China Hits Back With New Tariffs

Tariffs announcements caused U.S. stock benchmarks to trade lower Wednesday morning.

Investors are concerned about a possible trade war between China and the U.S over tariffs.

What’s more, the markets selloff was not limited to U.S. markets.  The selloff is global.

The turbulence began after Chinese officials said they plan to impose tariffs of up to 25% on 106 American products.  In particular, China targeted U.S. cars, planes and soybeans.  China announced these moves  after the Trump administration on Tuesday gave details on the $50 billion of Chinese goods that it plans to hit with 25% tariffs unless Beijing makes major trade and investment concessions soon.  Among the administration’s concerns are the forced transfer of U.S. technology secrets.

In response to apprehensions that these measures would lead to a trade war, President Trump said that a trade war with China was “lost many years ago.” “We are not in a trade war with China.  That war was lost many years ago by the foolish, or incompetent, people who represented the U.S.  Now we have a Trade Deficit of $500 Billion a year, with Intellectual Property Theft of another $300 Billion. We cannot let this continue!”

Furthermore, the administration’s National Economic Council Director Larry Kudlow laid blame squarely on the Chinese.

Both countries have reasons to avoid an all-out trade war.  But between the two countries, China does appear to be more vulnerable.  China’s Communist Party has relied on the country’s decades-long economic boom to sustain one-party rule.  And they cannot afford a downturn that could spark a meltdown in its ballooning debt.

Investors should keep in mind that these exchanges are occurring after the Federal Reserve has begun a period of monetary tightening.  This creates a vulnerability in the markets.

Meanwhile, trade concerns overwhelmed positive news about the U.S. economy.  Private sector employers expanded their workforce by 241,000 jobs last month.  Economists had forecast just 185,000 new jobs.

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