Is a Trade War Near?

Written by Jennifer Clark
Posted May 8, 2019

Over the weekend, Trump did what he does best and went to Twitter to tweet about his opinions on trade negotiations between the U.S. and China.

Usually we get these Twitter rants from the president when he’s frustrated or trying to prove a point. This weekend, he went to Twitter to say:

For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billion Dollars…

He went on to say that tariff negotiations are going too slowly and that he is considering boosting tariffs on China on Friday if talks with China don’t go as planned and both sides benefit from the agreement.

Trump’s tweets about tariffs on China had a significant impact on the global markets, especially after he said he would hike U.S. tariffs on $200 billion worth of Chinese goods this week and soon target hundreds of billions more. Market volatility went soaring in the beginning of the week.

The VIX increased about 46% — it hasn’t had that big of a jump since February 2018. Along with the VIX increase, the S&P 500 Index futures slide 1.5%, and the Shanghai Composite fell 5.6%. The U.S. and China have two of the most influential and strongest economies in the world, so when there is a sign that trade negotiations aren’t going well, the rest of the world starts to panic.

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The markets have been moving smoothly for some time, and there hasn’t been anything plaguing them in awhile. The last time Trump said something about raising tariffs on China was when volatility went up.

After Trump’s Twitter rant, there were rumors that China was going to back out on trade talks and have its delegation return back to China. However, that’s not true. China’s government confirmed Tuesday that Vice Premier Liu He would visit Washington for the trade talks on May 9 and 10. Despite still complying with talks, China is said to be preparing retaliatory tariffs on American imports if Trump decides to go through with his threat.

And some people are saying that’s just what it is: a threat. A threat to try and get an agreement that would work out in America’s favor. Chinese Foreign Ministry spokesman Geng Shuang said:

The urgent task right now is for the United States to work with China and move in the same direction so that we can reach a mutually beneficial and win-win agreement based on mutual respect.

There is a way where both sides can win. Obviously, it won’t be easy. There will be some sacrifices, and pride will have to be put aside.

The trade talks have Wall Street analysts concerned about the ramifications of a possible China–U.S. trade war. Many industries would be affected by a trade war — industries like automakers, technology, and retail.

A UBS analyst, Jay Sole, who covers TJX Companies, Ross Stores, and Burlington Stores, wrote:

The new tariff threat could cause softlines stocks to drop 40%. If 25% tariffs are enacted, it could catalyze further U.S. retail disruption.

The next few days are going to be ones to keep an eye on. Whatever happens between both countries in the next few days, the markets will have a reaction, and it could greatly impact the future of your investments.

Until next time,

Jennifer Clark
Pro Trader Today

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