to China last year.
But Beijing has chosen its targets strategically. Soybeans are on the list — a direct shot at a swath of Trump supporters in the American heartland. About 60 per cent of US soybean exports go to China.
