Face of Nation : Markets slid sharply following the weakening of the Chinese yuan against the dollar, a flash of steel in response to President Donald Trump’s surprise threat of 10 percent tariffs on $300 billion of Chinese goods.
All the major indices, the benchmark Dow Jones, S&P 500 and Nasdaq Composite, fell by over 2 percent by midday Monday. The Dow dropped over 750 points to about 25,790 points, a 2.6 percent dip. The S&P 500 was headed for its worst day of 2019. Over the weekend, the value of the Chinese yuan dropped by a symbolically significant measure against the U.S. dollar. Some experts predicted the move could antagonize the White House and prompt further escalation.
“President Trump is likely to deliberately misread it as an aggressive move by Beijing, so will respond by increasing tariffs to 25 percent on the remaining $300 billion of imports,” said Tom Elliott, international investment strategist at deVere Group. And indeed, Trump accused China of currency manipulation on Monday morning. China denied interfering with the value of its currency.
Analysts say Wall Street is spooked by the prospect of an escalation in the trade war that could weaken consumer confidence and spending ahead of the critical holiday shopping season. “The timing is terrible—just before the holiday temporary hiring season, followed by the holiday shopping season,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, wrote in a client note.
“This is another sign that this is getting worse — that the President is willing to risk dissatisfaction on the part of consumers,” said Paul Christopher, head of global market strategy at the Wells Fargo Investment Institute.
“We do believe there will ultimately be a deal between the U.S. and China, but what they’re doing now is escalating for leverage,” he said. China announced on Monday a halt to U.S. agricultural imports, according to Bloomberg News, dealing another blow to American farmers who count on the Chinese market to buy exports of soybeans, pork and other commodities.
“The impact is going to be particularly sharply felt in agricultural states,” Allen said. “American companies grow for a global market,” and there isn’t enough domestic demand to absorb the output. Trump already pledged a $16 billion aid package to assist farmers. Manufacturing, which has contracted for two consecutive quarters, is another area of the economy that is already exhibiting the negative effects from the trade war.
With the expansion of tariffs to include consumer goods ranging from clothes to cell phones, analysts say other vulnerable market sectors include technology, including ecommerce, retail and transportation companies, all of which could see business activity slow if Americans pull back on spending in the face of higher prices.
Higher prices also hurt consumer purchasing power by lowering aggregate demand, said Nicholas Lardy, a senior fellow at Peterson Institute for International Economics. Consumer will “have less money to spend on other things. They’ll postpone buying a car or taking a vacation — it’s a drain out of consumers’ pockets.”
