The Dow Jones Industrial Average slid almost 300 points Tuesday as global markets sank following President Trump’s threats to add tariffs on as much as $400 billion in Chinese imports unless Beijing bows to his demands.
The 30-member blue chip index, a widely followed gauge of U.S. markets, dropped 1.2 percent at the close of New York trading, the biggest decline since the end of May. The broader S&P 500 fell 0.4 percent while the tech-heavy Nasdaq sank 0.3 percent, stretching declines since the White House formally imposed 25 percent tariffs on $50 billion of Chinese imports on Friday and Beijing retaliated. All three indexes pared larger drops earlier in the day.
“The markets hate uncertainty,” said Greg McBride, chief financial analyst at Bankrate.com. “Right now, there is a fear of the unknown: Just how far does talk of a trade war go? How many more tariffs are going to be slapped on either our exports or the things we import from elsewhere? What is that going to mean for inflation, and how much of a headwind will that be for the economy?”
While corporate executives and lawmakers from Trump’s own party have criticized his wide-ranging tariffs, particularly those on longtime American allies such as Canada, Europe, and Mexico, attempts to stop him have fizzled. The president has said the duties are necessary to correct longstanding trade imbalances as well as China’s appropriation of U.S. intellectual property.
“In practice and political reality, there is really no way we see Congress limiting Trump on this course of action,” said Chris Krueger, an analyst with Cowen Washington Research Group. “Trump is doing what he said he would do: ‘Trade wars are good, and easy to win.'”
While Trump claims an “excellent relationship” with Chinese President Xi Jinping, he said Monday evening that the trade policies of the world’s second-largest economy are unacceptable, ordering U.S. Trade Representative Robert Lighthizer to identify $200 billion in imports from the country for additional tariffs of 10 percent.
“After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced,” Trump said. “If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods.”
International trade negotiations by the U.S. have developed so far in a “one step forward, two steps back” pattern, “with the latest threats representing an important step back,” said Tony Roth, chief investment officer at Wilmington Trust, which manages $60 billion in assets. “Trade remains the major risk to our otherwise positive outlook. While we do not believe protectionism or broad-based tariffs are the goal of the Trump administration, it is looking more likely that President Trump will stand firm in this game of chicken.”
Beijing has showed some willingness to compromise, noted Michael Gapen, an economist with British lender Barclays, but “if tensions remain high, and we believe they are, then we would not be surprised to see stern statements followed ultimately by retaliatory actions aimed at targeting the president’s voter base.”
