It’s always hard to attribute a market move to one particular news event, but today the odds are good that this morning’s plunge in stock prices is in reaction to China’s decision to impose tariffs on 128 U.S. products in response to the Trump administration’s new tariffs on imported steel and aluminum. The big target in China’s move is U.S. pork exports–the United States exported $1.1 billion in pork to China in 2017, making it the industry’s third-largest market. Other U.S. goods subject to the new tariffs include U.S. exports of apples, oranges, almonds, pineapples, grapes, watermelons, cranberries, strawberries, raspberries, and cherries.
Today as of noon New York time, the Standard & Poor’s 500 stock index was off 2.16%. The Dow Jones Industrial Average was lower by 1.89%. The NASDAQ Composite with its big technology component was hit hardest, falling 2.66%, as traders and investors sold off the big tech stocks that had been winners in the rally from the February lows. Today, as of noon, Amazon (AMZN) was down 4.45%; Facebook (FB) continued its fall dropping 3%; Alphabet (GOOG) was lower by 3.3%; Netflix was off 5.12%; Apple (AAPL) had slid 1.56%; and Microsoft (MSFT) was down 3.34%.
Today’s decline pushed the indexes into correction territory with the S& P 500, for example, down more than 10% from its January high. (The index also broke below it’s 200-day moving average, a level that had provided support in recent drops.) The NASDAQ Composite, which had not followed other indexes into correction territory in the January/February slump, was down 9.7% from its high, moving to the border of an official 10% correction.
The real fear, I think, is not that the Chinese tariffs on 128 U.S. products will push the U.S. economy into a recession but that the move marks just another step down the road to a U.S./China (and hence global) trade war. The Chinese government has been very clear in stating that these tariffs on 128 U.S. products represents a response only to the U.S. tariffs on steel and aluminum. The implementation of the next round of tariffs–on some $60 billion of Chinese goods–by the Trump administration would, the implication is clear, lead to another round of Chinese retaliatory tariffs.
And that’s where things get serious, the market plunge today is saying.
It is, of course, possible that the Trump administration will walk back that next round of tariffs. But the Chinese move today makes that more difficult since it would now seem a clear retreat by the White House in the face of relatively minor pressure from China.
New chief White House economic advisor Larry Kudlow is scheduled to have his first meeting with President Donald Trump today. Historically Kudlow has not been a big fan of higher tariffs but news reports say he signed on to higher tariffs on China before taking the job as director of the White House National Economic Council.
The markets will be waiting to see if any signs of moderation on tariffs emerge from Kudlow’s meeting with the President.
