World stock markets continued to tumble this morning prompted by escalating trade war fears, after US President Donald Trump imposed huge tariffs on Chinese imports and Beijing unveiled its own measures against American goods.
Asian stock markets were the heaviest fallers, playing catch-up after European indices and Wall Street had already slumped in Thursday trading on the latest developments.
Europe extended those losses this morning and at around 0940 GMT (6.40am local time), London's benchmark FTSE 100 index was down one percent.
In the eurozone, Frankfurt's DAX 30 slumped 1.9 percent and the Paris CAC 40 lost two percent compared with Thursday's closing levels.
"A rough week for the markets... as fears of a trade war between the US and China ratchet up," said Russ Mould, investment director at AJ Bell.
China 'not afraid'
Trump has announced levies on up to US$60 billion (49 billion euros) of imports from China for what he describes as the "theft" of US intellectual property, fuelling speculation that a strong recovery in the world economy could be thrown off course.
The US has identified 1,300 product lines as potential targets, including aerospace, information and communication technology, and machinery. A more complete list is due soon, to be followed by a 30-day comment period.
Thursday's move comes just weeks after the White House announced stinging taxes on steel and aluminium products entering the US – causing equities to plunge – as Trump drives through with his 'America First' protectionist agenda.
"If the tariffs go ahead as planned, then we believe China will retaliate. It is impossible to imagine that they cannot. And then we expect the US to retaliate further," said Rob Carnell, ING's chief Asia economist. "This can turn ugly on a global scale very quickly."
China responded by saying it was "not afraid of a trade war", and also released a list of potential tariffs on US$3 billion worth of US goods, from pork to fruits and wine and including some steel and aluminium goods.
China's Commerce Ministry urged Washington to negotiate a settlement, saying tariffs undermine the global trading system.
"Everbody's pushing each other around to do some negotiating," said David Collins, chief operations officer at CMC China Manufacturing Consultants, which advises companies on setting up factories in China. "Trump is negotiating. He's pushing back on the Chinese, and the Chinese will push back."
The news, however, boosted Chinese pork producers though shares in Hong Kong-listed WH Group, which owns US giant Smithfield, plunged more than 4.7 percent on Friday.
There was little positive reaction meanwhile to the US saying late Thursday it would suspend duties on metals imports from the EU, Argentina, Australia, Brazil, Canada, Mexico and South Korea.
In a show of dismay from one of Washington's biggest allies, Japan's trade minister described the US decision not to exclude Japanese exports as "extremely regrettable."
"We will continue our effort patiently to persuade the US to remove Japan from the list," Japanese Minister of Economy, Trade and Industry Hiroshige Seko told reporters.
Wall Street slump
Wall Street was sent spiralling by Thursday's news with all three main indices shedding between 2.4 percent and 2.9 percent.
"The effects are likely to be felt more strongly in the US and increase both consumer and producer prices, " said Hannah Anderson, global market strategist at JP Morgan Asset Management.
"Exports are extremely important to the Chinese economy, but have been trending less so in recent years and the US has been shrinking as a share of China's export market."
Analysts said traders were also spooked also by the fact China is the biggest buyer of US government bonds, which the US needs to keep its economic wheels greased.
Adding to the uncertainty was news that Trump's national security advisor HR McMaster – seen as a moderating hand in the administration – had stepped aside and been replaced by nationalist right-wing hawk John Bolton.
Peter Donisanu, an investment strategy analyst for the Wells Fargo Investment Institute, said the risk of a truly damaging trade war is still low because the Trump administration is targeting specific goods that aren't central to China's economy. That could change if it puts tariffs on products like electronics or appliances imported from China.
"If the Trump administration really wanted to hurt China and start a trade war, then they would go after those larger sectors," he said.