Wall Street drooped Friday as President Trump’s announcement of tariffs on $50 billion of Chinese imports heightened investor concern that widening trade barriers erected by the U.S. will undercut the economic benefits of last year’s tax overhaul.
The blue-chip Dow Jones Industrial Average sank 0.3 percent to close at 25,090, about 5.7 percent below January’s record high. The broader S&P 500 dropped 0.1 percent and the tech-heavy Nasdaq sank 0.2 percent. All three indexes pared larger losses earlier in the day.
The muted reaction to Trump’s latest protectionist salvo indicates the limited direct effects of the 25 percent tariffs, said Michael Gapen, an economist with British lender Barclays PLC. The indirect effects, however, “are what really matter,” he said.
Those include not only China’s response, which the Commerce Ministry indicated would be direct and proportionate, but “any adverse effects that increased uncertainty may have on business investment and hiring plans,” Gapen said. The impact is likely to be compounded by stiff metals duties Trump imposed earlier this year and applied to some of the closest U.S. allies — Europe, Canada, and Mexico — late last month.
All of them promptly condemned the move, and when Canadian Prime Minister Justin Trudeau reiterated his position after a Group of 7 summit that Trump attended, the White House accused Canada of backstabbing. Trade adviser Peter Navarro went so far as to say there’s “a special place in hell” for anyone who negotiates with Trump in bad faith, a comment for which he later apologized.
While Corporate America has generally concurred with Trump’s concerns about trade barriers in other regions, executives have said U.S. tariffs and antagonistic trade moves are likely to worsen the situation rather than help.
“Protectionism will cut against the benefits of the recently enacted Tax Cut and Jobs Act,” Gapen noted. “Anti-trade policies, particularly tariffs, act like a tax on consumers and businesses by raising the cost of trade.”
That’s precisely what worries Republicans in Congress, who had hoped to tout growth from the long-awaited tax overhaul going into mid-term elections.
Trump’s use of a national security provision of U.S. law to set the metals tariffs — and to threaten duties on automotive imports — prompted retiring Sen. Bob Corker, a Tennessee Republican — to propose a bill forcing the White House to obtain Congressional approval for such measures.
A different law was cited to justify the moves against China, the world’s second-largest economy, and Trump reiterated his threat to impose further duties if Beijing struck back.
Xi’s government promised to do so on Friday.
“Trump’s reaction to the retaliation is likely the next big domino to fall,” said Chris Krueger, an analyst with Cowen Washington Research Group, which has tracked federal policy for more than four decades. “If the G-7 is any indicator, it will be less than neighborly. We suspect the U.S.-China trade narrative will get worse before it gets better.”
