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ASX sinks as Donald Trump threatens to impose tariffs on Brazil and Argentina metal imports

ABC Business logoABC Business 6 days ago By business reporter David Chau, wires

Donald Trump © Getty Donald Trump The Australian share market's losses have accelerated in afternoon trade after US President Donald Trump decided to impose tariffs on metal imports from Brazil and Argentina.

By 1:25pm (AEDT), the ASX 200 had fallen by a steep 138 points, or 2 per cent, to 6,724.

Despite the heavy sell-off, the local market has essentially drifted back to where it was a week ago as the market has been trading near record highs.

Every sector is trading sharply lower with technology, consumer staples and utilities being the worst performers — down between 2.2 and 3 per cent.

Among the weakest stocks are Virgin Money UK (-5.4 per cent), WiseTech Global (-4.9 per cent) and Costa Group (-4.4 per cent).

Only 12 stocks in the benchmark index are trading higher including Bluescope Steel (+0.5 per cent) and Pilbara Minerals (+0.9 per cent).

Meanwhile, the Australian dollar jumped to 68.2 US cents, up about half a cent since early-Monday.

This was due to some upbeat economic data from Beijing showing a surprise rebound in Chinese manufacturing activity.

The Reserve Bank board will meet today but most economists are not expecting an interest rate cut at 2:30pm (AEDT).

US widens its trade war

Mr Trump opened up a new front in his trade war by tweeting that he would reinstate tariffs, effective immediately, on all steel and aluminium shipped into the United States by the two South American nations.

Brazil and Argentina were exempted from steel tariffs (25 per cent) and aluminium tariffs (10 per cent) last year when Mr Trump was attempting to avoid a trade war with those nations.

However, he accused them, on Monday (local time), of "presiding over a massive devaluation of their currencies" and harming US farmers in the process.

He also urged the Federal Reserve to cut interest rates further "so that countries, of which there are many, no longer take advantage of our strong [US] dollar by further devaluing their currencies".

Australia was also exempted from these metal tariffs last year.

But market analysts believe there is no guarantee that the US will continue to honour that arrangement.

"Given Brazil was seen as a close friend of Trump and even they could not be exempt from tariffs, there is a notion that every country regardless of what they do could have tariffs imposed, which creates a lot of uncertainty of businesses," said NAB's director of economics Tapas Strickland.

This surprise tariff announcement came as investors paid close attention to the main trade war — between the US and China.

Both economic superpowers are aiming to sign a so-called "phase one" deal, in an attempt to de-escalate their long drawn out trade dispute.

While Washington and Beijing are working towards a partial trade deal, Mr Trump said that US legislation backing protesters in Hong Kong did not make trade negotiations with China easier.

The law "doesn't make it better, but we'll see what happens", he told reporters, without giving any indication on when the agreement would be finalised.

"We are coming off the market high … any negative news is going to cause investors to take profits," said Peter Cardillo, chief market economist at Spartan Capital Securities.

Heavy market selling

European trading losses were the most severe as Germany's DAX and Paris' CAC indices sank by 2 per cent each, while London's FTSE lost 0.8 per cent.

On Wall Street, the Dow Jones index dropped 268 points (1 per cent) to close at 27,783.

The benchmark S&P 500 fell 0.8 per cent, its steepest loss in almost two months (since October 8).

The tech-heavy Nasdaq lost 1.1 per cent — dragged down by Facebook, Amazon and Google's parent company. Alphabet, which all fell by at least 1 per cent.

US markets were also weighed down by weak November manufacturing data, which revealed the US factory sector contracted for its fourth straight month.

The Institute for Supply Management (ISM) said its index of national factory activity dropped 0.2 points to a reading of 48.1 last month.

A reading below 50 indicates contraction in the manufacturing sector, which accounts for 11 per cent of the US economy.

"It is all about the macro news today and that is basically overshadowing the good news on Black Friday and Cyber Monday," Mr Cardillo said.

"The fact that the manufacturing sector is still in recession obviously also rekindles trade worries."

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