Trade tensions are escalating at a rapid rate. On May 10, President Trump moved to raise tariffs on $200 billion of Chinese products. Three days later, China retaliated with plans to increase tariffs on a wide range of American goods too, as high as 25 percent, effecting roughly $60 billion in U.S. imports.
The same day, U.S. equity markets dropped, with the S&P 500 index down more than 2.4%, as worries about trade war repercussions weighed down stocks. According to Ana Swanson and Keith Bradsher for The New York Times:
“Shares of companies particularly dependent on trade with China, including Apple and Boeing, fared poorly, and yields on three-month Treasury securities exceeded those on 10-year bonds, a sign that investors may be souring on the outlook for short-term economic growth.”
The escalation in tension is tracking in real time and anything we could write here may be outdated soon after. But we may be gauging aftereffects long after trade tensions subside.
Gauging the impact
When tariffs go up, net production, jobs and income levels go down. That’s according to The Tax Foundation, which is now tracking the particularly volatile trade negotiations between the U.S. and China. While tariffs could reduce U.S. output, another possibility is that the U.S. dollar may appreciate, offsetting the potential price increase on U.S. consumers. Higher prices, no matter the cause, still cost more abroad, and can lead to a potential drop in exports.
The Takeaway
There has been a lot of posturing between the leaders of the U.S. and China, and now they are beginning to apply real consequences. It remains to be seen whether this is going to have a lasting impact on the stock markets, or if it presents a good buying opportunity. We are tracking the situation closely, and we will keep you posted on any new developments. Please contact us if you have any questions.
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