Trade war between the US and China is getting hotter by the day

As Russia and the West exchange increasingly testy barbs about the return of the Cold War, the trade war between the US and China is getting hotter by the day.

Global equity markets have been convulsed with uncertainty as investors try to calculate the impact that new tariffs will have on trade between the world’s two biggest economies.

On Wednesday the FTSE 100 slumped back to below 7,000 as the markets responded to the Trump administration’s plans to impose a 25% tariff on 1,333 Chinese products in the industrial technology, transport and medical sectors - a trade worth about $50 billion a year.

Going tit for tat, the Chinese then announced a 25% tariff of their own on 106 American products. Such a rapid escalation prompted sharp drops in the Asian markets - most notably a fall of 2.2% on Hong Kong’s Hang Seng - which were followed by declines in the benchmark indices of France and Germany.

Brawn rather than brain in defence of intellectual property

Underpinning President Trump’s aggressive opening salvo is his suspicion - widely shared both on Capitol Hill and in Silicon Valley - that Chinese tech firms are systematically stealing intellectual property from their American counterparts.

But there’s also the President’s wider goal - which played so well on the election trail - to reduce America’s yawning trade deficit with China, which reached a staggering $375.2 billion by the end of last year.

With China protesting that the American tariffs violated World Trade Organisation rules before responding in kind, the fallout was felt quickest and sharpest at the US aerospace giant Boeing.

The American company’s stock dropped 6% in early trading on Wednesday, as markets began to fear the worst from China’s new tariffs on American aircraft.

Boeing has placed great importance on its 737 Max series as a key source of future profits, but the new Chinese regulations will affect aircraft with an empty weight of between 15,000 and 45,000 kg - a category seemingly tailor-made for Boeing’s bestselling 737 Max 8 jetliner.

Trade wars create only losers, not winners

President Trump has proudly boasted that America is equipped to “win” a trade war with China. But this misses the point. International trade wars are invariably a zero-sum game, and the flexing of the Presidential muscles in this way risks hurting many of the Americans Mr Trump has pledged to defend.

For now the pain is being felt on Wall Street rather than Main Street - with American equity markets all sliding on Wednesday morning.

But the immediate impact on Boeing - the world’s biggest aerospace company and the largest private sector employer in Washington state - gives a worrying foretaste of what could lie in store for the millions of US jobs that rely on exports.

After such a sustained bull run - which dates back to President Trump’s election victory in 2016 - the US markets were due a correction anyway, and the trade war fears may have merely accelerated the inevitable.

But what has also become clear this week is that real American jobs will be at stake in a trade war, and despite the President’s hubris, the Chinese will be no pushover.

For now the markets can only look on anxiously as the trade war rhetoric morphs into a grim reality.

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