Escalating trade war
The broader US market fell drastically on May 13 after China said it would raise tariffs on US imports worth $60 billion beginning on June 1. The Chinese government’s latest tariff hike announcement was seen as a retaliatory measure after President Donald Trump raised duties on $200 billion worth of Chinese goods to 25% from 10% on May 10. Geng Shuang, a spokesperson for the Chinese Ministry of Foreign Affairs, said Monday morning that the country would “never yield to external pressure,” CNN Business reported.
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The trade war between the world’s two largest economies has escalated since the beginning of this month. Trump has blamed China for moving too slowly on trade talks to get a lucrative deal. On May 5, Trump on his Twitter (TWTR) account said, “The Trade Deal with China continues, but too slowly, as they attempt to renegotiate. No!” Additionally, Trump has also planned to levy tariffs on another $325 billion worth of untaxed Chinese goods.
Broader market fell
The trade tension between the US and China has now entered a new phase and is now expected to escalate further as neither party is ready to back down. The escalating trade war triggered a massive selloff in the broader market as investors worried this could pose risks to global economic growth.
The Dow Jones Industrial Average logged its worst day since January 3 with a loss of 617 points, or $157 billion, in market capitalization yesterday. The NASDAQ and the S&P 500 plunged 3.4% and 2.4%, respectively.
Except for Procter & Gamble (PG), every Dow Jones 30 stock component fell. Technology and industrials sector stocks were the most battered stocks. The Technology Select Sector SPDR Fund (XLK) and the Industrial Select Sector SPDR Fund (XLI) fell 3.8% and 2.9%, respectively.
Technology stocks Apple (AAPL) and Cisco (CSCO) and industrial stocks Boeing (BA) and Caterpillar (CAT), which have significant exposure to China, are Dow Jones and S&P 500 components. They fell 5.8%, 3.9%, 4.9%, and 4.6%, respectively.