The US-China trade war could mean the average American household will face a loss of $US4700 ($7528) at last year’s price levels when accounting for president Donald Trump’s tariffs, which will also cut US gross domestic product by around 1.1 per cent, according to an April 10 estimate from the Budget Lab at Yale University.
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Outside the United States, sharemarkets settled down after the White House on Thursday said it has started trade talks with several countries. But a technical problem on Friday created more trade-related chaos when US Customs and Border Protection suffered a glitch in its system for exempting freight from tariffs, leaving the government unable to collect duties on imports.
While share prices were relatively calm on Friday compared with recent days, other financial indicators raised alarm for the health of the financial system.
A sell-off in government bonds resumed as the yield on the 10-year US Treasury climbed above 4.5 per cent at one point. Yields move inversely to prices. Treasury bonds are usually seen as a safe haven in times of economic turmoil, but analysts say a shortage of cash in the market is now driving global investors to cash out bonds.
JoAnne Bianco, senior investment strategist at BondBloxx Investment Management, told The Washington Post that the activity in bond yields reflects the market’s concerns about “the inflationary effects of tariffs”.
If higher yields persist, “we’re not only going to have more expensive consumer products but also potentially a higher cost of borrowing,” Bianco cautioned. “The longer this extreme volatility goes on in financial markets, the more likely that something in our financial system could break, and we’re in a full-on crisis.”
The US dollar continued a months-long decline this week and registered its biggest single-day drop since 2022 on Thursday. The dollar has fallen nearly 8 per cent since Inauguration Day in a prolonged slide. Meanwhile, the price of gold has surged to its highest level in more than 40 years as it continued its streak of records, trading at $US3255.30 on Friday afternoon.
Corporate leaders in the United States have said they are prepared for an economic slowdown if trade tensions continue.
“I think we’re very close, if not in, a recession now,” BlackRock chief executive Larry Fink told CNBC’s “Squawk on the Street” show on Friday.
The investment firm’s conversations with clients have been dominated by uncertainty and anxiety about the future of the economy, Fink said in an earnings release on Friday.
Further increases “no longer have any economic significance” because the current levels make US exports to China not financially viable, China’s State Council said in a statement, adding that imposing higher tariffs would make the US a joke. The new Chinese tariffs take effect on Saturday.
China announced its latest tariff increase after most Asian markets closed. Ahead of the announcement, Hong Kong’s Hang Seng Index and China’s Shanghai composite index ended the day slightly higher. Taiwan’s index logged a 2.5 per cent gain. Japan’s Nikkei 225 lost almost 3 per cent.
The economy faces considerable turbulence, JPMorgan Chase CEO Jamie Dimon said as his company also reported its quarterly results. US efforts to change tax policy and deregulate could help the economy, Dimon said, but “tariffs and ‘trade wars,’ ongoing sticky inflation, high fiscal deficits and still rather high asset prices and volatility” pose potential risks.
“The China issue is a major issue,” he said in a call with analysts on Friday, and “a significant change we’ve never seen in our lives.”
But keeping “the world safe and free for democracy” matters more than short-term economic results, Dimon said. “I really almost don’t care fundamentally about what the economy does next,” he said.
Bloomberg
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