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Caterpillar (CAT), Boeing (BA), Others Sink Despite Strong Economy as Trade War Escalates

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Just when trade tensions seemed to have eased with strong earnings and GDP growth, Beijing declared that it is “fully prepared” to retaliate, in a move that could lead to a full-scale trade war.

On Thursday, officials didn’t specify how exactly China will respond to Trump’s threat to double the tariffs on $200 billion in Chinese goods saying it would do all it can to “defend national dignity and the people’s interests.” Even with this supposedly “tit-for-tat” method, China can’t slap tariffs on the same amount of goods with the same amount of money since China imports far less from the U.S. Instead, China can retaliate by impacting American businesses by postponing or denying the approvals of licenses, or mergers and acquisitions.

Then, on Friday morning, China updated its stance with a more definitive claim. It said it would impose tariffs on $60 billion of U.S. goods if the U.S.  tariff threats become a reality. Beijing plans to slap levies on approximately 5,207 goods. The duties level can be anywhere from 5% to 25%, and the date of implementation will depend on the actions of the U.S., according to China’s cabinet.

The Commerce Ministry of China took an accusatory tone when speaking about the U.S. tariffs and the White House’s intentions. The ministry said that the tariffs seem to hinder China’s “peaceful development.” Meanwhile, the U.S. claims it is trying to narrow the trade gap between the two nations. Chinese spokesman, Geng Shuang, suggested the U.S. “not to try to blackmail China” and instead “return to rationality.”

It is not surprising that the U.S. is taking a more aggressive approach toward this trade war because it has less to lose, presumably. Despite the ongoing trade threats, the U.S. economy has been strong. Its recently reported GDP growth was the highest in four years. Plus, the U.S. inflation rate is at the Fed’s target, and the unemployment rate is low with a very tight labor market.

Meanwhile, China has been suffering through a bear market with signs of an economic slowdown. Not to mention that China depends on trade more than the U.S.

But, even as China turned to Brazil for its soybeans, the Commerce Department said soybean exports surged in the second quarter. The Chinese Commerce Ministry also said it believes that China can achieve “high-quality” economic growth and that “bad things can be turned into good things.”

Despite the U.S.’ more favorable situation with its economy, the market is far from unaffected by the trade war. Caterpillar (CAT - Free Report) and Boeing (BA - Free Report) stock both dropped on the back of these new trade fears. Many companies on the Dow Jones Industrial Average DJIA  dipped following the news Tech companies with big exposure in China including,  including Micron (MU - Free Report) , Nvidia (NVDA - Free Report) , AMD (AMD - Free Report) , and Intel (INTC - Free Report) , also sunk.

Although the economy itself is robust, the trade war is definitely rippling its way into the U.S. stock market. The major indices may go up after strong macroeconomic factors such as the jobs report or strong GDP numbers, but investors should watch out for companies that will or already have been impacted by the trade dispute.

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