Wall Street has staged a sharp recovery after the Chinese president, Xi Jinping, promised economic reforms and lower import tariffs, soothing fears over the country’s simmering trade standoff with the US.
Xi Jinping warns against ‘arrogance’ amid threat of trade war with US
The Dow Jones Industrial Average gained by more than 500 points in early trading on Tuesday in New York, reaching almost 24,500 points. The biggest gains were for companies such as Boeing and Caterpillar, which were seen to be among the biggest potential losers from a trade war between the world’s two biggest economies.
European shares also rallied amid renewed hope for a solution in the trade showdown triggered by Donald Trump, with the FTSE 100 ending the day 1% higher at 7,266. The pound also rose on international exchanges after Bank of England ratesetter Ian McCafferty said Threadneedle Street “shouldn’t dally” when it comes to raising the cost of borrowing – expected by investors from as early as next month.
In his first public comments since the trade dispute started with Trump, Xi used a speech in Beijing to promise to open up the country’s economy. He also said China would raise the foreign ownership limit for companies operating in the nation’s aircraft, shipbuilding and motor industries.
“This year, we will considerably reduce auto import tariffs and at the same time reduce import tariffs on some other products,” he added.
The better news for investors comes after warmer words from both Beijing and Washington in the latest signs of a climbdown from the brink of a potentially damaging trade war. Writing in the Guardian, the Chinese ambassador to the UK said such an economic conflict “should and can be avoided”.
While warning China had no choice but to take firm counter-actions in the face of Trump using the “law of the jungle” for trade disputes, Liu Xiaoming wrote: “China has not, however, closed the door to negotiations and consultations. On the contrary, we will continue to deepen reform and open up on all fronts with a view to building closer trade and economic partnerships with the world.”
Seeking to solve the standoff through established international channels, China filed a complaint with the World Trade Organisation challenging Trump’s tariff plans for steel and aluminium imports, with the country asking for 60 days of consultations with the US. If those talks should fail, the next step would be for a panel of trade experts to make a ruling.
In Britain, the biggest risers on the FTSE 100 included mining companies such as Anglo American and Glencore, which gained because of investors’ hopes that a resolution to the US-Sino trade dispute would reduce the likelihood of US punitive tariffs on commodities.
The Trump administration has outlined $50bn of import tariffs on Chinese goods arriving in America, which China then said it would match for US imports. Trump then said he would consider an additional $100bn on Chinese products, raising the stakes and rattling financial markets last week.
However, the US president said on Sunday that Beijing would ease trade barriers “because it is the right thing to do”, in a move that was seen as easing fears over the brewing trade war.
Joshua Mahony of financial spreadbetting firm IG said: “Talk of China easing their import restrictions are helping drive global market sentiment higher.”