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America’s three major indices have opened down in Friday trading as tensions between the United States and China reignite.
Market sentiment had been fairly upbeat going into the week’s final day of trading. Growing confidence that lockdowns around the world were beginning to ease and a 3.9 per cent surge in Chinese factory output had buoyed investor sentiment.
This changed however, after Reuters reported that the Trump administration was moving to block shipments of semiconductors from global chipmakers to Huawei Technologies, the Chinese tech giant.
The US Commerce Department admitted it is planning to change an export regulation to “strategically target Huawei’s acquisition of semiconductors that are the direct product of certain US software and technology”. It added that it hopes to “cut off Huawei’s efforts to undermine US export controls”.
Investors balked at the news, which brought back fresh memories of the 18-month US-China trade war. The role of Huawei in the global economy was a key battleground of this debacle ,which weighed on global trade and was only partially resolved with a “phase one” agreement in January.
At the start of Friday trading, the Dow Jones (DJIA) fell 0.44 per cent, the Nasdaq (NASD) 0.89 per cent and the S&P 500 0.61 per cent.
Fearing the flare-up could reignite a full-scale trade war, investors are closely monitoring any Chinese reaction. Following the Reuters report, the editor of the Chinese state-backed outlet The Global Times stated: “Based on what I know, if the US further blocks key technology supply to Huawei, China will activate the ‘unreliable entity list’, restrict or investigate US companies such as Qualcomm, Cisco and Apple, and suspend the purchase of Boeing airplanes.”
Opinion is split as to how the recent tensions could play out. Some analysts and observers have argued that the Trump administration, furious with China’s inability to contain the Covid-19 virus outbreak which has now devastated the global economy, will seek to punish its rival. While others have argued that China, sensing its opportunity to supplant a weakened America as the global hegemon, will be up for a fight.
There is a converse line of argument which finds that the novel coronavirus has wrought such economic devastation to the two intermingled countries that neither can afford a costly trade war.
