Initiation of a trade war?

President Trump imposed tariffs on $50 billion worth of Chinese goods on June 15. Then trade war concerns, which have been lingering on in the markets for quite some time, took a turn for the worse. As expected, China immediately vowed to respond in kind to the latest set of tariffs. China has announced the imposition of 25% tariffs on US goods worth $34 billion. The latest tariffs don’t seem to be the end of the escalating trade war, as the US announced that it would identify $200 billion worth of goods for 10% tariffs if China retaliates on its earlier tariffs announced last week.

US stock futures are trading down today after this announcement. The Dow Jones Industrial Average (DIA) (DOW) fell 334 points. The stocks most impacted by this announcement were those exposed most to China including chipmakers such as Qualcomm (QCOM), Nvidia (NVDA), and Advanced Micro Devices (AMD).

Tit-for-Tat Trade Tariffs Rattle Equity Markets

Tit-for-tat tariffs

The Trump administration also refused to extend the steel and aluminum tariff exemptions to the European Union and Canada, which also weighed down on the latest G-7 meeting. Most of the US trading partners have already announced counter tariffs on US goods in retaliation of the import tariffs on steel and aluminum. The European Commission’s president said, “This is protectionism, pure and simple,” while issuing a list of hundreds of US products that would now be subject to tariffs by the EU. Canada, the second-largest US trade partner, said it would impose “dollar-for-dollar” tariffs against a lot of US products from steel products to whiskey to toilet paper.

US stocks impacted

Trade war fears are back with a bang and have taken a toll on US stocks. The combined losses for the S&P 500 Index (SPY) (SPX) on June 15 and June 18 were 0.78%, while the NASDAQ Composite (IXIC) (QQQ) was down 0.62%. Investors are concerned that the tariffs will raise the input costs for businesses and hit the margins. Moreover, the retaliation from trade partners could hurt the US companies doubly. Caterpillar (CAT) and Boeing (BA) were down 2% and 1.3%, respectively, on June 18. Gold (GLD) was also down on Friday but later recovered somewhat. Its gains were, however, capped by the stronger US dollar. Gold also didn’t attract many bids as probably the markets were expecting this to be one of Trump’s tactics to put pressure on the other side. However, if this really turns into a full-drawn trade war, a lot will be at stake, which could bring gold’s shine back.

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