President Trump’s inane tariff-driven trade war with China — and China’s devastating retaliation — have stocks headed for their worst plunge this year.
The Dow Jones Industrial Average dropped more than 700 points Monday, while the S&P 500 and Nasdaq Composite were both down about 3%.
After trade talks between the U.S. and China fell apart last week, Trump announced he would be imposing a 10% tariff on Chinese imports that will affect roughly $300 billion worth of consumer goods from major companies like Apple.
Tariffs are essentially taxes on US consumers, and make American the double victims of Trump’s trade war — they pay higher prices, but they also have to deal with the economy-wide impact and stock market volatility.
In retaliation, China has allowed the yuan to fall to the lowest level it has been in over a decade, causing all of the major stock exchanges to take a dive.
“Now we have a trade situation that is going off the rails as the side effects multiply due to the ramping up of the use of tariffs and we are only further apart from any resolution with the Chinese,” Peter Boockvar told CNBC in an interview. Boockvar, chief investment officer at Bleakley Advisory Group, added, “The policy of using tariffs as a tool to address our legitimate beefs with the Chinese has failed miserably.”
Chris Krueger, an analyst at Cowan, rated China’s retaliation, “on a scale of 1-10, it’s an 11.”In a Monday note to investors, Krueger explained that Beijing instructed the buyers it controls “to halt all purchases of U.S.agricultural imports.”
“It looks like those rotting soybeans will continue to rot, and is a tough hit to Midwestern (Trump states) farm interests after the President promised relief,” warned Krueger.
China’s move “suggests that they have all but abandoned hopes for a trade deal with the US,” warned Julian Evans-Pritchard, senior China economist at Capital Economics.
A team from Morgan Stanley warned that investors should plan for more escalation in the trade war, and should it happened, the multinational investment bank projects that it will drive a global economy recession in the next 9 months.