By Joyce Yu
Global stocks tumbled on Wednesday as trade tensions between the United States and China continue to intensify. The Dow plunged more than 400 points at open and S&P 500 and Nasdaq both fell 1.3%. Market watchers say investor need to be careful with current headwind of trade uncertainty.
The Chinese Ministry of Commerce said Wednesday that it plans to impose a 25% tariff on $50 billion worth of US exports, including planes, cars soybeans and chemicals, in retaliation to the announcement by the Trump administration Tuesday that it would impose tariffs on about 1,300 Chinese goods worth about $50 billion annually. Stocks including big names such as Boeing, General Motors, Ford and Caterpillar all declined sharply.
Hong Kong’s Hang Seng, closed 2.2% lower, reversing its morning gains. European markets registered losses in the range of 1%.
The tit-for-tat moves prompt worries that a full-blown trade war between the two countries has arrived. But the market is in consensus that nobody is best interest for the United States and China to engage in a trade war. For instance, Soybeans, an important US agricultural export is now one of China’s next targets. Sanctioning US soybean exports would not only hurt American farmers, but also have consequences for China’s food industry as China is still heavily reliant on US soybeans to feed its pork and poultry industries.
“I think Beijing is very keen to show that it is not going to be bullied, too,” Neil Dwane, global strategist at Allianz Global Investors, told CNBC on Wednesday. Economist at Capital Economics Julian Evans-Pritchard wrote in a research note Wednesday that “It is still uncertain how this will play out.” “China’s response could embolden Trump to push for broader US tariffs, escalating trade tensions further. Equally likely, however, is that there will be some compromise that allows both sides to row back, or at the very least, water down the proposed tariffs.”
“Trade uncertainty is the main headwind to the market,” Charles St-Arnaud, an investment strategist at Lombard Odier Asset Management in London, told Bloomberg. “At this juncture we need to be careful. The macro picture hasn’t changed massively yet. Growth remains robust, unless we go into a bigger trade war.”
