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The escalation in tension is tracking in real time and anything we could write here may be outdated soon after.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.
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.
Follow Wambolt & Associates on LinkedIn
Photo by Aditya Vyas on Unsplash
This commentary on this website reflects the personal opinions, viewpoints and analyses of the Wambolt & Associates employees providing such comments, and should not be regarded as a description of advisory services provided by Wambolt & Associates or performance returns of any Wambolt & Associates Investments client. The views reflected in the commentary are subject to change at any time without notice. Nothing on this website constitutes investment advice, performance data or any recommendation that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person. Any mention of a particular security and related performance data is not a recommendation to buy or sell that security. Wambolt & Associates manages its clients’ accounts using a variety of investment techniques and strategies, which are not necessarily discussed in the commentary. Investments in securities involve the risk of loss. Past performance is no guarantee of future results.
Wambolt & Associates provides links for your convenience to websites produced by other providers or industry related material. Accessing websites through links directs you away from our website. Wambolt & Associates is not responsible for errors or omissions in the material on third party websites, and does not necessarily approve of or endorse the information provided. Users who gain access to third party websites may be subject to the copyright and other restrictions on use imposed by those providers and assume responsibility and risk from use of those websites.