Wall Street begs to differ with President Trump’s claim that U.S. trade deficits with China are so large that the country has nothing to lose in a trade war.
The three most widely used U.S. stock indexes sank Wednesday, with the blue-chip Dow Jones industrial average dropping as much as 1.5 percent to 23,686, about 11 percent lower than its record high of 26,616 at the end of January.
The S&P 500 fell as much as 0.9 percent, and the tech-heavy Nasdaq declined 1 percent as traders evaluated the administration’s decision to apply 25 percent tariffs to $50 billion of Chinese imports from vaccines to rubber products and aircraft-engine components and Beijing’s response. After the U.S. listed more than 1,300 items that would be subject to the duties on Tuesday evening, China responded with 25 percent levies on U.S. imports from soybeans to automobiles and chemicals.
“It is impossible to have any conviction about what is going to happen next on trade mainly because so much of this is up to Trump,” said Chris Krueger, an analyst with Cowen Washington Research Group, who held out hope that “all of this bellicosity and saber-rattling really works” and the U.S. is able to better balance trade relations with China.
Whether that happens “by design or sheer luck is beside the point,” he noted. “What matters is the result.”
The indexes later pared losses since neither side’s levies take effect immediately. That leaves room to negotiate agreements that might prevent further escalation in a conflict that began with Trump’s decision last month to impose sweeping tariffs on metals imports, which he justified on national security grounds.
The China duties involve unfair trade practices, a different section of the law, but the White House has wide latitude under both. The president, who often bragged early in his tenure about the stock market’s performance, has brushed off concerns about its negative reaction to the tariffs.
“We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S.,” Trump said in a post on Twitter on Wednesday morning. The value of American goods exported to China last year was about $375 billion less than imports from the world’s second-largest economy, according to census data. The president cited a different, higher figure, the origins of which were unclear.
We are not in a trade war with China, that war was lost many years ago by the foolish, or incompetent, people who represented the U.S. Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
When you’re already $500 Billion DOWN, you can’t lose!
— Donald J. Trump (@realDonaldTrump) April 4, 2018
Economists, however, have cautioned that trade deficits aren’t necessarily a negative for a consumer-driven economy like that of the U.S. and business argue that tariffs are merely another form of taxation, one that’s likely to drive up costs for U.S. consumers.
Trump’s administration has maintained that it’s attempting to deliver longer-term benefits for the U.S. and that it hopes talks with trading partners will yield benefits. China is pinning its hopes on that, too.”We do not want a trade war because the outcome can only be a double loss, undermining China’s interests, harming the interests of the United States, and also undermining the prospects for world economic development,” Zhu Guangyao, China’s deputy finance minister, said at a news briefing on Wednesday. “We hope that both China and the United States will solve problems in a constructive manner.”
