The trade war is officially back on, with the United States and China both refusing to give even an inch, causing investors worldwide to lose big as markets face their worst May in nearly 50 years.
Stocks plunged on Monday, with the S&P 500 index SPX shedding -2.41 %, and the Dow Jones Industrial Average DJIA dropping-2.38%. Both are on track for their worst start to the month through May 13 since 1970, according to Dow Jones Market Data. The Nasdaq Composite Index COMP, for is part, fell by -3.41%, set for its sharpest early May drop since 2000.
Trump lit a fire under China after raising tariffs on $200 billion worth of Chinese imports to 25% from 10% on Friday, the Trump administration asserted it was ready to impose more significant tariffs on another $300 billion of merchandise, or almost all the goods Americans purchase from the world’s second-largest economy.
China has currently raised tariffs on $110 billion of American imports in retaliation for earlier tariff walkings by the Trump administration.
In addition, due to the uneven trade balance, wherein China imports only $130 billion in American items, compared to the $500 billion in Chinese products that the U.S. imports, regulators have targeted operations of American business in China by slowing customs authorization for their products and stepping up regulatory scrutiny that can hinder operations.
Markets brace for prolonged trade war
Calm has returned to the markets on Tuesday morning, spurred by a more sensible Trump, stating that he would know in three to four weeks how well a U.S. delegation’s recent journey to China went.
Despite this, however, it’s becoming more likely over time that markets will eventually turn on his words, much like the Boy Who Cried Wolf. And if the fire grows too large, the damage could take much longer to repair.
DWS Investment Management (a united of Deutsche Bank) explained to its consumers that “The nature of trade wars (like actual wars) is that they foster nationalist sentiment and jingoism. The first shots are fired in the hope of quick victories. And before you know it, both sides are stuck in the trenches, with no obvious and politically feasible way out.”
As it stands now, it seems like the worst may already be over for markets, but as we’ve seen, one small Tweet can have major consequences.