“Tit for tat” best describes the state of trade relations between China and the U.S. today.
Last Wednesday, China made an announcement in which it threatened to slap tariffs on $50 billion worth of American agricultural and manufactured products. This was in retaliation to the U.S.’ announcement the day before in which it issued tariffs on $50 billion worth of Chinese products. China’s threat is yet another sign that China and America are destined to wage a war for global power and influence for years to come.
The Trump administration accepts something that many in the national security community have been arguing about for a long time: China is no friend to the U.S.
China took less than 11 hours to respond with its own measures, which led to an acute sell-off in global stock markets and commodities.
The country is a tough geopolitical, economic, and diplomatic competitor. And the competition between it and the U.S. is seriously intensifying.
The markets haven’t responded well to the tit-for-tat tariff announcements either. The Dow dropped by over 2% on Wednesday alone after China’s announcement.
The Dow fell 506.21 points, or 2.11% to 23,527.15. The S&P 500 lost 40.75 points, or 1.56% to 2,573.7. And the Nasdaq Composite dropped 126.95 points, or 1.83% to 6,814.33.
Even Canada’s main stock index fell to its lowest level in almost two months on Wednesday. The Toronto Stock Exchange’s S&P/TSX Composite Index fell 178.82 points, or 1.15% to 15,005.94. And all the index’s 10 main groups were down from the heightening fears of a trade war.
And even though Washington’s list of Chinese tariffs covers many obscure industrial items, Beijing’s list covers 106 key U.S. imports. This includes soybeans, planes, cars, and chemicals.
Boeing (NYSE: BA) and Apple (NASDAQ: AAPL) led the slide in big U.S. manufacturers and technology companies, bearing the brunt of the deepening trade conflict.
Automakers Ford (NYSE: F), General Motors (NYSE: GM), Fiat Chrysler (NYSE: FCAU), and Tesla (NASDAQ: TSLA) all fell between 2% and 4%.
Grain merchant Archer Daniels (NYSE: ADM) was down 1.3%, and Bunge (NYSE: BG) slipped just 0.7%.
Chipmakers especially, many of which have the highest revenue exposure to China among S&P 500 companies, also fell significantly. All components of the Philadelphia chipmakers index trading were lower, led by AMD’s 4.6% drop-off.
Investors headed for safer bets once tariff announcements were exchanged. And gold prices rose 1% as a result.
But the markets did reverse on Wednesday. The Dow swung from an early loss of 510 points to finish up by around 231 points. This was a clear sign that investors haven’t completely abandoned the markets, despite the current of negative news.
President Donald Trump upped the ante late Thursday with another threat to slap tariffs on an additional $100 billion of Chinese exports. This, of course, prompted the Chinese government to warn of its willingness to take “new comprehensive measures” in response.
Clearly, we shouldn’t be shocked by the series of events happening between the two countries.
In fact, things will certainly get much worse in the months, and even years, to come.
Considering that both nations are on the opposite sides of a regional struggle over issues like which will dominate South and East China, Taiwan, and the fate of North Korea’s nuclear program, and also the fate of hundreds of billions of dollars of trade and millions of jobs, we should get ready for the geopolitical and economic storm that’s upon us.
The facts are obvious: America and China are now enemies.
And there’s no turning back…
But China faces a bit of a problem: Does it even have enough ammunition to start a trade war?
China exports more goods to the U.S., $505 billion to be exact, than what the U.S. exports to China, a mere $130 billion.
That leaves the U.S. government with a much bigger pile of ammo than China for a trade war. And that means the U.S. has far more Chinese exports to target with tariffs.
That’s all for now.
Until next time,
John Peterson
Pro Trader Today