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Asian stocks ended the week with an extended Wall Street slide amid looming fears of a global trade war following US President Donald Trump’s announcement of massive tariffs on steel and aluminum imports.

According to Trump, the 25 percent duties on steel and 10 percent duties on aluminum would be announced in the coming week. This fueled speculations of violent reactions from the country’s major partners, including China, Europe, and Canada.

“The world stands on the brink of a trade war as Donald Trump announces severe tariffs on steel and aluminum – forget the yield curve – this is how recessions start,” said Robert Carnell, the head of Asia-pacific research at ING in Singapore. “Trade is just about the only thing economists are agreed on – more is better.”

MSCI’s broadest index of Asia-Pacific shares outside Japan slid 1.1 percent, pushed by a fall in South Korean shares. It was down 2.3 percent this week. Japan’s Nikkei tumbled 2.9 percent, down 3.6 percent this week.

Asian steelmaker shares also slipped. South Korea’s Posco fell 3 percent, while Japan’s Nippon Steel 4 percent.

Toyota Motor shares declined 2.4 percent. The automaker stated that the planned tariffs would significantly raise costs, which would include the prices of cars and trucks sold in America.

Meanwhile, mainland Chinese shares recovered some of its opening losses. The Shanghai composite index declined only 0.4 percent.

 On Wall Street, the S&P 500 dropped 36.16 points, or 1.33 percent, to 2, 677.67, following the day when investors heavily sold off, which was caused by their worry that the Federal Reserve might increase rates more than expected this year.

The Harmful Trade War

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Trump’s latest announcement comes after the US handed severe tariffs on imports of solar panels and washing machine in January. This compelled China to launch an antidumping and anti-subsidy probe into imports of sorghum from America.

The fears of a drastic trade war were further panned by Canada’s quick response, with Ottawa officials stating that they will retaliate against any US tariffs on steel and aluminum products.

On the backdrop of market anxiety over the pace of US rate hike this year, the world’s growth and corporate earning stand the risk of being blemished by growing trade protectionism. Last year, growth and corporate earnings were the key drivers of a record-breaking rally in equities.

These lingering concerns of a harmful trade war overshadowed the optimistic US economic data that was released on Thursday, including a jump in the manufacturing index to 14-year highs and a 48-year low in the number of Americans filing for unemployment benefits.

The US inflation perked up as the PCE price index, a gauge of underlying inflation, marched 0.3 percent forward in January. This was recorded as the largest gain since January 2017. It posted an increase of 1.5 percent on year, in line with the previous two months.

“Even if you manufacture goods, if someone doesn’t buy them, you have to scale back your production, leading to slowdown in global economic activities,” said Daisuke Uno, chief strategist at Sumimoto Mitsui Bank. “I would expect markets entered another period of correction.”

On the other hand, other experts say that the market may be overreacting.

“Trump has been repeatedly boasting about rise in share prices. If this is going to lead to a sustained drop in share prices, I bet he is likely to change his stance,” said Noboyuki Kashihara, head of research at Asset Management One.

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