Improved U.S. – China relations and ongoing trade talks have benefited markets this year, contributing to one of the best opening rallies in history. Current confidence is now under threat, however, with President Donald Trump announcing new tariffs for China.
Asian stock markets were down on Monday and U.S. futures have dropped. Here’s what you need to know for the week ahead.
Trump Tweets Surprise and Shock Investors
For weeks, the U.S. trade delegation has pushed the message that trade negotiations are going well. There have been meetings held in both China and the United States with increased frequency.
However, President Trump posted two very worrying tweets on Sunday, which will reverberate throughout the stock market this week.
In his posts, the President said that “For 10 months, China has been paying Tariffs to the USA of 25% on 50 Billion Dollars of High Tech, and 10% on 200 Billion Dollars of other goods. These payments are partially responsible for our great economic results. The 10% will go up to 25% on Friday. 325 Billions [sic] Dollars of additional goods sent to us by China remain untaxed, but will be shortly, at a rate of 25%. The Tariffs paid to the USA have had little impact on product cost, mostly borne by China. The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!”
The tweets not only surprised investors; they reportedly surprised Chinese officials who believed that tariff hikes would be held while negotiations were underway.
Is This a Genuine Threat of New Tariffs?
Investors will now have to face the concern of rising tariffs and retaliation from China. If Trump does apply new tariffs, China could again cease its purchases of U.S. soybeans and other key exports. Tariffs from both sides have caused billions in economic damage. The U.S. agriculture industry is particularly vulnerable to Chinese retaliation.
Some economists believe that Trump doesn’t actually expect to apply the new tariffs. Instead, they believe that this is a tactic intended to gain key concessions from China during the final days of trade talks.
The latest Washington insider news suggests that a trade deal could be drafted as soon as Friday. Chinese Vice Premier Liu He is scheduled to visit Washington on Wednesday, but some sources now suggest that his visit could be cut short or cancelled altogether.
Chinese stocks on the Shanghai Composite fell -5.58% on Monday. Major indexes in Korea, Japan, and Singapore were also down. U.S. stocks could follow suit, as investors await clarification and more news surrounding trade.
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