The three leading U.S. stock indexes recouped some of Monday’s steep losses after China’s decision to continue U.S. trade talks despite threats from President Trump that sparked speculation the two countries may avert another tariff increase.
The blue-chip Dow Jones Industrial Average, which fell as much as 471 points in early New York trading after Trump threatened to more than double duties on $200 billion of imports to 25%, ended the day with a drop of only 66 points, or 0.25%. The broader S&P 500 declined 0.45%, and the tech-heavy Nasdaq lost 0.5%.
The tariff increases, which Trump announced Sunday on Twitter, initially rattled markets that had grown more optimistic about a trade agreement with China after the president agreed to delay further hikes last fall while he and Chinese counterpart Xi Jinping negotiated. Doubling tariffs on $200 billion of goods and following up with levies of the same amount on the remaining $325 billion the U.S. buys from China, as Trump proposed, would drive up prices and risk wiping out the benefits of looser regulations and a GOP-led tax cut.
“Trump’s style as a negotiator is to use a lot of sugar and use a lot of spice, and this is the spice,” Tony Roth, chief investment for Wilmington Trust, told the Washington Examiner on Monday. “He’s gotten us close to a, hopefully, meaningful agreement. Now we have to see whether he can get us across the finish line.”
….of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!
— Donald J. Trump (@realDonaldTrump) May 5, 2019
New duties on Chinese imports not yet subject to levies would be more noticeable to voters than previous tariffs since they would affect consumer goods the administration had previously tried to protect. Following through on the threats would mark “the most significant escalation of the U.S.-China trade war to date,” said Aditya Bhave, a global economist with Bank of America. “Markets could be in for a bumpy ride before a trade deal is reached.”
While businesses have largely opposed Trump’s tariffs, many are nonetheless hopeful the president can reach an agreement that would give them more access to Chinese markets and eliminate the forced sharing of trade secrets as a condition of doing business in the country.
