Markets tumble as Trump threatens to escalate trade war

Pointing the finger at China.
Pointing the finger at China.
Image: AP/Evan Vucci
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When US president Donald Trump tweets, markets tumble—especially when these presidential missives herald the start of another bitter chapter in the ongoing US-China trade spat.

Yesterday, Trump announced a forthcoming hike to tariffs on $200 billion of Chinese imports, from 10% to 25%. In a series of tweets, he raged about the hundreds of billions of dollars he felt the US was losing to China. “Sorry, we’re not going to be doing that anymore!” he noted, adding: “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” These threats have bred pessimism among investors, making a trade deal many believed, or hoped, was just around the corner a now more remote possibility.

Today, in pre-market trading, the Dow Jones Industrial Average fell 450 points, before recovering slightly over the course of the morning. The S&P 500 and Nasdaq each dropped more than 1%. Around the world—oil prices, the Chinese yuan, European and Asian stock markets—it was the same story: descent. “Even on Trump standards,” Chris Krueger, an analyst at Cowen Washington Research Group, wrote in a note to clients, this was “shocking escalation.”

A new round of talks on the trade dispute is scheduled to begin this week in Washington with a Chinese delegation headed to the US. But these threats cast new doubt on whether any kind of resolution is in the offing. At the same time, continued uncertainty is sending markets sliding all over the place, simultaneously undermining otherwise robust US growth. Though some investors been buoyed by Trump’s approach, which they read as putting pressure on Beijing, others worry that what looks like a threat is actually a plan that could undo any possible trade deal.

It’s also inauspicious for other ongoing trade negotiations, including the deal intended to replace NAFTA. “His move injects major uncertainty into negotiations, which now face a rising risk of an extended impasse — perhaps even through the US presidential election,” Michael Hirson, an analyst at Eurasia Group, wrote in a note yesterday.