Growing fears of a trade war spooked investors and drug the Dow Jones Industrial Average (DJIA) down 700 points in late afternoon trading following yesterday’s announcement that President Trump would aim a further $100 billion in tariffs at China.
China has already threatened to retaliate.
China had earlier responded to Trump’s preceding volley of $50 billion in planned tariffs on Chinese goods like electronics and medical devices by announcing $50 billion in tariffs on U.S. products including aircraft, autos, corn and soybeans.
Trump began the gambit early this year with tariffs on solar panels and washing machines, and more recently by placing taxes on Chinese aluminum and steel, which China followed up by placing tariffs on American fruit, pork and wine.
The sharp selloff reflects investors wondering whether we might already be in a trade war, perhaps one with no end in sight.
Technically, a trade war has commenced if multiple rounds of significant tit-for-tat tariffs continue to be implemented. And indeed, some tariffs in this fight have already taken effect, including U.S. tariffs on Chinese metals and Chinese tariffs on U.S. fruit, pork and wine.
Given the tendencies toward brinkmanship and hardline natures of Trump and China’s Xi Jinping, experts suggest there’s enormous pressure on both leaders to follow through with their tough talk.
However, because China has massive government reserves to withstand a trade fight, and because the U.S. began the rounds of tariff implementations, getting China to come back to the negotiating table could require Trump to essentially blink, meaning relent from implementing further tariffs.
Relenting or pausing tariffs won’t be easy for the president to do, particularly since Trump made a specific campaign promise to use the taxes to crimp China’s low-cost manufacturing sector, which he believes can bring manufacturing jobs back to the U.S.
Most economists, however, argue that these jobs will fail to materialize, particularly as companies continue to seek low-cost labor wherever it can be found, and as firms increasingly deploy more robotics further into their manufacturing, processing and assembly systems.
U.S. automakers, farmers and many industry groups have lobbied against the tariffs, as they say they will raise their costs of doing business.
President Trump said Friday “a little pain” in the markets in the short-term will lead to long-term economic strength.