Economic News

U.S.-China Trade War Escalates, Stocks Fall

Just a couple of weeks ago it seemed that the United States and China were on their way to reaching a trade deal. This hope even played a role in helping the S&P 500 and Nasdaq indices reach record highs. Unfortunately, late last week, President Trump announced that tariffs on Chinese goods would increase from 10% to 25%. With China now retaliating, the markets are currently shedding some of the gains they’ve seen in recent weeks.

Last week President Trump announced that the U.S. would be increasing tariffs on several Chinese imports. In doing so, Trump suggested that talks toward a deal were moving too slowly. This morning, Trump took to Twitter to defend the tariffs, saying (among other things), “The unexpectedly good first quarter 3.2% GDP was greatly helped by Tariffs from China. Some people just don’t get it!” The President also sent out a warning to China, writing, “I say openly to President Xi & all of my many friends in China that China will be hurt very badly if you don’t make a deal because companies will be forced to leave China for other countries. Too expensive to buy in China. You had a great deal, almost completed, & you backed out!”

In response China announced this morning that $60 billion in American goods would also see tariffs increase from 10% to 25%. According to CNN Business this increase will impact more than 4,000 items. The new rates will take effect on June 1st.

Following word from Bejing, the markets dropped at the opening bell on Monday. The Dow Jones Industrial Average finished down more than 600 points for the day. Meanwhile the S&p 500 lost 2.41% while the Nasdaq composite fell 3.41%.

A common criticism that’s been lobbed against Trump’s tariff plan is that it’s not China paying the costs of these tariffs but U.S. companies that import such goods. In turn, companies may raise prices, leading consumers to bear the brunt of this trade war. However President Trump has said that Americans can avoid tariffs by buying American-made products. As he tweeted, “Such an easy way to avoid Tariffs? Make or produce your goods and products in the good old USA. It’s very simple!”

Certainly this escalation in the U.S.-China trade war is not what the markets wanted. Now the question is whether this turn will hurt America’s otherwise still-strong economy. Hopefully we won’t have to find out — although this latest spat would suggest that the war on (or with) tariffs won’t be ending just yet.