Stocks Slip on Anxiety Over Trade

Posted June 19, 2018 8:01 p.m. EDT
Updated June 19, 2018 8:06 p.m. EDT

Wall Street’s focus returned Tuesday to a fast-escalating trade war and the damage it could do to business confidence and economic growth. Global stock bench marks and commodity prices fell.

The trigger for the drop was the statement by President Donald Trump on Monday that his administration was prepared to impose tariffs on a further $200 billion of Chinese goods, and that there could be even more penalties if Beijing fought back. The United States and China have already announced plans for tit-for-tat tariffs on $50 billion worth of imports each.

With the latest threat from Trump, the White House is warning that it could impose trade restrictions on as much as $450 billion of imports from China, a figure that is nearly equivalent to the total value of goods that China sold to the United States last year.

On Tuesday, a spokesman for the Chinese Foreign Ministry, Geng Shuang, said the United States was “abandoning all the consensus that has been achieved, changing its mind constantly.”

Across financial markets, it appears that investors are starting to take seriously how such a trade conflict could become a drag on a global economy that’s expected to grow at a relatively strong 3.9 percent in 2018, according to International Monetary Fund forecasts.

In the United States, the Dow Jones Index, the Standard & Poor’s 500-stock index and the tech-heavy Nasdaq composite all fell on Tuesday. The Dow’s drop of 1.2 percent was its worst day this month, and pushed it into slightly negative territory for the year.

Industrial companies including Caterpillar and Boeing weighed heavily on the bench marks, dropping more than 3 percent each.

The trading followed declines in stock markets in Frankfurt, Germany; London and Paris. Shares in Hong Kong, Tokyo and mainland China also closed sharply lower.

Investors moved their money into haven assets like 10-year U.S. Treasury bonds and the Japanese yen. The yield on the bench mark 10-year Treasury note, which moves in the opposite direction of its price, fell below 2.90 percent early Tuesday, in a sign that at least some investors were concerned about risks to growth.

In the markets for commodities, the raw materials on which the global economy runs, the declines were widespread. Copper, a barometer for industrial activity, was down, as was crude oil.

Some of the sharpest drops were in the agricultural commodities markets, where the price for soybeans — a politically sensitive crop given Trump’s support among farmers — plunged early Tuesday before stabilizing. China, the world’s largest importer of soybeans and the largest buyer of U.S. soybeans, has threatened to levy tariffs on U.S. exports as part of the growing trade hostilities.

The reaction of global markets underscores the fact that the dispute between China and the United States is part of a broader protectionist drive by the Trump administration that has already disrupted global trade.

“Most damaging for businesses and investment,” analysts at the Swiss bank UBS said in a report Tuesday, “is perhaps rising uncertainty caused by lasting trade disputes, which could delay or significantly change business and investment decisions.”