Monday, May 13, 2019
A week ago Sunday, President Trump helped send markets reeling with a tweet on his Twitter (TWTR - Free Report) feed that threatened to raise tariffs on $200 billion in Chinese goods from 10% to 25% by midnight Friday if a trade agreement had not been reached. When these negotiations failed, the Dow fell 2.1% for the week, the S&P 500 -2.2% and the Nasdaq -3%.
This morning, retaliation from China is reportedly coming, with additional tariffs going up from 10% established last fall to as much as 25% June 1st on $60 billion in U.S. goods coming into China. These tariffs would continue to target U.S. agriculture from America’s heartland, including wheat, chicken, sugar and other U.S. imports. This maty amount to increased tariffs on more than 5000 U.S. goods.
This news took a pre-market Dow index already in the red (-280 points) down further, to now -490 points. It is also reported that U.S. businesses operating in China will be subjected to slowing customs clearance and increased regulatory scrutiny. On the Dow, currently out biggest losers at this hour are Apple (AAPL - Free Report) and Boeing (BA - Free Report) , although Caterpillar (CAT - Free Report) and Cisco (CSCO - Free Report) shares are also being negatively affected.
Even more recently, the editor of the Chinese Global Times proposes stopping the purchase of U.S. agriculture and airplanes from Boeing. Further, a news report indicates China threatens to dump U.S. treasuries, of which China owns more than $1 trillion. Of course, selling off U.S. debt at a loss would be damaging to China as well, but analysis may be warranted how much a measure might negatively affect the U.S. economy.
For President Trump’s part, he says tariffs remain an “excellent” alternative to a Chinese trade agreement. The Trump administration — led in this arena by U.S. Trade Rep Robert Lighthizer — has long had the stance that it will play the long game in a trade war with the second-largest economy in the world. After all, from a numbers perspective, $200 billion in Chinese imports is a lot more than $60 million in U.S. exports.
That said, futures have finally allowed the overall negative trade news to settle into U.S. pre-markets. The yield on the 10-year U.S. treasury is back down to 2.41% — the last time it dipped lower than this rate was back in September 0f 2017.
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