President Trumpâs latest stance on the trade situation with China sent shock waves across global markets. Stocks all around the world took a hit as investors refrained from equity investing and pulled cash out amid reports that Trump is set to impose tariffs on an additional $200 billion worth of Chinese goods.
The trade tensions between the worldâs two largest economies, which have been going on for months and are the cause of uncertainty in the markets, caused the broad markets to open significantly lower on Monday. The tech-heavy Nasdaq was down about 0.9% at the time of writing, while the MSCI Asia ex-Japan index, the regionâs broadest measure of share prices, was down roughly 1%.
âTariffs have put the U.S. in a very strong bargaining position, with Billions of Dollars, and Jobs, flowing into our Country - and yet cost increases have thus far been almost unnoticeable. If countries will not make fair deals with us, they will be âTariffed!ââ Trump tweeted. While negotiations seem to be the fair route to take, the president appears to be convinced by the current state of affairs.
Although the proposed tariff of 10% is much lower than the previous 25% duty, it is still enough to slow down economic growth in the U.S. and hamper the Federal Reserveâs plans of normalizing interests rates. Moreover, China said it will retaliate with tariffs on $60 billion worth of American goods if the U.S. proceeds with its plans.
Reports of China targeting goods essential to the U.S. supply chain are doing the rounds. Such a move will massively hamper the end production schedules of U.S. companies, with the tech sector bearing most of the brunt. Moreover, the Wall Street Journal reported that the Asian country will skip trade negotiations proposed by U.S. Treasury Secretary Steve Mnuchin if the tariffs are imposed.Ă
As a result, multiple stocks took a hit. Among the companies that do a lot of business in China, Apple (AAPL, Financial) dropped as much as 0.6% and Boeing (BA, Financial) shares declined 0.3%
While Trump has already imposed tariffs on $50 billion worth of Chinese goods, the impact has not been significant on consumer prices. The newly proposed tariffs, however, may change things, with American consumers bearing the brunt in the form of more expensive products. Owing to the recent developments, the greenback took a hit against multiple major currencies.
While Trump is insistent about punishing China for unfair trade practices, major American business leaders have voiced their concerns about the potential negative impact these tariffs will have on the economy. The administration is currently evaluating which products to target, while China prepares for the most adverse outcome possible, tariffs on nearly everything it exports to the U.S.
Even if the Trump administration does not immediately proceed with the tariffs, delaying them until after a few rounds of negotiations take place, this endless saga is bound to cause massive volatility in the markets in the near term. With the International Monetary Fund and other governments expressing concern of a global slowdown, investors around the world are hoping for an end to these tensions.
Disclosure: I do not own any of the stocks mentioned.
