Did Negotiations Fail? Trump Surprises with New China Tariffs

August 2, 2019
790 Views

President Trump shocked investors and many financial and political analysts on Thursday when he announced a new round of tariffs on Chinese goods.

Trump and Chinese Leader Xi Jinping had previously agreed to hold tariffs for as long as trade negotiations were underway. President Trump now says that China hasn’t honored any of their promises.

Markets closed in the red on Thursday, creating fear that this latest news could derail the growth that has been seen in the stock market in recent months.

$300 Billion of New Tariffs on China

The new tariffs will be placed on $300 billion worth of goods at a rate of 10%. President Trump used Twitter to announce his plans with a mixed message.

Trump called Chinese President Xi his “friend” and said that ongoing trade talks are “constructive”. However, he justified the new tariffs by accusing China of trying to renegotiate an agreed trade deal, selling Fentanyl to the United States, and failing to buy U.S. agricultural products in large quantities.

The new tariffs will be in effect from September 1. President Trump closed his announcement by saying that “We look forward to continuing our positive dialogue with China on a comprehensive Trade Deal and feel that the future between our two countries will be a very bright one!”

This Round of Tariffs Will Hurt American Consumers

Agricultural producers have suffered the most from the ongoing trade war. Now it looks like consumers will take a hit. The latest round of tariffs will cover electronic devices, clothes, toys, and general consumer products. For many Americans, products are about to get more expensive, which could test Trump’s popularity.

What it Means for Investors

We’ve already seen throughout 2018 and 2019 that trade tensions are not popular with investors. The ongoing battle with China caused huge slides in the market last year. Now there’s a risk that it could happen again.

Stocks were climbing on Thursday before Trump’s announcement. By the close of trading, all major indexes were down.

  • The NASDAQ Composite (COMP) fell -0.79%.
  • The S&P 500 (SPX) fell -0.90%.
  • The Dow Jones Industrial Average (DJIA) fell -1.05%.

The tariff of 10% is relatively small, especially considering that previous tariffs were implemented at 25%. Even so, investors will be concerned about how China responds to the pressure. They could introduce their own tariffs, or, they could punish American businesses by hindering their operations. Some of the largest American companies, including Apple (NASDAQ: AAPL), manufacture their products in Chinese factories.

Investors should watch stocks closely and take some time to evaluate the market before making new buy or sell decisions this Friday.

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