Markets Tumble Again as U.S.-China Trade Threat Looms

Posted April 6, 2018 3:04 p.m. EDT
Updated April 6, 2018 3:08 p.m. EDT

President Donald Trump’s threat to heap fresh tariffs on China caused global stock markets to fall again Friday, after soothing sounds from the White House on trade had coaxed markets to three straight days of gains.

A monthly update on the U.S. employment picture that showed the pace of job growth slowed in March — 103,000 jobs were added in the month — did little to cheer investors. Nor did comments from Jerome H. Powell, the newly installed Fed chairman. In a speech in Chicago, Powell showed little indication that he would deviate from the Fed’s gradual path of lifting interest rates. He also indicated afterward that he was unsure how new tariffs imposed by the United States and China would affect the economic outlook.

The market sell-off accelerated in the aftermath of Powell’s comments. Both the S&P 500 and the Dow Jones industrial average had fallen by more than 2 percent in early afternoon trading.

The gloomy trading day in the United States followed a mixed day elsewhere. Japan’s Nikkei 200 closed down 0.4 percent, while Hong Kong’s Hang Seng ended up 1 percent. (Mainland Chinese markets were closed Friday.) Major European benchmarks such as France’s CAC-40, Germany’s DAX and Britain’s FTSE 100 were all lower.

In a statement Thursday, Trump said he had instructed U.S. trade officials to determine whether additional tariffs on $100 billion worth of Chinese imports were warranted and, “if so, to identify the products upon which to impose such tariffs.”

The comments have capped a roller-coaster week for investors thanks to the tit-for-tat tariffs exchanged between Beijing and Washington. Investors have sold stocks on initial worries about a trade war, only to return to markets when it appeared that the two sides would be willing to talk.

“People have started to feel like this is a bit of the children’s game. Somehow the markets haven’t really gotten any actual sense of whether this will be true,” said Vincent Chan, head of China equity research for Credit Suisse, the investment bank.

“Tariffs on $100 billion of Chinese products is a big thing, but the market thinks it’s a bit of a childish move. The market doesn’t know how to react,” Chan added.

China on Monday announced tariffs on $3 billion in U.S. goods in response to steel and aluminum tariffs Washington imposed last month. Then Tuesday U.S. officials detailed plans for tariffs on roughly $50 billion in Chinese goods, only for China to announce tariffs on a similar amount of U.S. goods just hours later.

Should Trump impose additional tariffs, the impact could be significant. Capital Economics, a research firm, estimated that could shave up to half a percentage point from China’s economic growth rate. That could be felt around the world, as China is a major provider of global growth. Its economy last year grew 6.9 percent.

Credit Suisse estimated the tariffs could have a more limited impact but could make Beijing more cautious in carrying out reforms that could better prepare the Chinese economy for future growth.

Still, many investors are betting that the two sides are simply grandstanding and that they would reach a compromise that would avert an all-out trade war.

One sure loser this week was the Chinese currency, the renminbi. It lost 0.7 percent of its value against the U.S. dollar in markets outside the mainland, its biggest weekly fall this year. Still, China tightly controls the value of its currency and could shore it up if the renminbi moves more dramatically.