Stocks Fall as Trade Tensions Cause Jitters

Posted August 2, 2018 10:45 a.m. EDT
Updated August 2, 2018 10:48 a.m. EDT

U.S. stock markets slipped early Thursday after global markets were roiled by the latest twists in the trade war between the United States and China.

The S&P 500, Nasdaq composite and Dow Jones industrial average all declined in early trading, following losses in benchmark Asian and European indexes in the overnight session.

Foreign investors sold stocks following reports that the Trump administration proposed to more than double the proposed tariffs it has said it would levy on $200 billion worth of Chinese goods.

China’s main stock index dropped 2 percent, and in Hong Kong, an index of China’s biggest listed companies, ended down slightly more than that.

European stocks followed Asian markets, with indexes in Germany and Britain both edging lower.

Hours before, President Donald Trump instructed the U.S. trade representative to look into increasing tariffs on Chinese imports like fish, handbags and other goods to 25 percent from 10 percent, a significant step in a dispute that is beginning to take a toll on industries and consumers in both countries.

“If it had not been for the sideswipe on trade, markets would have been in much better shape this week,” Hirokazu Kabeya, chief global strategist at Daiwa Securities, told Reuters.

A final decision on the size and scope of the tariffs is not expected before September, but any tariffs on $200 billion worth of imports would come on top of the existing penalties on $34 billion worth of products and an additional $16 billion that are scheduled to go into effect soon.

China has vowed to respond to any trade measures in kind, and it has already imposed its own tariffs on $34 billion worth of U.S. goods.

Also weighing on the markets in the region were rising U.S. bond yields. Yields on the 10-year Treasury note, which rise as prices fall, was near 3 percent, the highest level in weeks. Rising yields could make dollar-backed debt costlier to repay, especially for emerging markets.

Investors often rush to the safety of government bonds in times of market turmoil. But a stretch of strong economic data reports in the United States has recently encouraged investors. The Federal Reserve, as it held its benchmark interest rate steady, said Wednesday that economic growth was “solid.”

The same may not be as true for China.

On Tuesday, Chinese officials called for further government spending to offset a slowdown in China’s economy, which has taken place as the government tries to rein in surging debt.

The Chinese currency was little changed Thursday, but it fell to a 13-month low against the dollar earlier in the week.