(Updates with tariffs enacted)
By Noel Randewich
SAN FRANCISCO, July 6 (Reuters) - Fears of a global trade war have left Wall Street bruised but not beaten, even after the United States and China imposed tit-for-tat duties on $34 billion worth of each other’s imports on Friday.
While China accused Washington of triggering the “largest-scale trade war”, U.S. stock indexes rose. U.S. President Donald Trump upped the ante on Thursday night, warning that the United States may ultimately target over $500 billion worth of Chinese goods.
Disputes between the United States and its trading partners have roiled financial markets ranging from stocks to currencies to commodities for months. Stocks have been volatile, the dollar has gained and the yield curve for U.S. Treasuries has flattened.
Since March 1, when President Donald Trump said he would impose steep tariffs on steel and aluminum, igniting fears of a trade war, S&P 500 industrials have fallen 4 percent, reflecting the sector's dependence on international commerce.
The S&P 1500 steel index has lost 7 percent since March 1, as investors worry that a slowdown in global demand could offset U.S. steelmakers' benefits from tariffs against their foreign competitors.
But although the S&P 500 on some days has been hit hard by signs of an escalating trade conflict, the index rose 0.6 percent on Friday after the United States and China enacted their tariffs. The S&P 500 is up 3 percent so far in 2018, helped by deep corporate tax cuts that have boosted companies' earnings and led to massive share buybacks.
Reflecting expectations that small U.S. companies are less at risk than multinationals from tariffs, the Russell 2000 index has outperformed the S&P 500, Dow and Nasdaq since early March.
Tariffs on $34 billion worth of Chinese goods, the first of a potential total of $450 billion, kicked in on Friday over U.S. complaints that China is misappropriating U.S. technology.
Imports of semiconductor-dense products like televisions and smartphones so far have mostly been spared by Trump, but they could be hit if the trade dispute grows.
Car makers, which face higher steel costs due to the tariffs, have been whipsawed. The Trump administration has launched a national security investigation into automobile imports that could lead to additional tariffs.
The dollar and U.S. treasuries have also been sensitive. The U.S. dollar index, which measures the greenback against a basket of currencies, has risen more than 4 percent since March 1. Analysts have said that they expect the dollar to outperform against other currencies in a trade war.
"A rise in trade protectionism would increase global risk aversion and disproportionately affect non-USD countries due to their relative economic openness," analysts at Bank of America Merrill Lynch said in a recent note.
The yuan dropped more than 3 percent against the dollar in June, more than in any other month since 1994, when China unified the market exchange rate.
Worries about a global trade conflict have pushed long-term Treasury yields lower as investors fret about a slowdown in global economic growth. Meanwhile, short-term rates have risen due to expectations of more interest rate hikes by the Federal Reserve.
Reporting by Noel Randewich; additional reporting by Megan Davies and Richard Leong; editing by Leslie Adler and Susan Thomas