Investors sweat on trade war risk

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Markets are willing to bet the rumblings of a global trade war are the intended aim of Donald Trump’s blustering negotiating tactics, and it will take provocation from Europe or China for tensions to escalate and rock equities.

After Thursday’s crunch on Wall Street, shares were mixed on Friday when the Dow Jones Industrial Average fell 0.29 per cent and the SP 500 added 0.51 per cent. Futures point to Australian stocks rising at the open.

President Donald Trump during a meeting with steel and aluminum executives.

President Donald Trump during a meeting with steel and aluminum executives.

Photo: Evan Vucci

Since promising to impose tariffs of 25 per cent on steel and 10 per cent on aluminium, Mr Trump threatened Europe’s car industry with tariffs if they challenge him with retaliatory policies. European Commission President Jean-Claude Juncker told German television Europe would be willing to hit imports of Harley-Davidsons, bourbon and Levi’s jeans.

“We see this time and time again, he likes to really go in heavy early in the negotiation,” said Geoff Wood, head of macro and risk at Morphic Asset Management, who saw similarities in the trade dispute with Trump’s North Korea tactics.

“He goes backwards and forwards and the Chinese again were in the middle of that one and quietly sat back, telling everyone to calm down. The steel and aluminium is really irrelevant, the big escalation is him putting tariffs on EU cars.”