China supports stocks, but US tariffs 'not as bad as thought'

The threat of a trade war between the world's two biggest economies did not have as big an effect on Chinese stocks after Beijing intervened to support its stock market on Friday, while economists said US tariffs were not as big as had been feared.

Overnight, President Donald Trump signed off on 25% tariffs on $50bn worth of Chinese imports in what the White House said was a bid to punish the People's Republic for intellectual property infringements.

The Presidential Order called for the US Trade Representative to produce a list of products within 15 days, after which a 30-day comment period will begin, before tariffs of 25% will be imposed on the basket of Chinese imports.

The President also instructed USTR to take action via the World Trade Organisation to address China’s “discriminatory licensing practices” and to report on this progress within 60 days, while in the same time treasury chief Steve Mnuchin will compile a list of possible actions to limit Chinese investment in the US.

On Friday China outlined $3bn of tariffs as a response to the US levies on steel and aluminium imports that were implemented on the same day.

The commerce ministry in Beijing said in a statement that higher US tariffs “seriously undermine” the global trading system, while Bloomberg reported that state backed funds bought shares in local large-cap companies.

"China doesn’t hope to be in a trade war, but is not afraid of engaging in one. China hopes the United States will pull back from the brink, make prudent decisions, and avoid dragging bilateral trade relations to a dangerous place," the statement said.

Amid the report of stock purchases by state-backed funds the CSI 300 index of blue chip Shanghai and Shenzhen stocks erased some of its earlier losses, closing the session with a 2.9% loss having been down 4.6% earlier.

Also helping sentiment, economists felt the US tariffs we not as bad as they could have been.

UBS said the initial US tariffs "appear much smaller with negligible macro effects" compared to what was feared. The wording of the presidential order suggests a total of $12.5bn, which is roughly 20% of what was implied in earlier reports.

UBS remained confident that there will not be a full-scale trade war.

"Our base case has always been that trade policy would not have a measurable effect on the US economy, but the risks of a trade war were material. The initially discussed size of tariffs increased the risk, but the ultimately announced size suggests that our base case continues to be correct. The US actions provoked a Chinese response, but that response is small. The Chinese government announcing tariffs on $3bn of US exports to China."