What Trump's trade war with China means for American consumers

Daniel Fowler
May 14, 2019

The Dow Jones Industrial Average plunged more than 600 points Monday as investors sought shelter from an escalating trade war between the US and China.

At the center of the selloff were shares of technology companies including chipmakers, manufacturing giants and retailers that are exposed to China.

Speaking several hours later at a dinner gathering at the White House, Trump said it should be clear in "three or four weeks" if a USA trade delegation's trip to Beijing two weeks ago was successful.

However, U.S. negotiators pushed too hard. Earlier, it was down 719 points. The Dow fell more than 475 points at the open. Therefore, China should not retaliate-will only get worse! The S&P 500 fell 71 points, or 2.5% and the Nasdaq sank 3.3%.

Earlier, China announced it would impose higher tariffs on a range of United States goods including frozen vegetables and liquefied natural gas, a move that followed Washington's decision last week to hike its own levies on $200 billion in Chinese imports.

The move was announced in a statement by the Tariff Policy Commission of China's cabinet, the State Council. The price of soybeans slid 0.8% to $8.04 a bushel. However, the rise in the price of washing machines and, incidentally, dryers, cost consumers over $1.5 billion. The falling price has put pressure on US farmers.

The "adaptation" was a "response to USA unilateralism and trade protectionism", the State Council's Customs Tariffs Commission said.

The most important and long-standing issue is that the Chinese economy owes part of its rapid development in recent decades to heavy subsidization of targeted companies and industries. Seagate Technology dropped and chipmaker Microchip Technology each gave up 6.9%.

Mr Trump also said China had "taken so advantage of the U.S. for so many years".

"That's misguided", said Greg Daco, chief USA economist at Oxford Economics, on Monday of Trump's notion that United States companies can produce the same products at the same scale as China.

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Bank stocks also fell sharply.

Micron Technology Inc., Intel Corp. and Qualcomm Inc. fell between 2.9 per cent and 4.2 per cent. Utilities were the only sector to notch a gain.

Trump stepped up his verbal attacks on China on Friday after two days of high-level trade negotiations in Washington, DC, ended with the two sides in an apparent stalemate.

The Australian share market has plummeted at the start of trade after renewed concerns about US-Chinese trade tensions led to large losses on Wall Street overnight. Trump has also said he plans to slap a tariff on every other Chinese export in the coming months if a deal isn't reached.

The stock market, however, did not like the position.

First quarter reporting season is in the home stretch, and of the 451 companies in the S&P 500 that have posted results, 75.2% have come in above expectations. The S&P 500 lost 1.67 per cent by mid-morning. Earlier in the year they had expected earnings to severely contract.

The president insisted increases on Chinese goods don't hurt American consumers, saying there is "no reason for the U.S. Consumer to pay the Tariffs".

Elsewhere in the market, generic drug developers slumped after many of them were accused of artificially inflating and manipulating prices. The stock had priced at $45 at its initial public offering but is now trading just below $37. It closed at $37.10.

Energy futures finished mostly lower.

The Dow Jones Industrial is down 470 points, or 1.8%. Brent crude, the worldwide standard, closed 0.6% lower at $70.23 per barrel.

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