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The American-Chinese Trade War


The American-Chinese Trade War


A lot has been going on in the markets ever since Trump had been elected. With markets getting off to a shaky start in 2018 due to the bond yields hitting their four-year high’s and rising inflation concerns, the US-China trade war is something we had never expected so soon.

China had been a main target for Trump, as he had mentioned it several times during his campaign. With his vow to increase jobs in America and keep money flowing within the country, he stuck to his word on doing whatever it takes to benefit America, atleast in the short-term.  

U.S vs China

Back in 2017, Trump and his team investigated the imports of foreign steel and aluminum. Fast forward to March 9, 2018 and Trump has announced tariffs on steel imports at 25% and aluminum imports at 10%. China called it a “serious attack” on its international trade and vows to retaliate if any losses are to be experienced by Chinese businesses. Prior to the signing of the document, the Dow Jones Industrial Average (DJIA) dropped around 500 points in the first hour after Wall Street became aware about the tariffs that will be applied on steel and aluminum. These tariffs meant an increased cost for consumers of those materials and manufacturers (that will be removing jobs in their operations).

As China vowed to retaliate, Beijing hit back with tariffs on about $3 billion worth of US imports which included a 15% duty on 120 American products. China said that these tariffs were in response to the ones the Americans proposed on steel and aluminum. Within 24 hours, Trump and his team retaliated. The Americans proposed a 25% tax on 1,300 goods from aerospace, machinery and medical industries which account for $50 billion worth of Chinese exports. China also hit back the next day with 25% tax on a range of American products worth almost $50 billion.

These negotiations that went back and forth took place in the beginning of April, specifically the 3rd and 4th of April. DJIA was up almost 400 points and 250 points on April 3rd and 4th, respectively. While the two countries went back and forth, the indices rebounded after the tech industry drove the market down around 550 points on April 2 with Facebook, Google and Netflix making majority of the movements.

Moving into May, the trade wear eased off as the two countries negotiated. May 29, Dow Jones opened almost 150 points lower and ended the day around -1.5%. Surprising everyone, the US government resumed the trade war announcing 25% on another $50 billion worth of Chinese goods. China immediately says its ready to retaliate.

Tech Stocks lead Equity Downfall

Ever since mid-June, the indices have been experiencing some sort of sell-off due to pressures from the trade war. On June 25, Trump had announced to impose a 20% tariff on European made cars that sell in the US. This comes as the European Union is working with China to strengthen their trade ties and ensure any multilateral trade does not come to an end.

Following the news, tech-heavy NASDAQ was down 2.1%, leading the losses. DJIA closed at 24,252.8, down 328 points. The S&P 500 saw a 1.4% loss with Canada’s TSX falling to 16,183.96, a 266-point drop.

Future Concerns

The Trump-led US will not back down of any threats imposed by its overseas rivals. Any more tariffs announced will hit major economies around the world. The US government is looking to impose tariffs on $34 billion of Chinese imports from July 6 and onwards. Trump has threatened to impose taxes on another $200 billion of Chinese goods. If this continues, economists say that it would cut 0.5% of China’s economic growth and hit the American economy.

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Writer: Saket Patel

Disclaimer: All investing can potentially be risky. Investing or borrowing can lead into financial losses. All content on Bay Street Blog are solely for educational purposes. All other information are obtained from credible and authoritative references. Bay Street Blog is not responsible for any financial losses from the information provided. When investing or borrowing, always consult with an industry professional.

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